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1999-02-10
DRAFT FILED IN THE Qtt:fCE ()J: Tl-IE SfGt:JETARY ORANGE CCiUNTV St\.N!TATION DISTRICT • FEB 2 4 1999 BY __f__[,_ __ MINUTES OF FINANCE. ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING Orange County Sanitation District Wednesday, February 10, 1999, 5:30 p.m. A meeting of the Finance, Administration and Human Resources Committee of the Orange County Sanitation District was held on February 10, 1999 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: (2) Directors Present: Thomas Saltarelli, Chair Mark Leyes, Vice Chair Shawn Boyd John M. Gullixson Shirley McCracken Peer Swan, Board Vice Chair John J. Collins, Past Board Chair Directors Absent: Jan Debay, Board Chair Mark A Murphy Todd Spitzer APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS There were none. Tom Woodruff, General Counsel Ryal Wheeler, Foreman STAFF PRESENT: Don McIntyre, General Manager Blake Anderson, Assistant General Manager Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Patrick Miles, Director of Information Technology Michelle Tuchman, Director of Communications Lisa Tomko, Human Resources Manager Steve Kozak, Financial Manager · Greg Mathews, Assistant to the General Manager Mike White, Controller Larry Kraemer, O&M Engineer Jim Herberg, Engineering Supervisor Rob Thompson, Plant Automation Manager Lenora Crane, Committee Secretary 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 February 10, 1999 (4) RECEIVE, FILE AND APPROVE DRAFT MINUTES OF PREVIOUS MEETING It was moved, seconded and duly carried, with Directors Boyd and McCracken abstaining, to approve the minutes of the December 9, 1998 Finance, Administration and Human Resources Committee as drafted. (5) REPORT OF THE COMMITTEE CHAIR Chairman Saltarelli welcomed new Directors Shirley McCracken and Shawn Boyd to the Committee. The Chair then recognized Director Mark Leyes as the Committee's new Vice Chair. (6) REPORT OF THE GENERAL MANAGER General Manager Don McIntyre reported to the Committee the need to add two items requiring immediate action that arose subsequent to the publication of the agenda: A) Compensate the Kern County, Wheeler Ridge property owner for a second month's payment of $10,400, and; B) Approve a Professional Services Agreement with Bristol Systems for Year 2000 Compliance technical assistance to complete embedded systems assessment, reparation, and testing not to exceed $192,000 through September 30, 1999. Mr. McIntyre reported that the emergency items could be added to the agenda pursuant to Government Code Section 54954.2(b)(2) upon a two- thirds' vote of the Committee. It was moved, seconded, and unanimously carried to add two items to the Agenda pursuant to Government Code Section 54954.2(b)(2) Mr. McIntyre advised that two reports were placed before the Committee just prior to the meeting pertaining to the respective emergency items. The Chair advised that these two items would be added to the agenda right after the Consent Calendar. (7) REPORT OF ASSISTANT GENERAL MANAGER Assistant General Manager Blake Anderson had no report. (8) REPORT OF DIRECTOR OF FINANCE Mr. Streed advised that several reports were placed before the Directors just prior to the meeting. • A report by Carollo Engineers dealing with connection and user fees. The report was not mailed with the agenda package because many Directors received a copy during the user fee discussions last year, however, Mr. Streed felt the report might be useful to the Committee during the connection fee discussion this evening. Mr. Streed noted that the connection fee comparative numbers are located on Page A 18 of the Carollo report. • The Treasurer's Report for January was placed before the Committee prior to the meeting in accordance with the Investment Policy and Government Code requirements. For the benefit of the new Directors, Mr. Streed explained that data for this report is not available at the time of the agenda mailings each month and, therefore, the report is handed out at the meeting in order to meet the end of month 30-day requirement. Since there was no FAHR Committee meeting last month, the Treasurer's Report went directly to the Board. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 3 February 10, 1999 • Three pages dealing with connection fee comparative data were also placed before the Committee just prior to the meeting. Mr. Streed further reported that an item on tonight's Consent Calendar deals with General Manager's purchases over $50,000, and is the second time the Committee has considered this item. Staff is in the process of rewriting the Purchasing Authority and Resolution that may eliminate the Committee's requirement of a report every quarter on these purchases. (9) REPORT OF DIRECTOR OF HUMAN RESOURCES The Director of Human Resources Mike Peterman advised that there would be a short closed session on the Supervisor and Professional Management Team labor negotiations and arbitration tonight. Mr. Peterman reported to the Committee the results of the Human Resources Survey. He advised that normally the results are only reported in an article in The Pipeline, the District's newsletter, however, since this year's results were particularly negative in the areas of confidentiality, productivity and communications, he felt a report would be appropriate. Mr. Peterman explained the survey process, the survey results, obvious reasons for this year's low ratings, and he offered suggestions on how to improve ratings in the future. (10) REPORT OF DIRECTOR OF COMMUNICATIONS • The Director of Communications Michelle Tuchman reported that Dave Parrish, a reporter from The Register, has contacted the District requesting information on the status of Mr. Ray Littrell's efforts concerning the District's user fees. Mr. Parrish is aware that Mr. Littrell has been to the Grand Jury and that the Grand Jury has visited the District. Staff is providing Mr. Parrish with a copy of a letter the Grand Jury sent to the District which states we are doing a good job; a copy of a letter General Manager Don McIntyre sent to Sheldon Singer, who is the Grand Jury Foreman; and a copy of a Request for Proposals that the Finance Department sent out requesting proposals for a company or individual-to look at government- owned parcels relating to sewer service rates. The responses to the RFP are due in next Thursday. Michelle reviewed Mr. Littrell's general complaint for the Committee and Mr. Littrell's contacts with the District, news media and Grand Jury. • Staff has just completed work on redesigning and updating the District's wastewater brochure which is being used in our information packets. • The cities of Westminster, Costa Mesa, Seal Beach, and Midway City will all be airing the District's new video on Cable TV. (11) REPORT OF GENERAL COUNSEL General Counsel Tom Woodruff reported to the Committee good news pertaining to an accident that occurred at the District in 1994 involving employees of a contractor, Pascal and Ludwig, who were installing a gate in our channel. Mr. Woodruff described the accident and the injuries to the Pascal and Ludwig employees. He advised that four citations were issued to the District by CAL-OSHA as a result of their investigation. Mr. Woodruff described the District's alleged Minutes of the Finance, Administration and Human Resources Committee Meeting Page 4 February 10, 1999 violations concerning this incident, which the District appealed. Mr. Woodruff advised that his office has just received a decision from the appeals judge dismissing all four citations. He stated that the court's decision will set an excellent precedent, because it relieves the District from being responsible for contractors' employees. Mr. Woodruff further advised that CAL-OSHA's regulations are expected to be rewritten. REPORT OF THE DIRECTOR OF OPERATIONS & MAINTENANCE Operations and Maintenance Director Bob Ooten reported that one of the District's large anaerobic digesters, holding two million gallons of liquid, is leaking around a pipe. He explained that the packing gave way causing the liquid to run out onto the ground, into a drain, and into our headworks. Staff is diluting the liquid, and the tank is being drained. Mr. Ooten advised that it would take twenty-four hours to drain the tank. Once the tank is drained, a contractor will be brought in for repairs. Mr. Ooten explained that incidents such as these occur once every couple of years, reassuring the Committee that it is safe and under control. (12) CONSENT CALENDAR ITEMS (Items A-E) A. FAHR99-01: Receive and file Treasurer's Report for the month of January 1999: 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. FAHR98-02: Receive and file Certificates of Participation (COP) Monthly Report. C. FAHR98-03: Receive and file Employment Status Report as of January 20, 1999. D. FAHR98-04: Receive and file report of General Manager-approved purchases in amounts exceeding $50,000. E. FAHR98-05: Receive and file Quarterly Investment Management Program Report for the period October 1, 1998 through December 31, 1998. F. FAHR98-06: Renew boiler & machinery insurance for the District for the period March 1, 1999 to February 29, 2000, with Hartford Steam Boiler Insurance Company, in an amount not to exceed $71,286. END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. There were none. Motion: Moved, seconded and duly carried to approve the recommended actions for items specified as 12(A) through 12(F) under Consent Calendar. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 5 February 10, 1999 (12.1) EMERGENCY ACTION ITEMS (Items A-B) A. Compensate the Kern County, Wheeler Ridge Property Owner for a Second Month's Payment Of $10,400. Motion: Moved, seconded and duly carried, with one opposition, to approve staff's recommendation to pay a second month additional payment of $10,400. B. Approve a Professional Services Agreement with Bristol Systems for Year 2000 Compliance Technical Assistance to Complete Embedded Systems Assessment, Reparation, and Testing not to exceed $192,000 through September 30, 1999. Motion: Moved, seconded and duly carried to approve staffs recommendation. (13) ACTION ITEMS (Items A-E) A. FAHR99-07: Authorize staff to retain Moreland & Associates to conduct the independent audit of the District's annual financial statements for an additional three-year period, and to issue Change Order No. 1 to Purchase Order No. 72192 for an amount not to exceed $42,600 for the first year with provision for 4% annual escalations for years two and three. Motion: Moved, seconded and duly carried to approve staff's recommendation with the following changes: Propose to extend the contract for an additional one-year period (1998-99), and to issue Change Ord~r No. 1 to Purchase Order No. 72192 for an amount not to exceed $42,600. Proposals for five-year audit services will be solicited during 1999-2000. The Committee directed staff to bring this item back to Committee next month if Moreland & Associates rejects the District's proposal. B. FAHR99-08: Authorize staff to give Danny Evangelista an 11.7% equity adjustment to correct the internal and external inequities that exist between Mr. Evangelista's salary and the salaries of other Programmers. Motion: Moved, seconded and duly carried to approve staffs recommendation. C. FAHR99-09: The General Manager recommends development of a new comprehensive connection fee program and ordinance which contains the following elements: 1. Base fees are determined by type of development, flow, BOD and SS, and are calculated per 1,000 square feet for non-residential development and per unit for residential development; 2. Residential fees are tiered based upon number of bedrooms and SFR or MFR development; 3. Connection fees continue to be collected at the time the building permit is issued; Minutes of the Finance, Administration and Human Resources Committee Meeting Page6 February 10, 1999 4. Credit for demolished structures be granted only when the developer can prove that prior connection fees were paid, and credit provided only for the amount actually paid; 5. The new connection fee program should be reported to the RAC prior to final consideration by the Board. After considerable discussion on this item, the Committee determined that a FAHR Committee Workshop should be held, with invitations to the full Board in order for all Board members to become familiar with the connection fee issues. After the Workshop, this item will be sent to the RAC Committee, then back to the FAHR Committee, and then to the Board with a recommendation. A decision as to the date and time of the Workshop will be determined at a later date. D. FAHR99-10: Review, approve and forward the Mid-Year Report for the Quarter ended December 31, 1998, to the Board of Directors. In response to Director Swan's questions, Mr. Streed advised he would provide additional information at the next Committee meeting. Motion: Moved, seconded and duly carried to approve staffs recommendation. E. FAHR99-11: Approve the 1999-2000 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1999-2000 Budget incorporating these parameters. Motion: Moved, seconded and duly carried to approve staffs recommendation with modifications to the Budget Assumptions on pages 1 and 2, as delineated by Director Swan. (14) INFORMATIONAL PRESENTATION There were none. (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 Director Peer Swan requested that items such as the District's Investment Policy and strategy, the Financing Policy, what debt we have outstanding and what is planned for the future, as well as the five-year staff reduction program, be agendized for a future meeting for the benefit of the Committee's new Directors. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 7 February 10, 1999 (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 March 10, 1999 at 5:00 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 7:55 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 8:10 p.m., the Committee reconvened in regular session. (20) ADJOURNMENT The Chair declared the meeting adjourned at approximately 8:12 p.m. Submitted by: JJ ~ ~-~-e-------- F.A:HR Committee Secretary H:\wp.dte\lin\21D\crane\FAHR\Fehr99\Feb'IJ2-99MIN.doc STATE OF CALIFORNIA ) ) ss. COUNTY OF ORANGE ) Pursuant to California Government Code Section 54954.2, I hereby certify that the Notice and the Agenda for the Finance, Administration and Human Resources meeting held on February 10, 1999, was duly posted for public inspection in the main lobby of the District's offices on February 4 1999. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of February 1999. Penny Kyle, Se t ary Orange County Sani Posted: ;fA, </ ,1999,~.M. By: ~,,J/J_µ ~ ~.._~~g~na_t_u-re---~--~---- \\radon\data 1 \wp.dta\fin\21 0\crane\FAHR\Fahr99\Feb\C ERTP002-9 9 .doc DISTRIBUTION FAHR COMMITTEE MEETING PACKAGE Full Agenda Package 44 Committee 13 & 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) Cagle, Brad 1 Lisa Tomko 1 Bob Geggie 1 Jim Herberg 1 Patricia Jank 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 \\RADON\OATA 1 \WP .OTA \FIN\21 0\CRANE\FAHR\OISTRIBUTIONLISTFAHR.OOC phone: 17141 962-2411 malllng address: P.O. Box 8127 Founca n Valley, 0A 92728-"8127 11:r:eet address: 1 0844 811s Avenue Fountain Valley, 0A 92708-7018 Member Agencies Cjtles AnBheim Brea Buena Park Cypress Fou111:.llin Va/fey Fullerton Garden Gl'ova Huni;ingcon Beach lrvlne La Habra La Palme Los Afarnitos Newport Beach Orange Placan~a Santa Ana Seal Beach Sl:Bntan Ttfstin Villa Park Yor/JEI Lfnda County of Orange Sanitary Districts Costa Mesa Midway Cwt Water Dlstrrcts Irvine Ranch ORANGE COUNTY SANITATION DISTRICT NOTICE OF MEETING FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, FEBRUARY 10, 1999 -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. "Tc Protect the Public Health and the Environment through Excellence in Wastewater Systems· FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING DATES FAHR Committee Meeting Dates 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 None Scheduled February 9, 2000 Board Meeting Dates February 24, 1999 March 24, 1999 April 28, 1999 May 26, 1999 June 23, 1999 July 21, 1999 August 25, 1999 September 22, 1999 October 27, 1999 November 17, 1999 December 15, 1999 January 26, 2000 February 23, 2000 ROLL CALL FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Meeting Date: February 1 o, 1999 Time: 5:30 p.m. Adjourn: ____ _ COMMITTEE MEMBERS THOMAS R SALTARELLI (Chair) ................................................ . MARK LEYES (Vice Chair) ........................................................... . SHAWN BOYD ••••.•••••••••••••......•••.••••••..•••••••••••••••••••••••.•......••.•.•••.••• JOHN M. GULLIXSON .................................................................. . SHIRLEY MC CRACKEN .............................................................. . MARK A. MURPHY ....................................................................... . TODD SPITZER ..••.•....••••..•••••••.••••......•............•...•••••••••••••••.•••••••..• JAN DEBAY (Board Chair) ........................................................... . PEER SWAN (Board Vice Chair) .................................................. . JOHN J. COLLINS (Past Board 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 ofTechnical 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 AGENDA REGULAR MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, FEBRUARY 10, 1999, 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 February 10, 1999 (4) APPROVE MINUTES OF PREVIOUS MEETING Approve draft minutes of the December 9, 1998, Finance, Administration and Human Resources Committee meeting. (5) REPORT dF COMMITTEE CHAIR (6) REPORT OF GENERAL MANAGER (7) REPORT OF ASSISTANT GENERAL MANAGER (8) REPORT OF DIRECTOR OF FINANCE (9) REPORT OF DIRECTOR 0F HUMAN RESOURCES (10) REPORT OF DIRECTOR OF COMMUNICATIONS (11) REPORT OF GENERAL COUNSEL (12) CONSENT CALENDAR ITEMS (A-F) Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: JAIi matters placecf o~ the consent calendar are considered as n~t requiring discussion or further explanation and i unless any particular item is requested to be removed from the consent calendar by a Director, staff member or !member of the public in attendance, there will be no separate discussion of these items. All items on the consent ·calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular order of business. Members of the public who wish to remove an item from the consent calendar shall, upon recognition by the chair, state their name, address and designate by number the item to be removed from the consent calendar. The Chair will determine if any items are to be deleted from the consent calendar. A. FAHR99-01: 8. FAHR99-02: Receive and file Treasurer's Report for the month of January 1999: The Treasurer's Report will be handed out at the FAHR Committee meeting in accordance with the Board-approved Investment Policy, and in conformance to the Government Code requirement to have monthly reports reviewed within 30 days of month end. Receive and file Certificates of Participation (COP) Monthly Report. C. FAHR99-03: D. FAHR99-04: E. FAHR99-05: F. FAHR99-06: 3 February 10, 1999 Receive and file Employment Status Report As of January 20, 1999. Receive and file report of General Manager-approved purchases in amounts exceeding $50,000. Receive and file Quarterly Investment Management Program Report for the period October 1, 1998 through December 31, 1998. Renew boiler & machinery insurance for the District for the period March 1, 1999 to February 29, 2000, with Hartford Steam Boiler Insurance Company, in an amount not to exceed $71,286. END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. (13) ACTION ITEMS (A -E) A. FAHR99-07: B. FAHR99-08: C. FAHR99-09: Authorize staff to retain Moreland & Associates to conduct the independent audit of the District's annual financial statements for an additional three-year period, and to issue Change Order No, 1 to Purchase Order No. 72192 for an amount not to exceed $42,600 for the first year with provision for 4% annual escalations for years two and three. (Mike White -5 minutes) Authorize Human Resources to give Danny Evangelista an 11.7% equity adjustment to correct the internal and external inequities that exist between Mr. Evangelista's salary and the salaries of other Programmers. (Mike Peterman -10 minutes) The General Manager recommends development of a new comprehensive connection fee program and ordinance which contains the following elements: 1. Base fees are determined by type of development, flow, BOD and SS, and are calculated per 1,000 square feet for non-residential development and per unit for residential development; 2. Residential fees are tiered based upon number of bedrooms and SFR or MFR development; 3. Connection fees continue to be collected at the time the building permit is issued; D. FAHR99-10: E. FAHR99-11: 4 February 10, 1999 4. Credit for demolished structures be granted only when the developer can prove that prior connection fees were paid, and credit provided only for the amount actually paid; 5. The new connection fee program should be reported to the RAC prior to final consideration by the Board. (Gary Streed -30 minutes) Review, approve and forward the Mid-Year Report for the Quarter ended December 31, 1998, to the Board of Directors. (Mike White/Greg Mathews-15 minutes) Approve the 1999-2000 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1999-2000 Budget incorporating these parameters (Gary Streed/Mike White -15 minutes) (14) INFORMATIONAL PRESENTATIONS None. (15) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY (16) MATTERS WHICH A DIRECTOR WOULD,UKE 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 March 10, 1999, at 5:30 p.m. •. 5 February 10, 1999 (19) CLOSED SESSION During the· course qf 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) ernplqy~e 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 ~l:!.~iE!~~1.~hf;, minutes .will reflect all reg uired disclosures ~.~f _in_fo_rm_a_tio_n~·-_________ ___._ ____ _____, 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 H :\wp.dta \fin \21 O\crane\F AHR\F ahr99\F eb \02-99Agenda.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 . 714 962-3954 FAX February 10, 1999 Consideration of Connection Fee Structure Action Preliminary Capital Improvement Program Information Replacement COP Credit Enhancements Action ~i~ 11 M1rt,t J-· ,1-------------------------+-----------t Data Warehousing Demonstration Information Adjustment to Standby Pay Action Agreement to Audit User Fee Database Action General Manager's Quarterly Purchasing Report Information Consolidated Purchasing & Delegation Policy Action Consider Preliminary Budget Update Information Consider Preliminary Budget Update Information .l!n: 1998-99 Third-Quarter Financial & Operational Report Action rr ··•· ··1-----------------------------------t = 'I •"' I Mlly ~ , Quarterly Investment Management Report Information .. ·--: :l •;• 1 :It ~jl)~j ;:1----------------------------------t ii Consider Preliminary User Fees Information + i/ ..::ij ~--------------------------+-------- Consider Preliminary Connection Fees Information rn ::; ili CSDOC e P.O. Box 8127 e Fountain Valley, CA 92728-8127 e (714) 962-2411 ., DRAFT 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 Acocella, 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 END OF CONSENT CALENDAR Minutes of the Finance, Administration and Human Resources Committee Meeting Page 4 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 staffs 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: 1 O p.m. Submitted by: ~ ~ FAHR Committee Secretary Minutes of the Finance, Administration and Human Resources Committee Meeting Page6 December 9, 1998 l-l:\wp.dtaVin\210\aane\FAI-IR\FAI-IRQB\Dec\12-QBMIN.doc 1 FAH R COMM ITTEE Meeting Date To Bd. 02/10/99 N/A AGE NDA REPO RT 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 - DECEMBER 1998 AND JANUARY 1999 (FAHR99-02) GENERAL MANAGER'S RECOMMENDATION Receive and file Certificates of Participation (COP) Monthly Report for the months of December 1998 and January 1999. SUMMARY Since June 1995, the daily rate COP program remarketing agents have been PaineWebberfor 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 December 1998 and January 1999, 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." \lradonldata1wvp.dtallin\210'crane\FAHR\Fahr99\Feb\Backup of FAHR99-02.v.t>k Re\lised: 1 /5198 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 ra~e 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 rise at the end of each calendar quarter, and especially at year-end, because of business taxes and statements. The rates decline to prior levels immediately in the following month. Staff 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 2. Graph -OCSD COP Daily Rate History Report 3. Graph -COP Rate History, Comparison of Highest & Lowest 4. Tabular-Daily COP Rate Comparison GGS:SK:lc \lradonldata1 'wp,dta\fin\21 O\crane\FAHR1Fahr991Feb\Backup of FAHR99-02. v.ok Revised: 1 /5/98 Page2 Prepared by Finance, 2/1 /99, 2:33 PM COMPARATIVE DAILY COP RATE HISTORY REPORT JANUARY, 1999 6.00 ..----------------------------------------------, 5.00 -l----------------------------------------------1 4.00 .-. ~ ~ w .... <C a:: 2.00 1.00 0.00 DATE 00 00 00 00 00 00 00 00 00 00 00 00 O') O') 0) 0) O') 0) 0) 0) 0) O') O') 0) c ..c ..; ..; > c :i 0) ci. ..;-> u ('Cl (J) ('Cl a. ('Cl ::::, ::::, (J) 0 0 (J) ~ <( -, 0 -, LL ~ -, <( en z 0 mocso D COMPOSITE INDEX G :\excel .dta\fi n\2220\geggi\Fi nance\d ailycopintrate .xis _.._ .G? $" X n ~ a. 6T 5 :, f;3 ~ a c6 c2 If!. '.!i :, "' :, n !!'--::::0 ~ rn X cii -i io --..J C )> -t m 0 0 0 04-Feb-98 18-Feb-98 04-Mar-98 18-Mar-98 01-Apr-98 15-Apr-98 29-Apr-98 13-May-98 27-May-98 T f, 10-Jun-98 )>""CJ I 24-Jun-98 -Ill G)-· (I)~ I 08-Jul-98 ~~ w ro I 22-Jul-98 -Ocr er Cl) -, 05-Aug-98 _,_ 19-Aug-98 H I 02-Sep-98 g>~ I 16-Sep-98 0. G)~ gi ~ I 30-Sep-98 cnfil l ::i I 14-Oct-98 28-Oct-98 11-Nov-98 25-Nov-98 09-Dec-98 ~- 23-Dec-98 06-Jan-99 20-Jan-99 RATE(%) ..Ii, N ~ .,:i.. UI 0) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 en 0 0 0 ""CJ 0 '-~ >r z -< $;'~ ::tJ -I -< m -~ :I: CD -CD en CD -I 0 ::;c -< ::;c m "'C 0 ::;c -I "'O iil "'Cl "' iil a. CT -< "Tl s· "' :, (') _co ~ co _r.o N c,j --..J "U s: -----------------. ·------------- -~ ~ w .... <C 0:: 3.40 3.30 3.20 3.10 3.00 2.90 2.80 2.70 2.60 2.50 2.40 2.30 2.20 HIGH LOW IJP/IRWO ILE];/SCE JPnRWD l!I Highest rate G:\excel.dta\fin\2220\geggi\Finance\RA TE HI ST _HILO _bargraph COP RATE HISTORY COMPARISON OF HIGHEST & LOWEST RATES ILEH/SCE BTIIRWO ILEH/SCE BT/IRWD ILEH/SCE SBIIRWO }{\ D OCSD/J.P. Morgan • OCSD/PaineWebber 13 Lowest rate Prepared by Finance, 212199, 8:28 AM Prepared by Finance, 2/2/99, 9:26 AM Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 AVERAGE DAILY COP RATE COMPARISONS(%) FEBRUARY, 1998 -JANUARY, 1999 OCSD $100M $98.SM $46M Series"A" Series"C" Series 93 Ref PaineWebber J.P. Morgan PaineWebber 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 2.94 2.91 2.94 3.11 3.07 3.11 2.84 2.87 2.84 3.01% 3.03% 3.01% ESTIMATED ANNUAL INTEREST PAYMENTS PER $100M PAR AMOUNT $ 3,006,667 $ 3,030,833 $ 3,006,667 *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* 2.53 2.80 3.55 3.57 3.27 2.79 2.40 3.24 3.02 2.96 3.09 2.87 3.01% $ 3,007,500 . Western Riverside Co. Reg. Wastewater Auth., Series 96, $25.4M, PaineWebber . Orange Co., Irvine Coast Asst. Dist. 88-1, $94.SM, J.P. Morgan . SCE, $192M, Lehman G:\excel.dta\fin\2220\geggi\Finance\COPdaily$rate comparison .... ' FAHR COMMITTEE AGE NDA ltEPORJ Orange County Sanitation District FROM: Mike Peterman, Director of Human Resources Originator: Patty Steeves, Human Resources Analyst Meeting Date 2/10/99 Item Number 12 (c) SUBJECT: EMPLOYMENT STATUS REPORT AS OF JANUARY 20, 1999. (FAHR99-03) GENERAL MANAGER'S RECOMMENDATION Receive and file the Employment Status Report. SUMMARY To Bd. of Dir. N/A Item Number Human Resources reporting for January 1, 1998 through December 31, 1998 any new employees that were hired above mid-point in their job classification. Total FTE headcount at the District as of January 20, 1999 was 515.25. PROJECT/CONTRACT COST SUMMARY Not applicable. BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. ~ Not applicable (information item) ADDITIONAL INFORMATION It is District policy to report to the Board all new hires that enter the District over midpoint of the salary range. The table below reports that one new employee for calendar year 1998 was hired above mid-point in their job classification. Classification Current Pay Range Director of lnfonnation $5,948 -$9,925/month Technoloav \lradon\data1~.dtalfin\210\cranelFAHR\Fahr99\FeblFAHR99-03.doc Rellised: 8/20/98 Current Mid New Hire Range Offer Rate $7,937/month $9, 166/month Page 1 The District had a full-time equivalent (FTE) headcount of 515.25 as of. January 20, 1999. The actual number of employees was 523. The annual turnover rate is 5.3%. There were eight new employees hired since November 1, 1998 to present: • Three Interns (Environmental Compliance & Monitoring) • Intern (Environmental Sciences Laboratory) • Two Interns (Air Quality & Special Projects) • Storeskeeper Assistant (Purchasing & Warehousing) • Buyer (Purchasing & Warehousing) There was one promotion for the following position: • From: To: Financial Analyst (Accounting) Programmer (Network Support) ALTERNATIVES Not applicable. CEQA FINDINGS Not applicable. ATTACHMENTS January 20, 1999 Employment Status Report. Performance compared to 5-Year Staffing Plan. llradon\data1 lwp.dlallin\21 O\cranelF AHR\Fahr99\Feb\FAHR99-03. doc Revised: 8/20/98 Page2 Employment Status Report Run Date· 20.Jan-99 ~· Regular Regular Total Vacant . Positions ... Regular Part-time Part-time FTE Positions FTE t=TE FTE FTE wlln 5 yr plan --,., ---~ _ ... "lit ... Full"ffme 20 hours-30 hours eomn~ /(118m LOA Count FY98-99 98-99 9940. 00-01 01-02 fFY'99-00) 11 o -General Management Ad min 4.00 0.00 0.00 0.00 0.00 0.00 ,4.QO 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 21 O -Finance Administration 4.00 0.00 0.00 o.oo 0.00 0.00 4.00 0.00 •.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 14.00 0.50 0.00 0,00 0.00 0.00 14.50 1.60 18.00 15.00 15.00 15.00 0.50 Total Finance 36.00 0.50 0.00 0.00 0.00 0.00 36.50 1.50 38.00 36.50 35.00 33.50 0.00 31 O -Communications 8.00 0.00 0.75 0.00 0.00 0.00 ·8.75 1.00 9.75 9.75 9.75 9.75 1.00 Total Communications 8.00 0.00 0.75 0.00 0.00 0.00 8.75 1 9.75 9.75 9.75 9.75 1.00 41 O -General Services Admin 5.00 0.00 0.00 o.oo 0.00 1.00 6.00 0.00 6.00 6.00 6,00 6.00 0.00 420 -Collection Facilities Mice 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 32.5!) 8.00 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 51 o -Human Resources Admin 5.00 0.50 0.75 0.00 0.00 0.00 &25 0.50 11.7_5 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 -Safety & Emergency Response 5.00 0.00 0.00 0.00 0.00 0.00 :.5.0!) 0.50 5.50 5.50 5.00 5.00 0.50 Total Human Resources 14.00 0.50 0.75 0.00 0.00 0.00 15.25 1.00 16.25 16.25 15.75 14.5 1.00 610 -Technical Services Admin 2.00 0.00 0.00 0.00 2.00 0.00 4.00 1.00 5.00 4.00 4.00 4.00 0.00 620 -Environmental Compliance & Mon 17.00 0.00 o.oo 0.00 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 SO.SO -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 2.00 1.00 87.25 6.00 93.25 87.25 86.25 84.25 0.00 71 o -Engineering Administration 3.00 0.00 0.00 0.00 0.00 0.00 3.00 0.00 3.08 3.00 3.00 3.00 0.00 720 -Planning & Design Engineering 28.00 0.00 0.75 0.00 0.50 0.00 29.2.5 225 31.50 31.50 31.50 31 .50 2.25 730 -Construction Management 34.00 0.00 0.75 0.00 0,00 1.00 '35.75 2.75 38.50 37.50 37.50 37.50 1.75 Total Engineering 65.00 0.00 1.50 0.00 0.50 1.00 68 5 73.00 72.00 72.00 72.00 4.00 810 -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 B.25 B.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 1.00 41.00 0.00 41.00 37.00 37.00 37.00 -4.00 850 -Mechanical Mice 45,50 0.00 0.00 0.00 0.00 1.00 46.50 5.00 51.50 48.50 47,50 45.50 2.00 860 -Electrical & Instrumentation Mice 57.50 0.00 0.00 o.oo 0.00 0.00 57.50 1.00 58.50 57.50 56.50 56.50 o.oo 870 -Cogeneration 10.00 0.00 0.00 0,00 0,00 0.00 10.00 3.00 13.00 13.00 13.00 13.00 3.00 880 -Air Quality & Special Projects 8,00 0.00 0,00 0.00 1.00 0.00 9.00 -1.00 8.00 7.00 7.00 7.00 -2,00 Total Operations & Maintenance 207.00 0.00 0.00 0.50 1.00 2.00 210.50 10.75 221.25 209.25 206.25 204.25 -1.25 910 -IT Admin 3.00 0.00 0.00 o.oo 0,00 0.00 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 1.00 7.00 0.00 7.00 8.00 8.00 B.00 1.00 930 -IT Network Support 5.00 0.00 0.00 0.00 0,00 0.00 6:00 0.00 5.00 6.00 6.00 6.00 1.00 940 -IT Programming 6.00 0,00 o.oo 0.00 o.oo 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 B.00 1.00 Total Information Technology 27.00 0.00 0.00 0.00 0.00 1.00 ,28..00 2.00 30.00 33.00 33.00 33.00 5.00 Total Staffl;ig -~-"' r._,_ -498.00I 3.501 3.7SI 0.501 3.501 6.00 515.25 ~.75 549.00 521.50 515.50 507.75 1.25 - g•lexc,,l.dta\hr\S10\steovos\EMPDIV9S-99 Performance to 5-Year Staffing Plan 570 ~------------------------ 560 ·-------------------------------------·- 550 540 I i,/ :::-.::-:::"" ~ ... · ... · ... < < ... .... ... -... 