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HomeMy WebLinkAbout1998-12-9DRAFT FILED !N TKF. OFl=ICE OF THE SECRETARY ORANGE COUNTY SAMITATION Dl.:iTAICl • DEC 16 1998 MINUTES OF FINANCE. ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING Orange County Sanitation District Wednesday, December 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 December 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: FAHR COMMITTEE MEMBERS: OTHERS PRESENT: Directors Present: Thomas Saltarelli, Chair John J. Collins, Past Board Chair Jan Debay, Board Chair Mark Leyes Peer Swan, Board Vice Chair William G. Steiner Directors Absent: John M. Gullixson Mark A. Murphy (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS Mike Moreland, Moreland & Associates Chuck Acocello, Moreland & Associates Julie Prichard, Moreland & Associates Toby Weissert, Carollo Engineers Ryal Wheeler, Foreman Mark Mutz, 501 Oper. Engrs. Shop Steward David Hamilton, Rep.-Local 501 Oper. Engrs. STAFF PRESENT: Don McIntyre, General Manager Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Michelle Tuchman, Director of Communications Steve Kozak, Financial Manager Greg Mathews, Assistant to the General Manager Mike White, Controller Lisa Tomko, Human Resources Manager Lenora Crane, Committee Secretary Mark Mutz, employee and Local 501 Operating Engineers Shop Steward, and Dave Hamilton, Local 501 Representative, addressed the Committee expressing their viewpoints against broadbanding and pay-for-performance, as well as the performance review process which is part of these programs. Mr. Hamilton recommended that the Committee read the book entitled "Zapp," which deals with employee performance improvement. 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 December 9, 1998 (4) RECEIVE, FILE AND APPROVE DRAFT MINUTES OF PREVIOUS MEETING The minutes of the October 21, 1998 Finance, Administration and Human Resources Committee were approved as drafted. (5) REPORT OF THE COMMITTEE CHAIR Chair Saltarelli advised that there would be no meeting in January and that the next regularly scheduled meeting will be on February 10, 1999. He also advised that there would be a brief closed session this evening. (6) REPORT OF THE GENERAL MANAGER Don McIntyre reported that he attended a meeting at the City of San Diego Sanitation District a few weeks ago and learned that they have a pay-for-performance program and a gain-sharing program. To say that these programs are not done and do not work isn't entirely accurate, he noted. The program will not work if we do not have the employees' buy-in, and it certainly will not work if our managers are not trained well. Our entire staff must work together in order for the program to be successful. (7) REPORT OF ASSISTANT GENERAL MANAGER Blake Anderson was not present. (8) REPORT OF DIRECTOR OF FINANCE • Mr. Streed introduced Mike Moreland, Chuck Acocello and Julie Prichard of Moreland & Associates, the District's independent auditors, who were present to answer any questions the Directors had regarding the Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 1998. • The Treasurer's Report for November was placed before the Committee prior to the meeting in accordance with the Investment Policy and Government Code requirements. • The October Treasurer's Report was sent directly to the Board in November because there was no FAHR meeting in November. (9) REPORT OF DIRECTOR OF HUMAN RESOURCES The Director of Human Resources Mike Peterman announced that he attended a legislative luncheon today which Director Mark Leyes also attended. The program reviewed new bills which are expected to be passed by the State Legislature this year. Mr. Peterman highlighted those bills for the Committee, since some of them, if passed, will have an impact on the District. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 3 December 9, 1998 (10) REPORT OF DIRECTOR OF COMMUNICATIONS • The Director of Communications briefly updated the Committee on a public hearing held on Tuesday night, December 8, 1998, on the Groundwater Replenishment System. About 50 people were in attendance and 9 people spoke, however, none of those who spoke were adamantly opposed to the system. Articles in the Times and Register were very positive. Radio stations that also carried the story were KFWB, KFI, KOCE and KMEX. Channel 4 has also has expressed an interest in the story. • The third phase of the public outreach campaign for the Groundwater Replenishment System begins following the certification of the EIR which should be within the February-March timeframe. • The District's video, "Forty Years of Caring," has been updated and shortened. It will be used for tours, school presentations and presentations to groups away from the District. Copies are being sent to the cities for the public works departments and city managers to look at. • The second phase of the Speaker's Bureau training has just been completed. Twenty employees have signed up. • Staff is preparing a sheet on earthquake preparedness and what to do if your sewer system becomes damaged or inoperable. Communications is working with GSA and the Orange County health care agency to do a one page sheet which will be distributed to the cities for their citizens. (11) REPORT OF GENERAL COUNSEL General Counsel was not present. (12) CONSENT CALENDAR ITEMS (Items A-E) A. FAHR98-78: Receive and file Treasurer's Report for the month of November 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. B. FAHR98-79: Receive and file Certificates of Participation (COP) Monthly Report. C. FAHR98-80: Receive and file Employment Status Report. D. FAHR98-81: Receive and file Quarterly Investment Management Program Report for the period July 1 through September 30, 1998 E. FAHR98-82: Approve changes and additions to Human Resources Policies and Procedures Manual ENO OF CONSENT CALENDAR Minutes of the Finance, Administration and Human Resources Committee Meeting Page4 December 9, 1998 Consideration of items deleted from Consent Calendar, if any. Motion: Moved, seconded and duly carried to approve the recommended actions for items specified as 12(A) through 12(E) under Consent Calendar. (13) ACTION ITEMS (Items A-D) A. FAHR98-83: Renew the District's Excess General Liability Insurance Program for the three-year period July 1, 1999 to July 1, 2002, in an amount not to exceed $111,492 each fiscal year Motion: Moved, seconded and duly carried to approve staffs recommendation. B. FAHR98-84: Receive and file the 1998-99 Financial and Operational Report for the First Quarter ended September 30, 1998 Motion: Moved, seconded and duly carried to approve staffs recommendation. C. FAHR98-85: Receive, file and approve the Districts' Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 1998, prepared by staff and audited by Moreland and Associates, Certified Public Accountants Motion: Moved, seconded and duly carried to approve staffs recommendation. D. FAHR98-86: Review and approve the request for proposals (RFP) for consulting services to review the District's sewer service fee program for unassessed and under-assessed parcels as identified on the Assessor's database. During discussion, the Committee requested that staff reword the RFP so that it does not exclude any firm that may not have or had a government agency as a client. Also, that a phased approach to government agencies should be used when the program actually takes effect. Motion: Moved, seconded and duly carried to approve staff's recommendation with the modification that the RFP allow the bidders to explain how they propose to be compensated for the project, including any contingencies. (14) INFORMATIONAL PRESENTATION None. ' ' - Minutes of the Finance, Administration and Human Resources Committee Meeting Page 5 December 9, 1998 (15) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There was no other business discussed. (16) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. (17) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING There were none. (18) CONSIDERATION OF UPCOMING MEETINGS The next FAHR Committee meeting is scheduled for February 10, 1999 at 5:30 p.m. (19) 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 19(A)(1) on the published Agenda. The Committee convened in closed session at 6:55 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 reportable action was taken re Agenda Item 19 (A)(1). At 7:09 p.m., the Committee reconvened in regular session. (20) ADJOURNMENT The Chair declared the meeting adjourned at approximately 7:10 p.m. Submitted by: ~~ FAHR Committee Secretary STATE OF CALIFORNIA l ) 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 December 9, 1998, was duly posted for public inspection in the main lobby of the District's offices on December 2, 1998. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of December 1998. Penny Kyle, Secretary of eac f he Board of Directors of Orange Count'{"Sanit ation Di ict Posted: ~ ~ , 1998, ~/P.M. By: ,J: , ~ • , ~~ ~~----...-.""""'--"--='-=----- \lradonldata1\wp.dta\fin\210\crane\FAHRIFAHR08\Dec\CERTPO 12-98.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 Patricia Jonk 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.DTA \FIN\21 0\CRANE\FAHR\DISTRIBUTIONLISTFAHR.DOC phone: (7141 962-2411 mailing address: P.O. Box 8127 Fountain Valley. CA 92728-8127 street address: 10844 Ellis Avenue Fountain Valley. CA 92708-7018 Member Agencies • Cities Anaheim Brea Buena Park Cypress Fountain Valley Fullerton Garden Grove Huntington Beech Irvine La Habra La Palma Los Alamitos Newport Beach Orange Placentia Santa Ana Seal Beach Stanton Tustin Villa Park Yorba Linda County of Orange Sanitary Districts Costa Mesa Midway City Water Districts Irvine Ranch •RANGE COUNTY SANITATION DISTRICT NOTICE OF MEETING FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, DECEMBER 9, 1998 s 5:30 P.M. DISTRICT'S 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, date and time. "To Protect the Public Health and the Environment through Excellence in Wastewater Systems" FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING DATES FAHR Committee Meeting Dates December 9, 1998 None Scheduled February 10, 1999 March 10, 1999 April 14, 1999 May 12, 1999 June 9, 1999 July 14, 1999 None Scheduled September 8, 1999 October 13, 1999 November 10, 1999 December 8, 1999 Board Meeting Dates December 16, 1998 January 27, 1999 February 24, 1999 March 24, 1999 April 28, 1999 May 26, 1999 June 23, 1999 July 28, 1999 August 25, 1999 September 22, 1999 October 27, 1999 November 17, 1999 December 15, 1999 ' f' AGENDA REGULAR MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, DECEMBER 9, 1998, AT 5:30 P.M. ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 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. (1) ROLL CALL (2) APPOINTMENT OF CHAIR PRO TEM, IF NECESSARY (3) 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 December 9, 1998 (4) APPROVE MINUTES OF PREVIOUS MEETING Approve draft minutes of the October 21, 1998, Finance, Administration and Human Resources Committee meeting. (5) REPORT OF COMMITTEE CHAIR (6) REPORT OF GENERAL MANAGER (7) REPORT OF ASSISTANT GENERAL MANAGER (8) REPORT OF DIRECTOR OF FINANCE (9) REPORT OF DIRECTOR OF HUMAN RESOURCES (10) REPORT OF DIRECTOR OF COMMUNICATIONS (11) REPORT OF GENERAL COUNSEL (12) CONSENT CALENDAR ITEMS (A -E) Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: JAIi matters placed on the consent calen,dar are considered as not requiring discussion or further explanation and j unless any particular item is requested to be removed from the consent calendar by a Director, staff member or l member of the public in attendance, there will be no separate discussion of these items. All items on the consent 1calendar 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. FAHR98-78: B. FAHR98-79: Receive and file Treasurer's Report for the month of November 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 3 December 9, 1998 C. FAHR98-80: Receive and file Employment Status Report D. FAHR98-81: Receive and file Quarterly Investment Management Program Report for the period July 1 through September 30, 1998 E. FAHR98-82: Approve changes and additions to Human Resources Policies and Procedures Manual END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. (13) ACTION ITEMS (A -D) A. FAHR98-83: Renew the District's Excess General Liability Insurance Program for the three-year period July 1, 1999 to July 1, 2002, in an amount not to exceed $111,492 each fiscal year (Steve Kozak -2 minutes) 8. FAHR98-84: Receive and file the 1998-99 Financial and Operational Report for the First Quarter ended September 30, 1998 (Mike White\Greg Mathews -10 minutes) C. FAHR98-85: Receive, file and approve the Districts' Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 1998, prepared by staff and audited by Moreland and Associates, Certified Public Accountants (Mike White -10 minutes) D. FAHR98-86: Review and approve the request for proposals (RFP) for consulting services to review the District's sewer service fee program for unassessed and under-assessed parcels as identified on the Assessor's database. (Gary Streed/Mike White -10 minutes) (14) INFORMATIONAL PRESENTATIONS None. (15) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY 4 December 9, 1998 (16) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING (17) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT (18) FUTURE METING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for February 10, 1999, at 5:30 p.m. There is no meeting scheduled for January 1999. (19) CLOSED SESSION 'During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or 54957.6, as noted. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these sub·ects, the minutes will reflect all reguirecj disclosures of information. A. Convene in closed session. 1. Confer with District's Negotiator re pending MOU Labor Negotiations with S&PMT Group, Government Code Section 54957.6. 2. Reconvene in regular session. 3. Consideration of action, if any, on matters considered in closed session. (20) ADJOURNMENT le \lradon\data1\wp.dta\fin\210\crane\FAHR\F AHR98\Dec\12-98Agenda.doc .------------'----'--------"'----""--------------------,.--,,- Notice To Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Secretary ten days in advance of the Committee meeting. Committee Chair: Committee Secretary: Thomas Saltarelli Lenora Crane (714) 833-2213 (714) 593-7551 -·····-··-·---------------'--~--<=7_14 .... )_9_62_-_39_54__,_(F_AX.......,.) _ _,__~• .. ··-----~----1 ROLL CALL FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Meeting Date: December 9. 1998 Time: 5:30 p.m. Adjourn: ____ _ COMMITTEE MEMBERS THOMAS SALT ARELU (Chair) .................................................... .. JOHN J. COLLINS (Past Board Chair) ......................................... . JAN DEBA Y (Board Chair) ........................................................... . JOHN M. GULLIXSON .................................................................. . MARK LEYES ............................................................................... . MARK MURPHY ........................................................................... . WILLIAM STEINER ....................................................................... . PEER SWAN (Board Vice Chair) .................................................. . OTHERS TOM WOODRUFF, General Counsel. ............................................. . TOBY WEISSERT, Carollo Engineers ............................................. __ 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, Assistant to the General Manager ................... . TERRI JOSWAY, Training, Safety & Emergency Response Mgr. LISA TOMKO, Human Resources Manager ................................... . LENORA CRANE, Committee Secretary ....................................... .. c: Debra Lecuna December 9, 1998 None Scheduled General Manager's Quarterly Purchasing Report Information 1998-99 Second Quarter Financial & Operational Report Action Quarterly Investment Management Report Information Consideration of RFP for User Fee Database Action 1999-00 Budget Assumptions & Fiscal Policies Action Consideration of Financial Audit Services Action 1 Consideration of Connection Fee Structure Action :::. ··· :.-; 11 Preliminary Capital Improvement Program Information Maicil '"'}1------------------------+------- Replacement COP Credit Enhancements Action Data Warehousing Demonstration Information CSDOC e P.O.Box8127 e FountainValley,CA 92728-8127 e (714)962-2411 ,, 'I' ·'· Revised DRAFT MINUTES OF FINANCE. ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING Orange County Sanitation District Wednesday, October 21, 1998, 5:30 p.m. A meeting of the Finance, Administration and Human Resources Committee of the Orange County Sanitation District was held on October 21, 1998 at 5:30 p.m., in the District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: OTHERS PRESENT: Directors Present: George Brown, Chair John J. Collins, Past Board Chair Barry Denes Burnie Dunlap, Chair Norman Z. Eckenrode Mark Leyes William G. Steiner Peer Swan, Board Vice Chair Directors Absent: John M. Gullixson Mark A. Murphy Thomas R. Saltarelli (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS Tom Woodruff, General Counsel Toby Weissert, Carollo Engineers Ryal Wheeler, Foreman & Citizen STAFF PRESENT: Don McIntyre, General Manager Blake Anderson, Assistant General Manager Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Robert Ghirelli, Director of Technical Services Patrick Miles, Director of Information Technology Steve Kozak, Financial Manager Mike White, Controller Lisa Tomko, Human Resources Manager Dawn McKinley, Sr. Human Resources Analyst Lenora Crane, Committee Secretary Mark Reid, representing the Supervisory and Professional Management Group, addressed the Committee and stated that the group has been trying to negotiate a new contract since their recent contract expired in June. Since they have been unable to reach a settlement, a meeting has been set up with State mediators tomorrow. Mr. Reid reviewed the group's position on the issues involved. Mr. Reid left at the conclusion of his comments. OCSD • P.O.Box 8127 • FountainValley,CA92728-a127 • (714) 962-2411 Minutes of the Finance, Administration and Human Resources Committee Meeting Page 2 October 21, 1998 (4) RECEIVE, FILE AND APPROVE DRAFT MINUTES OF PREVIOUS MEETING The minutes of the September 9, 1998 Finance, Administration and Human Resources Committee were approved as drafted. (5) REPORT OF THE COMMITTEE CHAIR Chair Brown advised that there would be no meeting in November due to the Veteran's Day and Thanksgiving holidays, and that the next regularly scheduled meeting will be on December 9, 1998. (6) REPORT OF THE GENERAL MANAGER Don McIntyre advised the Committee that there is a report on tonight's agenda regarding government parcels that have not been billed for user fees. He stated that the Grand Jury has contacted him and would like to discuss the issue. He and Gary Streed are scheduled to meet with Mark Greshem and his group from the Grand Jury a week from Thursday. (7) REPORT OF ASSISTANT GENERAL MANAGER Blake Anderson reported that negotiations started yesterday with Kem County's staff regarding the biosolids matter. After only two hours, an effective agreement was reached on what the terms of an MOU could be. This item will be brought to the District's Board next Wednesday, and to Kem County's Board of Supervisors next Tuesday. The deal points are that $2.12 a ton for the first year will be charged with a traffic study to be conducted later to confirm what the impacts are. The prepayment for the District is $750,000, to be credited back over time as part of the ongoing fees. The prepayment will not be made until a long-term ordinance has been adopted by Kem County's Board of Supervisors. The fee may eventually be down to $1 per ton, once solid data is received. Blake stated that the District's Board must determine whether any host fees should be charged by Kern County. There are discernible impacts on the roads and there are costs to administer the program. He advised there is a considerable amount of political heat from both the opponents and proponents of biosolids in Kern County. (8) REPORT OF DIRECTOR OF FINANCE • The Treasurer's Report was placed before the Committee prior to the meeting in accordance with the Investment Policy and Government Code requirements. • Mr. Streed announced that Michelle Tuchman, Director of Communications, is out of town on training and requested that he inform the Committee that she received two phone calls from reporters from the Register and the Times regarding collecting user fees for city-owned buildings. At this point neither of the reporters have indicated any interest in writing a story, and are currently only interested in collecting facts, however, this happened prior to the Grand Jury's request to set up a meeting. (9) REPORT OF DIRECTOR OF HUMAN RESOURCES The Director of Human Resources did not make a report. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 3 October 21, 1998 (10) REPORT OF DIRECTOR OF COMMUNICATIONS The Director of Communications was not in attendance. (11) REPORT OF GENERAL COUNSEL Tom Woodruff reported that the District was served with a Summons and Complaint yesterday afternoon by 13 of our former employees who were either terminated or resigned as a result of the drug investigation. Tom advised he will keep the Committee updated on this issue. (12) CONSENT CALENDAR ITEMS (Items A-C) A. FAHR98-72: Receive and file Treasurer's Report for the month of September 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. B. FAHR98-73: Receive and file Certificates of Participation (COP) Monthly Report. C. FAHR98-74: Receive and file Employment Status Report. END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. Motion: Moved, seconded and duly carried to approve the recommended actions for items specified as 12(A), 12(8), and 12(C) under Consent Calendar. (13) ACTION ITEMS (Items A-C) A. FAHR98-75: Receive and file initial report of General Manager-approved purchases in amounts exceeding $50,000. Motion: Moved, seconded and duly carried to receive and file this report. B. FAHR98-76: Receive and file status report on staffs efforts to review the Assessor's data base for undercharged and uncharged parcels. Committee Discussion: Gary Streed gave a status report on the progress staff has made after receiving direction from the Committee to find a way to either find an alternate staff person, or hire an outside contractor, to review the Assessor's data base for proper classifications of properties, for proper square footage, or any square footage of buildings. He also gave a progress report to date on resolving the government-owned parcels issue. Mr. Streed advised that the Assessor has told his Minutes of the Finance, Administration and Human Resources Committee Meeting Page 4 October 21, 1998 staff that there are only 1,050 governmentally owned parcels with development that may be using the sewer, which is a significantly lower figure than originally thought. We will be evaluating a way to identify and visit those parcels and get their square footage, he advised. Director Leyes reported that he also has spoken to Jason Kendal of the Times, and discussed with him some of his own perspectives on the government-owned parcels issue. Director Leyes has now referred Mr. Kendal back to Gary Streed. After discussion on this item, it was the consensus of the Committee that staff should be given some direction on how to proceed on this item. Motion: Moved, seconded and duly carried to direct staff to proceed to develop a scope of work and a Request for Proposals for the appropriate services. If, necessary, this item can be brought to the Steering Committee next month. C. FAHR98-77: Adjust the pay ranges of the Assistant General Manager, the Director of Communications, and the Director of Information Technology positions After considerable discussion on this item, the Committee agreed that in order for the Board to make informed decisions, establish a position, and give clear direction to Executive Management, a workshop should be held. It was further agreed that the Steering Committee will discuss this issue and decide on a date for the workshop. Director Collins requested that staff provide the Board with the number of employees each Manager supervises during the workshop. Motion: Moved, seconded and duly carried to approve the current pay levels, including the unpaid July 1998 adjustments, out of range for the Assistant General Manager, Director of Communications, Director of Information Technology, and Controller positions, and adjust the pay ranges at a later date. (14) INFORMATIONAL PRESENTATION A. OMTS-030: Year 2000 (Y2K) Date Change Compliance Project Patrick Miles, Director of Information Technology, gave a slide presentation regarding the Year 2000 (Y2K) Date Change Project for the Committee's information. The OMTS Committee reviewed the Y2K report at their meeting of October 14, 1998, and will be making a recommendation to the Board of Directors on October 28th. (15) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There was no other business discussed. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 5 October 21, 1998 (16) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. (17) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING There were none. (18) CONSIDERATION OF UPCOMING MEETINGS The next FAHR Committee meeting is scheduled for December 9, 1998 at 5:30 p.m. (19) 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 19(A)(1) on the published Agenda. The Committee convened in closed session at 6:43 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 reportable action was taken re Agenda Item 19 (A)(1). At 7:10 p.m., the Committee reconvened in regular session. (20) ADJOURNMENT The Chair declared the meeting adjourned at approximately 7:12 p.m. Submitted by: .~~ FAHR Committee Secretary H:\wp.dlaVin\210'aane\FAHR\FAHR98\0cnM/N1021.doc ' ., . FAHR COMMITTEE Meeting Date To Bd. 12/9/98 AGENDA REPORT Item Number Item Number 12 (b) Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Steve Kozak, Financial Manager SUBJECT: CERTIFICATES OF PARTICIPATION (COP) MONTHLY REPORT - OCTOBER AND NOVEMBER 1998 (FAHR98-79) GENERAL MANAGER'S RECOMMENDATION Receive and file Certificates of Participation (COP) Monthly Report for the months of October and November 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 For the months of October and November, graphical and tabular reports are attached. The first graph entitled, "OCSD 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." llradonldata1\wp.dtalfinl210\crane\FAHRIFAHR981Dee\FAHR98-79.doc Revised: 1/5/98 Page 1 The second bar chart entitled, "Comparative Daily COP Rate History Report," shows the performance of the District's Daily Rate COPs as compared to a composite index rate, which represents the average rate of six similar variable rate daily reset borrowings. The third bar chart entitled, "COP Rate History, Comparison of Highest & Lowest Rates," compares the performance (monthly average interest rate) of the District's Daily Rate COPs with the highest and lowest monthly average rates from among six similar variable rate daily reset COPs. The table entitled, "Daily COP Rate Comparisons," shows the monthly variable interest rate performance of the District's 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 ri~e at the end of each calendar quarter, and especially at year-end, because of business taxes and statements. The rates decline to prior levels immediately in the following month. Staff maintains continuous rate monitoring and ongoing dialog with the remarketing agents 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 -October and November 1998 2. Graph -OCSD COP Daily Rate History Report -October and November 1998 3. Graph -COP Rate History, Comparison of Highest & Lowest Rates -January through October 1998 4. Tabular-Daily COP Rate Comparison -October and November 1998 GGS:SK:lc llradonldata1\wp.dtalfinl210'<:rane\FAHR\FAHR98\Dec\FAHR9S-79.doc Revised: 115198 Page2 Prepared by Finance, 11/10/98, 8 :38 AM icoMPARAT1vE DAILY cOP RATE HISTORY REPORT j OCTOBER, 1998 6.00 -r----------------------------------------------.. 5.00 4.00 -~ ~ ~ 3.00 <C a:: 2.00 1.00 0.00 DATE t--t--CXl CXl CXl CXl CXl CXl CXl CXl CXl CXl a, a, a, a, a, a, a, a, a, a, a, a, > r.5 i= ..c ..: ..: >, c-:5 c'i ci ..:-0 Q) re Q) re a. re ::, ::, Q) (.J z 0 , u.. ~ <C ~ , , <C (I) 0 mocso D COMPOSITE INDEX I G :\excel .dta\fin\2 2 20\geggi\Fi nance\dailycopi ntrate .xis G) cf ~ ~ i::i.. iii ~ s· tG N N 0 c6 Cb (Cl (Cl ~ s· II) :::, 0 Cb ;u )> -I m I en -I co ---.I C )> ~ m 0 0 0 ..a. 0 0 I\) 0 0 RATE(%) c.., 0 0 ~ 0 0 en 0 0 a, 0 0 29-Oct-97 +-----+----i------r--; I ~ 1 12-Nov-97 26-Nov-97 10-Dec-97 - 24-Dec-97 07-Jan-98 21-Jan-98 04-Feb-98 18-Feb-98 04-Mar-98 Tf ; 18-Mar-98 )>--U -w G)3·j 01-Apr-98 cnCD ~~ .§ ~ I 15-Apr-98 O" CD -, I 29-Apr-98 13-May-98 i ff 1 27-May-98 1 10-Jun-98 en~ o--u ('). G)s: CD 0 =i-, <Jig ~ =i ti) ,:, 24-Jun-98 08-Jul-98 22-Jul-98 05-Aug-98 19-Aug-98 02-Sep-98 16-Sep-98 30-Sep-98 14-Oct-98 28-Oct-98 ----__ __i__ I I 0 0 en C 0 Q 1 ""C I C 0 ~ 0' --f -< 0 ::0 CJ )> m --f ::a m ....1. :::c CD -CD en 00 -I 0 ::0 -< ::0 m ""C 0 ::c I -I - ----_J -0 iil "O II) iil c.. er '< ..,, s· II) :::, 0 _(1) ~ ~ ~ ~ _OJ ~ 0 ui <O )> ~ -~ C -w I-c{ a:::: 3.70 3.60 3.50 3.40 3.30 - 3.20 3.10 -.. 3.00 2.90 - 2.80 - 2.70 2.60 2.50 2.40 2.20 - HIGH LOW ----------r-----------------------,c:---------------~ COP RATE HISTORY COMPARISON OF HIGHEST & LOWEST RATES ----------- l!I Highest rate • OCSD/J.P. Morgan • OCSD/PaineWebber CJ Lowest rate _J I :::::,___: I ;:: :=:::1 i, .·.·.II j I I I ---·--------___:•~==================~------ G:\excel.dtalfin\2220\geggi\Finance\RA TE H 1ST _HI LO_ bargraph B Prepared by Finance, 11/23/98, 2:29 PM Prepared by Finance, 11/10/98, 8:51 AM Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 AVERAGE DAILY COP RATE COMPARISONS(%) NOVEMBER, 1997 -OCTOBER, 1998 OCSD $100M $98.SM $46M Series"A" Series"C" Series 93 Ref PaineWebber J.P. Morgan PaineWebber 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 3.27 3.33 3.27 3.06 3.00 3.06 2.85% 2.89% 2.85% ESTIMATED ANNUAL INTEREST PAYMENTS PER $100M PAR AMOUNT $ 2,849,167 $ 2,887,500 $ 2,849,167 *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* 3.68 3.33 3.10 2.53 2.80 3.55 3.57 3.27 2.79 2.40 3.24 3.02 2.86% $ 2,855,000 . Western Riverside Co. Reg. Wastewater Auth., Series 96, $25.4M, PaineWebber . Orange Co., Irvine Coast Asst. Dist. 88-1, $94.SM, J.P. Morgan G:\excel.dta\fin\2220\geggi\Finance\COPdaily$rate comparison .r .. FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Mike Peterman, Director of Human Resources Originator: Patty Steeves, Human Resources Analyst Meeting Bate 12/9/98 Item Number 12 (c) SUBJECT: EMPLOYMENT STATUS REPORT AS OF NOVEMBER 12, 1998 (FAHR98-80) GENERAL MANAGER'S RECOMMENDATION Receive and file the Employment Status Report. SUMMARY Total FTE headcount at the District as of November 12, 1998 was 513.50. 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 Bd .. of Dir. Item Number The District had a full-time equivalent (FTE) headcount of 513.50 as of November 12, 1998. The actual number of employees was 522. The annual turnover rate is 5.9%. There was one new employee hired during the month of October: • Collection Facilities Worker I (Collection Facilities Maintenance) There were promotions for the following positions: • From: To: Senior Mechanic (Mechanical Maintenance) Lead Mechanic (Mechanical Maintenance) • From: To: • From: To: Instrumentation Technician II (Electrical & Instrumentation Maintenance) Information Services Technician Ill (Programming & Database Systems) Office Specialist (Design & Planning Engine·ering) Secretary (Design & Planning Engineering) There were reassignments for the following positions: • From: To: • From: To: Senior Maintenance Worker (Mechanical Maintenance) Operator in Training (Operations) Senior Mechanic· (Mechanical Maintenance) Operator in Training (Operations) ALTERNATIVES None. CEQA FINDINGS None. ATTACHMENTS 1. November 12, 1998 Employment Status Report. 2. Performance compared to 5-Year Staffing Plan. Employment Status Report Run Date· 12-Nov,9B •. Regular Regular Total Vacant Positions Regular Part-time Part-time FTE Positions FTE FTE FTE FTE wnnsyrplan t.: ~ Full-time 20hours 3Dhours C4irlnc:t Intern LOA C4unt FYBB-99 98-99 99-00 00--01 01--02 (FY99-00) 11 O -General Management Admin 4.00 0.00 0.00 0.00 0.00 0.00 4.00 0.50 4.50 4.50 4.50 4.50 0.50 Total General Management 4.00 0.00 0.00 0.00 0.00 0.00 4.00 0.50 4.50 4.50 4.50 4.50 0.50 210 -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 3B.00 36.50 35.00 33.50 2.00 310 -Communications 10.00 0.50 0.00 0.00 o.oo 0,00 10.50 0.25 10.75 10.75 10.75 10.75 0.25 Total Communications 10.00 0.50 0.00 0.00 0.00 0.00 10.5 0.25 10.75 10.75 10.75 10.75 0.25 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 18.50 0.00 0,00 0.00 0.00 0.00 18.50 0.00 18.50 18.50 18.50 18.50 0.00 430 -Plant Maintenance 32.50 0.00 0.00 0.00 0.00 0.00 32.50 6.00 38.50 28.50 28.50 27.50 -4.00 Total General Services 56.00 0.00 0.00 0.00 0.00 1.00 57.00 6.00 63.00 53.00 53.00 52.00 -4.00 510 -Human Resources Admin 5.00 0.50 0.75 0.00 o.oo 0.00 6.25 0.50 6.75 6.75 6.75 6.50 0.50 520 -Education & Training 4.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 4.00 4.00 4.00 3.00 0.00 530 -Safely & 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 13.00 0.50 0.75 0.00 0.50 1.00 15.75 0.50 16.25 16.25 15.75 14.5 0.50 610 -Technical Services Admin 2.00 0.00 0.00 0.00 0.00 0.00 2.00 4.00 6.00 5.00 5.00 5.00 3.00 620 -Environmental Compliance & Mon 17.00 0.00 0.00 o.oo 0.00 1.00 18.00 3.50 21.50 18.50 18.50 18.50 0.50 630 -Environmental Laboratory 28.00 2 50 0.00 0.00 0.00 0.00 30.50 -0.50 30.00 29.00 29.00 28.00 -1.50 640 -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 81.00 2.50 0.75 0.00 0.00 1.00 85.25 9.00 94.25 88.25 87.25 85.25 3.00 71 O -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 0.75 0.00 0.00 0.00 35.75 1.75 37.50 36.50 36.50 36.50 0.75 Total Engineering 66.00 0.00 1.50 0.00 0.50 0.00 68 4 72.00 71.00 71.00 71.00 3.00 810 -0 & M Administration 2.00 0.00 0,00 0.00 0.00 0.00 2.00 0.00 2.00 2.00 2.00 2.00 0.00 820 -0 & M Process Support 7.00 0.00 0.00 0.50 0,00 0.00 7.50 2.75 10.25 9.25 8.25 8.25 1.75 830 -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 40.00 0.00 0.00 0.00 0.00 0.00 40.00 1.00 41.00 37.00 37.00 37.00 -3,00 850 -Mechanical Mice 46.50 0.00 0.00 0,00 0.00 1.00 47.50 3.00 50.50 47,50 46.50 44.50 0.00 B60 -Electrical & Instrumentation Mice 5B.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 B70 -Cogeneration 10.00 0,00 0.00 0.00 o.oo 0.00 10.00 3.00 13.00 13.00 13.00 13.00 3.00 880 -Air Quality & Special Projects B.00 0,00 0.00 0.00 1.00 0.00 9.00 -1.0d 8.00 7.00 7.00 7.00 -2.00 Total Operations & Maintenance 209.00 0.00 0.00 0.50 1.00 1.00 211.50 8.75 220.25 208.25 205.25 203.25 -3.25 910 -IT Admin 2.00 0.00 0.00 0.00 o.oo 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 Information 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 -499.00I 4.001 3.001 0.501 2.001 5.00 513.5 35.5 549.00 521.50 515.50 507.75 8.00 g:\excel.dtalhr\51 O\steeves\EMPOIV98-99 Performance to 5-Year Staffing Plan 570 -.--------------------------- 560 ·---. ..._. ___ _ 550 ----------------------------_ 540 I »/ ~ ----.__, ' , .... < ,, ' .... -' 530 -... , ' .... ... 520 ...... 510 -+-------------------------- 500 -+-----I +--FTE Headcount -•• --5 Year Staffing Plan 490 L-.----.----.----.---,----,-----.----.~-.-----.-----.-l----r----.----.-~~~--r:-~~--:-:-~ JASON DJ F MAM J JASON DJ F MAM J I FY 97-98 I I FY 98-99 I r • FAHR COMMITTEE Meeting Date 12/09/98 AGENDA REPORT Item Number Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Steve Kozak, Financial Manager SUBJECT: QUARTERLY INVESTMENT MANAGEMENT PROGRAM REPORT FOR THE PERIOD JULY 1 THROUGH SEPTEMBER 30, 1998 (FAHR98-81) GENERAL MANAGER'S RECOMMENDATION 12 (d) Receive and file the Quarterly Investment Management Program Report for the period July 1 through September 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 N/A BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. •-This item has not been budgeted. 12?J Not applicable (information item) \\radon\data11wp.dtalfin\210\crane\FAHRIFAHR98\Dec\FAHR98-81.doc Revised: 1/5/98 Page 1 ToBd. 12/16/98 Item Number ADDITIONAL INFORMATION Performance Reports The Quarterly Strategy Review, prepared by PIMCO, and the Investment Measurement Review, prepared by Callan Associates, are attached for your reference. Also attached are two comparative bar charts which depict the sector diversification of the District's portfolios, as of June 30, 1998, and September 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 July 1 through September 30, 1998. Portfolio Performance Summary Quarter Ended September 30, 1998 Liquid Operating Monies(%) Long-T'erm Operating Monies(%) !if.Lvt~abRate-;-~R~l!.Jm ',lu .~ ·-,JI\ Ii, .•. 1£tL :m. __ -· ' -~1 "" 3 Months 1.5 3,9 ,5 Months 2.9 5.7 9 Months 4.3 7.4 12 Months 5.7 9.5 Since Inception 30 Sept ~ 5.1 7.7, .;;~~nchllJ_a~f:· ~~i \~011 ;ffi!]!?,]li!"9li ;!Lit ;;~ Bji~ .!~ 'qi ... W1¥ITTfilli. ·~ =""' ' ....•. u; ·r-: 3 Months 1.3 3.7: 6 Months 2.6 5.5 9 Months 3,9 7.1 12 Months 52 9.1 Since-inception 30 Sept. 95 5.3 7.3 Market Value per PIMCO 30 Sept. 98 $HMM $282.BM Average Quality "AAP.," "AAA" Current Yield 5.5% 6.1% Estimated Yield to Maturity 4.9% 4,1!% Quarterly Deposits (Withdrawals) ($40M) Estimated Annual'lncome $1 .0M $17.3M Market Recap The third quarter of 1998 saw investors rush to the relative safety and quality of U.S. government bonds. This pushed interest rates to 30-year lows as economic and political turmoil, which began more than a year ago in Asia, permeated international capital markets, including the U.S. This prompted the Federal Reserve to cut short-term interest rates by 25 basis points, amid concerns of slower growth in the U.S. economy. \lradonldata1\wp.dtalfin\210'<:rane\FAHR\FAHR981Dec\FAHR98-81.doc Revised: 1/5/98 Page2 j ,. As depicted in the attached comparative graph of the "Historical Yield Curve," the Treasury yield curve flattened significantly during the third quarter, with rates dropping sharply. The benchmark 30-year Treasury rate declined approximately 65 basis points when compared to the end of the second quarter 1998 (4.97% vs. 5.62%). Shorter rates (3-month to 1-year) declined an average of 80 basis points. However, intermediate rates (from 2 to 1 O years) declined more significantly; 119 basis points on average. 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 lower coupon mortgage backed securities, and higher- quality corporates. These investments contributed incremental yield to the portfolio when compared to the all-Treasury benchmark yields, despite market volatility. The portfolio outperformed its benchmark (3.9% vs. 3.7%) for the third 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 (1.5% vs.1.3%) for the third quarter. Portfolio Market Values Two withdrawals were made from the Long-Term Operating Monies portfolio during the quarter. On July 29, 1998, $20 million was withdrawn to fund the semi-annual debt service payments for the District's COP issues. On September 22, 1998, another $20 million was withdrawn to meet current and projected cash flow requirements. These funds are invested in LAIF until they are needed. Comparative marked-to-market quarter-end portfolio values are shown in the table below, and in the attached bar chart. Quarter Ending 30 Sept. 97 31 Dec. 97 31 March 98 30 June 98 30 Sept. 98 \lradonldata1 lwp.dtalfin\21 O\crane\FAHRIFAHR98\0ee\FAHR98-81.doc Revised: 1/5/98 Long-Tenn Liquid Operating Operating Monies Monies ($M) ($M) 17.4 298.5 17.6 301.1 17.8 306.0 18.1 311.5 18.4 282.8 Page3 ALTERNATIVES N/A CEQA FINDINGS NIA ATTACHMENTS 1. PIMCO Report 2. Callan Report 3. Three Comparative Bar Charts 4. Historical Yield Curve Graph SK:lc \lradon\data1 \wp.dta\fin\21 0\crane\FAHRIFAHR98\Dec\F AHR98-81.doc Revised: 1/5198 Page4 Prepared by Finance, 11/18/98, 10:54 AM ------------------ $350,000,000 $300,000,000 $250,000,000 f OCSD Investment Management Program Quarter End Portfolio Values (Marked-to-Market) $200,Q0Q,00Q -I 1• $150,000,000 -1 I"' $100,000,000 $50 000 000 I :'." i. ' ' $0 ! 1·:·:-:·i.•••1 J'.:·:·.·tt•••1 ;,; , 1·-·.·.·1;.,;.,,.;.,r~, 1·-·.·.·,.--..•1 -,,, 1···-·.·,..•••1 "' 1 30 Sep 97 31 Dec 97 31 Mar 98 30 Jun 98 30 Sep 98 • Liquid Operating Monies l!J Long-Term Operating Monies I G: \excel .dta\fin\2220\geggi\Finance\investmgmtprogram .__ Prepared by Finance, 11 /18/98, 10:59 AM -?ft. -...... C Q) u !,.... Q) a.. r-- ! OCSD Liquid I '.Operating Monies Portfolio Investment Diversificatio•n 100 90 · ----- 80 70 60 50 ------.. -·- 40 --------- 30 2 0 ----+-----·-·--- 10 ~·-· 0 0 0 ' Govt Mtg 0 0 Corp .. ---~ 0 0 0 0 Non US$ Other G:\excel.dta\fin\2220\geggi\Finance\Portfolio short term 100100 Net Cash Equivalent _I I t • 6/30/98 ~ 9/30/98 Prepared by Finance, 11/18/98, 11:01 AM 100 90 -- 80 72 70 ---~ 60 --I 0 1-s-zt ....__. ....... C 50 -+-Q) u I.... 40 -t-· Q) a.. 30 20 -+- 10 ! 0 L_ Govt -----------------·-•-----------------. . --------------- OCSD Long-Term Operating Monies Portfolio ! Investment Diversification ------< --------5 Mtg --14 --tG-------------<• 0 0 0 0 Corp Non US$ Other Net Cash Equivalent 1•6/30/98 ' I ~ 9/30/98 G:\excel.dta\fin\2220\geggi\Finance\Portfolio long term graph Prepared by Finance, 11/12/98, 9:13 AM ~ ~ Cl 6.00 ·r---- ' I 5.75 -+-' - 5.50 -"-----· ---- 5.25 ----- ~ 5.00 -----·--· - s: . ---------- I HISTORICAL YIELD CURVE I 7 -----r-----71 1 1 7 ' _ ____j ! 4.75 ---r------------------------------1--------------1 4.50 ·-r-----;;;;------------- 4.25 +--- 4.00 ~--------,-----t-- 0 E 0 E M C.O ... >, .... -+--·r -... ... >, >, N M -,--·----+ ... ... ... >, >, >, ~ II) r,.. -+-31-Mar-98 -o-30-Jun-98 ---30-Sep-98 G:\excel.dta\fin\2220\geggi\Finance\HistoricalTREASURYyieldcurve --, ... ... ... >, >, >, 0 0 0 .... N M ... t FAHR COMMITTEE Meeting Date -12/9/98 AGENDA REPORT Item Number Orange County Sanitation District FROM: Mike Peterman, Director of Human Resources Originator: Lisa Tomko, Manager, Human Resources SUBJECT: CHANGES AND ADDITIONS TO HUMAN RESOURCES POLICIES AND PROCEDURES AS AUTHORIZED BY RESOLUTION 97-36 (FAHR98-82) GENERAL MANAGER'S RECOMMENDATION 12 {e) Approve the attached changes and additions to the existing Human Resources policies and procedures manual. SUMMARY Human Resources policies and procedures are amended two times each calendar year. The attached policies are routine updates to maintain consistent language with the Memorandums of Understanding (MOU) or to explain procedures more clearly. Copies of all policies affected are attached. Additional language is highlighted in gray; deleted language is lined through. In addition to four policy modifications, two new policies, Employee Participation in Athletic and Recreational Activities and Workplace Violence are being recommended for implementation. 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) \lradon\data1wp.dtalfin\210~rane\FAHRIFAHR98\0ec\FAHR98-82.doc Revised: 1/5/98 Page 1 ToJt Bds. 12/16/98 Item Number ADDITIONAL INFORMATION Policy Number From To Reason And Subject For Change F20.00 -Hours of Work -Presently there is one Divide into two policies; one Timekeeping procedures Non Exempt Employees policy for Hours of Work. for non-exempt and one for are different for exempt and Section 5.8 exempt. nonexempt employees. A * See Note Below separate policy addressing each simplifies the policy Interpretation. F20.10 -Hours of Work -No separate policy in This separate policy Same as above. Exempt Employees existence. Exempt addresses exempt employee section was timekeeping. under Policy F20.00. C10.00 Classifications, Old salary ranges for OCEA Revised salary ranges for Updated ranges consistent Positions and Salary and 501 nonexempt jobs. OCEA and 501 nonexempt with MOU increases. Ranaes. Section 8.1 iobs. A10.00 -Definition of The definition of "Contract Change the words "contract This gives management Tenns. Section 3.0 employees" limits these employees" to "limited term flexibility in designing contracts to 1 year. contract employees" and limited term contracts. allow contracts to be longer than 1 year. 8140.00 • Employee No policy in existence. Add new policy. To establish guidelines and Participation in Athletic rules pertaining to and Recreational Activity employee participation in New Policv recreational activities. FB0.00 -Workplace No policy in existence. Add new policy. To establish and maintain a Violence workplace that is free from New Policv violence. * We are breaking the timekeeping policy into two policies (F20.00 non-exempt and F20.10 exempt) to standardize each procedure and to bring consistency to time reporting between departments. The policies refer to sample timesheets which, at this point, are being finalized and should be complete within the next two months. ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. Policy F20.00 2. Policy F20.10 3. Policy C10.00 4. Policy A10.00 5. Policy B140.00 6. Policy FS0.00 Hours of Work -Non-Exempt Employees Hours of Work -Exempt Employees Classifications, Positions and Salary Ranges Definition of Terms Employee Athletic and Recreational Policy Workplace Violence Policy H:lwp.dta\fin\210'<:rane\FAHRIFAHR98\0ec\FAHR98-82,doc Revised: 1/5198 Page2 i) Orange County Policy Number: F20.00 Sanitation District Effective Date: December 16, 1998 c&" Subject: HOURS OF WORK -Supersedes: October 22, 1997 NON-EXEMPT EMPLOYEES Approved by: 1.0 PURPOSE 1.1 The purpose of this policy is to establish uniform guidelines and procedures for use in the administration of the District's work hours. 2.0 ORGANIZATIONAL UNITS AFFECTED 2.1 This policy applies to all District non-exempt employees in all organizational units and departments unless otherwise specified. 3.0 DEFINITIONS The Day Shift is an assigned work shift of at least seven consecutive hours between the hours of 6:00 a.m . and 6:00 p.m. The Night Shift is an assigned work shift of at least seven consecutive hours between the hours of 6:00 p.m. and 6:00 a.m. Flextime is the option of employees to choose the starting and finishing times of their shift, with supervisory preapproval. Overtime is the number of hours in paid status in excess of 40 during a workweek unless assigned to an alternative work schedule. Nonexempt Employees are employees who are covered by the minimum wage and overtime provisions of the Fair Labor Standards Act, as amended. Such employees, because of the type of work that they perform and their earnings level, are subject to receiving overtime pay in addition to any entitlement otherwise provided for in applicable Memoranda of Understanding or other policies. Exempt Employees are employees who are not oo,.,ered by the minimum wage and overtime provisions of the f:air Labor Standards Aot, as amended. Suoh employees are considered mmmpt by virtue of their duties in conformance with the Act's definition of Exeoutii.•c, Management, Supcri.•isory, Administrative and Professional responsibilities. Core Hours are the hours between 8:00 a.m. and 4:00 p.m. on any given day. Payday is the Wednesday before the end of the subsequent pay period. Pay Periods arc bi-weekly beginning at 12:01 a.m. on the Friday following payday and continuing for a 14- day period ending at midnight on the Thursday following the next payday. WorkWeek means a seven-day period starting at 12:01 a.m. Friday and ending at midnight on the following Thursday. 4.0 POLICY 4.1 It is the policy of the District to establish the time and duration of working hours as required by work load, operations flow, customer service needs, the efficient management of human resources, and any applicable law. Page 1 5.0 PROCEDURE 5.1 Normal Business Hours. Administrative and business functions are normally performed between the hours of 7:30 a.m. and 5:30 p.m., Monday through Thursday, and between the hours of 7:30 a.m. and 4:30 p.m. on Friday. However, the District allows flextime for employees to choose their starting and finishing times as long as employees whose jobs involve contact with the public or outside organizations are present between the core hours of 8:00 a.m. and 4:00 p.m. In addition, department heads may deny flextime to certain employees for reasons of business necessity, work flow, or customer service needs. 5.2 Core Hours. Individual divisions may schedule work beyond the core hours of 8:00 a.m. and 4:00 p.m., subject to approval by the department head, to meet specific operating or service requirements in the most cost-effective and efficient manner. Actual starting and ending times of an employee's shift may vary depending on the operational requirements of each department. 5.3 Shift Schedules. For time record keeping and accounting purposes, the work schedule for full-time employees is 40 hours per week based on a biweekly payroll period of 80 hours. The actual work periods may be scheduled in shifts of four 9-hour days each week and one additional 8-hour shift on alternate weeks (9/80 schedule), five 8-hour days each week (10/80 schedule), or four 10-hour days each week (8/80 schedule). Operations employees may work three 12-hour shifts each week and one additional 8-hour shift on alternate weeks (7/80 schedule). Day shifts typically begin between 5:00 a.m. and 8:00 a.m. 5.4 Overtime. Supervisors may schedule overtime or extra shifts as necessary. Supervisors will assign overtime to nonexempt employees in the particular job for which overtime is required. Non-exempt employees are not permitted to work overtime without the prior written or verbal approval of their supervisor, division manager, or department head. 5.5 Meeting Attendance. Employee attendance at lectures, meetings, and training programs will be considered as part of an employee's work hours if attendance is requested by management. Overtime or compensatory time may be allowed for such attendance only in unusual circumstances and must be approved by the department head in advance of the meeting. 5.6 Make-up Time. At their discretion, supervisors may allow nonexempt employees to make-up lost time during a given workweek. However, make-up time may not be allowed if the lost time results from conditions the employee could control, if there is no work the employee is qualified to do, or if adequate supervision is not available. 5.7 Time Sheets -Nonexempt Employees. All employees are required to complete an individual time record, hereinafter referred to as a "time sheet" showing the daily hours worked. The following points should be considered by employees in filling out time sheets: 5.7.1 Employees should record their total hours worked for each workday on their time sheets and sign their own time sheets at the end of the pay period. 5.7.2 Employees are not permitted to begin work before their normal starting time or work after their normal quitting time without the prior approval of their supervisor. 5.7.3 Employees are required to take scheduled lunch breaks and are required to take scheduled morning and afternoon breaks. 5.7.4 Employee time sheets should be checked and signed by the supervisor involved. 5.7.5 Unapproved absences are not considered as hours worked for pay purposes. Supervisors should inform employees if they will not be paid for certain hours in which they are or were absent from work. 5.7.6 Filling out another employee's time sheet or falsifying any time sheet is prohibited and may be grounds for disciplinary action, up to and including termination. Page2 " 5.7.7 Time sheets must be completed in ink and show the beginning and ending time of oaoh shift worked. Time worked should be charged to the appropriate work order category, and time sheets must be signed by both the employee and supervisor. If an employee is unable to complete their time sheet due to absence, the timesheet must be completed by the supervisor or designee and submitted to timekeeping. When the employee returns to work, another copy of the timesheet should be signed by both the employee and the supervisor and sent to timekeeping. 5.7.8 An employee must record all time taken as paid or unpaid leave. Any day with less than the typical amount of time for that shift recorded, usually 8, 9, 10 or 12 hours, must be supported by an explanation of the missing hours in an appropriate space on the sheet. Total hours recorded for each day or shift must agree with the total time for the pay period. 5.7.9 Time sheets will be distributed and collected by supervisors or other designated individuals and submitted to Timekeeping in the Accounting Office no later than Friday noon each week. Time sheets may vary depending upon the operational needs of each department, but will conform to the above requirements. Supervisors are responsible for ensuring that time sheets are submitted in a timely manner. Corrections_ to a time sheet entry may only be made by supervisors drawing a single line through the incorrect entry, writing the correct entry in the margin, and initialing the change. 5.8 Time Sheets E~mmpt Employees. Personnel employed in exeoutiYe, administrative, professional, or oertain oomputer related job olassifioations generally are exempt from the provisions of the i-:=:air Labor Standards Ast. Exempt employees are not required to fill out hourly time sheets but must aooount for daily attendanoe. Time sheets for mmmpt employees should indioate the days worked during the pay period and inolude all time taken as paid or unpaid leave. The Daily Time Log should indlaate the aotual hours worlrnd eaoh day, inoluding those in exoess of the regular shift, with the Total Regular and 0/T oolumns filled in, as appropriate; the Summary of Bi Weekly hours should indioate only the hours in the pay period, e.g., 80, and not any exoess hours worlmd. The appropriate '."lark Order should be entered, and the time sheet signed by the appropriate management le·.,el. Exempt personnel time sheets should also be submitted to Timel(eeping in the /\eoounting offioe no later than i-:=:riday noon following the olose of the pay period. In addition, exempt employees will not reoeive overtime compensation (exoept as speoifioally agreed to in an applicable bargaining unit MOU) but oooasionally may be eligible for time off after working abnormally long hours. 5.9 Payday. Paychecks are distributed on the Wednesday immediately preceding the close of a pay period. Checks received on Wednesday cover the period worked during the previous pay period. If a payday falls on a holiday, checks will normally be distributed on the last working day preceding the holiday. Employees who will not be at work on payday may request that their checks be held, forwarded to their supervisor, or mailed directly to them. Unclaimed checks will be held in the Payroll Office. Checks of individuals who terminate their employment with the District, or are separated, will be mailed directly to them on the next regular payday subsequent to the separation date unless other arrangements are made to hold the check. 6.0 EXCEPTIONS 6.1 Flextime does not apply to the Operations and Maintenance Department and General Services Administration Department. 7.0 PROVISIONS AND CONDITIONS 8.0 RELATED DOCUMENTS 8.1 Fair Labor Standards Act, as amended. Page 3 @ Orange County Policy Number: F20.10 Sanitation District Effective Date: December 16, 1998 Subject: HOURS OF WORK -EXEMPT Supersedes: EMPLOYEES Approved by: 1.0 PURPOSE 1.1 The purpose of this policy is to establish uniform guidelines and procedures for use in the administration of the District's working hours. 2.0 ORGANIZATIONAL UNITS AFFECTED 2.1 This policy applies to all District exempt employees in all organizational units and departments unless otherwise specified. 3.0 DEFINITIONS Exempt Employees are employees who are not covered by the minimum wage and overtime provisions of the Fair Labor Standards Act. Such employees are considered exempt by virtue of their duties in conformance with the Act's definition of Executive, Administrative and Professional employees. Flextime is the option of employees to choose the starting and finishing times of their shift. Overtime is the number of hours in paid status in excess of 40 during a workweek. Memo time is the number of hours in excess or short of the normal working hours for an employee in a single work day. The normal working hours could be 8, 9, 10 or 12 depending on the employee's assigned schedule. Make-up time is time worked in the second week of the pay period to make-up for a shortage of time in the first week of the pay period. Core Hours are the hours between 8:00 a.m. and 4:00 p.m. on any given day. Payday is the Wednesday before the end of the subsequent pay period. Pay Periods are bi-weekly beginning at 12:01 a.m. on the Friday following payday and continuing for a 14- day period ending at midnight on the Thursday following the next payday. Workweek means a seven-day period starting at 12:01 a.m. Friday and ending at midnight on the following Thursday. 4.0 POLICY 4.1 It is the policy of the District to require exempt employees to complete weekly timesheets. Exempt employees must use sick time, vacation time or compensatory time for any partial-day absences. 4.2 In certain situations employees may not be required to use leave time for partial-day absences and may be eligible to use "make up time" or "memo time" if they will be working more than eighty (80) hours in the same pay period. (Please refer to the sample timesheet.) Page 1 5.0 PROCEDURE 5.1 Normal Business Hours. Administrative and business functions are normally performed between the hours of 7:30 a.m. and 5:30 p.m., Monday through Thursday, and between the hours of 7:30 a.m. and 4:30 p.m. on Friday. However, the District allows flextime for employees to choose their starting and finishing times as long as employees whose jobs involve contact with the public or outside organizations are present between the core hours of 8:00 a.m. and 4:00 p.m. In addition, department hea,ds may deny flextime to certain employees tor reasons of business necessity, workflow, or customer service needs. 5.2 Core Hours. Individual divisions may schedule work beyond the core hours of 8:00 a.m. and 4:00 p.m., subject to approval by the department head, to meet specific operating or service requirements in the most cost-effective and efficient manner. Actual starting and ending times of an employee's shift may vary depending on the operational requirements of each department. 5.3 Shift Schedules. For time record keeping and accounting purposes, the work schedule tor full-time employees is 40 hours per week based on a biweekly payroll period of 80 hours. The actual work periods may be scheduled in shifts of four 9-hour days each week and one additional 8-hour shift on alternate weeks (9/80 schedule}, five 8-hour days each week (10/80 schedule}, or tour 10-hour days each week (8/80 schedule) at the discretion of the supervisor. 5.4 Meeting Attendance. Employee attendance at lectures, meetings, and training programs will be considered as part of an employee's work hours if attendance is requested by management. Overtime or compensatory time may be allowed for such attendance only in unusual circumstances and must be approved by the department head in advance of the meeting. 5.5 Time Sheets -Exempt Emptoyees. Personnel, as defined by the exempt job classifications generally of the Fair Labor Standards Act, are not eligible to receive overtime pay; however, exempt employees must account for dally attendance. 5.5.1 Time.sheets for exempt employees should indicate the days worked during the pay period and include all time taken as paid or unpaid leave. Timesheets should report a total of eighty (80) hours per pay period plus any applicable memo time. 5.5.2 Hours in excess or short of the daily total should be accounted for in the work description line titled "Memo Time". (Please see the attached timesheet example). The appropriate subledger number should be entered, and the time sheet signed by the appropriate management level. When using subledger numbers time should be recorded in blocks of half hours or more. 5.5.3 Employees may be able to draw hours from their "memo time" in certain situations. Memo time is NOT compensatory time and will NOT be granted on an hour for hour basis. It is to be used on an exception basis and must be approved in advance by the supervisor. For example, if Employee works 4e.5 total hours in week one and needs to use 2.5 hours to go.to a doctor's appointment in week two, the supervisor may approve using memo time. (Please refer to the attached sample timesheets). Memo time, in some occurrences, may be allowed for an entire day. 5.5.4 Make-up time may be used if the employee will need to use the 2.5 hours in the f,irst week of the pay period and will work an extra hours (of a least 2.5 hours) in the second week of the pay period to "make up" for the shortage of hours. Again, it is to be used on an exception basis and must be approved in advance by the supervisor. 5.5.5 Exempt personnel time sheets should be submitted to Timekeeping in the Accounting office no later than Friday of each week. In addition, exempt employees will not receive overtime compensation (except as specifically agreed to in an applicable bargaining unit MOU) but occasionally may be eligible tor time-off after working abnormally long hours. 5.5.6 Time sheets must be completed in ink and show the beginning and ending time of each shift worked. Time worked should be charged to the appropriate work order category, and time sheets must be signed by both the employee and supervisor. If an employee is unable to Page 2 complete their time sheet due to absence, the timesheet must be completed by the supervisor or designee and submitted to timekeeping. When t"1e employee returns to work, andther copy of the timesheet should be ·signed by both the employee and the supervisor and sent to timekeeping. 5.5.7 Coworkers completing another coworker's time sheet or employee's falsifying any timesheet is prohibited and may be grounds for disciplinary action, up to and including termination. 6.0 EXCEPTIONS 7.0 PROVISIONS AND CONDITIONS 8.0 RELATED DOCUMENTS 8.1 Fair Labor Standards Act, as amended. 8.2 Professional and Supervisory M.O.U. Page 3 ~ Orange County Policy Number: C10.00 Sanitation District Effective Date: December 16, 1998 Subject: CLASSIFICATIONS, Supersedes: May 13, 1998 POSITIONS, SALARY RANGES AND WAGES Approved by: 1.0 PURPOSE 1.1 The purpose of this policy is to establish uniform guidelines and procedures for use in the administration of the Districts' compensation programs. 2.0 ORGANIZATIONAL UNITS AFFECTED 2.1 All Districts' employees. 3.0 DEFINITIONS Classifications are groups of positions, regardless of location, which are alike enough in duties and responsibilities to be called by the same descriptive title, to be given the same pay scale under similar conditions, and to require substantially the same qualifications. Salary Ranges are the range of pay rates, from minimum to maximum, set for a pay grade or class. 4.0 POLICY 4.1 The Districts' Compensation Program provides for the establishment of a wage and benefit structure through the Meet and Confer process that allows Districts' management to effectively compete in the labor market and to retain present employees through an internally consistent measure of relative job worth and personal merit. Every position is assigned to a salary grade based upon the duties and responsibilities of that position and the comparative market value of that job function. Comparisons are most generally made with organizations of similar size and engaged in similar occupational pursuits within the geographic area of potential recruitment. The basic salary ranges are set forth on Exhibit A. 4.2 Wage adjustments for employees in the Executive Management, Management and Supervisory and Professional Groups are awarded nonbasebuilding from a "merit pool" amount established annually by the Boards and allocated to each department in an amount proportional to the salary budget of employees included within the Executive Management, Management, Supervisory and Professional Groups. This merit amount is awarded to individual employees based upon their performance as determined by the performance evaluation program. In addition, employees in the Executive Management, Management, Supervisory and Professional Groups receive annual wage adjustments. The amount of the wage adjustment is determined by the Boards and is distributed equally to all employees who at least meet expectations to keep employees at market. Page 1 Further, assignment of indlvidual salaries into the top quartile of "exempt" ranges is limited to 20 percent of the employees in the Executive Management, Management, Supervisory and Professional Groups. 4.3 The General Manager is authorized to employ and assign persons as needed to occupy budgeted positions and to exercise supervision over all persons in accordance with the provisions of this policy and to terminate, for cause, the employment of any regular full time employee employed under these provisions. All other employees, e.g., probationary, part-time, and limited term/temporary and contract may be terminated at the Districts' sole discretion. 4.4 The General Manager is also authorized to employ Executive Management employees on an "at-will" basis. Such status shall be memorialized by a written agreement signed by the General Manager and the Executive Manager, acknowledging that the Executive Manager shall serve at the pleasure of the General Manager. Any Executive Management employee so employed on the date of adoption of this policy, who has not signed an "at-will" agreement may voluntarily elect to do so, but may not be required to do so. 4.5 Notwithstanding any other provisions of this policy or any prior Board action, the General Manager is authorized to periodically adjust the rate of compensation of Executive Management employees who have signed "at-will" agreements so long as no adjustment exceeds the compensation permitted by the applicable sala,ry range established by the Joint Boards of Directors. 4.6 Employees who believe their position is not properly classified may request a classification study of their position through their Department Head. Classification studies shall only be conducted twice a year in November and May. 4.6.1 All classification study findings regarding existing classifications are subject to approval by the General Manager; findings recommending new job classification titles are subject to approval by the Districts' Boards of Directors. 4.7 The Districts are governed by the provisions of the Federal Fair Labor Standards Act, "FLSA", and have, in accordance with it, after study and evaluation of the duties and responsibilities of all job classifications established those classifications that are within the Executive Management, Management, Supervisory and Professional Groups as exempt from the provisions of the FLSA. 5.0 PROCEDURE 5.1 Employees on the Five-Step Pay Plan 5.1.1 New Employees. Employees who successfully complete their Initial Probationary Period and are recommended for continued employment are eligible for consideration of a salary adjustment of up to one step (5.5%) effective on the first day of the pay period following completion of the Initial Probationary Pe.riod. The Salary Review date for subsequent annual reviews is established on the first day of a pay period following 26 weeks of continuous service and satisfactory completion of probation. Page2 5.1.2 Annual Merit Increase. Employees who are not at the top of the salary range for their classification are eligible for consideration of an annual salary adjustment of up to one step (5.5%) on their Salary Review date, provided their performance fully meets expectations. 5.1.3 Promotional Increase. Employees who earn a promotion are entitled to a promotional increase of 5.5%, or to the base of the new range, whichever is greater, upon the effective date of the promotion. If an employee has not successfully completed their Promotional Probationary Period on their Salary Review date, any adjustment resulting from that annual review will be delayed until such time as the probationary period is completed. 5.2 Executive Management, Management, Supervisory and Professional Group Employees 5.2.1 New Employees. Employees who are hired into Executive Management, Management, Supervisory and Professional Group positions with "exempt" salary ranges shall be offered a salary at or near the minimum of the range unless their level of background, expertise or prior earnings result in a requirement for a salary greater than the minimum. The determination of an appropriate salary should also consider relationships to other employees in the same classification and to employees supervised, if any. 5.2.1.1 Employees in "exempt" range classifications serve a Probationary Period of six months and receive a comprehensive performance evaluation at the end of that period. Employees who successfully conclude their probation are eligible for a salary adjustment the subsequent July in accordance with the provisions of the Management Performance Review Program established by separate action of the Boards of Directors as amended from time to time. 5.2.2 Annual Management Performance Review Program. An annual performance review is completed for all employees in "exempt" range classifications in accordance with the provisions of the performance evaluation Program. Performance based salary adjustments occur on the first day of the first pay period in July, and may be prorated based upon the date of hire, promotion, or last increase in those instances where the individual has not concluded probation as of July 1. 5.2.3 Promotional Increases. Employees in "exempt" range classifications who earn promotions to a new "exempt" range classification will normally be offered a salary below the midpoint of the range that is commensurate with their level of training and expertise, prior earnings, and in an appropriate relationship to other employees in the same classification and to employees supervised. The new salary will normally represent an increase of at least 5.5 percent. Employees in "exempt" range classifications are not entitled to a salary adjustment at the conclusion of the Promotional Probationary Period. If the employee's probation period has not concluded as of July 1, the performance based salary adjustment is deferred until such time as probation is successfully concluded. Page 3 6.0 EXCEPTIONS 6.1 Sections 5.2.1, 5.2.2 and 5.2.3 do not apply to "at-will" Executive Management Employees. 