530 ...... ... 520 ...... 510 -+-------------------------- 500 -+------I ._ FTE Headcount -•• • -5 Year Staffing Plan 490 -+----.-----.----.------.-----.------.------.------.--~~~~-----~--~~~~~~----.----.--~ JASON DJ F MAM J JASON DJ F MAM J I FY 97-98 I I FY 98-99 I ✓ FAHR COMMITTEE Meeting Date To Bd. of Dir. 2/10/99 N/A AGENDA REPORT Item Number Item Number 12 (d) Orange County Sanitation District FROM: Gary Streed, Director of Finance SUBJECT: GENERAL MANAGER APPROVED PURCHASES (FAHR99-04) GENERAL MANAGER'S RECOMMENDATION Receive and file report of General Manager approved purchases in amounts exceeding $50,000 in accordance with Board purchasing policies. SUMMARY In May 1998, the FAHR Committee and the Board approved changes to the staff purchasing authority. One of the changes was to increase the dollar threshold before Board authority was required for purchases of goods or services, excluding public works purchases, to $100,000. When approving this change, the Committee asked for periodic reports showing purchases approved by the General Manager for amounts between $50,000 and $100,000. Subsequent to receiving the initial report, the Committee requested that future reports be placed on the Consent Calendar. Vendor Name Amount Description/Discussion David M. Griffith & Associates $98,459.00 Operational review or management audit of Finance Department Hilton, Farnoff & Hobson, LLC $62,745.00 Office support staff operational review ThirdWave Corporation $98,380.00 Create custom agenda and minute preparation software using FileNet EDMS Section 10 of Resolution 98-21, the District's Purchasing and Contracts Award Resolution, authorizes the Purchasing/Contracts Manager to purchase items that have "appropriate budgetary approval." During the budget adoption process, the lists of these items were highlighted for the Directors. For these reasons, purchases that fell into these categories are not included in this report. PROJECT/CONTRACT COST SUMMARY NIA llradon\data1 lwp.dtallin\21 O'crane\F AHRIFahr99\FeblFAHR99-04.doc Revised: 8/20/98 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. [8] Not applicable (information item) ADDITIONAL INFORMATION NIA ALTERNATIVES NIA CEQA FINDINGS NIA ATTACHMENTS None. \lradon\data1 \wp.dtalfln\21 O'cranelFAHRIFahr99\FeblFAHR99-04.doc Revised: 8120/98 Page2 -, FAHR COMMITTEE Meeting Date 2/10/99 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 OCTOBER 1 THROUGH DECEMBER 31, 1998 (FAHR99-05) GENERAL MANAGER'S RECOMMENDATION 12 (e) Receive and file the Quarterly Investment Management Program Report for the period October 1, 1998 through December 31, 1998. SUMMARY Section 15.0 of the District's Investment Policy includes monthly and quarterly reporting requirements for the District's two investment portfolios. These two funds, the "Liquid Operating Monies," and the "Long-Term Operating Monies," are managed by PIMCO, the District's external money manager. The ongoing monitoring of the District's investment program by staff and Callan Associates, the District's independent investment advisor, indicates that the District's investments are in compliance with the District's adopted Investment Policy and the California Government Code, and that overall performance has tracked with benchmark indices. In addition, sufficient funds are available for the District to meet its operating expenditure requirements for the next six months. The District's portfolios do not include any reverse repurchase agreements or derivative securities. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. ~ Not applicable (information item) \lradonldata1w,p.dlalfin\210'crane\FAHR\Fahr99\Feb\FAHR99-05.doc Rellised: 1 /5198 Page 1 ToBd. 2/24/99 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 September 30, 1998, and December 31, 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 October 1 through December 31, 1998. Portfolio Performance Summary Quarter Ended December 31, 1998 Liquid Operating Monies (%) Long-Term Operating Monies(%) ·T.otal:Rate:of Return : . : . · ... ____Jl: ~·. ,;:dlsf-• ... _:~t~1;n~ ,'!'__jijiigillii~ t~ Lt: ·i .!I-· _;: 3 Months 1.3 0.6 6 Months 2.8 4.5 9Months 4.2 6.4 12 Months 5.6 8.1 Since inception 30 Sept. 95 5.6 7.3 Benchmark ..... ...... -~! Ii ,;, Hi:F.E • •r 3 Months 1.1 0.5 6 Months 2.4 4.3 9 Months 3.7 6.0 12 Months '5.1 7.6 ' Since l nception 30 Sept. 95 5.2 6.9 MarkefValue per PIMCO 31 Dec. 98 $18.6M $304.5M Average Quality "AAA" 'AAA" Current Yield 5.3% 6.0% Estimated Yield to Maturity 5.0% 5.07% Quarterly Deposits (Withdrawals) $20.0M Estimated Annual Income $1.0M $18.4M Market Recap During the fourth quarter of 1998, the Federal Reserve cut short-term interest rates by 50 basis points, amid concerns of slower growth in the U.S. economy. The rate cut stabilized the market, restoring liquidity and confidence, and investors shifted from Treasuries to other bond market sectors, and to stocks, which surged to record levels. \lradon\data1\Np.dtalfin\210'<:rane\FAHR\Fahr99\Feb\FAHR99-05.doc Revised: 1 /5198 Page2 As depicted in the attached comparative graph of the "Historical Yield Curve," the Treasury yield curve remained flat during the fourth quarter, but short and intermediate rates rose by approximately 10 to 30 basis points as expectations faded for further rate cuts by the Fed. The benchmark 30-year Treasury rate rose approximately 10 basis points when compared to the end of the third quarter 1998 ( 4. 97% vs. 5. 09% ). For the Long-Term Operating Monies portfolio, PIMCO maintained a weighted maturity or duration, slightly above the duration index (2.4 vs. 2.3 years), emphasizing holdings in lower coupon mortgage backed securities, and high 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 (0.6% vs. 0.5%) for the fourth quarter, and for the year (8.1 % vs. 7.6%). For the Liquid Operating Monies portfolio, PIMCO used a duration posture slightly below index (approximately 72 days vs. 90 days), and emphasized U.S. Agency discount notes and high-quality corporate commercial paper in the portfolio. These investments added incremental yield to the portfolio, as interest rates rose slightly. The portfolio outperformed its benchmark (1.3% vs.1.1 %) for the fourth quarter, and for the year (5.6% vs. 5.1 %). Portfolio Market Values During the month of December, the District received approximately $33.5 million through the Orange County Tax Collector's property tax allocation cycle. The sum of $20 million was deposited to the District's Long-Term portfolio for investment, and the balance of $13.5 million was deposited in LAIF to be available to meet current and projected cash flow requirements. Comparative marked-to-market quarter-end portfolio values are shown in the table below, and in the attached bar chart. Quarter Ending 31 Dec. 97 31 March 98 30June 98 30 Sept. 98 31 Dec. 98 \112donldata1 lwp.dtallin\21 O\cranelFAHRIFahr991FeblFAHR99-05.doc Revised: 1 /5/98 Liquid Operating Monies ($M) 17.6 17.8 18.1 18.4 18.6 Long-Term Operating Monies ($M) 301.1 306.0 311.5 282.8 304.5 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 \\radonldata1 lwp,dtalfin\210'crane\FAHR\Fahr991Feb\FAHR99-05.doc Rellised: 1/5198 Page4 Prepared by Finance, 2/2/99, 7:32 AM $350,000,000 - locso Investment Management Program Quarter End Portfolio Values (Marked-to-Market) $300,000,000 -~ , ••••• ••• ••• $2so,ooo,ooo I 1t··· ·-••• ••• •••I ::::: $200,000,000 I ,, ·1· : • ',,~. i ··t •• ,, •• $1 so,000,000 I ',''', ~•tt .. ••• •••t 'cl, ••• ••• $100,000,000 I ,; it··· ••• ••• ••• ••• $50,000,000 I .. '::,~iii ••• ••• .... --~,. $0 31 Dec 97 31 Mar 98 30 Jun 98 30 Sep 98 31 Dec 98 !• Liquid Operating Monies ~ Long-Term Operating Monies I G:\excel.dta\fin\2220\geggi\Finance\investmgmtprogram '-,. Prepared by Finance, 2/1/99, 11 :39 AM OCSD Liquid Operating Monies Portfolio . Investment Diversification 1 100100 100 90 80 70 ---'#-60 I "---I ~ I I • 9/30/98 ...., C 50 I CD I ~7 I~ 12/31/98 0 r-40 CD CL 30 20 10 I 0 0 0 0 0 0 0 0 0 0 0 Govt Mtg Corp Non US$ Other Net Cash Equivalent G:\excel.dta\fin\2220\geggi\Finance\Portfolio short term Prepared by Finance, 2/1/99, 1 :26 PM OCSD Long-Term Operating Monies Portfolio Investment Diversification 100 ~--------------------, 90 -+----------------- 80 -+--------------------i 70 -+--------------------i ~--~ -cf:. ..._... +"" C Q) ~ Q) a.. 60 50 40 30 20 10 0 52+5 Govt ---5-Y----------1 Mtg G:\excel.dta\fin\2220\geggi\Finance\Portfolio long term graph 1 1 0 0 Corp Non US$ 29 0 0 Other Net Cash Equivalent D 9/30/98 ~ 12/31/98 .. ,., Prepared by Finance, 2/1 /99, 2:19 PM 6.00 5.75 5.50 5.25 -~ ~ Cl ...J 5.00 w s: 4.75 4.50 4.25 4.00 7 0 0 E E C") co ... ~ """' [HISTORICAL YIELD CURVE I ... ~ N ... ~ C") ... ~ ~ ... ~ II) ... ~ r-- --+-30-Jun-98 ~30-Sep-98 ---31-Dec-98 G:\excel.dta\fin\2220\geggi\Finance\HistoricalTREASURYyieldcurve ... ~ 0 """' ... ~ 0 N ... ~ 0 M ~ INVESTMENT MANAGEMENT PROGRAM Orange County Sanitation District STRATEGY REVIEW ,FOR Tl-j_E PERIOD 1 OCTOBER l -DECEMBER 31, 1998 1 FINANCE, t\DMINISTRATION & HUMAN RESOU_RCES COMMITTEE FEBRUARY 10, 1999 .~1 ~ 840 Newport Center Drive Fost Office Box 6430 Newport Beach California 92658-6430 949 · 640-3031 PACIFIC INVESTMENT MANAGEMENT COMPANY AGENDA BOND MARKET REVIEW II PERFORMANCE/ PORTFOLIO REVIEW Ill CURRENT OUTLOOK/ STRATEGY PACIFIC INVESTMENT MANAGEMENT COMPANY U.S. RATES RISE ON DIMINISHED EXPECTATIONS OF FED EASE SHORT RATES REVERSE DRAMATIC DECLINE 30 YEAR RATES ENDED THE QUARTER SLIGHTLY HIGHER RATES ON INTERMEDIATE MATURITY TREASURIES ROSE THE MOST 6.0 ~ 5.5 ~ ~ ~ 5.0 ;;: 4.5 4.0 50 0 vi' c.. -8 fili -50 C "' .c u -100 -150 ,,-...... . , \• ..... __ -~--... 1Q '98 30-Yr. T-Bond ,-..... ---... --.. ~ -# • -.... ' .... -.. -• ---~ .. 1-Yr. T-Bi/1 .. ----. ·-- 2Q 098 3Q '98 -116 3 Mos. 1 Yr. 2 Yrs. 5 Yrs. 1 •4THQTR. ~19981 SOURCE: Bloomberg ' ..~15.10% ..... \\ . , . , , 10 Yrs. /\ .• -·,, ____ / '•J 4.52% 4Q '98 30 Yrs. PACIFIC INVESTMENT MANAGEMENT COMPANY STRATEGY RECAP -FOURTH QUARTER LONG-TERM OPERATING FUND Period Ended December 31, 1998 DURATION • MATURITY MIX • SECTOR/ ISSUE • SLIGHTLY ABOVE INDEX BROADER THAN INDEX ABOVE INDEX CORPORATE EXPOSURE CONTINUED EXPOSURE TO AGENCY SECURITIES HIGHER THAN INDEX MORTGAGE EXPOSURE • SLIGHT NEGATIVE • SLIGHT POSITIVE • SLIGHT POSITIVE 2 PACIFIC INVESTMENT MANAGEMENT COMPANY STRATEGY RECAP -FOURTH QUARTER LIQUID OPERATING FUND Period Ended December 31, 1998 DURATION • MATURITY MIX • SECTOR/ ISSUE • SLIGHTLY BELOW INDEX SLIGHTLY BROADER THAN INDEX MAINTAIN EXPOSURE TO AGENCY DISCOUNT NOTES AND COMMERCIAL PAPER 3 • SLIGHT POSITIVE • SLIGHT NEGATIVE • POSITIVE PACIFIC INVESTMENT MANAGEMENT COMPANY REVIEW OF PERFORMANCE Through December 31, 1998 • Long-Term Operating Fund 12/31/98 Market Value $304,458,347 • Liquid Operating Fund 12/31 /98 Market Value $18,599,826 Orange County Sanitation District (L-T) (%) Merrill 1 -5 Year Gov't. I Corp. Index (%) Orange County Sanitation District (Liq-op) (%) 3 Month T-Bill (%) * Annualized. 4 Since* Inception 9/30/95 2 Yrs.* 1 Yr. 3 Mos. 7.3 8.0 8.1 0.6 6.9 7.4 7.6 0.5 Since* Inception 9/30/95 2 Yrs.* 1 Yr. 3 Mos. 5.6 5.6 5.6 1.3 5.2 5.2 5.1 1 . 1 PACIFIC INVESTMENT MANAGEMENT COMPANY CURRENT OUTLOOK sf~@i~Q!!!=l,rAk:g{~tt!~f!Ar:ipN VHH '":(, '" t)1lnn~t9~9¥frp ~Low {H~lfPfY. LONG TREASURY YIELD TO RANGE BETWEEN 4½ -6½% ROBUST CONSUMER SPENDING UNSUSTAINABLE i i , i'.111im~rt~:r€~t~~iA;i(~i:m&11?1{:i~~t,~ti~;1m! --=--"·-·· , " ,- FEDERAL RESERVE WILL CONTINUE TO EASE • Weaker U.S. economy incites action • Despite recent cuts, real yields historically high INFLATION REMAINS LOW DURATION MATURITY SECTOR • Slower wage growth ahead • Low global demand weakens commodity prices i • NEAR TO SLIGHTLY ABOVE INDEX • BROADER THAN INDEX • FOCUS ON DISCOUNT COUPON MORTGAGES MAINTAIN ABOVE INDEX CORPORATE EXPOSURE TO ENHANCE YIELD 5 PACIFIC INVESTMENT MANAGEMENT COMPANY 7 l l l j _J ·_J J J j J I J J Callan Associates Inc. Investment Measurement Service Quarterly Review County Sanitation Districts of Orange County December 31, 1998 The following statistical analysis was prepared by Callan Associates Inc. utilizing secondary data from statements provided by the plan trustee and/or custodian, CAI computer software and selected information in CAI' s database. This report may also contain returns and valuations from outside sources as directed by the client. CAI assumes no responsibility for the accuracy of these valuations or return methodologies. Reasonable care has been taken to assure the accuracy of the CAI computer software and database. CAI disclaims responsibility, financial or otherwise for the accuracy or completeness of this report. Copyright 1999 by Callan Associates Inc. l l I l J I J J _j J l J J Capital Markets Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Active Management Overview Foreword ................................................................ 9 Domestic Fixed-Income ..................................................... 10 Asset Class Risk and Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Investment Manager Asset Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Investment Manager Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Manager Analysis PlMCO-Liquid Operating Monies ............................................. 14 PlMCO-Liquid Operating Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Bond Portfolio Characteri tics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Portfolio Characteristics Detail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7, I l ---.. I l l l I I _ _J I _ _j CAPITAL A PUBLlCATION OF CAILAN ASSOCIATES INC. AND THE CAILAN INVESTMENTS INSTITUTE ----------------ij Fourth Quaner 19981---------------- Revel Without a Cause? When the wild stock market scraped its knees badly in a traumatic fall last summer, industry observers then thought this child of "irrational exuberance" was finally getting its first lesson in responsible valuations since 1994. Oddly, though, after a paternal Fed treated the market's wounds last quarter with repeated pain-killing doses of lower interest rates, the preoccupied kid scrambled back to new heights with seemingly no fear. Representing the 2,000 largest U.S.