7.0 PROVISIONS AND CONDITIONS 8.0 RELATED DOCUMENTS 8.1 Exhibit A 8.2 Fair Labor Standards Act Page4 clsrange 11/20/98 Classifications By Employee Group Administrative and Clerical Pay Range Minimum Maximum Classifications 1019 3,723 4,636 Information Services Technician Ill 1017 3,476 4,328 Financial Technician 1015 3,384 4,212 Graphics Coordinator 1013 3,203 3,987 Senior Storeskeeper 1012 3,245 4,040 Administrative Assistant 1011 3,159 3,932 Graphics Services Assistant 1011 3,159 3,932 Information Services Technician II 1008 2,865 3,567 Information Services Technician I 1007 2,787 3,470 Secretary 1004 2,656 3,307 Senior Accounting Clerk 1004 2,656 3,307 Senior Office Aide 1003 2,638 3,285 Storeskeeper 1002 2,447 3,046 Accounting Clerk 1002 2,447 3,046 Office Aide 1002 2,447 3,046 Office Specialist 1001 2,192 2,731 Office Technician clsnmge 11120/98 Pay Range 1025 1023 1020 1015 1009 1006 Minimum 4,155 3,961 3,802 3,384 3,074 2,769 Classifications By Employee Group Engineering Maximum Classifications 5,174 Senior Construction Inspector 4,931 Engineering Associate 4,732 Construction Inspector 4,212 Engineer Aide Ill 3,828 Engineering Aide II 3,446 Engineering Aide I cisrange 11/20/98 Classifications By Employee Group Technical Services Pay Range Minimum Maximum Classifications 1024 4,043 5,034 Senior Environmental Specialist 1018 3,623 4,511 Environmental Specialist II 1018 3,623 4,511 Source Control Inspector II 1018 3,623 4,511 Senior Laboratory Analyst 1010 3,094 3,854 Environmental Specialist I 1010 3,094 3,854 Laboratory Analyst 1010 3,094 3,854 Source Control Inspector I 1005 2,713 3,378 Source Control Technician clsrange 11120/98 Classifications By Employee Group Operations and Maintenance (501) Pay Range Minimum Maximum Classifications 2015 3,940 4,907 Lead Electrical Technician 2015 3,940 4,907 Lead Instrumentation Technician 2014 3,731 4,646 Electrical Technician II 2014 3,731 4,646 Instrumentation Technician II 2013 3,605 4,489 Lead Mechanic 2013 3,605 4,489 Pump Power Operator 2013 3,605 4,489 Senior Plant Operator 2012 3,484 4,338 Lead Collection Facilities Worker 2012 3,484 4,338 Lead Worker 2012 3,484 4,338 Machinist 2011 3,275 4,079 Senior Mechanic 2011 3,275 4,079 Welder 2010 3,253 4,051 Equipment Operator 2009 3,165 3,940 Builder 2009 3,165 3,940 Electrical Technician I 2009 3,165 3,940 Instrumentation Technician I 2008 3,145 3,914 Plant Operator 2007 2,875 3,581 Electrical Maintenance Worker 2007 2,875 3,581 Instrumentation Maintenance Worker 2007 2,875 3,581 Painter 2007 2,875 3,581 Senior Maintenance Worker 2007 2,875 3,581 Senior Collection Facilities Worker 2006 2,799 3,484 Mechanic 2005 2,612 3,253 Collection Facilities Worker II 2005 2,612 3,253 Maintenance Worker 2004 2,578 3,209 Operator In Training 2003 2,490 3,101 Groundskeeper 2002 2,458 3,058 Control Center Clerk 2001 2,015 2,508 Collection Facilities Worker I 2000 1,907 2,375 Helper ctsranoo 11120198 Classifications By Employee Group Professional Pay Range Minimum Maximum Classifications E13 S,262 7,442 Assistant to the General Manager E11 4,769 7,017 Engineer E9 4,32B 6,960 Principal Administrative Analyst E9 4,32B 6,960 Principal Engineering Associate E9 4,32B 6,960 Project Specialist E9 4,32B 6,960 Regulatory Specialist E9 4,32B 6,960 Scientist EB 4,116 6,0S7 Associate Engineer Ill EB 4,116 6,0S7 Principal Environmental Specialist E7 3,92S S,776 Programmer Analyst E7 3,92S S,776 Computer Hardware Specialist E7 3,92S S,776 Telecommunications Specialist E6 3,73S S,441 Senior Human Resources Analyst E6 3,73S S,441 Principal Laboratory & Research Analyst E6 3,735 S,441 Senior Administrative Analyst ES 3,5S9 S,23S Associate Engineer II ES 3,SS9 S,23S Senior Accountant ES 3,SS9 S,23S Senior Financial Analyst E4 3,390 4,993 Safety Representative E4 3,390 4,993 Programmer E4 3,390 4,993 Senior Buyer E3 3,22S 4,704 Associate Engineer I E2 3,077 4,4B1 Human Resources Analyst E1 2,923 4,272 Accountant E1 2,923 4,272 Buyer E1 2,923 4,272 Financial Analyst E1 2,923 4,272 Management Analyst clsrange 11/2019B Classifications By Employee Group Supervisory Pay Range Minimum Maximum Classifications E14 5,517 8,120 Engineering Supervisor E13 5,262 7,740 Environmental Management Supervisor E13 5,262 7,740 Senior Engineer E12 5,013 7,376 Compliance Supervisor E12 5,013 7,376 Laboratory Supervisor E12 5,013 7,376 Senior Scientist E11 4,769 7,017 Senior Operations Supervisor E11 4,769 7,017 Information Technology Supervisor E9 4,328 6,960 Maintenance Supervisor E9 4,328 6,960 Operations Supervisor E9 4,328 6,960 Principal Accountant E9 4,328 6,960 Principal Financial Analyst E9 4,328 6,960 Source Control Supervisor E9 4,328 6,960 Supervising Construction Inspector ES 4,116 6,057 Training Supervisor E7 3,925 5,776 Foreman E7 3,925 5,776 Maintenance Planner E7 3,925 5,776 Contracts & Purchasing Supervisor E5 3,559 5,235 Supervising Source Control Inspector E4 3,390 4,993 Warehouse Supervisor cisrange 11/20198 Classifications By Employee Group Management Pay Range Minimum Maximum Classifications E16 6,090 8,953 Construction Manager E16 6,090 8,953 Engineering Manager E16 6,090 8,953 Environmental Compliance & Monitoring Manager E16 6,090 8,953 Laboratory Manager E16 6,090 8,953 Source Control Manager E15 5,798 8,529 Controller E15 5,798 8,529 Financial Manager E15 5,798 8,529 Plant Automation Manager E14 5,517 8,120 Chief Scientist E13 5,262 7,740 Accounting Manager E13 5,262 7,740 Chief Operator E13 5,262 7,740 Safety/Emergency Response Manager E13 5,262 7,740 Maintenance Manager E12 5,013 7,376 Operations Manager E12 5,013 7,376 Contracts & Purchasing Manager E12 5,013 7,376 Senior Regulatory Specialist E10 4,535 6,681 Secretary to the Boards of Directors E10 4,535 6,681 Training Manager E9 4,328 6,960 Human Resources Manager dsrange 11120198 Pay Range E27 E20 E19 E19 E19 E19 E18 E17 E17 E9 Minimum 13,284 7,500 6,834 6,834 6,834 6,834 6,741 5,948 5,948 4,328 Classifications By Employee Group Executive Management Maximum Classifications 13,284 General Manager 11,315 Assistant General Manager of Operations 11,589 Director of Engineering 11,589 Director of Operations & Maintenance 11,589 Director of General Services Administration 11,589 Director of Technical Services 11,546 Director of Finance 9,925 Director of information Technology 9,925 Director of Human Resources 6,960 Director of Communications dsnmge 11/20/98 Pay Range 1027 1012 1012 Minimum 3,546 3,245 3,245 Classifications By Employee Group Confidential Maximum Classifications 4,415 Executive Assistant II 4,040 Executive Assistant I 4,040 Human Resources Assistant clsrange 11/20/98 Pay Range 905 904 903 Minimum 9.000 6.956 6.956 Classifications By Employee Group "Non-Regular'' Part Time Maximum Classifications 16.000 Intern 14.502 Storeskeeper Assistant 11.929 Technical Services Assistant ~ Orange County Policy Number: A10.00 Sanitation District Effective Date: December 16, 1998 - Subject: DEFINITIONS OF TERMS Supersedes: October 22, 1997 Approved by: 1.0 PURPOSE 1.1. The purpose of this policy is to establish uniform definitions of terms used in the District's policies and procedures. 2.0 ORGANIZATIONAL UNITS AFFECTED 2.1. This policy applies to all District's employees. 3.0 DEFINITIONS At Will Employees include the General Manager and any Executive Management employee who has signed an agreement to serve at the pleasure of the Joint Boards or the General Manager. An "at-will" employee may be dismissed without notice or cause. "At-will" employees do not serve an initial probationary period. Call-Back Pay is paid to an employee by the District when an employee is called back to work by management without prior notice, and the employee has completed his or her normal work shift and left the plant, or when prior notice is given but the work begins on the same day at least three hours after completion of the regular shift, the employee shall receive a minimum of three hours of call-back pay. Classifications are groups of positions, regardless of location, which are alike enough in duties and responsibilities to be called by the same descriptive title, to be given the same pay scale under similar conditions, and to require substantially the same qualifications. Core Hours are the hours between 8:00 a.m. and 4:00 p.m. Day Shift is an assigned work shift of at least seven consecutive hours between 6:00 a.m. and 6:00 p.m. Discipline is the occurrence of any of the following actions taken for just cause with respect to any employee: oral reprimand, counseling memo, written warning, suspension with or without pay, deferral or denial of a merit increase, reduction in pay, demotion to a classification with a lower top step of pay, or dismissal. Dismissal is a separation from District's employment of a non-probationary employee initiated by the Districts for proper cause. Page I Districts means the Orange County Sanitation District. Executive Management employees include the General Manager, Assistant General Managers; the Director of Finance; the Director of Engineering; the Director of Technical Services; the Director of Communications; the Director of Operations and Maintenance; the Director of General Services Administration; the Director of Information Technology; and the Director of Human Resources. Exempt Employees are employees who are not covered by the minimum wage and overtime provisions of the Fair Labor Standards Act, as amended. Such employees are considered exempt by virtue of their duties in conformance with the Act's definition of Executive, Administrative and Professional responsibilities. Flextime is the ability of employees to choose their starting and finishing times so long as employees are present between the core hours of 8:00 a.m. and 4:00 p.m. Grievance is any complaint that management has violated a specific written policy or provision of a Memorandum of Understanding (MOU). Harassment for purposes of this policy, includes conduct that is so severe and pervasive that it creates a hostile and abusive working environment, and interferes with an employee's ability to do his or her job. Immediate Family is defined as an employee's father, father-in-law, mother, mother-in- law, brother, sister, husband, wife, child, grandparent, legal guardian, or any family member with whom the employee resides. Joint Administrative Organization (JAO) is the organization that governs and sets policy for the Orange County Sanitation District owing its legal existence to a joint powers provision in the County Sanitation District Act. In Orange County, this is implemented by the July 1, 1985 Joint Ownership, Operation and Construction Agreement among the individual Sanitation Districts. Layoff is the involuntary release of an employee due to lack of work or lack of funds. Limited Term Contract Employees are those individuals who work for the District pursuant to a written employment agreement approved by the General Manager. The employment agreement shall set forth the specific term of employment, not to exceed one (1) year in length of the duration, and may be renewed at the discretion of the General Manager. Notwithstanding any other provision contained in this manual, limited term contract employees are entit[ed only to the rights and benefits contained in the employment agreement, which in no event shall be greater than the rights and benefits approved for regular employees. Overtime is the number of hours worked in paid status in excess of 40 during a workweek. Page 2 Night Shift is an assigned work shift of at least seven consecutive hours between 6:00 p.m. and 6:00 a.m. Nonexempt Employees are employees who are covered by the minimum wage and overtime provisions of the Fair Labor Standards Act, as amended. Such employees, because of the type of work that they perform and their earnings level, are subject to receiving overtime pay in addition to any entitlement otherwise provided for in applicable Memoranda of Understanding or other policies. Payday is the Wednesday before the end of the pay period. Pay Periods are biweekly beginning at 12:01 a.m. on the Friday following payday and continuing for a 14-day period ending at midnight on the Thursday following the next payday. Probationary Period -Initial includes the first six months of employment with the Districts. This period is regarded as an extension of the hiring process, and provides an opportunity for both the employee and the District's management to assess, over a substantial period of time, whether or not the hiring decision was appropriate. Probationary employees become regular, full-time employees upon successful completion of their probationary period and the appropriate approval form, as provided by the Director of Human Resources. Probationary Period -Promotional includes either the first six months or a 90-day period, depending on applicable MOU provisions, immediately following the date of a promotion. This period is regarded as an extension of the selection process, and provides an opportunity for both the employee and the District's management to assess, over a substantial period of time, whether or not the decision was appropriate. "At-will" employees do not serve a promotional probationary period. Regular Full-time employees are those employees who regularly work an 80-hour, biweekly pay period for an indeterminate period of time. Regular full-time employees are entitled to benefits as set forth in the various bargaining unit Memoranda of Understanding (MOU) and elsewhere in the District's policies and procedures. Regular Part-time employees are those employees who regularly work less than 80 hours in a biweekly pay period for an indeterminate period of time. Regular part-time employees are entitled to prorated benefits. Relative is any person related by one of the following familial relationships to any employee at the agency: spouse, mother, father, brother, sister, child, grandmother, grandfather, grandchild, cousin, aunt, uncle, mother-in-law, father-in-law, brother-in-law or sister-in-law. Release is a separation from employment in which the employee is not qualified for the type of work assigned and no other more suitable assignment is available. Release usually results from no fault of the employee. Employees serving an initial probationary period may be released without cause. Page3 Resignation is a voluntary separation from employment with the Districts, including: resignation with or without notice; an unauthorized absence of three or more consecutive working days; failure to return from leave of absence as arranged; failure to return from layoff upon recall. Salary Range is the complete set of standard salary increments adjusted over time, as published in the District's salary guide for any given position or job classification. Salary Ranges are the range of pay rates, from minimum to maximum, set for a pay grade or class. Sexual Harassment includes, but is not limited to any of the following: • Sexual favors. Unwanted sexual advances which condition an employment benefit upon exchange of sexual favors. • Hostile work environment. Sexually-based verbal, physical or visual conduct of such a nature and intensity that it creates an intimidating, hostile or offensive working environment. Conduct that may result in a hostile work environment includes, but is not limited to, the following: • Sexual epithets, jokes, derogatory comments or slurs; • Assault, impeding or blocking movement, or any physical interference with normal work or movement when directed at an individual on the basis of sex; • For the purposes of this policy, sexual harassment includes, but is not limited to any of the following: • Sexual cartoons, drawings, photographs or derogatory posters. Sick Leave is defined as the absence from duty of an employee because of a bona fide illness, injury, or pregnancy, medical or dental appointment, or to attend to the illness or injury of a family member, as hereinafter defined. Standby is time during which an employee is not required to be at the work location or at the employee's residence but is required to be available for immediate return to work. A Step is an increment on the salary guide. Where not provided on the salary guide, a step shall be 5.5% of the employee's current salary, calculated to the nearest cent. Temporary Employees are those employees who are assigned to work 80 hours or less in a biweekly pay period for an irregular or indeterminate period of time. Notwithstanding any other provisions set forth herein, temporary employees are not entitled to benefits and serve at the pleasure of the Districts. Termination Date is considered to be the last day actually worked by the employee irrespective of any additional pay they may receive. Page4 Witness Leave is leave granted to an employee who has been compelled by law to be present at a legal proceeding for the purposes of providing testimony or other evidence. Workweek means a seven-day period starting at 12:01 a.m. Friday and ending at midnight on the following Thursday. If a work shift begins on Thursday before midnight but ends any time after midnight on Friday , all hours worked on that shift are considered to be worked on Friday. 4.0 POLICY 5.0 PROCEDURE 6.0 EXCEPTIONS 7.0 PROVISIONS AND CONDITIONS 8.0 RELATED DOCUMENTS 8.1. Fair Labor Standards Act, as amended. Page5 fj} Orange County Policy Number: 8140.00 Sanitation District Effective Date: December 16, 1998 Subject: Employee Participation Supersedes: in Athletic and Recreational Activities on Off-Duty Time Approved by: 1.0 PURPOSE 1.1 To establish uniform guidelines and rules pertaining to employee participation in athletic and recreational activities on or off District's property on off-duty time. 2.0 ORGANIZATIONAL UNITS AFFECTED 2.1 This policy applies to all District employees. 3.0 DEFINITIONS 4.0 POLICY 4.1 The District does not and shall not endorse or support any organized or unorganized athletic or recreational activities by the District's employees in which they participate during non-working hours. 5.0 PROCEDURE 5.1 Employees participating in athletic and recreational activities during non-working hours, such as, but not limited to, bowling, basketball and softball teams, etc., are deemed to do so outside of the course and scope of their employment with the District, except when expressly authorized in writing. While the use of nicknames (e.g., "Sludge Haulers") that would generically refer to the nature of employees' business are not barred by this policy, no employee or group of employees may arrange for, or participate in any organized activity bearing a team designation such as "Orange County Sanitation District's Employees Team", or similar terminology that would indicate official sanction or support by the District. 5.2 Organization of, and participation in, athletic or recreational activities are prohibited during any work periods for which employees are compensated. 5.3 The District shall not financially contribute or provide equipment and supplies to any employee, or any organization, for athletic or recreational activities, except as authorized by written policy memorandum from the General Manager for a specific activity. No employee shall utilize any District equipment, including but not limited to, computers or copying machines, nor supplies in furtherance of any organized recreational or athletic activity that may occur during non-work hours, whether such activities are to occur on site or off site. 5.4 Supervisory and management personnel shall not require or coerce any employee to participate, or not participate, in any athletic or recreational activity during off-duty work hours. 5.5 The District's facilities, at the sole discretion of the General Manager, may be made available for employee athletic or recreational use during non- compensated work times. These facilities may include an outdoor basketball court or an unused conference or work room for aerobic training or similar activities. 5.6 Athletic or recreational activities organized by the District's employees to be undertaken during non-duty, non-compensated work periods may be approved by the General Manager, provided that all employees acknowled ge that they shall be deemed to be participating solely on their own personal time and at their sole discretion. This can include non-compensated lunch periods. 5.7 Participation in such events shall not be considered as part of the requirements of an employee's job classification, nor shall it be considered an activity to be within the course and scope of the employee's employment. Risk of injury incurred during the participation of such activity shall be solely with the employee. All employees are advised that such injuries, if they should occur, are not compensated by worker's compensation benefits when incurred outside of the course and scope of an individual's employment. 6.0 EXCEPTIONS 7.0 PROVISIONS AND CONDITIONS 7.1 Notices advising employees that the District is not responsible for off-duty recreational activities will be posted throughout the District. 8.0 RELATED DOCUMENTS 8.1 Labor Code Section 3600(a)(9) 8 Orange County Policy Number: FS0.00 Sanitation District Effective Date: December 16, 1998 -. Subject: WORKPLACE VIOLENCE Supersedes: Approved by: 1.0 PURPOSE 1.1 To promote a safe work environment for all employees. 1.2 To establish and maintain a workplace that is free from violence, threats of violence, harassment, intimidation, and other disruptive behavior. 1.3 To encourage and foster a workplace that is characterized by respect and the use of acceptable conflict resolution techniques. 2.0 ORGANIZATIONAL UNITS AFFECTED 2.1 This policy applies to all District employees. 3.0 DEFINITIONS 4.0 POLICY 4.1 It is the District's policy to provide a safe work environment for its employees. The District is committed to working with its employees to maintain a workplace free from violence, threats of violence, harassment, intimidation, and other disruptive behavior. All employees are responsible for maintaining a safe work environment. 4.1.1 Violence, threats, harassment, intimidation, and other disruptive behavior in the District's workplace will not be tolerated; furthermore, all reports of these types of incidents will be seriously reviewed and will be appropriately resolved. 4.1.2 This policy applies to all incidents involving District employees while they are on duty, on or off plant sites, and incidents involving non-employees perpetrating violence against District employees while they are on duty. 4.2 Available conflict resolution techniques, such as problem solving, grievance procedures and appeals processes, will be used to appropriately resolve conflicts that arise in our workplace. 4.3 The District strictly prohibits employees from possessing weapons such as firearms, explosives, and knives on District premises, in District vehicles, in private vehicles parked on District property, and in the possession of District employees while on duty performing District related business assignments. 5.0 PROCEDURE 5.1 Prohibited Conduct 5.1.1 The commission or threat of an act of violence, harassment, intimidation, or other disruptive behavior is prohibited. The following examples of such conduct, while not all-inclusive, provide an indication of the types of behaviors that are considered unacceptable. An employee who displays/exhibits prohibited conduct under this policy with regard to one or more of the following may be subject to disciplinary action, up to and including termination, after consideration of the employee's past performance, prior discipline, length of service and work history: 5.1.1.1 Causing physical injury to another person; 5.1.1.2 Making threatening remarks, whether with intent or in jest; 5.1.1.3 Aggressive, hostile or harassing behavior that creates a reasonable fear of injury to another person or subjects another individual to emotional distress; 5.1.1.4 Intentionally damaging employer property or property of another individual; 5.1.1.5 Possession of a weapon while on District property or while on District business; or, 5.1.1.6 Committing acts motivated by, or related to, sexual harassment or domestic violence. 5.2 Reporting 5.2.1 If the incident involves an emergency and requires the direct intervention of public safety personnel (i.e., law enforcement or emergency medical services), immediately CALL extension 222. 5.2.1.1 Control Center personnel will contact emergency services via 911 and will coordinate the response of public safety personnel. 5.2.2 Any situation involving the commission or threat of violence, harassment, intimidation, other disruptive behavior, or any other potentially dangerous situation must be reported to a supervisor or the Human Resources Department. 5.3 Risk Reduction Measures 5.3.1 Employees at Risk 5.3.1 .1 Employees are expected to exercise good judgement and to notify their supervisor or the Human Resources Department if a co-worker, or other person on District property or business, exhibits behavior that could be a sign of potentially dangerous situations. Such behavior includes, but is not limited to, the following: 5.3.1.1.1 Discussing the use of weapons as a means to perpetrate violence against another or bringing them to the workplace; 5.3.1.1.2 Displaying overt signs of extreme stress, resentment, hostility or anger; 5.3.1 .1.3 Making threatening statements or remarks; 5.3.1.1.4 Sudden or significant deterioration in performance; or, 5.3.1.1.5 Displaying irrational or inappropriate behavior. 5.3.2 Hiring 5.3.2.1 The Human Resources Department takes reasonable measures to conduct background investigations in order to review candidates' backgrounds and to reduce the risk of hiring individuals with a history of violent behavior. 5.3.3 Enforcement 6.0 EXCEPTIONS 5.3.3.1 Threats, threatening conduct, harassment, or any other act of aggression or violence within the District's work environments will not be tolerated. All reports of these types of incidents will be seriously reviewed and will be appropriately resolved. 5.3.3.1.1 Any employee determined to have committed such acts will be subject to disciplinary action, up to and including termination . 5.3.3.1.2 Non-employees engaged in violent acts on District premises will be reported to the proper authorities and fully prosecuted. 6. 1 Knives traditionally used as tools and having a blade length of three and one-half (31/2) inches or less are only considered weapons when used or displayed in a threatening manner. 7.0 PROVISIONS AND CONDITIONS 7 .1 Post in offices. 8.0 RELATED DOCUMENTS 8.1 Policy F10.00, Rules of Conduct 8.2 Policy B30.00, Sexual Harassment 8.3 Firearms and Weapons Policy 8.4 Memorandum of Understanding for: 8.4.1 SPMT Bargaining Unit 8.4.2 Local 501 Bargaining Unit 8.4.3 OCEA Bargaining Units 8.4.3.1 Administrative and Clerical 8.4.3.2 Engineering 8.4.3.3 Technical Services 8.5 Integrated Emergency Response Plan " \ ~ INVESTMENT MANAGEMENT PROGRAM County Sanitation Districts of Orange County STRATEGY REVIEW FOR THE PERIOD JULY 1 -SEPTEMBER 30, 1998 FINANCE, ADMINISTRATION & HUMAN RESOURCES COMMITTEE DECEMBER 9, 1998 -.::-~~~~••·•~ I ;•7• IHU Newporl Ce11ter Drive fbst Office Bo.x 6430 Newport Beach California 92658-(,430 949 · 640-3031 PACIFIC INVESTMENT MANAGEMENT COMPANY AGENDA BOND MARKET REVIEW II PERFORMANCE / PORTFOLIO REVIEW Ill CURRENT OUTLOOK/ STRATEGY ., RATES FELL SUBSTANTIALLY IN THE THIRD QUARTER YIELDS DROPPED DRAMATICALLY OVER THE QUARTER MEDIUM MATURITY YIELDS DECLINED THE MOST OVER THE QUARTER 7.0 6.5 l 6.o ,_ " ai >= 5.5 'ii, c.. ,B. 5.0 4.5 50 0 -50 ,_ 2'o 5 -100 I- -150 -200 .'. --------- 4Q '97 -74 -99 3 Mos. TREASURY YIELD MOVEMENTS 30-Yr. T-Bond '------'- ·, . ..__--.. ____,,. I .~·,,...._,---· '- ---1--· ···- 1-Yr. T-Bi/1 lQ '98 2Q '98 CHANGE IN TREASURY YIELDS 1 Yr. 2 Yrs. 5 Yrs. 10 Yrs. I O 3RD QTR. III YTD I SOURCE: Bloomberg 4.98% 4.40% 3Q '98 -66 -96 30 Yrs. STRATEGY RECAP -THIRD QUARTER L0NG-TER1"1 OPERATING FUND Period Ended September 30, 1998 PORTFOLIO STRUCTURE DURATION • SLIGHTLY ABOVE INDEX MATURITY MIX • BROADER THAN INDEX GREATER THAN INDEX EXPOSURE IN FINANCIAL SECTOR SECTOR / ISSUE • CONTINUED EXPOSURE TO AGENCY SECURITIES MAINTAINED MORTGAGE WEIGHTING 2 RELATIVE IMPACT THIRD QUARTER 1998 • POSITIVE • SLIGHT NEGATIVE • SLIGHT NEGATIVE STRATEGY RECAP -THIRD QUARTER LIQUID OPERATING FUND Period Ended September 30, 1998 PORTFOLIO STRUCTURE DURATION • AT INDEX . MATURITY MIX • SLIGHTLY BROADER THAN INDEX SECTOR / ISSUE • MAINTAIN EXPOSURE TO AGENCY DISCOUNT NOTES AND COMMERCIAL PAPER 3 RELA T/VE IMPACT THIRD QUARTER 1998 • NEUTRAL • SLIGHT POSITIVE • POSITIVE REVIEW OF PERFORl\tIANCE Through September 30, 1998 • Long-Term Operating Fund 9/30/98 Market Value $282,762,541 • Liquid Operating Fund 9/30/98 Market Value $18,362,728 Sanitation Districts of Orange County (l-T) (%) Merrill 1 -5 Year Gov't. / Corp. Index (%) Sanitation Districts of Orange County (liq-op) (%) 3 Month T-Bill (%) • Annualized. 4 Since* Inception 9/30/95 7.7 7.3 Since* Inception 9/30/95 5.7 5.3 2 Yrs.* 1 Yr. 3 Mos. 8.9 9.5 3.9 8.3 9.1 3.7 2 Yrs.* 1 Yr. 3 Mos. 5.7 5.7 1.5 5.2 5.2 1.3 CURRENT OUTLOOK I SECULAR GLOBAL DISINFLATION I I U.S. GROWTH POISED FOR FURTHER SLOWDOWN LONG TREASURY YIELDS TO RANGE BETWEEN 41h -61h% GLOBAL FINANCIAL STRESS REACHES THE U.S. i INTEREST RATES TO TREND LOWER INFLATION REMAINS BENIGN . • Import competition constrains domestic pricing power • Wage pressures to abate as economy slows FURTHER MONETARY POLICY EASING EXPECTED • Concerns over global financial stability • Real yields remain at high levels INTEREST RATE MATURITY MIX SECTOR • • • i STRATEGY ABOVE INDEX DURATION BROADER THAN INDEX PICK UP YIELD THROUGH AGENCY AND CORPORATE SECURITIES. CONTINUE TO LOOK FOR VALUE IN THE MORTGAGE SECTOR 5 i / ,/ / ., ,• ., / County Sanitation Districts of Orange County September 30, 1998 r~~;j 25 Years 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 PIMCO-Liquid Operating Fund Bond Portfolio Characteristics Portfolio Characteristics Detail · · · · · · · · · · · · ................................. 14 ............................................... ................................................ ........................ -..................... . 15 16 17 III ·CAPITAL illTREVIEW A PL'BIJCATION OF CALLAN ASSOCIATES INC. AND THE CALLAN INVESTMENTS INSTITLTE Third Quarter 1998 1--------------- Investors Batten Down the Hatches When severe financial storms hit the U.S. shores from many directions last quarter. equity investors ran for cover. Although Southeast Asia continued to flounder in its own economic mudslide. Wall Street's global watch refocused on rapidly growing problems elsewhere: With disintegrating financial markets in Russia paralyzing its leadership. observers worried about the fate of this former superpower. Recent hopes for a recovery in Japan faded as Japanese leaders failed to toke any decisive actions to revive an economy slrilled in a liqujdity trap. Closer to home. the economic troubles brewing in Brazil and Venezuela threatened U.S. trade on yet another front. As these waves of uncertainty dampened enthusiasm for equities. U.S . investors watched the reported second-quaner corporate earnings slide 1.59c. the first year-to-year decline in nearly a decade. Beyond sagging U.S. trade balances. the ripple effects of foul weather originating Contents from Southeast Asia were now eroding Foreign Stocks .. .. .. . . . . .. .. . 3 Foreign Bonds . . . . .. . . . . . . . . . . 3 corporate profits and threatening to further undermine stock Alternative Investments .. . Real Estate .................... . 4 valuations. In pursuit 4 of both liquidity and quality. investors got soaked with losses. The Callan Broad Market Index. a barometer of the 2.000 largest U.S.-traded stocks excluding ADRs and other foreign shares. registered an 11.67% drop. including dividends for the quarter. Its year-to-date total return fell to a marginal 2.349c gafo. Even large companies with established earnings provided little protection from the selling deluge during the quarter. Nevertheless, the Callan Large Cap Index covering the 150 largest stocks suffered the least damage (-8.379c) of all capi- talization sectors. The next 350 largest stocks. measured by continued on page 2 Bonds Have Their Day in the Sun A global flight to quality in the third quarter fueled a dra- matic rally in U.S. Treasury bonds and pushed U.S. inLerest rates down across the yield curve. Turmoil in Russia. per- ceived paralysis in Japan and a weakening global market for equities took the spotlight: investors around the world re- sponded by moving their assets into the safest havens avail- able. As a result. U.S. Treasuries (as well as German bunds) rallied sharply. pushing the yield on the 30-year bond (which moves in the opposite direction of its price) down below 5%. With strong support from the underlying Lehman Brothers Government Index (+5.539c). the Lehman Brothers Ag- gregate Index gained 4.23'k, its largest quarterly U.S. Fixed-Income Returns for increase since Quarter Ended September 30, 1998 1995. Last Quarter Other sectors of the domestic fixed income market also turned in gains. though not as great as Treasur- ies. Fears of slowing corpo- rate profits served to hold in- vestment-grade corporates be- hind government bonds. In addi- Lehman Bros LB Aggregate 4.23 LB Govt/Corp 4.95 LB Govt/Corp Inter 4.49 LB Govt/Corp Long 5.95 LB Govt 5.53 LB Corp 3.63 LB Mortgage 2.64 Salomon Bros SB Broad Inv Gr 4.15 SB Hi Grade LT 4.46 Merrill Lynch ML Treas 1-3 3.08 ML Hi Yid Mstr -3.58 tion, liquidity for non-government paper became scarce, es- pecially l.1.ter in the quarter. As a result. the Lehman Broth- ers Corporate Index returned a relatively anerrric 3.63'7c, for the quarter. The high yield sector. which is far more sensitive to these liquidity and credit risks. fared even worse. with the Merrill Lynch High Yield Master Index slipping 3.58% for the period. continued on page 2 Financial Turmoil Leads to Economic Consequences The troubles in Asia began primarily as financial crises. but financial crises have economic consequences. The collapse of the Thai baht triggered the crises in July 1997. and the impact on U.S. trade began to show by the second quarter of this year. The extended bull market in U.S. equities came to a sudden halt in August. and a level of volatility unfarrriliar to many investors gripped the stock market. Household wealth fell by nearly $2 trillion since the stock market peaked on July 17u._ The Federal Reserve responded with two 25-basis point interest rate cuts. but the thre.'.lt of a recession in 1999 remains. Free-spending consumers have driven the U.S. economy. but the economic consequence of the global financial turmoil may be a shift to consumer prudence. The U.S. economy remains strong. Second quarter GDP growth slowed to J .8'K. hurt in part by the GM strike. However. initial estimates for the third quarter are back up to 2.5'«. and the consensus among forecasters pegs growth for the year al a healthy 3.4'7c. Inflation remains very low despite tight labor markets. held down by lower import and commodity prices. Consumer prices were flat in the third quarter and arc on track for a mere 1.5'« gain for the year. The producer price index fell 3.3'k in the first quarter. remained unchanged in the second and third quarters. and will likely report a decline for the year. This low inflation gives the Fed room to move. CO/l/illlll'tl OIi [>llgC ./ SA!'\ FRA!'\CISCO MORRISTO\li\ CHICAGO ATL-\'.'iTA DE!'\\"ER 71 STE\"E.\'SO.\' ST. St:ITE 1~00 SA.\' FRA\CISCO CALIFOR.\'IA 9410~ FAX ,115.512.052-1 htl 11:/1.,,.;t;.. \II •• c.1Jl.1n.cum ·. Investors Batten Down from page 1 the Callan l\ledium Cap Index. absorbed a more devastating blow (-14.92<7,,). Representing the Broad Market's bottom 1,500 stocks. ;he Callan Small Cap In- dex lest 18.93<7c. Offering the least shelter in the investor's rush for security. the Callan Micro Cap Index of the next 1.000 larg- est stocks beyond the Broad Mar- ket was struck with a 2 l .84'k loss. When demand for liquidity surned last quarter. many lcver- a!!ed vehicles such as hed!!e funds ;ere overwhelmed by ;aves of sellin!! and resultant marnin calls. Simil;rly. as equity valuations washed away. the markets for stock-based mergers and initial public offerings were wrecked. Exposed to these adverse ele- ments. the Financial sector. par- U.S. Equity Returns for Quarter Ended September 30, 1998 Last Quarter 6rQaQ Mark1;1! CAI Broad -11.67 Large Cap S&P 500 -9.95 CAI Large -8.37 DJIA -11 .96 Mid/Sm!lll Ca12 S&P MidCap 400 -14.47 CAI Med -14.92 CAI Small -18.93 CAI Micro -21 .84 Exr,.hanQe Indices NYSE -12.41 AMEX -13.66 NASDAQ -10.51 CgnV!i1r!ible lnQ!i1X FB Conv Sec -12.86 Economic Sector Performance· CAI Broad Third Quarter 1998 U1ili1ies Communicalion Services Heahh Care Technoic)Qy Energy Consumer Slaples Cap~al Goods • 15 31 % Bask: Materials •15.98~• Transponalion ·19..41¾ [ Consumer Cyclical -20.75% I Financials -21.53~• I .£? -25% -20% -15% Bonds Ha':~ Their Day from page 1 11EJ2.s31. -11]1.es1. •1 ,951.~ ·4.•7%~ •6.411. ! -10-,;, -5% 01. 51. Return Mortgages did not escape unscathed. Falling interest rates sparked a wave of prepayment fears. causing investors to abandon their mortgage holdings. Investors also turned away from this sector in favor of Treasur- ies. when many sold these relatively liquid securities to prop up other ponions of their portfolios. These factors led the Lehman Brothers l\fort- gage Index to advance a relatively weak 2.64'7c. Overall. bonds had a strong quarter compared to other major asset classes. However. weakness in non-government credits intensified l.:ne in the quaner and has canied through the beginning of the fourth. With large hedge funds unwinding bond positions and market makers withdrawing from the scene. cenain bonds sectors have not been exempt from the tur- moil felt in the equity markets. -CMR- o,; ·'-"• -6S. -s~;, Capitalization Sector Performance Third Quarter 1996 CAI Large -10-; +------------·12% ..._ __________ _ -141, t----::=====~---1 -16~• ..._ _ ___, S&P 500 = ·9.95o/. .18~9 t---[C:_:A::_:I B'.'.'._'°"=d:_•:.:_ ·1.:_::1.6:,:7_:"'J-------- -20',-l------------------------·22" .. L_ ___________________ ~ oeo 20,-, 60o/. ,~. Percent o!Total Market Capitalization ticularly its money cen/er banking (-33.00%) and inves1me111 banking & brokerage (-37.73'k) industries. suffered the worst (-21.53'k) of all eco- nomic sectors in the broad market. Economically sensitive sectors. such as Consumer Cyclicals (-20.75'k). Transportation (-19.41%). Basic Materials (-15.98'1c). and Capital Goods (-15.31 'lc) were relentlessly pounded by sellers who had become skeptical of future earnings growth in a slowing economy. A rainbow did appear in a few economic sectors during the quaner. With relatively dependable earnings and average yield over 4'k. the Pub- lic Utility sector gained 2.93%. Insulated from global maelstroms. the electric power industry kept investors high and dry ( + 7.49% ). Communi- cation Services ( + 1.89'k) also held up well in the market turbulence. with a firm escort to higher ground by the baby bells. Not surprisingly. at the other end of this rainbow was gold. as the gold & precious metals mining industry ( +4. 70<7c) finally gained investor's confidence in this previously ebullient equity market. Examining this quarter's impact on growth and value stocks. Callan divides its capitalization indices evenly by price-to-book creating sub- sectors of !!rowth-and value-oriented stocks. The stock market's prefer- ence for q;ality earnings that are recession-proof clearly helped to limit damage among stocks in the Large/l\1edium Cap Gro>nth Index (-6.02'k ). The Callan Large/Medium Value and Small Value Indices fell hard (-14.55'k and -l 7.64'k. respectively), though, as nervous investors jeui- soned stocks particularly vulnerable to economic cycles. Likewise. inves- tors abandoned any hope that fast earnings growth would rescue the typi- cally young companies within the Small Cap Growth Index (-20.l5'7c). -CMR- U.S. Treasury Yield Curves: Third Quarter 1998 6,0 -A-Ending 3rd Quarter 5,5 --,l--Beginning 3rd Quar1er A----A-. -----.l---------- ~ -----------------_,.. 'C 5.0 Q) :,:: 4.5 40 -1----+---+----+---i------~ 0 5 10 15 20 25 30 Maturity (Years) r.,11.,n .l\rr,')~;,,,..,r '~--" Emerging Markets Meltdown Triggers Disastrous Quarter International equity markets. as measured by the MSCI EAFE Index. declined J 4.21 'k (in dollar terms. unless otherwise noted) during the third quarter of 1998. Although developed markets got off to a good start in July. the emerging market's progressive decline picked up considerable speed and sparked widespread selling among both developed and developing nations. In addition. the Japanese government's paralysis in solving its country's economic woes compounded problems. Europe Despite healthy returns in Non-U.S. Equity Returns for the beginning of July. valua-Quarter Ended September 30, 1998 tions in Europe quickly came under fire, especially those of _ companies that derive a signifi- cant amount of earnings from emerging market countries. In addition. fear that Japan's eco- nomic turmoil might spark a global recession helped to drive returns across Europe lower. Consequently. the MSCI Europe Index returned a dismal -14.42% for the quar- f.8.E.E 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 -14.21 -17.97 -14.42 -19.20 -13.65 -14.28 -22.01 ter. While much optimism still surrounds the upcoming EMU. returns will likely take their cue from emerging markets and Japan in the fourth quar- ter. Japan The Japanese government continued to disappoint investors with its lethargy in solving some of the country's critical economic problems. As the country wallowed in its worst recession since the Second World War. the government failed to unveil both a sound economic stimulus package and a resolution to its banking crisis. The MSCI Japan Index returned -14.96% for the quarter. Over the next three months, the world will be watching the G-7 nations for their actions to stem a growing global economic crisis. What unfolds in Japan will have much to do in determining their course of action. Emerging Markets The beaten-up emerging markets accelerated their decline in August when the Russian GKO market experienced default. Economic instability in the world's second largest nuclear power sent chills throughout Eastern European emerging markets. Weakness in commodity prices coupled with the illiquidity in Russia and some Southeast Asian markets hurt Latin American markets. On September 1st. the Malaysian government imposed capital controls on cash flows from the country, requiring investors to hold proceeds from all security sales in ringgit deposits for 12 months prior to repatriating the funds. While this is an extreme example. the notion of governments playing a limited role in controlling short-term cash flows to and from their countries has been gaining popularity among some of its once staunch opponents. The cumulative effect of these scenarios created turmoil that spread beyond the emerging markets and into the world's developed markets. The MSCI Emerging Markets Free Index plunged 22.01 % for the quar- ter. The MSC] All Country World Free Ex. US dropped 15. !2'k. -CMR- Stampede to Quality Rallies Global Bonds The G-7's bond markets were major beneficiaries of global capital market turbulence in the third quarter. The tsunami coming out of Asia. Russia and Latin America led investors to seek refuge in the bonds of developed markets. Expectations for lower global inflation. and therefore attractive real yields. slower growth. and a general easing stance by cen- tral banks provided a favorable environment for global bonds. On bal- ance. high credit quality and long duration investors were rewarded well. The Salomon Brothers Non-US Government Bond Index gained 9.61 % in dollar terms during the quarter. or 4.53% in local currency terms. All 17 countries in the index posted positive returns in local currency terms. however. all but two posted positive returns in dollars. France had the highest dollar return (+13.38<Jc) while Australia had Global Fixed-Income Returns for the worst (-0.69<Jc ). The dollar Quarter Ended September 30, 1998 reversed its course as the Ger- man mark. French franc. Japa- nese yen and British pound ster- ling showed renewed strength. On the other hand. the currencies of Australia and Canada. with their heavy reliance on com- modities. lost 4.37'k and 3.65'k, re spec ti vel y. Europe SB Non-U.S. Govt U.S. Dollar Local Currency SB World Govt U.S. Dollar Local Currency Last Quarter 9.61 4.53 8.33 4.92 Germany was one of the biggest beneficiaries of global uncertainty. German government bond yields moved sharply lower across the curve. By the end of the quarter. ten-year yields had moved almost I 'le lower while the German mark gained 8% versus the dollar. The combination of lower yields and a strong currency led to a 12.59% dollar-based gain in the SB German Government Bond Index. The SB French Govern- ment Bond Index, up 5.10% in local currency terms. was also the best performing in dollar terms aided by gains of almost 8% from the French franc. The SB UK Government Bond Index was the best performing mar- ket on a local currency basis(+ 7.98%). with currency gains improving the dollar-based return (+9.98o/c). The U.K. government bond yield curve in- verted further, as yields fell across the curve. The Spanish economy con- tinued to show solid growth as its GDP is expected to grow 3.8% in 1998. The government bond markets of Spain and Italy both performed well. with their indices returning 12.57% and 1 I. 75%, respectively. Asia With the economic malaise in Japan now being labeled a depression as opposed to a recession. bond market yields continued to move 10 record low levels. An economic package announced earlier this year failed to revive investor confidence. as the banking and retail sectors continued to flounder. The SB Japan Government Bond Index gained 6.23'7c in dol- lar terms and 4.l 9'7c in local currency terms. Afterreaching a low of 147.36 yen against the dollar on August 11th. the yen rebounded to finish the quarter at 136.65. Emerging Markets Emerging markets as measured by the J.P. Morgan Emerging l\far- kets Bond Index (EMBI) had its worst quarter in recent history with an abysmal return of -21.239c. Emerging debt markets collapsed in August after Russia defaulted on its debt and subsequently devalued the ruble. Russia's year-to-date losses now stand at-83.99'c. The EMBJ"s Latin Ameri- can component. with its 85'7c index weighting. suffered substantially less than the non-Latin component (-16.09% versus -43.56'7c. rcspccti\'c)y). -CMR• Financial Turmoil from page I Signs of a slowing economy are concentrated in the manufacturing sector. Although this sector has not yet contracted. growth has certainly stalled. The closely-watched Purchasing Managers Index has remained below 50 -the dividing line between expansion and contraction -since June. The GM strike distorted the total production numbers. but exclud- ing vehicles. industrial production still Jell by 0.8%. The slowdown was widespread. affecting industries as varied as lumber. machinery. petro- leum. and