-traded stocks excluding ADRs and other foreign shares, the Callan Broad Market index jumped 22.05%, including dividends, during the fourth quarter. In addition to the Fed's timely relief, the latest quarter's joyride was inspired by lower commodity prices, especially oil, and a spendthrift consumer lifting the economy more than expected. For the entire year, despite nagging grown-up Contents Foreign Stocks .............. . Foreign Bonds ............... . Alternative Investments .. . Real Estate .................... . concerns about record trade deficits, weakening profits, and economic 3 malaise elsewhere 3 4 4 around the world, this self-absorbed stock market has gained 24.90%. In the last four years, the Broad Market has expanded just over 170%, or 28.38% annualized. As the market's seasoned idol, the Callan Large Cap Index of the 150 largest stocks led the rest of the pack in the fourth quarter with a 23.44% grab. For all of 1998, the public craze for mega cap stocks bestowed a 36.75% gain upon these market giants, despite record high valuations. In the last quarter, the Callan Medium Cap Index (+19.97%) of the next largest 350 stocks muscled ahead of the Callan Small Cap Index (+19.31 %), which represents the Broad Market's bottom 1,500 members. continued on page 2 "It's the Stock Market, Stupid" Credit Markets Revived! The U.S. bond market regained stability in the fourth quarter after the tumultuous flight to quality in the late summer and early autumn. Following Long Term Capital's collapse, the Federal Reserve restored confidence by lowering short- term interest rates three times in a span of seven weeks. Liquidity improved, corporate issuance picked up, and spread product led the way for the quarter. However, U.S. Treasuries fell during the quarter, with the 30-year bond yield (which moves in the opposite direction of the price) creeping back above 5%. The yield curve experienced a U.S. Fixed-Income Returns for slightly parallel Quarter Ended December 31, 1998 upward shift, as yields in the intermediate segment increased a bit more than the short and long ends. The curve ended the year relatively flat - 56 basis points separated the 2- year note and the 30-year bond yields. Last Quarter Lehman Bros LB Aggregate LB Govt/Corp LB Govt/Corp Inter LB Govt/Corp Long LB Govt LB Corp LB Mortgage Salomon Bros SB Broad Inv Gr SB Hi Grade LT Merrill Lynch ML Treas 1-3 ML Hi Yid Mstr 0.34 0.13 0.29 -0.23 -0.08 0.60 0.80 0.41 0.86 0.76 2.87 The Lehman Brothers Aggregate Index ( +0.34%) was buoyed by the performance of the Lehman Brothers Mort- gage Index ( +0.80%) and the Lehman Brothers Corporate Index ( +0.60% ). Spreads narrowed significantly for both sec- tors when investors, slowly overcoming credit and liquidity fears, moved back into the sectors. Corporate spreads nar- rowed because liquidity improved and economic indicators continued on page 2 The U.S. economy ended 1998 on a high note, with the housing market reaching record highs, unemployment at 30- year lows, inflation subdued by weak commodity and import prices, and GDP growth stretching towards 4% for the year. Fueled by cheap oil and low interest rates, growth in the U.S. economy has exceeded all but the most optimistic forecasts. Consumers have outdone themselves, spending enough to drive the narrowly defined savings rate to zero and even negative in the fourth quarter, as the stock market pushed household wealth to new highs. Fed watchers (and the Fed itself) have become more nervous, as the stock market climbs ever higher and talk of "bubbles" punctuates the hand wringing. If the market showed signs of "irrational exuberance" at a Dow of 6,400 (! ), then what does the Fed do about a market over 9,000 after a 20% correction just 6 months ago? Not one, but three bubbles are causing the consternation at the Fed: the consumer spending bubble, the stock market bubble, and the ballooning trade bubble. The three bubbles are interrelated, and consensus is forming upon the following story for 1999 and beyond. With earnings growth expected to be flat or negative, the liquidity-driven stock market bubble will begin to deflate, reining in consumer spending (didn't we hear this a year ago?). A weaker stock market will lessen continued on page 4 SAN FRANCISCO MORRISTOWN CHICAGO ATLANTA DENVER 71 STEVENSON ST. SUITE 1300 SAN FRANCISCO CALIFORNIA 94105 415.974.5060 FAX 415.512.0524 hllp://www.callan.com 1 l } l ) 1 J 1 Revel Without a Cause? from page 1 With its roughly $300 millio·n weighted average market cap, the Callan Micro Cap Index of the next largest 1,000 stocks outside of the Broad Market gained a relatively minor 14.64%. Getting little affection from investors throughout the year, the troubled micro caps actually fell 4.24% in 1998. U.S. Equity Returns for Quarter Ended December 31, 1998 Last Quarter Across the Broad Market's economic sectors, the hottest action in the fourth quarter was clearly in Technology ( +37 .20% ). Investor infatuation with the Internet's growth opportunities particularly propelled the Communications Equipment ( +51.87% ), Networking Computers (+47.67%), and Broad Market CAI Broad Large Cao S&P 500 CAI Large DJIA Mid/Small Cao S&P MidCap 400 CAI Med CAI Small CAI Micro Exchange indices NYSE AMEX NASDAQ Convertible index FB Conv Sec Economic Sector Performance -CAI Broad Fourth Quarter 1998 Technology Communication Services Consumer Cydical Consumer Staples Financials Capilal Goods Health Care Transpor1alion Basic Materials Ulilitfes [22.45% S-§51l~l=~~;;::J 21.46% 120.77½1 ·-16.06% 14.69% CJ3.94% CJ2.95% 12943% 12:!J.!13,,, 22.05 21.30 23.44 17.57 28.19 19.97 19.31 14.64 18.59 11.24 29.57 14.73 137.20% Energy --0.39% >-----'l---+--+--+--+--+--+---t---< -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% Return Credit Markets Revived! from page 1 signaled stable growth in the economy. Mortgage spreads narrowed as interest rates moved higher and the rate of homeowners' refinancing slowed. When investors moved out of U.S. Treasuries and into spread product, the government sector suffered. The Lehman Brothers Gov- ernment Index slipped -0.08%. The high yield sector substantially outperformed all other sectors for the third quarter. The Merrill Lynch High Yield Master Index rose 2.87% for the period, as spreads narrowed sharply from levels not experienced since the 1990 recession. The high yield sector reacts more to changes in liquidity and credit risk, so the positive news of the fourth quarter espe- cially helped this sector. While the credit markets recovered some of its losses from the third quarter, concerns lingered. The equity and bond markets appeared to have fundamentally divergent views on the economy. Although the non-gov- ernment sectors outperformed in the fourth quarter, they did not com- pletely recover what was lost relative to Treasuries. Meanwhile, equities reclaimed all lost ground and moved ahead. The credit markets appar- ently have taken a more pessimistic view of the economy than the equity market. -CMR- Capitalization Sector Performance Fourth Quarter 1998 26% ,----------------;::::=====.1 24% =============------; 22% 20% 16% E 16% '; 14% a: 12% ~ 10% ~ 8% 6% 4% 2% 20% 40% 60% 60% 100% Percent of Total Market Capltallzatlon Computer Software and Services ( +35.03%) industries. While Microsoft's 26.0 I% advance under antitrust scrutiny was impressive during the quarter, America Online (+177.94%) particularly enjoyed the market's Internet obsession. From start to finish of 1998, America Online gained 586%! Bouncing back from its third quarter stumble (-20.75%) over recession fears, Consumer Cyclicals looked smart ( +29.33%) in the last quarter, as the consumer proved more resilient than expected in the slowing economy. Communications also performed notably well (+29.43%). Not all of the economic sectors attended last quarter's rave. Disappointed by poorly behaving oil prices during the quarter, the market placed a curfew on the Energy sector (-0.39%). Energy's Exploration & Production industry (-I 2.89%) suffered the worst discipline. During the quarter, however, the market's biggest marriage proposal, announced by Exxon (+4.13%) and Mobil (+15.62%), helped to restore trust in the sector's underlying values. Investment style was also particularly important last quarter. To iso- late styles of growth and value, Callan divides its capitalization indices evenly by price-to-book, creating sub-sectors of growth-and value-ori- ented stocks. Growth was clearly chic last quarter, as the combined Cal- lan Large/Medium Cap Growth Index (+26.06%) upstaged its value counterpart (+18.33%). For the year, the return spread was even wider between growth (+45.01 %) and value (+14.43%). Similarly, the Small Cap Growth Index beat the Small Cap Value Index for the quarter (+25.58% vs. +12.77%) and year (+10.19% vs. -2.21%). •CMR- U.S. Treasury Yield Curves: Fourth Quarter 1998 5.5 ......,_ Ending 4th Quarter --.t.-• Beginning 4th Quarter 5.0 4.5 __ ....... -,,... ____ ,. .. --· .-· .... .t. __ .... -··. 4.0 +----+-----+-------------0 5 10 15 20 25 30 Maturity (Years) Callan Associates Inc. 2 7 7 1 I -l I J \ I J l l _J _l Rate Cuts and Euro Optimism Spark Explosive Quarter for Foreign Stocks International equity markets, as measured by the MSCI EAFE Index, advanced 20.66% (in dollar terms, unless otherwise noted) during !998's fourth quarter. Central bank rate cuts in North America, continental Europe and Japan all helped to boost confidence in the strength of global equity markets. The fourth quarter's strong showing helped to push many markets back toward levels last seen in July just prior to the global sell-off. Japan was the one disappointment for the quarter. In local currency terms, the MSCI Japan Index gained only 5 .11 %, but a strengthening yen greatly enhanced its dollar-based return. Still, 1998 saw the EAFE Index gain 20.00% for the year. Europe Many factors, not least of which was the euro 's introduc- tion, helped to push returns in continental Europe higher dur- Non-U.S. Equity Returns for Quarter Ended December 31, 1998 EAFE U.S. Dollar Local Currency EAFE Europe U.S. Dollar Local Currency EAFE Pacifjc U.S. Dollar Local Currency Emerging Markets U.S. Dollar Last Quarter 20.66 16.14 18.72 19.37 26.11 8.13 17.99 ing the fourth quarter. The MSCI Europe ex UK Index returned 20.68%. With the European Central Bank focusing on establishing its credibility as the euro is introduced, there is much optimism that interest rates in Europe will continue to drop. A coordinated cut in December by the EMU- ! I central banks surprised most, and equity prices responded favorably. A growing belief is that restructuring throughout the region as well as in- creased access to capital through more efficient capital markets will con- tinue to push equity prices higher in the region. The only market that dis- appointed, relative to the region as a whole, was Germany; the new gov- ernment has caused some to ponder its potential ramifications on the economy. United Kingdom The fourth quarter saw the UK's equity markets perform well, with the MSCI UK Index returning 14.34%. In the UK, as in other parts of the world, interest rate easing helped to push markets higher. The Bank of England's I% rate cut last quarter helped stocks in general, but particu- larly helped the financial sector, which had suffered a difficult third quar- ter. Japan An abrupt and dramatic increase in the yen's value in early October had numerous effects. One effect was the translation of sleepy local re- turns, relative to those of other equity markets, into robust returns based on U.S. dollar or European currencies. While the MSCI Japan Index returned 5.11 % in yen terms, its U.S. dollar return was 26.83%. The added currency effect was over 20%, as Long Term Capital and others struggled to cover a short-yen bet. In addition, the resilient yen also helped to ease the burden of many ailing banks, as the value of their yen-denominated loans rose in non-yen terms. Unfortunately, many Japanese investors who invested outside of Japan were stung. The world is still watching Japan and hoping the government can pull its economy out of the doldrums. Many still believe Japan must lead the Pacific region out of its economic malaise. Emerging Markets Emerging markets finally got a breather, as the MSCI Emerging Markets Free Index posted a 17.99% gain in the fourth quarter. Despite this strong showing, the index fell 25.34% in 1998. Asia was the strongest performing region of emerging markets, as the MSCI EM Free Asia In- dex returned 33.76%. Concerns about a potential devaluation of the Bra- zilian real restrained the Latin American markets relative to others; the MSCI EM Free Latin American Index returned 7.08% for the quarter. -CMR- Interest Rate Cuts Fuel Rally Key interest rate cuts in North America and Europe continued a bond market rally that began in earnest in the third quarter. A weak dollar contributed to strong gains in the Salomon Non-U.S. Government Bond Index, which rose 5.27% in dollar terms and 0.08% in local currency terms. The fourth quarter closed out an outstanding year for non-dollar bond market. The non-U.S. index posted gains of 17.79% while the global index returned 15.30%. All 17 markets in the index posted positive returns in dollar terms for the quarter. Japan, the poorest performing market in local currency terms (-5.94% ), was the best performing market in dollar terms ( + 13.51 % ). The difference came from a strong surge in the yen following the Long Term Capital Management meltdown in the third quarter. Europe A weakening dollar continued to hurt the manufacturing sector in Germany while progress towards euro convergence progressed smoothly. The SB German Government Bond Index returned 1.74% in local cur- rency terms and 2.09% in dollar terms. The index posted equity-like gains of 19.77% for the year. Lower yields on the short end resulted in a steeper yield curve during the quarter. French government bonds also put in a good show- ing gaining 2.33% for the quar- ter ( + 1.99% in local currency terms). Low inflation and a weak economy continued to provide a favorable environment for bonds. Global Fixed-Income Returns for Quarter Ended December 31, 1998 SB Non-U.S. Govt U.S. Dollar Local Currency SBWond Govt U.S. Dollar Local Currency Last Quarter 5.27 0.08 3.55 0.01 The SB UK Government Bond Index was the best performing mar- ket on a local currency basis ( +4.52% ), though gaining only 2.33% in dollar terms. For the year the index returned a stellar 20.87%. The UK government bond yield became less inverted during the quarter, as inter- est rate cuts in October and November reduced yields in the short end of the curve. Sterling strengthened against the dollar ( +2. 10%) ending the year at 1.66 dollars per pound. In a move towards convergence, Spain and Italy lowered interest rates spurring their bond markets to return 3.02% and 3.17% respectively. Asia Economic news out of Japan continued to be grim. During the quar- ter it was announced that industrial production fell 8.4% over the year through October and that the Trust Fund Bureau, a bond buyer of last resort, would no longer buy JGBs. Reduced demand and rising govern- ment debt resulted in the yield curve moving higher across the curve. The yen showed a dramatic move against the dollar at the beginning of the quarter, gaining approximately 13% in a three-day period. Emerging Markets Emerging markets as measured by the J.P. Morgan Emerging Mar- kets Bond Index (EMBI) rebounded from third quarter losses to return 9.92%. Russia continued to have problems with no credible resolution to the GKO default in the third quarter. The sovereign spread of the index to Treasuries narrowed from 1330 basis points in September to 1151 at the end of December, as credit worries eased with U.S. interest cuts. The Latin component outperformed the non-Latin component, 13.60% and 9.27% respectively. For the year, the EMBI was down alm,ost 16%. -CMR- Callan Associates Inc. 3 7 l 7 T ) } 1 l j J I J "It's the Stock Market, Stupid" from page I demand for U.S. investments, weakening the dollar. Import prices will then rise, putting pressure on inflation but at the same time discouraging the ebullient consumer. The weaker dollar will help exports, offsetting some of the weakness in consumption. The U.S. economy will thus touch down in another "soft landing". Given the hopeful nature of this scenario, some observers have dubbed it the "immaculate slowdown". Note also the hopeful contention that equity valuations in the U.S. will somehow reconnect with profits, earnings and bond yields. There are few signs yet of a slowdown. GDP growth paused briefly in the second quarter, primarily due to the GM strike, only to jump back to 3.7% in the third quarter, with fourth quarter estimates now at 4%. Job growth continues despite the record number of layoff announcements in 1998. At year end, though, the four-week moving average of initial unem- ployment claims began to rise. The housing market turned in a banner year, starting over 1.6 million new units. Also, home sales (new and exist- ing) reached a record high, as did home ownership. Inflation remains be- nign, as falling commodity prices and recession in Asia offset rising labor costs. Without the continuing "positive shocks", inflation would have shown clear signs of accelerating in 1998; the employment cost index for wages and salaries rose 4.3% during the year, up from 2.5% in 1995, and health care costs are beginning to soar again. The one sector of the U.S. economy clearly suffering a slowdown is manufacturing. Indeed, many U.S. manufacturers feel they are already in recession. Lower import prices and the strong dollar have reduced their pricing power. Weaker demand overseas, especially for capital goods and high technology, has helped push the Purchasing Managers Index down to 45.1 in December, its lowest reading since 1991. The Index