chemicals. Capacity utilization fell to 81 . l % in September. the lowest rate in six years. Inventories edged up during the third quarter while wholesale sales weakened: the involuntary growth in inventories is drag- ging down production. Consumer confidence peaked in May. but the erosion had been mod- est until September, as the impact of a sustained stock market correction hit home. The Conference Board's survey showed a decline from 133.1 in August to 126 in September. It is important to remember. however. that the index had never been above 125 before 1997. As headlines shift focus from "the lowest unemployment rate in a generation" to daily stock mar- ket gyrations. layoffs. deepening global economic woes. and increasing predictions of "recession." the loss of stock market wealth and fear of losing jobs could easily curtail consumer spending. Consumer credit was up 4.1 % in August over the previous year, as spending continued to out- pace income. Such leveraged spending appears particularly vulnerable now. Another sector at a potentially unsustainable level is housing. Low inter- est rates have helped fuel a housing boom in 1998. but starts are running well ahead of estimated demographic demand: starts are on pace to reach 1.6 million in 1998. while long-term household growth suggests a need for closer to 1.4 million. -CMR- Real Estate Corner In the third quarter. the private and public real estate markets contin- ued to provide differing results for institutional investors. Based on last quarter's preliminary data for Callan's real estate database. the average private real estate fund gained 3.99'k. or 11.01 'k year-to-date. The public real estate markets, however. sank again in the latest quarter. as the NAREIT Equity Index dropped 10.91 9c. The year-to-date performance for the REIT market has now fallen 15.80%. The negative performance of the public REIT market compounded in late June when the Federal Reserve issued an advisory letter to banks. which voiced concern about the volume of unsecured lendine. to REITs. Just as the lack of capital available to REITs was becoming ;vident. the broader equity market began to stumble. driving REIT prices down further. The slowdown in the REIT market benefited most private investors. Pension advisors purchasing properties unleveraged or with modest leverage were able to effectively compete for acquisitions. With less competition from REITs. pricing has also been more affordable. and capitalization rates for most properties started to trend slightly upwards in the past quarter. Real Estate Returns for Quarter Ended September 30, 1998 Last Quarter As the menu of real es- tate strategies available to in- stitutional investors becomes more extensive, many plan sponsors arc trying to under-Callan Real Estate (Mean) 3_99• stand real estate's role in the total portfolio. Investors arc beginning to ask what type of NA REIT Total Return -10.91% • Preliminary return and risk expectations can be expected from the broad array of in- vestment strategics. and the relationship of these strategies to other asset classes that encompass a plan sponsor's total portfolio. To help our clients build well-structured. diversified real estate portfolios. Callan has created four distinct style groups: Core. Core Plus. Balanced. and Growth. These style groups arc effective tools to better understand the expected risk and return characteristics of the manv investment strategics available. and more importantly undcrst~nd the future role of real estate as part of the total portfolio. The Callan Investment lnstitutc will he releasing a white paper on real estate style groups in the fourth quarter. •CHR- Alternative Investments Fund Raising Capital commitments to private equity partnerships of $55.6 billion through September 1998 have exceeded l 997's annual total of $54.5 bil- lion. The last quarter of the year is traditionally the largest. as investors and partnerships push Lo complete investments in the calendar year. If the current rate continues. l 998's fund raising will exceed $75 billion. The number of partnerships being formed has also increased. The year- Funds Closed January 1 through September 30, 1998 Strategy # of Funds $ Amt (mil) % Venture Capital 99 11,303 20.3 Acquisition/Buyout 73 34,417 61.9 Subordinated Debt 5 1,072 1.9 Restructuring 6 1,207 2.2 Other 27 7,619 13.7 Totals 210 55,618 100.0 Source: The Private Equity Analyst and Buyouts to-date figure of 210 funds compares to 135 in the same period last year and 254 in all of 1997. This indicates that more. smaller funds are being formed. including a greater number of new names. ~ Credit and Capital Markets The new financial environment of global uncertainty and devaluation are affecting the operation of the private equity markets in a number of ways. First. while lenders are still coming to the table. more conservative capital structures are required to close transactions. Banks increased bv a full multiple. or more, the debt coverage ratios required for loans. - The high-yield bond market is virtually closed to new issuance. This means that more equity. seller financing or private mezzanine must be secured to complete a company's capital structure. Lower purchase prices will also help close the gap. but while private seller re-pricing is inevi- table. seller expectations will take time to adjust. The initial public offer- ing market also ceased activity. as investors fled small-cap and young technology stocks in favor of size and liquidity. As with public equity valuations at their recent peak. private pricing has been high by historical standards. Nonetheless. competition between strategic and financial buyers to purchase assets has been fierce. DLJ es- timates that there is $80-90 billion of uninvested buyout capital looking for a home. With the deflation of strategic buyers' "currency" of common stock. private investors are hoping the capital market dislocation will present an opportunity for well-funded financial buyers Lo become more fully invested. -CHR- 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 arc as follows: Janet Becker-Wold, Non-U.S. Fixed Jason Windawi, U.S. Fixed-lncome Scan Keene. Real Estate Jay Klocpfer. Economy Jim McKee, U.S. Equity Gary Robertson. Alternative Investments Justin Toner. Non-U.S. Equity Callan Associates Inc. is a privately-held and 100 percent employee· owned finn whose sole business is strategic asset management consult- ing as an independent, objective third party. Headyuartercd in San Fran· cisco. Callan also has regional offices in Chicago, Morristown. Atlanta and Denver. © 1998 Callan Associates Inc. r,.11 ...... ",..c"" .. ; .... ,,,r 1,...,:' j m CAPITAL MARKET REVIE~T APPENDIX A A PUBLICATION OF CALLAN ASSOCIATES INC. THIRD QL'ARTER 1998 U.S. EQUITY Style Median and Index Returns* for Periods Ended September 30, 1998 Last Last3 Last Last 3 Last S Last IO Quarter Quarters Year Years Years Years Large Cap Equity large Ca1rBroad Sryle -11.47 2.42 3.97 19.43 17.83 16.63 large Ca1rGrowth Sryle -11.23 7.66 9.86 21.16 18.73 17.86 large Cap-Value Sryle -12.35 -2.99 -2.14 17.51 16.51 15.56 Aggressive Growth Sryle -19.88 -12.04 -16.29 4.02 9.75 18.48 Contrarian Style -14.48 -3.36 -5.41 15.38 15.85 14.33 Core Sryle -10.51 4.29 6.50 21.83 19.20 17.24 Yield Sryle -8.96 0.01 3.35 19.29 17.30 15.63 CAI Broad Market Index -11.67 2.34 4.44 19.77 17.78 16.23 CAI Large Cap Index -8.37 10.79 14.87 25.71 22.02 18.11 S&P500 -9.95 6.00 9.05 22.60 19.91 17.29 NYSE -12.41 -0.08 3.21 19.56 17.27 15.83 Dow Jones Industrials -11.96 0.47 0.46 20.23 19.82 17.30 Mid Cap Equity Mid Cap-Broad Sryle -18.43 -10.33 -12.02 10.90 12.83 16.09 Mid Cap-Growth Style -18.88 -7.32 -11.98 8.82 11.58 16.57 Mid Cap-Value Style -18.19 -14.33 -12.20 13.76 14.31 15.73 CAI Medium Cap Index -14.92 -6.31 -3.98 14.88 13.94 14.68 S&P MidCap 400 -14.47 -7.08 -6.31 14.11 13.68 16.68 Small Cap Equity Small CairBroad Style -20.80 -16.06 -18.62 9.48 11.52 15.24 Small Cap-Growth Style -21.79 -15.99 -22.44 5.43 10.33 16.91 Small Cap-Value Style -18.90 -15.68 -15.41 12.97 12.59 14.28 CAI Small Cap Index -18.93 -12.77 -15.42 8.71 10.50 12.71 CAI Micro Cap Index -21.84 -16.46 -21.39 7.70 10.64 11.60 Russell 2000 -20.15 -16.21 -19.02 6.87 9.11 11.16 NASDAQ -10.51 8.19 0.91 18.01 18.06 17.16 CAI Broad Market Sectors** Basic Materials -15.98 -11.09 -19.21 2.98 8.81 9.43 Capital Goods -15.31 -7.06 -8.33 17.12 15.44 13.49 .., Communication Services 1.89 16.34 36.97 Consumer Cyclical -20.75 -2.04 -1.03 14.12 10.77 13.22 Consumer Staples -14.31 -3.02 6.54 19.07 21.30 19.15 Energy -6.41 -4.19 -10.32 18.77 13.10 13.49 Financials -21.53 -10.12 -2.91 24.30 20.03 18.51 Health Care -1.95 20.58 28.36 Utilities 2.93 8.10 25.55 17.01 11.70 14.13 Technology -4.47 22.08 7.76 22.96 25.75 17.90 Transportation -19.41 -15.69 -15.92 9.08 9.16 12.41 • 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 pan of this reorganization, two new sectors, Communication Services and Health Care Services, were created. Consequently, sector comparisons of time periods beginning prior 10 June 30, 1996, with time periods beginning after that date may not be valid. U.S. Equity Index Characteristics as of September 30, 1998 Callan Callan Callan Callan Callan S&P Broad Large Medium Small Micro 500 Cap Range ($MM) 50-271.203 7,215-271,203 616-27,482 50-12,132 4-1.536 537-271,203 # Issues 2,000 150 350 1,500 1,000 500 '7c of Callan Broad 100 '7o 63 '7o 21 '7o !6'7o NIA NIA Wtd Avg Mkt Cap $55.6 B $85.l B $8.0 B $1.9 B $0.3 B $67.9 B Price/Book Ratio 712% 838 'le 530 'le 443 'le 312% 748 'le PIE Ratio (forccasted) 22.8 24.9 19.6 18.6 16.2 23.2 Dividend Yield 1.5 '7c 1.5 'le I. 7 '7o l.2 '7c 0.8 '7c 1.6 '7c 5-Yr Earnings (forecasted) 15.4 % 14.9 '7c 15.0 '7c 17.9 % 20.4 '7c 14.4 '7o Ell CAPITAL MARKEf REVIEW APPENDIXB A PUBLICATION OF CALLAN ASSOCIATES INC. THIRD Ql'ARTER 1998 U.S. FIXED INCOME Style Median and Index Returns* for Periods Ended September 30, 1998 Last Last 3 Last Last 3 Last 5 Last 10 Quarter Quarters Year Years Years Years Broad Fixed-Income Active Duration Style 5.20 9.71 12.82 9.05 7.26 9.53 Core Bond Style 3.90 8.15 JJ.43 8.80 7.33 9.56 LB Aggregate 4.23 8.33 I 1.52 8.67 7.21 9.30 LB Govt/Corp 4.95 9.33 12.84 8.92 7.21 9.42 LB Corp 3.63 7.93 11.08 8.85 7.58 9.91 LB Govt 5.53 9.94 13.59 9.00 7.13 9.28 SB Broad Investment Grade 4.15 8.27 11.47 8.67 7.22 9.35 Long Term Extended Maturity Style 6.04 ll.44 18.10 ll.76 8.99 ll.76 LB Gov/Corp Long 5.95 12.03 18.55 11.40 8.90 11.53 LB Gov Long 7.71 13.98 21.38 12.10 9.12 11.83 LB Corp Long 3.04 8.04 13.02 10.01 8.46 10.97 SB High Grade 4.46 9.79 14.87 10.29 8.41 10.91 Intermediate Term '• Intermediate Style 4.09 7.88 10.32 8.04 6.71 8.78 • LB Gov/Corp Intermediate 4.49 8.13 10.44 7.91 6.58 8.55 -~ LB Gov Intermediate 4.67 8.22 10.61 7.82 6.43 8.38 , . LB Corp Intermediate 4.00 7.85 9.92 8.17 7.12 9.20 ..: Short Term Defensive Style 2.90 6.15 7.91 6.95 6.06 7.77 Active Cash Style 1.63 4.70 6.15 6.02 5.52 6.68 -Money Marker Funds (net of fees) 1.26 3.82 5.15 5.08 4.75 5.34 ML Treasury 1-3 Year 3.08 6.19 7.97 6.82 5.95 7.39 90-day Treasury Bills 1.42 4.07 5.45 5.34 5.09 5.58 High Yield CAI High Yield Style -7.43 -1.68 0.24 9.72 9.62 JJ.64 .\ ML High Yield Master -3.58 0.77 3.37 9.26 9.13 11.03 First Boston High Yield -6.15 -2.12 -0.54 8.43 8.51 10.69 Mortgage/Asset-Backed CAI Mortgages Style 2.78 6.66 9.43 8.45 7.49 9.51 LB Mortgage-Backed Securities 2.64 6.12 8.63 8.15 7.26 9.06 LB Asset-Backed Securities 3.59 7.33 9.24 7.71 6.70 Inflation Consumer Price Index 0.31 1.26 1.20 2.08 . 2.36 3.06 Producer Price Index -0.72 -2.29 -2.83 -0.35 0.86 1.37 • Returns Jess than one year are not annualized. U.S. Fixed-Income Index Characteristics as of September 30, 1998 Yield Modified Adj. Average % or % of Lehman Brothers Indices To Worst Duration Maturity LB G/C LB Aggregate LB Aggregate 5.37 'lo 4.29 8.47 Yrs. 100.00 '7c 100.00 '7c LB Govt/Corp 5.08 5.61 10.38 100.00 68.38 Intermediate 4.82 3.34 4.33 67.99 46.49 Long Term 5.63 10.43 23.23 32.01 21.89 LB Govt 4.70 5.41 9.16 69.66 47.63 LB Corp 5.93 6.08 13.17 30.34 20.74 LB Mortgage 6.03 1.37 4.38 30.67 LB Asset-Backed Securities 5.28 3.14 3.69 0.96 : ( > \ ., a CAPITAL MARKET REVIEW APPENDIXC A PUBLICATION OF CALLAN ASSOCIATES INC. THIRD Ql'ARTER 1998 INTERNATIONAL EQUITY Style Median and Index Returns* for Periods Ended September 30, 1998 Last Quarter International Equity Global Sryle -13.88 Non-U.S. Style -15.44 Core Sryle -15.28 Top Down Style -14.46 Bottom Up Sryle -15.95 MSCI EAFE-Unhedged -14.21 MSCI EAFE-Local -17.97 MSCI EAFE ex Japan-Unh_edged -14.02 MSCI EAFE ex Japan-Local -18.28 MSCI World-Unhedged -11.99 MSCI World-Local -13.80 Pacific Equity Pacific Basin Sryle -9.13 Japan Style -8.44 Pacific Rim Style -6.11 MSCI Pacific-Unhedged -13.65 MSCI Pacific-Local -14.28 MSCI Japan-Unhedged -14.96 MSCI Japan-Local -16.59 Europe Equity Europe Style -15.76 MSCI Europe-Unhedged -14.42 MSCI Europe-Local -19.20 Emerging Markets Emerging Markets Database -22.94 MSCI Emerging Market Free -22.01 * Returns less than one year are not annualized. Return Attribution for EAFE Countries for Quarter Ended September 30, 1998 Country (by weight) Total Local Currency United Kingdom -10.95% -12.57% 1.85% Japan -14.96 -16.59 1.95 Germany -15.55 -21.80 7.99 France -16.42 -22.52 7.87 Switzerland -17.35 -24.57 9.57 Netherlands -16.92 -23.01 7.91 Italy -9.90 -16.24 7.57 Spain -18.83 -24.67 7.75 Sweden -23.03 -24.38 1.79 Australia -8.42 -4.24 -4.37 Hong Kong 0.60 0.59 0.01 Belgium -4.77 -11.73 7.88 Finland -5.51 -12.36 7.82 Denmark -12.65 -19.28 8.21 Ponugal -14.89 -20.96 7.68 Singapore -10.03 -10.28 0.28 Ireland -13.61 -19.37 7.14 Norway -29.57 -32.06 3.66 Austria -25.18 -30.72 8.00 Malaysia -38.58 -19.59 -23.62 New Zealand -18.49 -15.46 -3.58 Last3 Last Last 3 Last 5 Last JO Quarters Year Years Years Years -1.93 -5.39 10.16 10.82 11.80 -1.41 -8.72 7.10 8.73 9.89 -1.35 -8.31 6.80 8.52 9.83 1.38 -5.57 6.91 7.69 9.54 -2.43 -10.03 6.88 8.64 10.16 -0.55 -8.33 3.76 5.35 5.10 -3.32 -8.11 9.09 6.58 4.74 5.02 1.91 14.59 14.56 13.46 0.22 -1.43 17.59 13.96 13.12 2.66 0.13 12.21 11.69 9.73 1.41 0.46 15.38 12.30 9.45 -17.51 -34.39 -12.23 -4.92 1.83 -8.81 -28.32 -16.69 -9.96 -0.33 -26.51 -46.38 -17.86 -6.50 7.73 -18.76 -35.52 -I 6.63 -9.63 -4.58 -14.69 -27.10 -8.03 -5.46 -4.23 -17.18 -33.54 -17.50 -10.97 -5.96 -13.30 -25.06 -8.16 -6.36 -5.85 7.67 7.33 18.76 17.80 15.48 8.24 8.32 18.83 17.21 14.47 2.46 3.14 21.74 16.25 13.99 -33.74 -44.99 -10.18 -3.71 14.98 -36.73 -47.81 -16.36 -7.13 9.29 Country Weights-EAFE For Quarter Ended September 30, 1998 Spain 3.2% Switzerland 7.6% France 9.5% Japan 20.4% PJ!I CAPITAL MARKET REVIEW -A PUBLICATION OF CALLAN ASSOCIATES INC. INTERNATIONAL FIXED INCOME Style Median and Index Returns* for Periods Ended September 30, 1998 Last Last 3 Last Last 3 Last 5 Quarter Quarters Year Years Years Global Fixed Global Style 7.62 11.73 12.04 7.97 7.64 SB World Govt-Unhedged 8.33 11.35 11.58 5.99 7.09 SB World Govt-Local 4.92 9.41 12.10 10.01 8.25 Non-U.S. Fixed Non-U.S. Style 8.74 11.41 9.96 6.32 7.56 SB Non-U.S. Govt-Unhedged 9.61 11.90 10.35 4.41 7.20 SB Non-U.S. Govt-Local . 4.53 9.04 11.21 10.46 8.90 Emerging Markets Fixed SB Brady Bond Index -15.07 -14.36 -16.13 13.77 10.19 APPENDIXD THIRD Qt ARTER 1998 Last 10 Years 10.18 9.13 9.45 10.29 9.14 9.29 Return Attribution for Non-U.S. Government Country Weights-SB Non-U.S. Govt For Quarter Ended September 30, 1998 Indices for Quarter Ended September 30, 1998 Country (by weight) Total Japan 6.23% Germany 12.59 France 13.38 Italy 11.75 United Kingdom 9.98 Canada -0.52 Spain 12.57 Netherlands 12.90 Belgium 13.08 Denmark 10.43 Sweden 3.82 Austria 12.11 Australia -0.69 Finland 12.49 Switzerland 12.91 Portugal 12.10 Ireland 13.27 Local 4.19% 4.25 5.10 3.88 7.98 3.24 4.46 4.63 4.81 2.05 1.99 3.82 3.84 4.33 3.05 4.10 5.72 Currency0 Ireland 0.5%~ Portu[!al 0.69 Switzerla'nd 0.7%~ Finland 1.0%~ Australia 1.0% Austria 1.4% Sweden 2.1% 1.95% 7.99 7.87 7.57 1.85 -3.65 7.75 Belgium 3.8% 7.91 7.88 Canada 4.2% 8.21 1.79 8.00 Netherlands 4.5% -4.37 7.82 9.57 7.68 7.14 OTHER ASSET CLASSES Japan 25.9% Italy 11.4% Style Median and Index Returns* for Periods Ended September 30, 1998 Last Last 3 Last Last3 Last 5 Quarter Quarters Year Years Years Balanced Accounts Asset Allocator Style -5.31 5.51 8.07 14.82 13.55 Domesric Balanced Database -5.45 4.44 6.21 14.49 12.84 Global Balanced Database -7.02 4.72 1.16 11.51 10.76 60'7c S&P 500 + 40'k LB G/C -3.99 7.80 11.04 17.24 14.87 Convertibles Com·ertibles Database -9.19 -0.90 -1.76 11.96 10.52 First Boston Conveniblc Securities -12.86 -7.12 -9.71 7.62 8.35 Real Estate Callan Real Estate*** (1111•an; ner of fees) 3.99 JI.OJ 17.34 12.41 9.53 NAREITTotal Return -10.91 -15.80 -14.91 12.42 8.78 • Returns less than one year arc not annualized. •• Derived from MSC! EAFE data ••• Prclimin.lf)' return Last 10 Years 13.59 13.29 12.26 14.25 12.85 10.97 4.5Y 8.78 I 1 l .. 1 _! .! ) l 1 ! .. I .. 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% 10% 5% 0% "' E (5%) :::: - - - Range of Separate Account Manager Returns b_y Asset Class One Quarter Ended September 30, 1998 (23\F7 (24)~ (42)1• I (67) Q) (10%) ~ (15%) (20%) :n"§ (30)6 (25%) (30%) 10th Percentile 25th Percentile Median 75th Percentile 90th Percentile Index ... Domestic Equity vs S&PS00 (8.60) (10.39) (13.92) (18.89) (22.91) (9.95) Non-US Equity vs MSCIEAFE (12.99) (13.90) (15.4-0 (17.15) (18.53) (14.21) Domestic Fixed-Lncume VS LB AggrBd 5.41 4.76 3.94 2.95 1.64 4.23 Non-US Govt Bond VS CAI Intl. FI 10.43 9.57 8.74 7.15 5.84 9.61 Real Estate VS NCREIF Index 9.84 4.12 2.36 1.57 1.08 4.32 Cash Equivalents VS 3 Mon T-Bills 2.21 1.89 1.46 1.33 1.27 1.42 Range of Se"Qarate Account Manager Returns by Asset'Class One Year Ended September 30, 1998 40% 30% 20% "' E 10% ::, Q) 0% ~ -(51)§ - (34)1. I (42)~ (17) ... (71) -1- (10%) -(47) (20'it.·) - (30'7,·) Domestic Non-US Domestic Nun-US Real Cash F.quity Equity Fixed-Income Govt Bond F.state Equivalents VS vs vs vs vs VS S&PSOO MSCIF.AFE LBAAArBd CAI Intl.Fl NCRF.IF Index 3 Mon T-Bills I 0th Percentih: I 1.27 (0.19) 13.35 16.49 30.96 6.88 25th Pen:en1ile 6.25 (-1.60) 12.05 12.82 24.55 6.38 Median (2.29) (8.72) 10.66 9.96 18.91 5.85 7 5th Perce111 i h: (14.:18) (11.55 l 8.89 8.36 14.00 5.40 90th Pen.:elllile (22.73) (15.75) 7.22 7.SI 11.53 5.21 Index ... 9.05 (8.33) 11.52 10.35 18.65 5.45 County Sanitation Distril:ts Of Orange Cllunty DOMESTIC FIXED-INCOME Active Management Overview Active Management vs the Index Fixed Income markets continue to reap the benefits of global capital market turbulence. All active management styles saw positive performance for the year and for the quarter, with the exception of High Yield managers, whose exposure to non-investment grade securities led to negative quarterly perfonnance. Extended Maturity managers were helped by their longer duration and Active Duration managers profited from lower interest rates. Both styles were able to outperform the Lehman Brothers Aggregate for the quarter and the year. Core Plus managers with their median return of 3.06%. saw poor quarterly perfonnance relative to the other styles due to their small positions abroad. For the year, the Lehman Brothers Aggregate Index return of 11.52%, was able to outperfonn most active styles. Short Duration vs Long A global flight to quality in the third quarter fueled a dramatic rally in U.S. Treasury bonds and pushed U.S. interest rates down across the yjeld curve. Turmoil in Russia, perceived paralysis in Japan and a weakening global market for equities took the spotlight; investors around the world responded by moving their assets into the safest havens available. As a result, U.S. Treasuries rallied sharply, pushing the yield on the 30-year bond (which moves in the opposite direction of its price) down below 5%. Mortgages and High Yield During the third quarter, the median Mortgage Backed manager returned 2.78%, while the High Yield median manager returned -7.43%. Falling interest rates sparked fears of prepayments, causing investors to abandon their mortgage holdings. Investors also turned away from this sector in favor of Treasuries. which provided liquidity and security. High Yield managers suffered due to their sensitivity towards liquidity and credit risk. "' C: ..... :::: C) ::::::: 10% 5'7c 0% (5'il.) (IO'iiJ Separate Account Style Group Median Returns for Quarter Ended September 30, 1998 Lehman Aggregate: 4.23% Lehman Govt/Corp: 4.95% (7.43%) Active Defensive Intermed Core Core Extended Active MOl1!!a!!e Hi!!h Cash Bond Plus Maturity Duration l3acli.ecl Yield Separate Account Style Group Median Returns for One Year Ended September 30, 1998 Lehman Aggregate: 11.52% 25% r---------------------------1__L_ch_m_an_G_o_v_tJ_C_orp_: _1_2_.8_4'7<_•~ 20'il.· ----------------------------------------------18.10% ------------------------------- 15'7,.; IO'il., (l'il-~-- A,tivc Defensive lntcrmcu Cash Con: Bonu _9.43% _______________ _ 0.24% Core Extcmku Active Murl"a!!c Hich Plus Maturity Duration Bac[eil Yh:l<l County Sanitation Districts or Orange County ' J J . Asset Class Risk and Return The charts below show the three 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. Cll C: ... :::, Q) 0::: Cll E :::, Q) 0::: 8.0'lo 7.5% . 7.0% 6.5% 6.0% 5.5% Three Year Annualized Risk vs Return Asset Classes vs Benchmark Indices I I Lehman l3rolhcrs 1-Syr Govt/Corp I / • I Total Domes.tic Filled-Income I ! MLi5G/C i l Merrill Lynch 1-3yr Govt/Corp }--e ~ 5.0% 0.0% 8.0% 7.5% 0.5% 1.0% 1.5% Standard Deviation 2.0% Three Year Annualized Risk vs Return Asset Classes vs Asset Class Median 2.5% I Total Domestic Filled-Income 7.0% ! Defensive Filled-Income Style }--e I . 6.5% 6.0% 5.5% 5.0% ..., Money Market Median I 4.5% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% Standard Deviation County Sanitation Districts Of Orani;c County • I l -j .. , ' I ' } -J ' . i . .l . i I ., l I 1 , l "' .J i .\ ., I .) I Investment Manager Asset Allocation The table below contrasts the distribution of assets across the Fund's investment managers as of September 30, 1998, with the distribution as of June 30, 1998. Asset Distribution Across Investment Managers Domestic Fixed Income Long Term Operating Fund Liquid Operating Monies Total Fund County Sanitation Distrkts or Orangt: County September 30, 1998 Market Value Percent $300,788,519 100.0% 282,425,419 93.9% 18.363.100 6. I% $300,788,519 100.0% 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% Investment Manager Returns The table below details the rates of return for the plan's investment managers over various time periods ended September 30, 1998. Negative returns are shown in red, positive 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 September 30, 1998 Last Last Last Last 2 3 Quarter Year Years Years Domestic Fixed Income 3.77% 9.39% 8.49% 7.52% Long Term Operating Fund 3.91% 9.61% 8.66% 7.63% Liquid Operating Monies 1.50% 5.81% 5.66% 5.65% Liquid Operating Monies (1) 1.46% 5.64% 5.50% 5.49% Market Indicators Lehman Brothers 1-5yr Govt/Corp 3.78% 9.16% 8.39% 7.42% Merrill Lynch l-3yr Govt/Corp 2.97% 7.90% 7.43% 6.85% Merrill Lynch l-5yr Govt/Corp 3.73% 9.07% 8.25% 7.32% Treasurv Bills 1.42% 5.45% 5.36% 5.34% Total Fund 3.77% 9.39% 8.49% 7.52% (I) Net of Fees. County Sanitation Districts or Orange County III PIMCO-LIQUID OPERATING MONEY III PERIOD ENDED SEPTEMBER 30, 1998 /I Investment Philosophy I The Money Market Funds Database consists of actively managed short term funds. These funds invest in low-risk. 1 highly liquid, short-term financial instruments. Quarterly Summary and Highlights • PIMCO-Liquid Operating Money's portfolio posted a 1.50% return for the quarter placing it in the I percentile of the Money Market Database group for the quarter and in the I percentile for the last year. • PIMCO-Liquid Operating Money's portfolio outperformed the T-Bls by 0.08% for the quarter and outperformed the T-B"ls for the year by 0.36%. Quarterly Asset Growth Beginning Market Value $18.092.010 Net New Investment $0 Investment Gains/(Losses) $271.090 Ending Market Value $18.363.100 Performance vs Money Market Database 7%-r-------------------------------------, 6%- 5% 4%- 3%- 2%- 1% (I ).t a A(l) B(1) ~A(ll 06)~B(4) ~A(!) (18J~B(8) ~A(I) (19)~B(8) 0% ......... -------------------------------------' Last Quarter Last Year Last 2 Years Last 3 Years I 0th Percentile 25th Percentile Median 75th Perccn1ilc 90th Percentile PIMCO-Liquid Op!!rating Mone)' • A Net of Fees • B T-Bls $ 1.36 1.31 1.26 1.21 1.14 1.50 1.46 1.42 Relativ.