has now been below 50 -the dividing line between expansion and contraction - for seven consecutive months. While consumers and the rest of the U.S. economy have been able to shrug off the events in Asia, Russia and Latin America and reap the rewards of lower prices, manufacturing has clearly been hurt by these economic events. -CMR- Real Estate Corner Based on Callan's preliminary average results, private real estate fin- ished strong (+5.43%) in the fourth quarter. In 1998, the average private real estate manager produced its highest calendar year return (+16.06%) since 1981. While transaction volume was high in the fourth quarter, as is traditionally the case, prices rose modestly or held steady. With continued weakness in the REIT mar- ket, the capital appreciation component of real estate re- turn is not expected to grow as strongly as last year's. In fact, new appraisals may show some market weakness. The cash component of pri- vate real estate returns, how- ever, continues to be strong. Real Estate Returns for Quarter Ended December 31, 1998 Callan Real Estate (Mean) NAREIT Total Return Last Quarter 5.43· -3.94 * Preliminary REITs slumped again, for the fourth quarter in a row. In the last quar- ter, the NAREIT index lost 3.94%. This year's 19.12% loss is the worst since 1990. Particularly hard hit in the last quarter were REITs handling mortgage-backed securities (-18.04%), as lending spreads widened dra- matically. This property sector, however, represents less than 5% of NAREIT's market cap. The broader equity REIT market slumped 2.92%. Depressed valuations and lack of access to debt capital have prevented the majority ofREITs from engaging in any significant market activity. In fact, a number of publicized deals under letter of intent collapsed. -CMR- Alternative Investments Fund Raising Another fund raising record was set in 1998 for the private equity market. Capital commitments to private equity partnerships totaled $85.3 billion, a 57% increase over last year's $54.5 billion. The fourth quarter commitments of $29.6 billion surpassed all prior quarters in the industry's history. The number of partnerships formed increased by only 18, or 7%, over last year's 271. Funds Closed January 1 through December 31, 1998 Strategy # of Funds $ Amt (mil) % Venture Capital 139 17,260 48.1 Acquisition/Buyout 101 52,719 34.9 Subordinated Debt 10 2,072 3.5 Restructuring 6 2,087 2.1 Other 3 1,557 1.0 Fund-Of-Funds 30 9,594 10.4 Totals 289 85,292 100.0 Source: The Private Equity Analyst and Buyouts Mega-funds, or funds over$ I billion, played a large role in the new fund raising record. Only 14 partnerships (5% by number) garnered $33 billion (approximately 40%) of the capital raised, with an average part- nership size of $2.3 billion. The remaining 275 funds split the balance of commitments, for an average fund size of $191 million. Market Environment After a tumultuous third quarter, the fourth quarter represented a cau- tious return to stability for the capital markets. According to Buyouts news- letter, the fourth quarter produced only 11 % of the year's $41 billion of announced buyout transactions. While buyout activity was more persis- tent in deals below $500 million, only two deals were announced for com- panies valued over $500 million in the second half. Reticence among banks and high yield buyers was the most often cited cause for the dearth of large transactions. The good news is that, even with a miserable second half, 1998's total of announced transactions substantially exceeded the $29 billion in both 1997 and 1996. In the venture capital arena, with the exception of internet stocks, the market for IPOs and new convertibles remained virtually closed. The tre- mendous liquidity in the market and flow of distributions back to institu- tional investors are expected to weaken in the future. -CMR- The Capital Market Review is published quarterly for members of the institutional investment community, both domestic and international. The Capital Market Review focuses primarily on the latest quarterly perfor- mance of market indices and Callan style groups for each of the major asset classes used by institutional investors. Capital Market Review con- tributors are as follows: Janet Becker-Wold, Non-U.S. Fixed George Varina, U.S. Fixed-Income Gary Robertson, Real Estate Jay Kloepfer, Economy Jim McKee, U.S. Equity Gary Robertson, Alternative Investments Justin Toner, Non-U.S. Equity Matt McKenzie, Appendix Callan Associates Inc. is a privately-held and 100 percent employee- owned firm whose sole business is strategic asset management consult- ing as an independent, objective third party. Headquartered in San Fran- cisco, Callan also has regional offices in Chicago, Monistown, Atlanta and Denver. © 1999 Callan Associates Inc. Callan Associates Inc. 4 \ ! II CAPITAL MARKET REVIEW APPENDIX A ci I A PUBLICATION OF CALLAN ASSOCIATES INC. FOURTI-1 QUARTER 1998 U.S. EQUITY -1 Style Median and Index Returns* for Periods Ended December 31, 1998 Last Last Last3 Lasts Last 10 Last 15 Quarter Year Years Years Years Years l Large Cap Equity Large Cap-Broad Style 21.47 25.56 26.18 21.80 18.80 17.42 Large Cap-Growth Style 26.43 35.82 28.81 23.09 20.09 18.41 Large Cap-Value Style 16.42 11.79 21.08 19.28 17.01 16.95 l Aggressive Growth Style 25.46 18.75 11.87 15.63 20.95 18.78 j Contrarian Style 16.27 10.39 19.04 17.73 15.47 14.86 Core Style 21.66 26.74 27.51 23.45 19.20 17.67 Yield Style 14.19 15.88 21.65 20.03 16.78 17.30 l CAI Broad Market Index 22.05 24.90 25.93 22.08 18.28 16.91 CAI Large Cap Index 23.44 36.76 31.88 26.70 20.17 18.43 S&P 500 21.30 28.58 28.23 24.06 19.21 17.90 NYSE 18.59 18.50 24.18 20.81 17.50 16.52 . \ Dow Jones Industrials 17.57 18.13 23.88 22.26 18.80 17.87 Mid Cap Equity Mid Cap-Broad Style 20.61 8.67 16.81 16.61 18.13 16.37 Mid Cap-Growth Style 26.25 16.95 16.71 16.59 19.50 16.01 l Mid Cap-Value Style 16.71 0.31 17.29 16.67 16.76 16.38 CAI Medium Cap Index 19.97 12.40 20.73 17.83 16.67 15.99 S&P MidCap 400 28.19 19.11 23.37 18.84 19.29 17.35 l Small Cap Equity Small Cap-Broad Style 18.11 -2.84 14.75 14.85 17.23 14.88 Small Cap-Growth Style 23.77 5.86 11.59 15.51 19.22 14.81 Small Cap-Value Style 13.30 -5.31 16.49 14.70 15.47 15.57 ) CAI Small Cap Index 19.31 4.07 14.47 13.98 14.63 13.65 CAI Micro Cap Index 14.64 -4.23 12.26 13.38 13.30 11.02 S&P 600 Small Cap Index 17.60 -1.30 14.57 13.23 13.19 10.63 Russell 2000 16.31 -2.55 11.59 11.87 12.92 11.22 NASDAQ 29.57 40.18 28.22 23.83 20.38 16.22 CAI Broad Market Sectors** Basic Materials 3.94 -7.58 4.77 7.27 9.56 11.00 Capital Goods 20.77 12.24 21.83 18.64 15.48 14.81 Communication Services 29.43 50.58 Consumer Cyclical 29.33 26.69 23.90 15.26 15.96 15.99 Consumer Staples 22.45 18.75 23.22 24.12 20.74 21.29 Energy -0.39 -4.56 14.79 14.69 13.05 13.35 Financials 21.46 9.17 30.46 26.50 21.21 18.25 Health Care 16.06 39.95 Utilities 2.95 11.29 14.32 13.58 14.14 15.56 Technology 37.20 67.49 37.57 33.15 21.54 15.76 Transportation 14.69 -3.30 12.93 10.54 13.43 12.29 _j • Returns less than one year are not annualized. J •• The economic sectors were reorganized to eliminate the Miscellaneous sector in performance measurements after June 30, 1996. As part of this reorganization, two new sectors, Communication Services and Health Care Services, were created. Consequently, sector comparisons of time periods beginning prior to June 30, 1996, with time periods beginning after that date may not be valid. U.S. Equity Index Characteristics as of December 31, 1998 J Callan Callan Callan Callan Callan S&P Broad Large Medium Small Micro 500 I Cap Range* ($MM) 345-345,828 14,468-345,828 3,717-14,365 345-3,715 77-353 487-345,828 # Issues 2,000 150 350 1,500 1,000 500 J % of Callan Broad 100% 64% 21 % 15% NIA NIA Wtd Avg Mkt Cap $72.7 B $110.2 B $11.3 B $2.7 B $0.4B $86.6 B _J Price/Book Ratio 848% 960% 722% 549% 403 % 860% PIE Ratio (forecasted) 26.9 29.4 22.2 22.0 20.1 27.7 Dividend Yield 1.3% 1.3% 1.4% 1.0% 0.7 % 1.4% 5-Y r Earnings (forecasted) 15.7 % 15.0 % 15.7 % 18.6 % 20.7% 14.7 % I * As ofJanuarv I. 1999 I ...J ,,...., Ill CAPITAL MARKET REVIEW APPENDIXB 7 I A PUBLICATION OF CALLAN ASSOCIATES INC. FOURTII QUARIBR 1998 U.S. FIXED INCOME -1 Style Median and Index Returns* for Periods Ended December 31, 1998 Last Last Last3 LastS Last 10 Last 15 Quarter Year Years Years Years Years 7 Broad Fixed-Income Active Duration Style 0.11 9.67 7.39 7.19 9.40 10.56 Core Bond Style 0.31 8.65 7.38 7.42 9.48 10.55 LB Aggregate 0.34 8.70 7.29 7.27 9.26 10.31 LB Govt/Corp 0.13 9.47 7.33 7.30 9.33 10.27 LB Corp 0.60 8.58 7.33 7.74 9.86 11.08 LB Govt -0.08 9.85 7.36 7.19 9.17 10.01 SB Broad Investment Grade 0.41 8.72 7.29 7.30 9.31 10.35 7 Long Term Extended Maturity Style -0.05 12.18 8.95 9.41 11.80 12.29 LB Gov/Corp Long -0.23 11.77 8.63 9.13 11.30 12.47 } LB Gov Long -0.90 12.96 8.85 9.27 11.50 12.58 LB Corp Long 0.92 9.04 8.14 8.80 10.90 12.22 SB High Grade 0.86 10.74 8.25 8.75 10.86 12.22 l Intermediate Term Intermediate Style 0.33 8.25 6.90 6.69 8.70 9.70 LB Gov/Corp Intermediate 0.29 8.44 6.77 6.61 8.52 9.36 LB Gov Intermediate 0.25 8.49 6.74 6.45 8.34 9.20 J LB Corp Intermediate 0.41 8.29 6.85 7.16 9.19 9.99 Short Term Defensive Style 0.81 6.89 6.24 6.02 7.68 8.82 } Active Cash Style 1.18 5.89 5.80 5.59 6.49 7.20 Money Market Funds (net of fees) 1.17 5.03 5.03 4.87 5.27 ML Treasury 1-3 Year 0.76 6.99 6.20 5.99 7.37 8.22 90-day Treasury Bills 1.13 5.25 5.27 5.17 5.49 6.17 -! High Yield CAI High Yield Style 3.35 2.46 10.09 9.26 11.57 11.78 LB Corp High Yield 2.13 1.87 8.55 8.57 10.55 11.64 ML High Yield Master 2.87 3.66 9.10 9.01 11.08 First Boston High Yield 2.74 0.57 8.38 8.16 10.74 11.86 Mortgage/ Asset-Backed CAI Mortgages Style 0.79 7.41 7.49 7.44 9.51 10.87 -j LB Mortgage-Backed Securities 0.80 6.97 7.26 7.24 9.12 10.48 LB Asset-Backed Securities 0.40 7.76 6.73 6.67 _J Inflation Consumer Price Index 0.31 1.58 2.12 2.32 3.03 3.13 Producer Price Index -0.97 -3.24 -0.80 0.68 1.19 1.22 * Returns less than one year are not annualized. J U.S. Fixed-Income Index Characteristics as of December 31, 1998 J Yield Modified Adj. Average % of % of Lehman Brothers Indices To Worst Duration Maturity LBG/C LB Aggregate LB Aggregate 5.65 % 4.44 8.64 Yrs. 100.00 % 100.00% LB Govt/Corp 5.35 5.58 10.32 100.00 68.16 Intermediate 5.12 3.37 4.37 68.46 46.66 Long Term 5.83 10.40 23.25 31.54 21.50 LB Govt 4.97 5.38 9.13 67.97 46.33 ' LB Corp 6.15 6.03 12.85 32.03 21.83 LB Mortgage 6.33 1.95 5.09 30.69 J LB Asset-Backed Securities 5.67 3.14 3.80 1.15 LB Corp High Yield 10.53 4.64 8.19 I :.c.J l 7 7 l 1 1 J J l 1 J Ill CAPITAL MARKET REVIEW Kil A PUBLICATION OF CALLAN ASSOCIATES INC. APPENDIXC FOURTH QUARTER 1998 INTERNATIONAL EQUITY Style Median and Index Returns* for Periods Ended December 31, 1998 Last Quarter International Equity Global Style 19.74 Non-U.S. Style 17.83 Core Style 18.05 Top Down Style 18.93 Bottom Up Style 17.07 MSCI EAFE-Unhedged 20.66 MSCI EAFE-Local 16.14 MSCI EAFE ex Japan-Unhedged 19.06 MSCI EAFE ex Japan-Local 19.46 MSCI World-Unhedged 21.11 MSCI World-Local 18.99 Pacific Equity Pacific Basin Style 22.43 Japan Style 26.17 Pacific Rim Style 25.00 MSCI Pacific-Unhedged 26.11 MSCI Pacific-Local 8.13 MSCI Japan-Unhedged 26.83 MSC! Japan-Local 5.11 Europe Equity Europe Style 17.93 MSC! Europe-Unhedged 18.72 MSCI Europe-Local 19.37 Emerging Markets Emerging Markets Database 14.63 MSCI Emerging Market Free 17.99 * Returns less than one year are not annualized. Return Attribution for EAFE Countries for Quarter Ended December 31, 1998 Country (by weight) Total Local Currency Japan 26.83% 5.11% 20.66% United Kingdom 14.34 16.79 -2.10 Germany 12.29 11.90 0.35 France 22.10 21.70 0.33 Switzerland 24.05 23.09 0.78 Netherlands 20.76 20.23 0.44 Italy 27.12 26.85 0.21 Spain 28.33 28.00 0.26 Sweden 14.71 18.68 -3.35 Australia 14.41 10.47 3.57 Honk Kong 30.68 30.66 0.02 Belgium 22.91 22.43 0.39 Finland 41.66 40.96 0.50 Denmark 12.72 12.89 -0.15 Portugal 15.64 15.10 0.47 Singapore 40.30 37.41 2.10 Ireland 23.15 23.44 -0.23 Norway 3.48 6.52 -2.85 Austria 8.29 7.92 0.34 New Zealand 20.45 14.12 5.55 Last Last3 Lasts Last 10 Last 15 Year Years Years Years Years 18.81 16.45 13.48 12.89 16.24 15.94 12.10 10.15 10.48 15.61 16.75 11.48 9.85 10.33 15.64 19.97 12.34 10.64 10.28 16.37 14.56 11.49 10.37 10.72 15.15 20.00 9.01 9.20 5.54 14.67 12.28 12.36 8.76 5.50 11.24 25.04 20.13 15.54 14.30 17.46 19.72 23.19 14.32 14.71 15.03 24.33 17.77 15.68 10.66 15.09 20.67 19.89 15.34 10.69 13.22 1.07 -7.72 -4.01 2.51 11.23 10.58 -11.32 -3.89 0.04 9.68 -7.15 -11.69 -7.58 10.24 11.89 2.45 -11.30 -4.14 -3.93 9.39 -7.75 -8.18 -3.61 -4.37 5.78 5.04 -12.17 -3.70 -5.33 9.17 -8.87 -9.51 -3.49 -6.31 4.07 27.08 24.76 19.51 16.05 19.73 28.51 24.43 19.10 15.22 18.54 22.30 27.49 17.40 15.54 16.24 -24.42 -6.24 -6.36 15.93 -25.34 -11.21 -9.27 10.95 Country Weights-EAFE For Quarter Ended December 31, 1998 New Zealand 0.2~' Austria 0.3% Norway 0.4'¾ Ireland 0.5~' Singapore 0:7'11. Portugal 0.7'¾ Denmark 0.9~ Finland 1.6% Belgium 1.9% Hong Kong 2.1 % Australia 2.6% Sweden 2.6% UK 21.3% Switzerland 8.1 % 7 1 l l J J CAPITAL MARKET REVIEW APPENDIXD III A PUBLICATION OF CALLAN ASSOCIATES INC. FOURTI-1 QUARTER 1998 INTERNATIONAL FIXED INCOME Style Median and Index Returns* for Periods Ended December 31, 1998 Last Last Last 3 Last S Last IO Last 15 Quarter Year Years Years Years Years Global Fixed Global Style 3.19 14.63 7.46 7.89 9.80 12.99 SB World Govt-Unhedged 3.55 15.30 6.20 7.84 8.96 SB World Govt-Local 0.01 9.42 8.61 7.69 9.26 Non-U.S. Fixed Non-U.S. Style 4.89 17.27 6.73 8.07 10.19 13.44 SB Non-U.S. Govt-Unhedged 5.27 17.79 5.49 8.26 8.79 SB Non-U.S. Govt-Local 0.08 9.13 9.21 7.91 9.05 Emerging Markets Fixed JPM Emerg Mkts Bond Index 9.92 -15.69 9.90 6.47 SB Brady Bond Index 8.63 -6.96 13.53 9.16 Return Attribution for Non-U.S. Government Country Weights-SB Non-U.S. Govt For Quarter Ended December 31, 1998 Indices for Quarter Ended December 31, 1998 Country (by weight) Total Japan 13.51% Germany 2.09 France 2.33 Italy 3.17 United Kingdom 2.33 Spain 3.02 Netherlands 2.09 Canada 0.94 Belgium 2.42 Denmark 2.94 Sweden 0.50 Finland 3.03 Austria 2.45 Australia 5.08 Switzerland 2.95 Portugal 2.83 Ireland 2.54 Local -5.94% 1.74 1.99 2.95 4.52 2.75 1.64 1.58 2.01 3.10 3.98 2.52 2.10 1.46 2.15 2.34 2.78 Currency** Portugal 0.6 , Switzerland 0.7~ Australia I .0% Austria 1.1 o/c Finland 1.2% 20.66% 0.35 0.33 0.21 -2.10 0.26 Belgium 3.9% 0.44 -0.63 0.39 Canada 4.0% -0.15 -3.35 0.50 0.34 3.57 0.78 0.47 -0.23 OTHER ASSET CLASSES Italy 11.6% Style Median and Index Returns* for Periods Ended December 31, 1998 Last Last Last3 Lasts Last 10 Quarter Year Years Years Years Balanced Accounts Asset Allocator Style 15.21 19.44 18.39 16.21 14.84 Domestic Balanced Database 11.66 15.62 16.74 15.01 14.42 Global Balanced Database I0.93 14.39 14.16 12.17 12.82 60% S&P 500 + 40% LB G/C 12.83 21.63 19.91 17.37 15.39 Convertibles Convertibles Database 11.23 11.98 15.64 13.05 13.86 First Boston Convertible Securities 14.73 6.56 12.34 10.82 12.29 Real Estate Callan Real Estate**" (mean; net of fees) 5.43 16.06 13.67 10.58 4.81 Callan Real Estate REIT Database -1.53 -16.08 13.24 11.64 11.42 NAREIT Total Return -3.94 -I 9.12 9.28 9.24 8.58 * Returns less than one year are not annualized. ** Derived from MSC! EAFE data *** Preliminary return Germany 12.4% Last 15 Years 14.77 14.20 14.31 15.IO 13.19 12.17 6.28 8.25 l •· l l } l l } J J MARKET OVERVIEW Ill 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. 35% 30% Range of Separate Account Manager Returns bl' Asset Class One Quarter Ended December 31, 1998 25% "' 20% s ;:, 15% .... <l) ~ 10% (45)8 (9)8 . 5% 0% (47)§ (49) ,- ~m (76) -. (5¼) Domestic Nnn-US Domestic Non-US Real Cash Equity Equity Fixed-Income Govt Bond Estate Equivalents vs vs vs vs vs vs S&PS00 MSCIEAFE LB Aggr Bd CAI Intl. FI NCREIF Index 3 Mon T-Bills 10th Percentile 28.20 20.50 1.24 6.72 14.98 1.39 25th Percentile 24.33 19.32 0.80 6.23 7.24 1.35 Median 20.44 17.83 0.44 4.89 3.57 1.25 7 5th Percentile 16.00 15.50 0.19 3.07 1.96 1.13 90th Percentile 11.38 13.93 (0.06) 1.39 (0.46) 0.99 Index ... 21.30 20.66 0.34 5.27 3.69 1.13 Range of Separate Account Manager Returns by Asset Class One Year Ended December 31, 1998 40% 30% • (21) .& 20% "' s ;:, 10% a) ~ 0% (IO¼) (20¼) 10th Percentile 25th Percentile Median 7 5th Percentile 90th Percentile t-- Index .& Domestic Equity vs S&PS00 34.29 27.10 14.97 2.77 (5.58) 28.58 County Sanitation Districts Of Orange County (21)8 Non-US Equity vs MSCIEAFE 23.66 19.25 15.94 11.68 6.81 20.00 (43)~ (35)~ (3',,e±f, (78)~ Domestic Non-US Real Cash Fixed-Income Govt Bond Estate Equivalents vs vs vs VS LB AggrBd CAI Intl. Fl NCREIF Index 3 Mon T-Bills 9.99 20.01 31.92 6.42 9.14 18.44 25.83 6.02 8.37 17.27 14.45 5.74 7.23 13.19 11.42 5.36 6.28 9.66 7.54 4.98 8.70 17.79 17.11 5.25 7 7 } 1 l l j J J J Active Management vs the Index DOMESTIC FIXED-INCOME Active Management Overview Fixed Income markets had an impressive return of 8.70% for calendar year 1998, as represented by the Lehman Brothers Aggregate Benchmark. Performance for the fourth quarter was rather flat, with shorter duration managers generally outperforming longer duration managers. Core Bond and Active Duration Managers slightly lagged the Aggregate Index, but fared better relative to the Govt/Corp Index that excludes mortgages. The renewed exuberance in the stock market during the fourth quarter contributed to a healthy 3.35% return for high yield. The high yield sector also contributed to Core Plus Managers outperformance for the quarter. Short Duration vs Long As opposed to what happened in the third quarter, flight from quality in the fourth quarter narrowed credit spreads and pushed rates up for high quality issues. Extended Maturity managers experienced slight losses as U.S. interest rates increased across the yield curve. As a result, the yield on the 30-year Treasury bond (which moves in the opposite direction of its price) rose from below 5% to 5.3%. Mortgages and High Yield During the fourth quarter, the median Mortgage Backed manager returned 0.79%, while the High Yield median manager returned 3.35%. Increasing interest rates cooled fears of prepayments, causing investors to regain confidence in these holdings. High Yield managers benefited from a positive earnings outlook which inspired investors to take on credit risk. 00 E :::, Q) i::.::: Separate Account Style Group Median Returns for Quarter Ended December 31, 1998 Lehman Aggregate: 0.34% 4%r-----------------------------t Lehman Govt/Corp: 0.13% 3% ----------- 2% 1.18% 1% -...0.8-1-%-------------------0.SQ.%-------------------(l.-'.79%--- 0% ( Jf,,) Active Cash 0.33% 0.31% Defensive Intermed Core Bond Core Plus (0.05'7t) Extended Maturity Separate Account Style Group Median Returns 0.11% Active Duration Mortgage Backed 3.35% High Yield for One Year Ended December 31, 1998 Lehman Aggregate: 8.70'7o 15% .-----------------------------i.__L_e_hm_an_G_o_v_tl_C_o_rp_: __ 9_.4_7_'7£_v ~ 10% 5% ----- 0%~-- Active Cash Defensive Intermed Core Bond Core Plus 12.18% Extended Maturity Active Duration Mortgage Backed High Yield County Sanitation Districts Of Orange County 7 l } 7 J J J J J /I Asset Class Risk and Return The charts below show the three and one-quarter year annualized risk and return for each asset class component of the Total Fund. The first graph contrasts these values with those of the appropriate index for each asset class. The second chart contrasts them with the risk and return of the median portfolio in each of the CAI Total Asset Class Databases. In each case, the crosshairs on the chart represent the return and risk of the Total Fund. "' e :::s 'i:5 0::: "' C ... :::s 'i:5 0::: 7 S'lt, 7.07' 6.5'7v 6.0'7v 5.S'lt· Three And One-Quarter Year Annualized Risk vs Return Asset Classes vs Benchmark Indices : Total Domestic Fixed-Income ; I Lehman Brothers l-5vr Govt/Corp ' I ML Corp/G,,v 1-5 I Merrill Lynch l-3yr Govt/Corp I ---1 90 Day T-Bills I 5.0'io 0.0% 0.5% 1.0% l.5'7v Standard Deviation 2.0% 2.5% 7.5% 7.0% 6.5'7v 6.0% . 5.5% 5.0% 4.5'7v Three And One-Quarter Year Annualized Risk vs Return Asset Classes vs Asset Class Median ) I Total Domestic Fixed-Income I i CAI Defensive Style t-- ---1 CAI Money Mkt DB I 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 Orange County 7 l l 7 l ) J l J _] l I .... , J Investment Manager Asset Allocation /1 The table below contrasts the distribution of assets across the Fund's investment managers as of December 31, 1998, with the distribution as of September 30, 1998. Asset Distribution Across Investment Managers Domestic Fixed Income Long Term Operating Fund Liquid Operating Monies Total Fund County Sanitation Districts Of Orange County December 31, 1998 Market Value Percent $322,780,682 100.0% 304,174,252 94.2% 18.606,430 5.8% $322,780,682 100.0% September 30, 1998 Market Value Percent $300,788,519 100.0% 282,425,419 93.9% 18,363.100 6.1 % $300,788,519 100.0% l 1 7 7 l ] l /I Investment Manager Returns The table below details the rates of return for the plan's investment managers over various time periods ended December 31, 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 December 31, 1998 Last Last Last Last Last 2 3 3-1/4 Quarter Year Years Years Years Domestic Fixed Income 0.65% 7.92% 7.69% 6.74% 7.13% Long Term Operating Fund 0.60% 8.05% 7.81% 6.72% 7.22% Liquid Operating Monies 1.32% 5.68% 5.65% 5.59% 5.63% Liquid Operating Monies (1) 1.29% 5.53% 5.49% 5.43% 5.47% Market Indicators LB l-5yr Govt/Corp 0.54% 7.63% 7.48% 6.57% 6.99% ML 1-3 yr Govt/Corp 0.82% 7.00% 6.85% 6.26% 6.57% ML 1-5yr Govt/Corp 0.55% 7.69% 7.42% 6.47% 6.92% Treasury Bills 1.13% 5.25% 5.29% 5.27% 5.28% Total Fund 0.65% 7.92% 7.69% 6.74% 7.13% (1) Net of Fees. County Sanitation Districts Of Orange County • 7 7 7 l ] l J ] l J c,:, C .... B ll) .:.::: ll) ;;> -~ Q) .:.::: PIM CO-LIQUID OPERA TING MONEY PERIOD ENDED DECEMBER 31, 1998 /j Investment Philosophy The Money Market Funds Database consists of actively managed short term funds . These funds invest in low-risk, highly liquid, short-term financial instruments. Quarterly Summary and Highlights • PIMCO-Liquid Operating Money's portfolio posted a 1.32% return for the quarter placing it in the 1 percentile of the CAI Fl -Money Mkt Fds DB group for the quarter and in the 1 percentile for the last year. • PIMCO-Liquid Operating Money's portfolio outperformed the 90 Day T-Bills by 0.20% for the quarter and outperformed the 90 Day T-Bills for the year by 0.43%. Quarterly Asset Growth Beginning Market Value $18,363,100 Net New Investment $-9 Investment Gains/(Losses) $243,340 Ending Market Value $18,606,430 Performance vs CAI FI -Money Mkt Fds DB 7% 6'7o 5% E§A(ll ~J\(l) ~/\(!) ~A(l) (26) 8(4) (23) B18) (2 1) B(8l (23) B(8l - 4% 3% - 2% 1% • J\f I) (65) 13 5) 0% Last Quarter Lasl Ye11r Last 2 Years Last 3 Years Lllllt 3-1/4 Years 10th Percentile 1.27 5.41 5.44 5.39 5.42 25th Percentile 1.22 5.25 5.27 5.23 5.26 Median 1.17 5.03 5.06 5.03 5.06 75th Percentile 1.10 4.81 4.84 4.82 4.85 90th Percentile 1.02 4.59 4.62 4.62 4.65 PIMCO-Liquid 5.68 5.59 5.63 Operating Money e A 1.32 5.65 Net of Fees •B 1.29 5.53 5.49 5.43 5.47 90 Day T-Bills • 1.13 5.25 5.29 5.27 5.28 CAI FI -Money Mid Fds DB Relative Return vs 90 Day T-Bills Annualized Three And One-Quarter Year Risk vs Return 0.25%-.----.------....------...--------, 6.0% 0.20%-1----¼-----5.5% ...... PIMCO-Liquid Operating Money ! C " ---------------+------~ ct of Fees • 5.0% 0.10% "' E • 0.05% :::, 4.5% 0 .:.::: • • C • 4.0% 0.00% b 3.5% (0 lll'i,. l -1---+------+-------1,--------1 95 1996 1997 1998 3.0% -1---.....,_-~--~~------.--~--1 0.00<Je.05';{). J 0<Je.15'JB.20':tl.25<Je.30<;0.35'JG.40<Je.45 <;a, 50<;E).55% J • PIMCO-Liquid Operating Money J County Sanitation Districts Of Orange County Standard Deviation 7 7 ] ] l J J J PIMCO-LONG TERM OPERATING FUND PERIOD ENDED DECEMBER 31, 1998 III /I 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 0.60% return for the quarter placing it in the 85 percentile of the CAI FI -Defensive Style group for the quarter and in the 6 percentile for the last year. • PIMCO-Long Term Operating Fund's portfolio outperformed the ML Corp/Gov 1-5 by 0.06% for the quarter and outperformed the ML Corp/Gov 1-5 for the year by 0.37%. Quarterly Asset Growth Beginning Market Value $282,425,419 Net New Investment $19,999,919 Investment Gains/(Losses) $1 ,748,914 Ending Market Value $304,174,252 Performance vs CAI FI -Defensive Style 9% 87'.· YI,, 6% 5'7o 4% 3% 2% 1% 0'7o . !0th Percentile 25 th Percentile Median 7 5th Percentile 90th Percentile PIMCO-Long Term Operating Fund • ML Corp/Gov 1-5 "' (14)§161 (89)1 ii~(85) Last Quarter Lat Year 1.07 7.90 0.98 7.29 0.81 6.89 0,66 6.70 0.55 6.15 0.60 8.05 0.55 7.69 Relative Return vs ML Corp/Gov 1-5 0.30%-..---.------~-----...------, 0.20%- ~ 0.15%-.... B (1) 0.10%-c:: (1) 0.05%-.::: i,; 0.00% v C:: (0.0:'i'i, ) - (0.20'i,.) --------+------------ 95 1996 1997 1998 I • PIMCO-Long Term Operating Fund I County Sanitation Districts Of Orange County ~(IOI (16) (21)~(12) (25)1• •rl9) Last 2 Years Last 3 Years Last 3-1/4 Years 7.81 6.82 7.34 7.04 6.48 6.82 6.86 6.24 6.59 6.69 6.16 6.49 6.28 5.93 6.25 7.81 6.72 7.22 7.42 6.47 6.92 CAI Fl -Defensive Style Annualized Three And One-Quarter Year Risk vs Return 8.0% -,----------.----------, 7 .5% p • • 'PIMCO-Lon Term •raUn!s Fund 7.0% 8 "' E • ::, 6.5% 0 tl c:: • • 0 6.0¼· • 0 5.5% 5.0% 0.0% 0.5% 1.0% l .5'7o 2.0% 2.5'7o 3.0% Standard Deviation 7 7 -, ] l ] J .J -J J LONG TERM OPERATING FUND PORTFOLIO CHARACTERISTICS SUMMARY DECEMBER 31, 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% Agencies 15% Treasuries 39% Corporates 24% Sector Allocation Mortgages 12% Treasuries 64% Corporates 22% Long Term Operating Fund Lehman Government/Corporate 1-5 .9 ~ t:: 0 0.. .... 0 i:: (I.) u .... (I.) 0.. .9 ~ t:: 0 0.. .... 0 ..., i:: (I.) u .... (I.) 0.. Duration Distribution Weighted Average Duration 30% • Long Term Operating Fund: 2.79 • Lehman Government/Corporate 1-5: 2.35 25% ---------------------------21.7% 20% ------------1-S.6!¼, ---------------- 15% 10% 5% 0% <1.0 1.0-1.5 1.5-2.0 2.0-2.5 2.5-3.0 3.0-3.5 3.5-4.0 4.0+ Years Duration Quality Distribution Weighted Average Quality 100%~--~-------~-------~~ • Long Term Operating Fund: Aaa D Lehman Government/Corporate 1-5: Aaa 80% ----------,-----,----.----..--~ 60% ------------____________ __, 40% 20% ------------------------------------- 1.4% 1.9% 0.3% 1.4% 3.4%_4.6% 2.8%2.8% 8.0%4.2% 3.4%2.4% 0% Aaa+ Aaa Aal Aa2 Aa3 Al A2 A3 <A3 Moody's Rating * All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 97% oftbe secunties in the portfolio (by market value) were recognized and priced. County Sanitation Districts Of Orange County LONG TERM OPERATING FUND PORTFOLIO CHARACTERISTICS DETAIL 7 DECEMBER 31, 1998 7 Weighted Average Portfolio Characteristics Total Fund, By Asset Class and By Sector 7 Ending Percent Market of Effective Effective OA OA Sector Value• Portfolio Coul!!!n Maturit:1: Yield Duration Convexitv Qualitl'. Total Fund $319,238,455 100.0% 6.49 5.87 5.12 2.79 (0.10) Aaa Asset Backed $6,646,236 2.1% 5.43 0.01 5.42 0.17 0.08 Aaa Agencies $47,636,160 14.9% 6.32 5.15 5.15 3.64 0.03 Aaa+ CMOs $9,442,955 3.0% 6.24 21.32 5.99 5.36 0.02 Aaa+ Corporates $76,479,983 24.0% 6.30 2.14 5.43 1.90 0.07 Al 7 Mortgages $39,421 ,208 12.3% 6.61 19.85 6.03 2.78 (1.48) Aaa+ Treasuries $123,053,256 38.5% 6.93 3.88 4.59 3.30 0.16 Aaa+ Total Fixed-Income $302,679,799 94.8% 6.58 6.18 5.14 2.93 (0.11 ) Aaa Cash Equivalents $16,558,656 5.2% 4.80 0.25 4.80 0.25 0.00 Aaa S Largest Holdings Ending Percent l Market of Effective OA OA Issuer Name Issue.Name Sector Value Portfolio Yield Duration Convexitl'. Qualitv United States Treas Nts Nt 6.375% 09/30/2001 D Treasuries $32,878,125 10.3% 4.64 2.47 0.08 Aaa+ Federal Natl Mtg Assn Medi Dtd 03/27/1997 Agencies $19,911,430 6.2% 5.10 2.85 0.10 Aaa+ 1 United States Treas Nts NI 7.50% 11/15/2001 Treasuries $18,387,801 5.8% 4.66 2.56 0.08 Aaa+ i United States Treas Nts NI 6.50% 05/31/2002 Treasuries $16,998,058 5.3% 4.70 3.04 0.11 Aaa+ Fhlm Pool #g50476 Mpt 7% 02/01/03 Mortgages $14,942,297 4.7% 5.69 1.49 (0.54) Aaa+ S Lowest Rated Holdings (Moody's Rating) Ending Percent Market of Effective OA OA Issuer Name Issue Name Sector Value Portfolio Yield Duration Convexilv Qualitx Lehman Brothers Hldgs Inc Nt 6.65% 1 l/08/2000try Corporates $5,028,100 1.6% 6.39 1.68 0.04 Baal Lehman Brothers Hldgs Inc Nt 6.4% 8/30/2000 Corporates $2,519,375 0.8% 6.36 1.52 0.03 Baal Heller Finl Inc Medium Tcr Tranche # Tr 00225 D Corporates $991,000 0.3% 6.04 2.46 0.08 A3 ! Heller Finl Inc Fltg 6/0 l /2000 Corporates $3,999,360 1.3% 5.35 1.32 0.02 A3 Gen Mtrs Accep Corp #00231 Mtn 8.625% 1/10/2000 Corporates $3,097,140 1.0% 5.25 0.96 0.01 A3 _j S Longest Duration Holdings Ending Percent Market of Effective OA OA Issuer Name Issue Name Sector Value Portfolio Yield Duration Convexit}'. Qualitv _J Federal Home Ln Mtg Corp M Ser 1620 Cl 1620-Zfs G CMOs $2,122,492 0.7% 6.36 11.20 (0.72) Aaa+ United States Treas Nts Nt 3.375% 1/15/2007 Treasuries $10,005,056 3.1% 3.87 6.83 0.54 Aaa+ United States Treas Bds Deb 13.25% 05/15/14 Treasuries $4,138,275 1.3% 5.39 6.69 0.60 Aaa+ Ford Mtr Cr Co Fltg 8/2 7 /200 I Corporates $1,995,000 0.6% 5.21 6.16 0.46 Al j GnmaTba Mpt 6.0% 30yr Tba Mortgages $6,195,313 1.9% 6.18 5.94 ( 1.87) Aaa+ S Holdings with Highest Effect Yield I Ending Percent Market of Effective OA OA _,_ Issuer Name Issue Name Sector Value Portfolio Yield Duration Convexitl'. Qualit! Lehman Brothers Hldgs Inc Nt 6.65% 1 l/08/2000try Corporates $5,028,100 1.6% 6.39 1.68 0.04 Baal _J Lehman Brothers Hldgs Inc NI 6.4% 8/30/2000 Corporates $2,519,375 0.8% 6.36 1.52 0.03 Baal Gnrna Tba Mpt 6.5% 30yr Tba Mortgages $10,606,680 3.3% 6.36 4.18 (3.44) Aaa+ Federal Home Ln Mtg Corp M Ser 1620 Cl 1620-Zfs G CMOs $2,122,492 0.7% 6.36 11.20 (0.72) Aaa+ Commit To Pur Fnma 11th Di 6.150% 01/25/2029 Mortgages $4,252,842 1.3% 6.33 1.00 (1.00) Aaa+ J *Market Value shown does not include payables and receivables. All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 97% of the securities in the portfolio (by market value) were recognized and priced. LJ County Sanitation Districts Of Orange County FAHR COMMITTEE Meeting Date To Bd. of Dir. 2/10/99 2/24/99 AGENDA REPORT Item Number Item Number Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Michael D. White, Controller 13 (a) SUBJECT: PROFESSIONAL SERVICES FOR THE AUDIT OF THE DISTRICT'S ANNUAL FINANCIAL STATEMENTS (FAHR99-07) GENERAL MANAGER'S RECOMMENDATION Authorize staff to retain Moreland & Associates to conduct the independent audit of the District's annual financial statements for an additional three-year period, and to issue Change Order No. 1 to Purchase Order No. 72192 for an amount not to exceed $42,600 for the first year with provision for 4% annual escalations for years two and three. SUMMARY In February 1995, after a competitive selection process, Moreland & Associates were awarded the contract to audit the District's annual financial reports over the next four years through the year ended June 30, 1998. The audit fee for the first year of the contract was for $38,000 with a four-percent escalator each year over the next three years of the agreement through June 30, 1998. At that time, Moreland & Associates were not only deemed to be the most qualified firm, but were also the low bidder. Now that the contract has expired, Moreland & Associates are requesting to extend their services for an additional three years through the year ended June 30, 2001. They propose to perform the audit for the year ended June 30, 1999 at the same rate that was charged for the last year of their contract, $42,600. A four-percent escalator would be applied over the final two years of the extension. PROJECT/CONTRACT COST SUMMARY Total all-inclusive maximum prices to audit the District's financial statements for the three years ending June 30, 2001: 1999 $42,600 2000 $44,300 2001 $46,000 \lradonlda1a1wp.d1alfinl210'<:ranelFAHRIFahr99\Feb\FAHR99-07.doc Revised: 8/10/98 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. ~ Not applicable (information item) (This item is not applicable to the current year's Joint Operating Budget, but is to be budgeted each year over the next three years.) ADDITIONAL INFORMATION The Finance Department is implementing organizational changes this year and over the next couple of years, and this agency would benefit from the continuity of having Moreland & Associates perform the annual financial audit over this time period. Since Moreland & Associates is already familiar with the Finance Department policies, procedures, and systems, less District staff time would be devoted to getting a new firm up to speed. Included within the aforementioned organizational changes that are currently underway within the Finance Department are: • The completion of the financial information system implementation through the year 1999-00. • The completion of the Finance Department Operational Audit and implementation of the subsequent recommendations. • The development of a Finance Department comprehensive policy and procedure manual for the benefit of the department's customers and staff. • Development of a Y2K test plan and setting up a test environment. ALTERNATIVES Open the selection process and solicit bids from other certified public accounting firms. CEQA FINDINGS Not applicable. ATTACHMENTS None. MW \lradon\data1 \wp.dtalfin\21 O'<crane\F AHR\Fahr99\Feb\FAHR99-07,doc Revised: 8/10/98 Page2 FAHR COMMITTEE Meeting Date 2/10/99 AGENDA REPORT Item Number 13 (b) Orange County Sanitation District FROM: Mike Peterman, Director of Human Resources Originator: Dawn McKinley, Senior Human Resources Analyst SUBJECT: AUTHORIZATION TO MAKE AN EQUITY ADJUSTMENT (FAHR99-08) GENERAL MANAGER'S RECOMMENDATION Authorize staff to give Danny Evangelista an 11. 