~ Return vs T-Bls 5.53 5.35 5.15 4.93 4.71 5.81 5.64 5.45 0.20% -r---:------~------------, 10. I0'i,) _..._ ______ ___;. __________ _, 1995 llJ<J6 l'J'J7 • l'IMCO-1.iquid Opaa1ing MonL'Y County Sani1a1ion Dislri<:t~ or Orange Cou111y I 'JlJ8 "' C: .... ::l ti 0:: 6.5% 6.0% 5.5% 5.0% 4.5% -l.0'7i 3.5% 3.0% 2.5'7. 2.0'7. 5.46 5.45 5.29 5.28 5.09 5.08 4.87 4.87 4.66 4.66 5.66 5.65 5.50 5.49 5.36 5.34 Money Market Database Annualized Tl1ree Year Risk vs Return a a a 1.5'1,, +---'--.--......... ---.----.----....---.---1 0.0% 0.1 '7., 0.2% 0 . .3% 0.4% 0.5% 0.6% 0.7'7., 0.8% Standard Deviation ;!! i: :::: ";:i ::::::: <!) :> PIM CO-LONG TERM OPERA TING FUND PERIOD ENDED SEPTEMBER 30, 1998 /l Investment Philosophy 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 3.91 % return for the quarter placing it in the 7 percentile of the Defensive Fixed-Income Style group for the quarter and in the IO percentile for the last year. • PIMCO-Long Term Operating Fund's portfolio outperformed the ML15 G/C by 0.18% for the quarter and outperformed the MU5 G/C for the year by 0.54%. Quarterly Asset Growth Beginning Market Value Net New Investment Investment Gains/(Losses) Ending Market Value $3 I 1.053,742 $-40.000,078 $ I 1.371.754 $282,425,419 Performance vs Defensive Fixed-Income Style !!%~-----------------------------------~ 10% 9% 8% 7% 6%- 5%- 4% 3% 2% [=::)(LO) (16J ~ ~(13) (18)~ !%--'---La~--.s-t~Q-u-ar-te_r _____ ----:-Las--t~Y~ea_r _____ ----:-_--=-::c:-----------::,----=-,:-:------' Last 2 Years Last 3 Years I 0th Percentile 25th Percentile Median 75th Percentile 90th Percentile PIMCO-Luni; Term Operatini; Fund • ML15 G/C .._ 3.73 3.28 2.90 2.52 2.24 3.91 3.73 Relative Return vs ML15 G/C 9.66 8.43 7.91 7.50 6.74 9.61 9.07 0.30%-------------------- ----------~--·-·----·-- 0.20%- 0.15% - 0.10%- 0.05%- 8.5% 8.0'7<, 7.57, <I) C: .... :::: 7.0% ";:i 8.93 7.84 7.80 7.19 7.54 6.95 7.27 6.72 6.75 6.44 8.66 7.63 8.25 7.32 Defensive Fixed-Income Style Annualized Three Year Risk vs Return I PIMCO-1.on~ Tcrrn Orcrntin~ fund I ~ " C ~ C C p C " " I 9:,C c- c5 0.00% ~ __ ::~~~~-=:[;_~-~ =--~:-·::::: ::::::: 6.S'h.· D 0 C B ::::::: (0.057, l • ---- tO 15r,; l - (0.20'ii l -~~----------------- 1995 1996 llJ97 1998 • l'IMCO-Long Term Operating FwH.I Count~ Sanitation Distril:ts Of Orange County 6.0% 5.S'll 0.5% c 1.sr,1. 2.0'1,, 2.5% 3.or,1 Standard Deviation LONG TERM OPERA TING FUND PORTFOLIO CHARACTERISTICS SUMMARY SEPTEMBER 30, 1998 /j 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. Asset Backed 2'7o Agencies 8'7o Cash I 'lo CMOs 2'7o Trea.~urics 51 'lo Corporates 12% Long Term Operating Fund Duration Distribution Sector Allocation Trcamrics 68'7t.· Corporates 20% Lehman Government/Corporate 1-5 Weighted Average Duration 30'7o ----~--------~---~---, • Long Term Operating Fund: 2.47 D Lehman Government/Corporate 1-5: 2.37 <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 Avera~e Quality l00'lo ~---~---~--------------1 • Long Term Operating Fund: Aaa D Lehman Government/Corporate 1-5: Aaa 1.7% 0.1% /\aa+ /\aa /\al -------------------~-------------~ 1.3% 1.1 % 4.1 % 5.4% J.2'.ti 7,9% 3.7% 2.2% 2.2% 2.0% 4.s% ! /\a2 Aa3 Moody's Rating Al /\2 /\3 </\3 * All Statistics shown on the pa&e are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 98% of tne securities in the portfolio (by market value) were recognized and priced. County Sanitation Distri,ts Of Orange County LONG TERM OPERA TING FUND PORTFOLIO CHARACTERISTICS DETAIL SEPTEMBER 30, 1998 Weighted Average Portfolio Characteristics Total Fund, By Asset Class and By Sector F.ndinJ.: Percent Markel or EITective EITective Si:ctor Value* Portfolio Cnu11nn Muturilv Yield Total Fund $363,671,560 100.0% 6.71 5.90 4.95 Asset Backed $7.553.706 2. lr/, 5.86 6.25 5.01 Agencies $28.188.875 7.8% 6.08 1.56 4.87 CMOs $7,740.671 2.1'7c 6.28 20.92 5.84 Corpurntcs $80.670.280 22.2% 6.36 2.28 5.47 Mortgages $50.563.187 13.9'7c 6.69 20.65 6.19 Treasuries • $185.474.753 51.0'7c 7.04 3.57 4.36 Total Fixed-Income $360,191,472 99.0% 6.72 5.95 4.95 Cash Equivalents $3,480,088 1.0% 5.08 0.25 5.08 5 Largest Holdings Ending Percent Market of EITective Issuer Name Issue Name Sector Value Portfolio Yield United Stales Trea~ NLs NL 6.875% 08/31/1999 Treasuries $44.159.072 12.1% 4.59 United Stales Treas NLs NL 7.50'7c· 11/15/2001 Treasuries $30.190.230 8.3'7c 4.38 United States Treas Nts Nt 6.S0'k 05/31/2002 Treasuries $27.331.357 7.5% 4.38 United S1a1es Treas Nts Nt 6.375'7c 09/30/2001 D Treasuries $22.686.265 6.2% 4.39 Fhlm Pool #g50476 Mpl 7'7c 02/01/03 Mortgages $ 16.884.840 4.6% 6.52 5 Lowest Rated Holdings (Moody's Rating) Ending Percent Markel of EITective Issuer Name Issue Name Sector Value Portfolio Yield Lehman Brothers Hldgs Inc Tranche# Tr 00196 Did Corporates $5.032.286 1.4% 7.39 Lehman Brothers Hldgs Inc Tranche # Tr 00252 Dtd Corporates $2.510.419 0.7% 7.41 Heller Finl Inc Medium Ter Tranche# Tr 00225 D Corporates $1.023.978 0.3% 5.64 Heller Finl Inc Fltg 6/01/2000 Corporates $4.027.172 1.1% 5.60 Heller Finl Inc Sr NL Fltg Rate Dtd 04 Corporates $3.040.272 0.8% 5.66 5 Longest Duration Holdings Ending Percent Market of EITective Issuer Name Issue Name Sector Value Portfolio Yield United States Treas Nts NI 3.375'k 01/15/2007 Treasuries $10.219.479 2.8'7c 3.42 United States Treas Bds Deb 13.259c 05/15/14 Treasuries $4,365.344 l.2'k 5.11 Ford Mir Cr Co Term Enhanc.:t:d Remktabl Corporates $2.009.867 0.6¼ 5.45 ~ Federal Home Ln Mtg Corp M 6.500'7c 09/25/20181fG1 CMOs $2.122.027 0.6'7c 5.42 United States Treas Nts Nt 7.50% 02/15/2005 Trca~uries $15.278.769 4.2% 4.39 5 Holdings with Highest Effect Yield EndinJ.: Percent Market of EITective ls.~uer Name lssu~ Name Sel·tor Value Portfolio Yield Lehman Brothers Hldgs Inc Tranche # Tr 00252 Dtd Corporates $2510.419 0.7% 7.41 Lehman Brothers Hldgs Inc Trn.m.:he # Tr 00196 Dtd Corporates $5.032.286 1.4% 7.39 Fhlm l\x,I #g5(l476 Mpl 7'7.· 02/01/03 Mortgages $16.88-U-m 4.6'k 6.52 Fhlm1: Gold Tba 1·111 7 .00% 30yr Tha Mortgages $5.6-16.080 1.6% 6.20 Federal Home Ln Mtg Corp M Preassign 00616 Clf C,1 CMOs $-l.396.511 1.2% 6.15 *Market Value shown does not include payables and receivables. OA OA Dural inn Convexitv Qualitv 2A7 (0.1-1) Aaa 0.32 0.65 /\aa 1.41 O.(l4 /\aa+ 3.47 0.22 /\aa+ 2.01 0.07 Al 2.11 ( 1.84) /\aa+ 3.02 0.15 Aaa+ 2.50 (0.14) Aaa 0.25 0.00 Aaa OA OA Duration Convexitv Qualitv 0.88 0.01 Aaa+ 2.72 0,09 Aaa+ 3.20 0.13 Aaa+ 2.72 0.09 Aaa+ 1.07 (0.49) Aaa+ OA OA Duratinn Convexitv Qualitv 1.90 0.05 Baal 1.74 0.04 Baal 2.70 0.09 A3 1.54 0.03 A3 0.54 0.01 A3 OA OA Duration Cnnvexitv Qualitv 7.12 0.59 Aaa+ 6.72 0.62 Aaa+ 6.26 0.48 Al 5.36 0.36 N/R 5.13 0.32 Aaa+ OA OA Duration Convexitv Qualilv 1.74 0.()4 Baal 1.90 0,05 Baal 1.07 (0.-l'I) Aaa+ 2.02 (2.67) Aaa+ 3.22 0.21 Aaa+ All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 989'c of the securities in the portfolio (by market value) were recognized and priced. County Sanitatiun Districts Of Orange Cllunty rill 25 Years Atlanta Consulting Office Six Concourse Parkwa~. Suite 2900 Atlanta. Georgia 30328 Phone: (770) 804-5585 Chicago Consulting Office 120 .'.\onh LaSalle Street. Suite 2100 Chicago. lliinois 60602 Plwne: (312) 3-1-6-3536 Den\·er Consulting Office 550 East 8th.~., enue Dell\ er. Colorado 80203 Phone: < 303 I 861-! 90() \"e\\ York Consulting Offil'.e i 63 Madi~on A\'enue \1 orri ,1own. !\e,1 .ler,-e~ 0796() Phone: r9:3 J C)LJ3-9595 San Fran..:i;.rn Con,,ultin~ Offi..:::: 71 \1.:1c·11,(ll1 St,·c·,·,. Suilv 13(1(1 l'lhlllt . .': ,.; : ~: -..,1-:-2-)()~)~I .. FAHR COMM ITTEE Meeting Date 12/09/98 AGE NDA RE PORT Item Number 13 (a) Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Steve Kozak, Financial Manager SUBJECT: RENEWAL OF THE DISTRICTS EXCESS LIABILITY INSURANCE PROGRAM FOR THE PERIOD JULY 1, 1999 TO JULY 1, 2002 (FAHR98-83) GENERAL MANAGER'S RECOMMENDATION To Bd. of Dir. 12/16/98 Item Number Renew the District's Excess General Liability Insurance Program for the three-year period July 1, 1999 to July 1, 2002, in an amount not to exceed $111,492 each fiscal year. SUMMARY . Staff recommends the renewal of the District's $25 million Excess General Liability Insurance Program for the three-year period July 1, 1999 through July 1, 2002. The coverage is provided through the California Municipal Excess Liability Program (CAMEL). At present, the District is in the third year of a three-year commitment to the CAMEL Program approved by the Board in May 1996, after completing a competitive bid selection process. The premium cost for FY 1998-99 was $111,492. Approval of this agenda item would continue the District's $25 million liability coverage through the CAMEL program for three additional years, with no increase in the annual premium cost. Further, the District would be eligible for a dividend rebate in the amount of 15% to 20% of premium cost beginning with the FY 1999-2000 renewal period. Excess G-eneral Liabil'ity Program The current liability insurance program provides the District with a $25 million policy of comprehensive coverage for property and vehicle damage, bodily injury, and personal injury. The program was structured to also include Employment Practices, and Public Officials Errors & Omissions coverages. The $25 million coverage is per occurrence, with a self-insured deductible of $100,000 per occurrence. In 1997, the Employment Practices portion of coverage was enhanced from a $2 million sublimit, to the full $25 million policy limit. llradon\data1\wp_dta\fin\210\crane\FAHRIFAHR98\Dec\FAHR98-83.doc Revised: 8/20/98 Page 1 Renewal for FY 1999-2000 through FY 2001-02 Two important advantages of a multi-year renewal of the District's participation in the CAMEL general liability insurance program include guaranteed coverage and cost stability. When the District entered the CAMEL program for three years beginning in July 1996, we obtained an annual premium cost not to exceed $125,000 in the first year, together with a commitment for a 2% premium reduction in the second year of the program, and a 5% premium reduction in the third year. It should be noted that the actual second-year premium cost (FY 1997-98) was $121,875, a 2.5% reduction from the first-y·ear premium; and the that this year's premium represents a second consecutive year of cost savings, as ,the FY 1997-98 premium cost was $111,492, an 8.52% reduction from the second-year premium. Bu ilding on these premium cost reductions of more than 10%, approval of the proposed renewal of the District's Excess General Liability insurance policy would guarantee both continuation of the District's $25 million IE?vel of coverage, and a level annual premium not to exceed the FY 1998-99 cost of $111,492, for each of the next three fiscal years. Dividend Rebates Additionally, the District becomes eligible for an annual CAMEL program dividend rebate in the amount of 15% to 20% of premium cost beg•inning with the FY 1999-2000 renewal period. Each year, the dividend rebate will be calculated based on the loss experience of the program for the program year that expired two years prior to the calculation. Dividends are then paid to program participants in equal annual increments for the two years following the calculation. By example, calculation of an annual dividend rebate in July 1999, at the minimum rate of 15%, would further reduce the District's premium cost by at least another $16,724. The District would receive the first half of th1• dividend rebate in FY 1999-2000, and the second half in FY 2000-01. Thus, annual premium costs would be lowered to approximately $103, 130, in the first and second years of the renewal period. Likewise, the annual dividend calculation in July 2000, would result in a similar premium cost reduction in FY 2001-02, the third year of the renewal period. Conclusion In summary, renewal of the CAMEL excess liability insurance program will ensure that the District's premium costs are controlled while obtaining maximum coverage levels for the Districts for the next three fiscal years. The attached letter from Robert F. Driver Associates, the District's Broker of Record, summarizes coverage and cost information for the proposed excess general liability insurance renewal. Staff will continue to work with our insurance broker to develop and implement additional program enhancements. \lradonldata1'twp.dtallin\210'cranelFAHRIFAHR981Dec\FAHR98--83.doc Revised: B/20/98 Page2 I, 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 N/A ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. Letter from Robert F. Driver Associates \lradonldata1 lwp.dtallin\21 Olcrane\FAHRIFAHR98\Dec\FAHR98-83.doc Revised: 8120/98 Page 3 ROBERT F. DRIVER ASSOCIATES a Division of Robert F. Driver Co., Inc. ASSOCIATES' Founded on knowledge, integrity and service. November 24, 1998 Steve Kozak, Financial Manager Orange County Sanitation District 10844 Ellis A venue Fountain Valley, CA 92728 RE: Excess Liability Insurance Coverage California Municipal Excess Liability (CAMEL) Program Dear Steve: At July 1, 1998, we renewed coverage for the Districts in the CAMEL Program. The Districts have been insured in the program since July 1996 after a Request for Proposal process. The program provides General Liability, Auto Liability and Public Officials Errors & Omissions coverage for the Districts. The limit of coverage is $25,000,000 excess of a self-insured retention of $100,000 per occurrence. A full outline of the program is attached. In 1992, our office created the CAMEL Program to provide California public agencies with a joint purchase alternative to the standard "open market" placements. CAMEL provides its members with greater stability of pricing, broader coverage and potential dividends for years where there is a good loss experience. At the July 1st renewal, we were able to obtain several long-term commitments from our program underwriters. First, the premium for the Districts of $111,492 is guaranteed to stay at this level for three years. During this period, the coverage supplied will remain "as is" or be improved where possible. Lastly, we have continued to improve the dividend program, which the Districts become eligible for starting July 1, 1999. This program can now pay up to 20% of the premium back to the members when the loss experience is profitable. When we successfully placed the business over two years ago, the Districts obtained a very competitive program. Since then, the CAMEL Program has further decreased the premium paid by the Districts. We now have the opportunity to "lock in" these very competitive rates and coverages. It is our recommendation that Orange County Sanitation District take advantage of this offer. Newport Beach 4041 MacArthur Blvd., #300, P.O. Box 6450, NeVvport Beach, California 92658-6450 • (949) 756-0271 • Fax (949) 756-2713 H:U/Ren/Word/CAMEU9s-99,ocso.doc Lie# 0C3686 I • www. if driver. com San Diego Escondido Sacramento Fresno Steve Kozak, Financial Manager Orange County Sanitation District November 24, 1998 Page Two In addition, we continue to improve the coverages under the Program. As this last renewal, we were able to include coverage for Inverse Condemnation and Subsidence. We are always looking for ways to ensure that CAMEL stays on the "cutting edge" of not only pricing but also coverage. Please let us know if you have any questions or comments. Sincerely, ROBERT F. DRIVER ASSOCIATES Gordon B. Descombes Executive Vice President GBD/stb Enc. H:U/Ren/Word/CAMEL/98-99/0CSD doc CALIFORNIA MUNICIPAL EXCESS LIABILITY (CAMEL) PROGRAM SUMMARY INSURERS: BEST'S GUIDE RATING: CALIFORNIA STATUS: PROGRAM TERM: COVERAGE: MAJOR EXCLUSIONS: JULY 1, 1998-1999 American Re-Insurance Company (Am-Re) and Sable Insurance Company (American Re-Insurance is the lead underwriter and re-insures a majority of the Program. The Sable Insurance Company issues the policies and provides excess capacity) American Re-Insurance Company A, Excellent; Financial Size Category FSC 12 $500,000,000 to $750,000,000 Sable Insurance Company A, Excellent; Financial Size Category FSC 12 $1,000,000,000 to $1,250,000,000 Admitted July 1, 1998 to July 1, 2001 Excess Municipal Liability on an Occurrence Basis including: • Bodily Injury • Personal Injury • Property Damage • Public Officials Errors & Omissions • Unfair Employment Practices Liability • Excess Employer's Liability • Subsidence • Inverse Condemnation • Workers' Compensation • Asbestos • Pollution/Contamination except for: Hostile Fire and Collision Upset/Overturn of owned and non-owned vehicles and Time Element Extension • Eminent Domain • Care, Custody and Control M ASSOCIATES California License #0084379 CALIFORNIA MUNICIPAL EXCESS LIABILITY (CAMEL) PROGRAM SUMMARY MAJOR EXCLUSIONS (continued): LIMITS OF LIABILITY: DEFENSE COSTS AND EXPENSES: CLAIMS ADMINISTRATION: OTHER PROGRAM FEATURES: JULY 1, 1998-1999 • Aircraft/ Airfield Exclusion (F) not absolute • Watercraft • Airports • Medical Malpractice ( except incidental) • Subsidence • Nuclear Material • ERISA • Dams ( only those owned or operated by the insured) I. BASIC PROGRAM Difference Between $10,000,000 per occurrence and Self-Insured Retention II. $10 X $15 OPTIONAL PROGRAM Optional $5 ,000,000, $10,000,000 or $15,000,000 per occurrence excess of $10,000,000 Basic Program. Annual Aggregate applies to each entity for Products/Completed Operations and Public Officials Errors & Omissions. Defense Costs and Expenses are included in the Self-Insured Retention and Limits of Liability To remain under direction and control of Individual CAMEL members. Claims Reporting Requirements apply as outlined in the issued policies • "Rolling" Three Year Premium Program per attached • CAMEL Dividend Program per attached -ASSOCIATES California License #0084379 1998 CAMEL PROGRAM DIVIDEND PARAMETERS 1. The Dividend is calculated 90 days prior to renewal for the policy that incepted 3 years prior (i.e. Dividend for the 7 /1/98 year is based on the 7 /1/95-96 policy premium). 2. The Dividend Percentage is 15 % . There is an additional Bonus Dividend of 5 % . 3. The Dividend is applicable to the "Basic" Program premium (Limits to $10,000,000) for the policy that incepted 3 years prior. 4. 75 % of the entities that participated in the prior policy year must renew in order for the Dividend to apply. 5. Dividends are only paid if a member renews with the Program. 6. The Loss Ratio must be below 50 % for the Dividend to apply. The Loss Ratio must be below 25 % for the additional Bonus Dividend to apply. The Loss Ratio is calculated using the Policy Premiums divided by Incurred Losses. 7. Incurred Losses are those losses paid or reserved above member self- insured retentions, as determined by American Re-Insurance. M ASSOCIATES California License #0084379 1998 CAMEL PROGRAM DIVIDEND PAYMENT PLAN • All Dividends are paid in two (2) increments. • 50 % is paid 3 years after inception and 50 % is paid 4 years after inception. • At the 2nd calculation, the members are able to recapture any dividend not paid in the prior calculation due to a change in loss reserves. The underwriters, however, are not able to recapture past dividend payments if loss reserves or payments increase at the 2nd calculation. l1iJ£ ASSOCIATES California License #0084379 FAHR COMM ITTEE AGENDA REPO RT . Orange County sanitation District FROM: Gary Streed, Director of Finance Originator: Michael D. White, Controller Meeting Date 12/09/98 Item Number 13 (b) SUBJECT: FINANCIAL AND OPERATIONAL REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 1998 (FAHR98-84) GENERAL MANAGER'S RECOMMENDATION To Bd. of Dir. 12/06/98 Item Number Receive and file the 1998-99 Financial and Operational Report for the First Quarter ended September 30, 1998. SUMMARY Attached in a separately bound document is the District's First Quarter Financial and Operational Report for the period ended September 30, 1998. This report is a consolidation of both the financial and operational accomplishments of the District through the first quarter of the 1998-99 fiscal year. Contained within the First Quarter Financial Report and Operational Report are budget summary reviews of the Joint Operating & Working Capital Funds, the Capital Outlay Revolving Fund, individual Revenue Areas, and the self-insurance funds. Also contained within this report is the status of the divisional performance objectives and workplan milestones identified in the 1998-99 Approved Budget and Strategic Goals Workplan. As indicated within the Overview Section of this report, 23.12 percent, or $10,449,000 of the 1998-99 net joint operating budget of $45.2 million has been expended. Net costs have increased 9.25 percent in comparison with the same period last year primarily due to the timing of expenditures. Last year, expenditures were low in the beginning of the year, only at 20.38 percent, due to the year-end costs incurred late in the 1996-97 year. This year, although still under the first quarter budget, costs are now being incurred and reported in a more even distribution. The total cost per million gallons at September 30, 1998 is $449.67 based on flows of 23,236.07 million gallons. This is $35.96, or 7.4 percent below the budgeted cost per million gallons of $485.63. H:\wp.dtalfin\21 O'crane\F AHRIFAHR98\Dec\FAHR98-84.doc Revised: 8120198 Page 1 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) ADDITIONAL INFORMATION None. ALTERNATIVES NIA CEQA FINDINGS NIA ATTACHMENTS 1. 