7% equity adjustment to correct the internal and external inequities that exist between Mr. Evangelista's salary and the salaries of other Programmers. SUMMARY Danny Evangelista has been an employee with the Orange County Sanitation District for ten years. For the past three years, Mr. Evangelista has been a Financial Analyst and has spent the last eighteen months working with the J. D. Edwards (JOE) Financial Information System (FIS). Mr. Evangelista was selected to fill an open Programmer position in the Information Technology Department on January 4, 1999. The responsibilities of the position include performing a wide variety of programming activities to support the FIS-hosted hardware and software database needs of the District. The position is critical in that it will allow the Information Technology Department to provide much needed support for the FIS, particularly during the implementation of OneWorld, the upgraded WorldVision FIS package. Mr. Evangelista's experience as a financial analyst and knowledge of the JOE Financial Information System make him a valuable asset to the Information Technology Department as well as to the District. Mr. Evangelista is the last remaining JOE expert at the District. Mr. Evangelista was offered, and has since accepted, the Programmer position. Mr. Evangelista was given a 5.5% promotional increase, in accordance with Human Resources Policies and Procedures Number C 10.00, Section 5.1.3, which states that "Employees who earn a promotion are entitled to a promotional increase of 5.5%, or to the base of the new pay range, whichever is greater ... " The 5.5% promotional increase was not enough; however, to bring Mr. Evangelista's salary up to market level. An inequity exists between his salary and the salaries of other District Programmers as well as Programmers in the external market. An additional increase is needed to bring Mr. Evangelista's salary closer market. llradon\dala1 lwp.dtallin\21 O\crane\F AHR\Fahr99\Feb\FAHR99-08, doc Revised: 8/20/98 Page 1 To Bd. of Dir. 2/24/99 Item Number The midpoint of the District's Programmer pay range ($50,304 per year) represents the external market rate for a journey-level Programmer. Five of the six District Programmers are at or above the midpoint of the Programmer pay range. If we were to hire an external candidate to fill the position, we would offer no less than market or the midpoint of the pay range. Mr. Evangelista's salary, with the 5.5% promotional increase, is $45,036 or 11.7% below midpoint. It is requested that the Board of Directors authorize Human Resources to make an 11. 7% equity adjustment to Mr. Evangelista's salary to bring his salary to the midpoint, or journey-level market rate, for a Programmer. By raising Mr. Evangelista's salary to market and retaining his skills, the District benefits from his knowledge and experience and avoids the additional costs associated with an external recruitment and specialized JDE training. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT Cost: $5,268 per year. D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. This item has not been budgeted, but there are sufficient funds. D Not applicable (information item) ADDITIONAL INFORMATION NIA ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS N/A \lradonldata1 wvp.dta\fin\21 O'<:rane\FAHR\Fahr99\Feb\FAHR99-08.doe Revioad: 8/20/88 Page2 ' FAH R CO MM ITTEE Meeting Date To Bd. of Dir. 02/10/99 N/A AGE NDA REPORT Item Number Item Number 13 (c). Orange County Sanitation District FROM: Gary Streed, Director of Finance SUBJECT: CONSIDERATION OF CONNECTION FEE CALCULATION METHODS AND POLICIES (FAHR99-09) GENERAL MANAGER'S RECOMMENDATION The General Manager recommends development of a new comprehensive connection fee program and ordinance which contains the following elements: 1. Base fees are determined by type of development, flow, BOD and SS, and are calculated per 1,000 square feet for non-residential development and per unit for residential development; 2. Residential fees are tiered based upon number of bedrooms and SFR or MFR development. 3. Connection fees continue to be collected at the time the building permit is issued. 4. Credit for demolished structures be granted only when the developer can prove that prior connection fees were paid, and credit provided only for the amount actually paid. 5. The new connection fee program should be reported to the RAC prior to final consideration by the Board. SUMMARY Capital facilities connection fees, or connection fees for short, have been one-time fees collected in order to cover the costs of providing sewerage facilities to serve the property. Today, connection fees are collected for the District by member cities and Districts when building permits are issued. These fees were revisited as a part of the Rate Advisory Committee's (RAC) work for the Strategic Plan. The RAC did not develop a specific connection fee calculation method, but did give staff guidelines in several areas. The enclosed Staff Report summarizes the alternatives, the evaluations, and the recommendations. H:\wp.dta\fin\21 0\cranelFAHRIFahr991Feb\FAHR99-09.doc Revised: 8/20/98 Page 1 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 See enclosed Staff Report. ALTERNATIVES See enclosed Staff Report. CEQA FINDINGS NIA ATTACHMENTS 1 . Staff Report 2. Connection Fee Alternatives Sorted by Rate 3. Connection Fee Alternative Sorted Alphabetically 4. Examples of Connection Fee Alternatives GGS:lc H:lwp.dta\fin\21 0'<:ranelFAHRIFahr99\Feb\FAHR99-09.doc ReYised: 8/20/98 Page2 .. February 10, 1999 STAFF REPORT Connection Fee Alternatives Capital facilities connection fees, or connection fees for short, have been one-time fees collected in order to cover the costs of providing sewerage facilities to serve the property. Today, connection fees are collected for the District by member cities and Districts when building permits are issued. These fees were revisited as a part of the Rate Advisory Committee's (RAC) work for the Strategic Plan. The RAC did not develop a specific connection fee calculation method, but did give staff guidelines in several areas: • The existing calculation method should be changed. • There should be different residential fees to reflect different impacts. • The economic and social benefits of commercial/industrial development should be considered. • Collection methods besides "one-time, up-front" should be considered. • Costs of facilities related to wet-weather flows should be shared on the basis of wet- weather flow increases. • New users should pay for new capacity. Existing Program The existing method of calculation was developed as a part of the 1989 Master Plan. Future users are charged their share of all facilities, both existing and future, that will be in place in 2020 as if all facilities and all users came into the system on that date. If the value of all the facilities is projected to be $2,360,000,000, and the total number of users is projected to be 1,000,000, then the connection fee is $2,360. The operating assumption is that the non-residential use factor is 20% of single-family residential use per 1,000 square feet of building. This results in a non-residential connection fee of $472 per 1,000 square feet in this example. This calculation method can be described as "all users, past, present and future, pay the same." RAC Program The RAC recommended that capital costs be categorized and that different user types pay for different categories. Categories were developed for existing net assets, additional dry weather capacity, additional wet weather capacity, improved treatment and rehabilitation/reconstruction. The following table explains the allocation of these categories. Connection Fee Alternatives Page 2 of 7 February 10, 1999 Cost Category • Existing Assets Less Debt • Dry Weather Capacity • Wet Weather Capacity • Improved Treatment • Rehab/Reconstruction Allocation of Costs • Current users have paid for this and for current capacity • All new users will pay • New residential and non- residential users will pay based upon length of sewers • Current and new users will pay • Current and new users will pay This allocation method can be described as, "all users from now on pay the same," and/or as, "future users will pay for future capacity." Discussion Several methods of implementing the RAC recommendations were evaluated and resulting rates were calculated. User Fee Basis -With the intention of developing consistency between the user fee program and connection fees, fees were calculated based upon the flow, BOD and SS assumptions used to determine user fees. Estimated flows and strength were the result of surveys and studies performed by the Strategic Plan consultants. This resulted in 30 separate connection fees ranging from $79/1,000 sq. ft. for a drive-in theater, to $6,828/1,000 sq. ft. for a conventional car wash. High connection fees per 1,000 square feet for restaurants have been mitigated by some agencies by providing incentives. Restaurants that install grease traps and do not install garbage disposals have had the BOD and SS assumptions reduced by 50%. This would reduce the rate per 1,000 square feet from $4,756 to $2,980. The highest rate calculated is for conventional car washes. A 25% reduction in assumed flow can be granted for a car wash that installs a water recycling system. This would reduce the rate per 1,000 square feet from $6,828 to $5,119. The general use of the property would need to be known at the time of development, in order to determine most accurately which of the 30 fees to use. However, categories are very broad and most choices would be very close. A list of fees and categories is attached. This option most closely matches the RAC presentation. Summary User Fee Basis -Connection fees were computed per 1,000 sq. ft. development as above. Those uses with reasonably close fees were then combined. The number of different fees was reduced from 30 to 15, and the range was from $80/1,000 sq. ft. to $6,800/1,000 sq. ft. This option is very close to the user fee basis for an individual property and should be easier to administer. 't Connection Fee Alternatives Page 3 of 7 February 10, 1999 Average Use Basis -Because city staff collect connection fees on our behalf and because the actual use of the property is often unknown, alternative connection fee calculation methods were evaluated. Since one of our goals was to develop a fee that reflected use, we considered whether the size of the connection, or the lateral, was a good indicator. While the exact use, or the strength of use, could not be determined, certainly the maximum use could. We discovered that there are generally only two sizes of commercial laterals, that they are determined principally by ease of cleaning, and that they are established by building codes. While these facts eliminated lateral size as a fee factor, they also supported a minimum number of fees because the maximum use from most developments would be approximately the same. Potential maximum use is the basis for our current connection fee structure and results in the same fee as average use. The average fee would be $654 per 1,000 sq. ft. of building. Variances between user fee based and average fees range from $575 below to $6,174 above average. Master Plan Use Basis -The master plan or strategic plan process predicts future flows and future capacity requirements based upon land use. Cities and counties adopt land use plans for future developments within their spheres of influence. Each of these land uses is assigned a flow coefficient per acre. Following are the consultants' assumptions for the current Strategic Plan effort for build-out in 2118: Land Use Category 1. Estate Residential 2. Low Density Residential 3. Medium Density Residential 4. Medium High Density Residential 5. Commercial/Office 6. Industrial 7. High Density lnd./Comm. 8. Institutional Gallons Per Acre/Day 727 1,488 3,451 7,516 2,262 3,167 5,429 2,715 Total Acres 27,238 76,345 19,909 3,754 19,851 18,886 5,952 9,617 Advantages of this method are: 1) the fee is based on the same flow projections as the Strategic Plan; 2) the actual property use does not need to be known when the connection permit is issued; 3) it is easy to administer; 4) the fee does vary to reflect different flow demands; 5) adjusting the connection fee for user BOD and SS differences may be of little real benefit as the actual influent concentrations at the headworks approximate residential strength and facilities are built to treat the average influent strength. A disadvantage of this method is that the fee is based upon average flow generated for acreage and does not change for the size of the building, or the actual type of use, so long as the land use category does not change. In total, this may be a minor issue, but variances for individual projects are significant. Connection Fee Alternatives Page 4 of 7 February 10, 1999 Fees resulting from the use of acreage and master planning flow coefficients are: Land Use Category Estate Residential Low density Residential Medium Density Residential Medium High Density Residential High Density Residential Commercial/Office Industrial Institutional High Density lnd./Comm. Tiered Residential Fees Fee Per Acre $16,978 23,767 20,371 40,734 Fee Per Unit $3,187 1,814 1,754 1,754 1,647 The RAC recommended that residential connection fees be tiered to reflect differing demands on the sewerage system. One of the best ways to predict sewer use is by the number of bedrooms because that correlates to the number of potential occupants. Additionally, adding a bedroom requires a building permit and would trigger additional connection fees. Consultants and staff analyzed census data and Assessor's Office data to determine the mix of bedrooms in the single-family residential (SFR) and multi- family residential (MFR) service area to determine the standard bedroom size for each, as well as the number of existing and projected units. The result of this analysis is shown below assuming that the MFR average daily flow is 70% of the SFR flow, the same assumption used in determining user fees. No. of Bedrooms 0 1 2 3 4 5 SFR Ratio .615 .808 1.000 1.192 1.385 MFR Ratio .451 .725 1.000 1.275 1.549 These ratios can be applied to any of the fee calculation options, and any residential land use category. Additional Alternative For the past several years, connection fees have been collected for the District by the city or sanitary district. Generally, the permit is issued by the Building Department and Connection Fee Alternatives Page 5 of 7 February 10, 1999 they retain 5%. When a non-residential project is started before the tenant mix is known, two of our alternatives cannot be used. Additionally, if there is a significant change in the type of use, we are not aware as there may be no building permit or additional square feet of building. A possible source of accurate use information is the Certificate of Occupancy process. It may be possible to move all, or a portion, of the connection fee collection to this process. Of course, arrangements will need to be made or negotiated with each of the agencies. This could possibly increase the amount of fee, would