1998-99 Financial and Operational Report for the Quarter Ended September 30, 1998 H:\wp.dta'dinl210'crane\FAHRIFAHR98\0ec:\FAHR98-84.doc Revised: 8l20l98 Page2 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Michael D. White, Controller Meeting Date To Bd. of Dir. 12/09/98 12/1'6/98 Item Number Item Number f3 (c) SUBJECT: COUNTY SANITATION DISTRICTS OF ORANGE COUNTY COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) FOR THE YEAR ENDED JUNE 30, 1998 (FAHR 98-85) GENERAL MANAGER'S RECOMMENDATION Receive, file and approve the Districts' Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 1998, prepared by staff and audited by Moreland and Associates, Certified Public Accountants. SUMMARY The District's independent auditors, Moreland & Associates, have completed their examination of the Districts' financial statements for the year ended June 30, 1998, the last year to be audited prior to consolidation, and have again issued an unqualified opinion on the Districts' financial statements. Each year, the FAHR Committee reviews the results of the audit and the corresponding Auditor's report to the Committee. Michael Moreland, Partner, will attend the meeting to respond to any questions of Directors. This year, staff has again prepared the Comprehensive Annual Financial Report that incorporates the audited financial statements in-house. For the last four years, the Districts have earned the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association (GFOA). This year's report will again be submitted to GFOA for their review in anticipation of another award. The Comprehensive Annual Financial Report, including the Auditor's opinion letter, the Auditor's Report to the Committee, the Auditor's Report on Compliance and on Internal Control Over Financial Reporting, and the Auditor's Appropriations Limit Report are attached. PROJECT/CONTRACT COST SUMMARY N/A \lradon\data1\wp.dtallin\210\crane\FAHRIFAHR96\0ee\FAHR96-85,doc Revised: 6/20/96 Page 1 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. C8] Not applicable (information item) ADDITIONAL INFORMATION None. ALTERNATIVES NIA CEQA FINDINGS NIA ATTACHMENTS 1. Comprehensive Annual Financial Report for the year ended June 30, 1998 2. Auditor's Report on Compliance and on Internal Control Over Financial Reporting 3. Auditor's Report to the FAHR Committee 4. Appropriations Limit Report \lradonldata1~.dtallin\210'c111ne\FAHRIFAHR98\0ee\FAHR98-85.doc Revised: 8120198 Page2 Moreland&~ CERTIFIED PUBLIC ACCOUNTANTS September 23, 1998 The Board of Directors of the Orange County Sanitation District 1201 DOVE STREET, SUITE 680 NEWPORT BEACH, CALIFORNIA 92660 (949) 221-0025 570 RANCHEAOS DRIVE, SUITE 260 SAN MARCOS, CA 92069 (760) 752-3390 Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditin~ Standards We have audited the combined financial statements of the County Sanitation Districts of Orange County, California (Districts) as of and for the year ended June 30, 1998, and have issued our report thereon dated September 23, 1998. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained m Government Auditine: Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the Districts' combined financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations and contracts, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. I~ternal Control Over Financial Reporting In planning and performing our audit, we considered the Districts' internal control over fmancial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the combined financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended for the information of the Board of Directors and management of the Districts. However, this report is a matter of public record and its distribution is not limited. ~~ Moreland &~ CERTIFIED PUBLIC ACCOUNTANTS September 23, 1998 The Finance, Administration and Human Resources Committe~ of the Orange County Sanitation District 1201 DOVE STREET, SUITE 680 NEWPORT BEACH, CALIFORNIA 92660 (949) 221-0025 570 RANCHEROS DRIVE, SUITE 260 SAN MARCOS, CA 92069 (760) 752-3390 We have audited the combined financial statements of the County Sanitation Districts of Orange County (Districts) for the year ended June 30, 1998, and have issued our report thereon dated September 23, 1998. Under generally accepted auditing standards, we are providing you the attached information related to our audit. Our responsibility under generally accepted auditing standards is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement and are fairly presented in accordance with generally accepted accounting principles. Because of the concept of reasonable assurance and because we did not perform a detailed examination of all transactions, there is a risk that material errors, irregularities, or illegal acts, including fraud and defalcations, may exist and not be detected by us. In addition, we considered the internal control over financial reporting of the Districts. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control over financial reporting. Significant Accounting Policies The significant accounting policies of the Districts are described in Note 1 to the combined financial statements. With the exception of implementing Governmental Accounting Standards Board (GASB) Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Pools, and GASB Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, no new accounting policies were adopted and the application of existing policies was not changed during the year. There was not a material effect on the Districts' equity as a result of implementing GASB Statement No. 31 or GASB Statement No. 32. We noted no significant, unusual transactions during the year, or transactions for which there is a lack of authoritative guidance or consensus. The Finance, Administration and Human Resources Committee of the Orange County Sanitation District September 23, 1998 Page2 Management Judgments and Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based upon management's current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. The judgments and estimates which may significantly affect the Districts' combined financial statements include establishing appropriate liabilities associated with general liability and workers' compensation claims. During our audit of the combined financial statements, we performed procedures to determine the reasonableness of the estimates used by management. These procedures included, but were not limited to, inquiry of the Districts' attorney and review of a third party administrator's report which summarized the estimated liability needed for claims against the Districts. Based on these and other procedures performed, we were able to conclude that the liabilities associated with general liability and workers' compensation claims recorded by management were reasonable. Significant Audit Adjustments As a result of our audit related testwork, we proposed no corrections of the financial statements that, in our judgment, either individually or in the aggregate, had a significant effect on the Districts' financial reporting process. For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the financial statements that, m our judgment, may not have been detected except through our auditing procedures. Other Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the Districts' combined financial statements and our report thereon does not extend beyond financial information identified in our report, and we have no obligation to perform any procedures to corroborate other information contained in these documents. We have, however, read the other information included in the Districts' comprehensive annual financial report; and no matters came to our attention that cause us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or its manner of presentation, appearing in the financial statements. Disagreements With Management There were no disagreements with management on financial accounting and reporting matters that, if not satisfactorily resolved, would have caused a modification to our report on the Districts' 1998 financial statements. The Finance, Administration and Human Resources Committee of the Orange County Sanitation District September 23, 1998 Page3 Consultation With Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Districts' financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Major Issues Discussed With Management Prior to Retention We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Districts' auditors. These discussions occurred in the normal course of our professional relationship, and our responses were not a condition to our retention. This information is intended solely for the use of the Finance, Administration and Human Resources Committee and should not be used for any other purpose. However, we understand that this document may be public information, and its distribution is not limited. ~~ Moreland&~ CERTIFIED PUBLIC ACCOUNTANTS September 23, 1998 The Finance, Administration and Human Resources Committee of the Orange County Sanitation District 1201 DOVE STREET, SUITE 680 NEWPORT BEACH, CALIFORNIA 92660 (949) 221-0025 570 RANCHEROS DRIVE, SUITE 260 SAN MARCOS, CA 92069 (760) 752-3390 Independent Accountants' Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets We have applied the procedures enumerated below to the accompanying Appropriations Limit worksheet No. 6 (or other alternative computation) for each of the County Sanitation Districts #1, 2, 3, 5, 6, 7, and 11 of Orange County (Districts) for the year ended June 30, 1998. These procedures, which were agreed to by the Districts and the League of California Cities (as presented in the League publication entitled Article XIIIB Appropriations Limitation Uniform Guidelines), were performed solely to assist the Districts in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. This engagement to apply agreed-upon procedures was performed in accordance with standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the specified users of the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the completed worksheets No. 1 through No. 7 (or other alternative computations) and compared the limit and annual adjustment factors included in those worksheets to the limit and annual adjustment factors that were adopted by resolution of the Board of Directors. We also compared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote of the Board of Directors. Finding: No exceptions were noted as a result of these procedures. 2. For the accompanying Appropriations Limit worksheet No. 6, we added line A, last year's limit, to line E, total adjustments, and compared the resulting amount to line F, this year's limit. Finding: No exceptions were noted as a result of these procedures. The Finance, Administration and Human Resources Committee of the Orange County Sanitation District September 23, 1998 Page2 3. We compared the current year information presented in the accompanying Appropriations Limit worksheet No. 6 to the other worksheets described in No. 1 above. Finding: No exceptions were noted as a result of this procedure. 4. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit worksheet No. 6 to the prior year appropriations limit adopted by the Board of Directors during the prior year. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication entitled Article XIIIB Appropriations Limitation Uniform Guidelines. Finding: No exceptions were noted as a result of this procedure. We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the accompanying Appropriations Limit worksheet No. 6 ( or other alternative computation). Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the use of the Districts and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. However, this report may be a matter of public record and its distribution is not limited. A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #1 APPROPRIATIONS LIMIT WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LIMIT $2,ss4,ooo 1 ADJUSTMENT FACTORS 1. Population % 0.13% 2. Inflation% 4.67% Total Adjustment % 4.81%1 ANNUAL ADJUSTMENT$ $13s,ooo 1 OTHER ADJUSTMENTS: Assumed Responsibility (Lost Responsibility) (Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADJUSTMENTS $13s,ooo 1 CURRENT YEAR LIMIT $3,022,000 I A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #2 APPROPRIATIONS LIMIT WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LIMIT $11,019,000 1 ADJUSTMENT FACTORS 1. Population % 0.35% 2. Inflation% 4.67% Total Adjustment % 5.04%1 ANNUAL ADJUSTMENT$ $sss,ooo 1 OTHER ADJUSTMENTS: Assumed Responsibility (Lost Responsibility) (Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADJUSTMENTS $sss,ooo I CURRENT YEAR LIMIT $11,631,000 1 A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #3 APPROPRIATIONS LTh11T WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LIMIT $1s,2s9,ooo 1 ADWSTMENT FACTORS 1. Population % 0.50% 2. Inflation% 4.67% Total Adjustment % 5.19%1 ANNUAL ADWSTMENT $ $794,ooo I OTHER ADWSTMENTS: Assumed Responsibility (Lost Responsibility) (Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADWSTMENTS $794,ooo 1 CURRENT YEAR LIMIT $16,083,ooo I A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #5 APPROPRIATIONS LIMIT WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LIMIT $2,132,000 1 ADJUSTMENT FACTORS 1. Population % 1.13% 2. Inflation% 4.67% Total Adjustment % 5.85%1 ANNUAL ADJUSTMENT$ $160,000 1 OTHER ADJUSTMENTS: Assumed Responsibility (Lost Responsibility) {Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADJUSTMENTS $160,000 1 CURRENT YEAR LIMIT $2,s92,ooo 1 A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #6 APPROPRIATIONS LIMIT WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LIMIT $1,110,000 1 ADWSTMENT FACTORS 1. Population % 0.32% 2. Inflation% 4.67% Total Adjustment % 5.00%1 ANNUAL ADWSTMENT $ $89,ooo 1 OTHER ADWSTMENTS: Assumed Responsibility (Lost Responsibility) (Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADWSTMENTS $89,ooo 1 CURRENT YEAR LIMIT $1,ss9,ooo 1 A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #7 APPROPRIATIONS LI.l.\1IT WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LI.l.\1IT $5,211,000 1 ADJUSTMENT FACTORS 1. Population % 2.83% 2. Inflation% 4.67% Total Adjustment % 7.63%1 ANNUAL ADJUSTMENT$ $39s,ooo 1 OTHER ADJUSTMENTS: Assumed Responsibility (Lost Responsibility) (Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADJUSTMENTS $39s,ooo 1 CURRENT YEAR LIMIT $s,61s,ooo 1 A. B. C. D. E. F. COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, DISTRICT #1 i APPROPRIATIONS LIMIT WORKSHEET #6 FY 1997-98 BUDGET LAST YEAR'S LIMIT $3,299,ooo 1 ADWSTMENT FACTORS 1. Population % 0.46% 2. Inflation% 4.67% Total Adjustment% 5.15%1 ANNUAL ADWSTMENT $ $110,0001 OTHER ADWSTMENTS: Assumed Responsibility (Lost Responsibility) (Transfer to Private) (Transfer to Fees) Sub-total TOTAL ADWSTMENTS $110,000 I CURRENT YEAR LIMIT $3,469,ooo I FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Michael D. White, Controller Meeting Elate 12/09/98 !tern Number 13 (d) SUBJECT: REQUEST FOR PROPOSALS TO REVIEW UNASSESSED AND UNDER-ASSESSED SEWER SERVICE FEES (FAHR98-86) GENERAL MANAGER'S RECOMMENDATION To Bd. of Dir. 12/16/98 Item Number Review and approve the request for proposals for consulting services to review the District's sewer service fee program for unassessed and under-assessed parcels as identified on the Assessor's database. SUMMARY At the October Committee meeting, the Directors directed staff to prepare a request for proposals for the review of the District's sewer service fee program. The request for proposals has now been developed and has been attached to this report for approval. 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. ~ This item has not been budgeted. D Not applicable (information item) ADDITIONAL INFORMATION Because the District uses the Assessor's database in a manner and for a purpose for which it was not designed, the information obtained is not always accurate. Two examples of the inaccuracies include instances where (1) there are no square feet of improvements kept in the database thereby generating no user fee; and (2) the property use category does not match the current use, which may generate an incorrect user fee. \lradon\data1 lwp.dtallin\21 O'crane\FAHRIFAHR98\Dec\FAHR98-86,doc Revised: 8/20/98 Page 1 Currently, the full magnitude of the problem is not known. Information that is known that indicates that the District is not recovering the full amount of sewer fees includes: • No building square footage is shown for approximately 5,000 parcels owned by governmental agencies, although 1,450 have a value for improvements, and square footage data is available on only 400. • There are a few industrial/commercial buildings without specific information as to what type of buildings they are and it is believed that the actual tenant mix in shopping centers could result in additional user fees beyond those calculated on the average mix. • Water use information submitted by firms whose use is below the average indicates that there must be firms whose use is above the average. Information that the District has that would assist in the review of the Assessor's database includes: • Reports prepared by the County that show all of the multi-family residential units by address and by Assessor's parcel number. This information was validated against trade publication and by site visits. • Reports have been prepared to identify all parcels in the Assessor's database that show a dollar value for improvements, but no square footage of building. These reports also show address, if known, Assessor's parcel number, and property use codes. Two assessment review firms that account for the majority of our refunds and adjustments have been contacted. Both have expressed an interest in reviewing the database on a contingency basis. In addition, staff has identified two additional consulting firms who specialize in reviewing the Assessor's database to ensure that governmental agencies receive their fair share of property assessments, and who also work on a contingency basis. The experience these two firms have in working with County Assessor's databases would be extremely valuable to the District on this project. Based on the above information, staff has developed a request for proposal for the review of sewer service fees collected from the County property tax bill and recommends that the Directors approve it as to form and allow it to be distributed to the four firms referred to above. ALTERNATIVES N/A \\radon\data1\wp.dtallin\210'<:rane\FAHRIFAHR98\Dec\FAHR98-86.doc Revised: 6/20/98 Page2 •. CEQA FINDINGS N/A ATTACHMENTS 1. Request for Proposal -Review of Unassessed and Under-Assessed Sewer Service Fees \lradonldata1\wp.dtalfin\210'<:rane\FAHRIFAHR98\Dec\FAHR98-86.doc Revised: 8/20/98 Page 3 '• ORANGE COUNTY SANITATION DISTRICT REQUEST FOR PROPOSAL Review of Unassessed and Under-assessed Sewer Service Fees Objectives The Orange County Sanitation District (District) provides services to operate two wastewater treatment facilities and nine separate wastewater collection systems spread throughout Northern and Central Orange County. The major revenue source of the District is the sewer service fee that is assessed on each improved parcel within the District's service area through the property tax bill of the County of Orange (County), and then subsequently collected and remitted by the County to the District. The sewer service fee covers the District's cost of collection, treatment and disposal of all wastewater received from the individual parcels. The fees are established by resolution of the District Board and vary according to the revenue area in which the parcel is located and the level of service that is required. Separate uuser billing" codes are assigned to each parcel depending on whether the parcel is developed for residential, commercial, industrial, or governmental use. Each year, prior to County finalizing the property tax assessment, the County Assessor's Office provides the District with a yearly update of improvements or other changes to parcels located within the District's boundaries that may affect the amount of the fee for these parcels. However, since the County is not responsible for ensuring the accuracy of the appropriate sewer user code, there may be parcels that are under assessed or not assessed the proper sewer service fee in accordance with the method of assessment established by the District. Uncharged parcels may exist because the County Assessor's Office may identify some parcels with improvement values but no square footage or they may indicate some square footage with no improvement values when improvements do exist. Undercharged values may exist when the County Assessor's Office does not know the extent of improvements on parcels, inaccuracy of the square footage identified for certain parcels, or the Assessor's property use code may be incorrect. The District service area includes 500,000 parcels, approximately 475,000 of which indicate improvements and are included on the District's sewer service fee program. Of these 475,000 improved parcels, approximately 425,000 parcels are single or multi-family residential parcels. The remaining 50,000 parcels consist of commercial, industrial, and governmental classifications, and have the most potential for reclassification and additional revenue. The single-family residents are assessed a flat rate fee, the multi-family residents are charged a flat rate fee on a per unit basis, and commercial, industrial, and governmental, parcels are assessed a fee per 1,000 square foot of building improvements based on their individual property user fee code. Scope of Services On a contingency fee basis, review the District's copy of the County Assessor's database for under-assessed and unassessed parcels and make recommendations on the sewer user code reclassifications for additional sewer service fee revenue. Review the District's flow, BOD and SS assignments to-each property use code and make recommendations in areas in which your firm is experienced. H:\wp.dta\fin\21 O\crane\F AHR\F AHR98\Dec\RFPUnass&Underasj;SSF.doc The District has identified areas (property use codes) to be reviewed that appear to be beneficial. The District is also aware that there are parcels that are still under-assessed and will request the consultant to identify the codes and recommend a corrected fee. Areas that will likely result in additional revenues include the review of: • 2,734 parcels, 1,050 of which are governmental parcels, that do not currently receive a sewer service fee assessment because the County has not identified the square footage of improvements, although these parcels have assessed improvement value according to the County's database. A report is available identifying the parcels. • The appropriate property user code classification of the various shopping centers within the District's boundaries. • The 4,031 parcels identified with the user code "018". The description of the "018" user code is "developed parcels with a mix of forms" and the fee for this code is the same as the fee for a multi-family resident. There are 3,163 parcels in this code that are known to be multi-family residences but the r~maining parcels require an on-site review to be properly recorded. • Specific user codes that continue to be adjusted for rebates for the 1998-99 property tax year. Included within Attachment A of this proposal is a listing of all of the District's sewer use codes along with sewer service charge for each per 1,000 square feet. Time of Performance Final date for submission of all proposals is 4:00 p.m., Thursday, January 28, 1999. Proposals should be sent or delivered to the Orange County Sanitation District Finance Department, 10844 Ellis Avenue, Fountain Valley, CA 92708-7018. Supplemental Information In order to compare the proposals, the following information must be included with your proposal: 1. A summary of your firm's experience in the areas of analyzing property tax information from county agencies, including a reference list of at least three governmental agencies that have utilized your services in the analysis of property tax and/or user fee assessments. 2. A list of the people to be assigned who will directly work on the project and a brief summary of their background. The individual charged with the day-to-day responsibility for the project should be clearly identified in the proposal. Please indicate who will be responsible for negotiating and signing the formal agreement with the District. 3. Extent of availability on a day-to-day basis for consultation with District staff on issues relating to the review of the Districts' sewer service fee program. 4. Provide evidence of your ability to make recommendations that will enhance the effectiveness of the Sewer Service Fee Program. 5. Indicate what your proposed contingency fee is for reviewing the District's Sewer Service Program. H:\wp.dta\fin\21 O\crane\F AHR \F AHR98\Dec\RFPUnass&Und~SSF .doc •