definitely increase the impact on the collecting agencys and may not be agreed to by every agency. Credit for Demolished Structures For many years, the connection fee ordinance has allowed credit for structures demolished up to two years prior to issuance of new building permit. The credit is determined to be an amount equal to the current connection fee for the demolished structure. Thus, if 25 single-family homes were demolished and replaced with 75 single-family homes, the developer would only be required to purchase 50 new permits. This credit is allowed whether or not connection fees were ever paid, and regardless of the amount of connection fees actually paid. (In no event is a refund ever granted.) Recently, two separate developers have challenged the two-year period. The basic argument put forth by the lawyers for each of these developers is that the previous buildings paid for the capacity they used, either through connection fees or property taxes. Connection fees in this area, formerly District No. 2, were adopted in 1973 at $50 per 1,000 square feet. Prior to passage of Proposition 13 in 1978, each District also levied a separate property tax for capital improvements. The other view is that sewage treatment facilities are planned and constructed based upon flow trends and demands. When a building is demolished, flows decrease. After some reasonable period, planners need to be able to know that the flow decrease is "permanent," and that future capacity needs will be met through connection fees. At the present time, the District has a protest and a subsequent Tolling Agreement concerning a huge project in the City of Anaheim, contiguous to the Fullerton City line, where the former Northrup aerospace facilities were demolished and new industrial projects were constructed in place of the original buildings. The new builder has paid the entire fee but has protested it, and both parties have agreed to take no legal action to resolve this, pending the connection fee study and report that resulted from the RAC process and the Strategic Plan and the final adoption of a new comprehensive Connection Fee Ordinance by the District. It would appear that the Directors have four options: Connection Fee Alternatives Page6of7 February 10, 1999 1. Remove the two-year provision and provide, instead, that if the owner establishes proof of payment of a connection charge by the current or any prior owner of the property, that a credit for the amount paid would be allowed against the current charge. 2. Remove the two-year provision and provide, instead, that any new replacement building would not be required to pay any capital facility charge so long as the new use was no more than the previous demand. (This would effectively negate the payment and Tolling Agreement for the Northrup property and would require the District to refund about $267,000 of the $556,000 paid, plus interest.) 3. Extend the time period to more than two years in which property owners must redevelop the property in order to receive a credit, because delays may be caused by the local permitting process, the economy, or other factors outside the control of the developer. 4. Maintain the two-year period on the basis that it is a reasonable time in which to have redevelopment undertaken. Reduced Fee for Low Income or Senior Citizen Developments From time to time, the Directors have been asked to consider reducing or waiving the connection fee for various projects deemed socially desirable. Most often these are projects for senior citizens or to provide low-cost housing. It has not been uncommon for various other agencies to waive their fees for these projects. Nonetheless, the Directors have not granted these requests in the past. One reason for this practice has been the connection fee ordinance itself, which contains no language authorizing reductions or waivers. General Counsel has consistently advised that a new ordinance would be required. Another reason is that since there was only one residential connection fee, there could ultimately be a shortfall in connection fee receipts, if fees were reduced for individual projects. Finally, the previous philosophy of connection fees was that they were to pay for peak demand and that peak flow potential was not affected by age or income of occupants. In 1998, the Board of District No. 7 did allow one congregate care facility to be designated a "commercial" development and to pay the fee per 1,000 square feet, rather than the fee per unit for the 87 rooms. In part, this decision was based upon the inclusion of a recreation room, a small theater, a medical examination room, and a separate mail room in the facility. Sometimes there are also common dining areas in these facilities. Connection Fee Alternatives Page 7 of 7 February 10, 1999 The Directors have considered, but rejected, a special fee for residential units of less than 750 square feet in the past. Adoption of such a fee would be one method of granting a reduced fee to these projects. If the Directors approve the tiered residential connection fee described above, the connection fee for a one-bedroom unit would already be 50% of the standard three-bedroom single-family rate, and a studio apartment would be 31 .5%. Perhaps the tiered residential connection fee would also satisfy the demand for reduced fees for these types of developments. Governmental Uses Historically, local governmental agency buildings have not been charged a connection fee. (They do pay annual user fees.) These uses include public schools, city halls, fire stations, police stations, etc. Revenue Area 13 is an exception in which all of these uses are charged connection fees. This exception developed during the formation of then District No. 13 during the same time period as siting a new county jail in that area was being considered. State and federal buildings are charged for connection fees in all Revenue Areas. Recommendation Staff recommends the adoption of a new comprehensive connection fee ordinance which contains the following elements. 1. Base fees are determined by type of development, flow, BOD and SS, and are calculated per 1,000 square feet for non-residential development and per unit for residential development. 2. Residential fees are tiered, based upon number of bedrooms and SFR or MFR development. 3. Connection fees continue to be collected at the time the building permit is issued. 4. Credit for demolished structures be granted only when the developer can prove that prior connection fees were paid, and credit provided only for the amount actually paid. 5. The new connection fee program should be reported to the RAC prior to final consideration by the Board. GGS:lc H:\wp.dla\fin\210\crane\F AHR\Fahr99\F eb\FAHR99-09SR.doc 2/3/99 Sorted by Rates 6:06 PM Connection Fee Calculation Alternatives Constituent Based Equal to User Fees Based Upon 2020 Vision Capacity Projects Remaining of $574,477,550 Ass'r Individual Categorized Code Description Constituent By Rate Per 1 000sq ft Per 1000 sq ft 58 NURSERIES (PLANTS) $ 79.05 1 $ 80.00 1 100 DRIVE-IN THEATER $ 79.05 1 $ 80.00 110 WAREHOUSE -SINGLE TENANT $ 128.77 2 $ 150.00 2 111 WAREHOUSE -MUL Tl TENANT $ 128.77 2 $ 150.00 2 113 MINI-WAREHOUSE $ 128.77 2 $ 150.00 2 115 RECREATIONAL VEHICLE STORAGE $ 128.77 2 $ 150.00 2 116 TRUCK TERMINAL $ 128.77 2 $ 150.00 2 44 LUMBER/CONSTR MATL YARD $ 142.88 3 $ 150.00 2 71 PARKING GARAGE $ 146.21 4 $ 150.00 2 72 PAVED PARKING LOT $ 146.21 4 $ 150.00 2 33 CHURCH BUILDINGS $ 163.00 5 $ 150.00 2 74 RECREATION VEHICLE PARK $ 215.00 6 $ 225.00 3 40 HEALTH CLUB $ 233.33 7 $ 225.00 3 21 AUTOMOBILE DEALERSHIP $ 329.92 8 $ 330.00 4 22 AUTO REPAIR SHOP $ 329.92 8 $ 330.00 4 23 AUTOMOTIVE SERVICE $ 329.92 8 $ 330.00 4 24 USED CAR LOT $ 329.92 8 $ 330.00 4 36 FINANCIAL BUILDINGS $ 329.92 8 $ 330.00 4 39 GOLF COURSE $ 329.92 8 $ 330.00 4 48 CONVENIENCE MARKET $ 329.92 8 $ 330.00 4 57 MOTORCYCLE/SMALL VEHICLE BLDG $ 329.92 8 $ 330.00 4 83 AUTOMOTIVE SERVICE STATION $ 329.92 8 $ 330.00 4 84 MARINE SERVICE STATION $ 329.92 8 $ 330.00 4 85 COMBIN: SERV STN/RESTAURANT $ 329.92 8 $ 330.00 4 86 COMBIN:SERVICE STN/CONVIENCE MKT $ 329.92 8 $ 330.00 4 94 DEPARTMENT STORE $ 329.92 8 $ 330.00 4 95 DISCOUNT STORE $ 329.92 8 $ 330.00 4 96 UNATTACHED SINGLE STORE $ 329.92 8 $ 330.00 4 97 STRIP STORE $ 329.92 8 $ 330.00 4 37 FRATERNAL BUILDINGS $ 407.94 9 $ 425.00 5 101 UNATTACHED THEATER $ 407.94 9 $ 425.00 5 88 CONVENIENCE SHOPPING CENTER $ 412.74 10 $ 425.00 5 89 NEIGHBORHOOD SHOPPING CENTER $ 412.74 10 $ 425.00 5 90 COMMUNITY SHOPPING CENTER $ 412.74 10 $ 425.00 5 26 AIRPORT AND RELATED $ 455.79 11 $ 425.00 5 45 MARINAS $ 455.79 11 $ 425.00 5 81 PRE-SCHOOLS, NURSERY OR CARE $ 649.83 12 $ 650.00 6 82 PRIVATE SCHOOLS $ 649.83 12 $ 650.00 6 98 STORE WITH OFFICES OR LIV QTR $ 649.83 12 $ 650.00 6 99 STORE W/ OFFICE UPSTAIRS $ 649.83 12 $ 650.00 6 65 SINGLE OFFICE BLDGS TO 3 STORIES $ 654.70 13 $ 650.00 6 66 SMALL OFFICE CENTER $ 654.70 13 $ 650.00 6 67 OFFICE COMPLEX $ 654.70 13 $ 650.00 6 68 HIGH RISE OFFICE $ 654.70 13 $ 650.00 6 69 CONVERTED RESIDENCE TO OFFICE $ 654.70 13 $ 650.00 6 Rac_asmp capacity only sq ft summary 2/3/99 Sorted by Rates 6:06 PM Connection Fee Calculation Alternatives Constituent Based Equal to User Fees Based Upon 2020 Vision Capacity Projects Remaining of $574,477.550 Ass'r Individual Categorized Code Descrietion Constituent By Rate Per 1 000sq ft Per 1000 sq ft 118 GOVERNMENTAL USE $ 654.70 13 $ 650.00 6 32 CEMETERY & RELATED $ 751 .67 14 $ 760.00 7 38 FUNERAL HOME $ 751.67 14 $ 760.00 7 43 HOTEL $ 776.86 15 $ 760.00 7 56 MOTELS AND MOTOR HOTELS $ 776.86 15 $ 760.00 7 63 LOW RISE RETIREMENT BUILDING $ 776.86 15 $ 760.00 7 64 HIGH RISE RETIREMENT BUILDING $ 776.86 15 $ 760.00 7 42 HOSPITAL $ 803.29 16 $ 800.00 8 103 CHEMICAL TANK AND BULK STORAGE $ 803.29 16 $ 800.00 8 104 FOOD PROCESSING PLANT $ 803.29 16 $ 800.00 8 105 COLD STORAGE PLANT $ 803.29 16 $ 800.00 8 106 FACTORY $ 803.29 16 $ 800.00 8 107 LIGHT INDUSTRIAL -SINGLE TENANT $ 803.29 16 $ 800.00 8 108 LIGHT INDUSTRIAL -MUL Tl TENANT $ 803.29 16 $ 800.00 8 109 RESEARCH AND DEVELOPMENT $ 803.29 16 $ 800.00 8 114 INDUSTRIAL PARK $ 803.29 16 $ 800.00 8 119 PUBLIC UTILITY $ 803.29 16 $ 800.00 8 120 WATER MUTUAL OR COMPANY $ 803.29 16 $ 800.00 8 61 CONVALESCENT HOSPITALS $ 820.19 17 $ 800.00 8 28 BOWLING ALLEYS $ 865.53 18 $ 860.00 9 92 SKATING RINKS $ 865.53 18 $ 860.00 9 60 NURSING HOME $ 859.87 19 $ 860.00 9 62 CONVERTED RES USED AS NURSING $ 859.87 19 $ 860.00 9 50 SINGLE MEDICAL BLDGS TO 3 STORIES $ 984.62 20 $ 1,000.00 10 51 SMALL MEDICAL CENTER $ 984.62 20 $ 1,000.00 10 52 MEDICAL CENTER COMPLEX $ 984.62 20 $ 1,000.00 10 53 HIGH RISE MEDICAL $ 984.62 20 $ 1,000.00 10 54 CONVERTED RESIDENCE TO MEDICAL $ 984.62 20 $ 1,000.00 10 91 REGIONAL SHOPPING CTR-w/ Restaurant $ 1,050.12 21 $ 1,000.00 10 47 SUPERMARKET $ 1,130.21 22 $ 1,150.00 11 20 AMUSEMENT PARKS $ 1,147.15 23 $ 1,150.00 11 35 ENTERTAINMENT CENTER $ 1,147.15 23 $ 1,150.00 11 73 RECREATION $ 1,147.15 23 $ 1,150.00 11 COIN OPERATED CAR WASH-Recycle $ 967.69 24 $ 970.00 12 30 COIN OPERATED CAR WASH $ 1,291.50 25 $ 1,300.00 13 RESTAURANT -TAKE OUT -Low Strength $ 1,490.24 26 $ 1,500.00 14 REST AU RANT -COFFEE SHOP-Low Strength $ 2,980.48 27 $ 3,000.00 15 RESTAURANT -DINNER HOUSE-Low Strength $ 2,980.48 27 $ 3,000.00 15 76 RESTAURANT -TAKE OUT $ 2,378.32 28 $ 2,400.00 16 77 RESTAURANT -COFFEE SHOP $ 4,756.63 29 $ 4,800.00 17 78 RESTAURANT-DINNER HOUSE $ 4,756.63 29 $ 4,800.00 17 RECYCLED WATER CAR WASH $ 5,119.47 30 $ 5,100.00 18 29 CONVENTIONAL CAR WASH $ 6,827.82 31 $ 6,800.00 19 Rac_asmp capacity only sq ft summary 2/3/99 Sorted Alphabetically 6:22 PM Connection Fee Calculation Alternatives Constituent Based Equal to User Fees Based Upon 2020 Vision Capacity Projects Remaining of $574.477,550 Ass'r Individual Categorized Code Description Constituent By Rate Per 1 000sq ft Per 1000 sq ft 26 AIRPORT AND RELATED $ 455.79 $ 425.00 20 AMUSEMENT PARKS $ 1.147.15 $ 1,150.00 22 AUTO REPAIR SHOP $ 329.92 $ 330.00 21 AUTOMOBILE DEALERSHIP $ 329.92 $ 330.00 23 AUTOMOTIVE SERVICE $ 329.92 $ 330.00 83 AUTOMOTIVE SERVICE STATION $ 329.92 $ 330.00 28 BOWLING ALLEYS $ 865.53 $ 860.00 32 CEMETERY & RELATED $ 751.67 $ 760.00 103 CHEMICAL TANK AND BULK STORAGE $ 803.29 $ 800.00 33 CHURCH BUILDINGS $ 163.00 $ 150.00 30 COIN OPERATED CAR WASH $ 1,291 .50 $ 1,300.00 COIN OPERATED CAR WASH-Recycle $ 967.69 $ 970.00 105 COLD STORAGE PLANT $ 803.29 $ 800.00 90 COMMUNITY SHOPPING CENTER $ 412.74 $ 425.00 61 CONVALESCENT HOSPITALS $ 820.19 $ 800.00 48 CONVENIENCE MARKET $ 329.92 $ 330.00 88 CONVENIENCE SHOPPING CENTER $ 412.74 $ 425.00 29 CONVENTIONAL CAR WASH $ 6,827.82 $ 6,800.00 CONVENTIONAL CAR WASH-w/ Recycle $ 5,119.47 $ 5,100.00 94 DEPARTMENT STORE $ 329.92 $ 330.00 95 DISCOUNT STORE $ 329.92 $ 330.00 100 DRIVE-IN THEATER $ 79.05 $ 80.00 35 ENTERTAINMENT CENTER $ 1,147.15 $ 1,150.00 106 FACTORY $ 803.29 $ 800.00 36 FINANCIAL BUILDINGS $ 329.92 $ 330.00 104 FOOD PROCESSING PLANT $ 803.29 $ 800.00 37 FRATERNAL BUILDINGS $ 407.94 $ 425.00 38 FUNERAL HOME $ 751.67 $ 760.00 39 GOLF COURSE $ 329.92 $ 330.00 118 GOVERNMENTAL USE $ 654.70 $ 650.00 40 HEALTH CLUB $ 233.33 $ 225.00 42 HOSPITAL $ 803.29 $ 800.00 43 HOTEL $ 776.86 $ 760.00 114 INDUSTRIAL PARK $ 803.29 $ 800.00 108 LIGHT INDUSTRIAL -MUL Tl TENANT $ 803.29 $ 800.00 107 LIGHT INDUSTRIAL -SINGLE TENANT $ 803.29 $ 800.00 63 LUMBER/CONSTR MATL. YARD $ 142.88 $ 150.00 44 MARINAS $ 455.79 $ 425.00 45 MARINE SERVICE STATION $ 329.92 $ 330.00 84 MEDICAL BLDG CONV FROM RESIDENCE $ 984.62 $ 1,000.00 54 MEDICAL SLOGS-SINGLE-TO 3 STORIES $ 984.62 $ 1,000.00 52 MEDICAL CENTER COMPLEX $ 984.62 $ 1,000.00 53 MEDICAL CENTER-SMALL $ 984.62 $ 1,000.00 113 MEDICAL HIGH RISE $ 984.62 $ 1,000.00 56 MOTELS AND MOTOR HOTELS $ 776.86 $ 760.00 Rac_asmp capacity only sq ft summary (2) 2/3/99 Sorted Alphabetically 6:22 PM Connection Fee Calculation Alternatives Constituent Based Equal to User Fees Based Upon 2020 Vision Capacity Projects Remaining of $574,477,550 Ass'r Individual Categorized Code Description Constituent By Rate Per 1 000sq ft Per 1000 sq ft 57 MOTORCYCLE/SMALL VEHICLE BLDG $ 329.92 $ 330.00 89 NURSERIES (PLANTS) $ 79.05 $ BO.OD 58 NURSING HOME $ 859.87 $ 860.00 60 NUSRING HOME CONV FROM RESIDENCE $ 859.87 $ 860.00 62 OFFICE HIGH RISE $ 654.70 $ 650.00 68 OFFICE BLDGS-SINGLE-TO 3 STORIES $ 654.70 $ 650.00 67 OFFICE CENTER -SMALL $ 654.70 $ 650.00 69 OFFICE COMPLEX $ 654.70 $ 650.00 71 OFFICE CONVERTED FROM RESIDENCE $ 654.70 $ 650.00 72 PARKING GARAGE $ 146.21 $ 150.00 81 PAVED PARKING LOT $ 146.21 $ 150.00 82 PRE-SCHOOLS, NURSERY OR CARE $ 649.83 $ 650.00 119 PRIVATE SCHOOLS $ 649.83 $ 650.00 73 PUBLIC UTILITY $ 803.29 $ 800.00 74 RECREATION $ 1,147.15 $ 1,150.00 115 RECREATION VEHICLE PARK $ 215.00 $ 225.00 91 RECREATIONAL VEHICLE STORAGE $ 128.77 $ 150.00 109 RESEARCH AND DEVELOPMENT $ 803.29 $ 800.00 77 REST AU RANT -COFFEE SHOP $ 4,756.63 $ 4,800.00 RESTAURANT -COFFEE SHOP-Low Strength $ 2,980.48 $ 3,000.00 78 RESTAURANT -DINNER HOUSE $ 4,756.63 $ 4,800.00 RESTAURANT -DINNER HOUSE-Low Strength $ 2,980.48 $ 3,000.00 76 RESTAURANT -TAKE OUT $ 2,378.32 $ 2,400.00 RESTAURANT -TAKE OUT -Low Strength $ 1,490.24 $ 1,500.00 64 RETIREMENT BUILDING HIGH RISE $ 776.86 $ 760.00 86 RETIREMENT BUILDING LOW RISE $ 776.86 $ 760.00 85 SERVICE STN/CONVIENCE MKT $ 329.92 $ 330.00 50 SERVICE STN/RESTAURANT $ 329.92 $ 330.00 65 SHOPPING CENTER -NEIGHBORHOOD $ 412.74 $ 425.00 92 SHOPPING CTR-REGIONAL -w/ Restaurant $ 1,050.12 $ 1,000.00 51 SKATING RINKS $ 865.53 $ 860.00 66 STORE W/ OFFICE UPSTAIRS $ 649.83 $ 650.00 99 STORE WITH OFFICES OR LIV QTR $ 649.83 $ 650.00 98 STORE-UNATTACHED SINGLE STORE $ 329.92 $ 330.00 97 STRIP STORE $ 329.92 $ 330.00 47 SUPERMARKET $ 1,130.21 $ 1,150.00 116 TRUCK TERMINAL $ 128.77 $ 150.00 96 UNATTACHED THEATER $ 407.94 $ 425.00 101 USED CAR LOT $ 329.92 $ 330.00 24 WAREHOUSE -MUL Tl TENANT $ 128.77 $ 150.00 111 WAREHOUSE -SINGLE TENANT $ 128.77 $ 150.00 110 WAREHOUSE, MINI-WAREHOUSE $ 128.77 $ 150.00 120 WATER MUTUAL OR COMPANY $ 803.29 $ 800.00 Rac_asmp capacity only sq ft summary (2) ... 2/4/99 Examples of Connection Fee Alternatives Connection Fee Alternative Average Acreage User Fee Categorized Parameter Type of business Food Processing Facility Square feet of building 130,000 $ 85,020 $ 104,427 $ 104,000 Acres occupied by business 5 $ 120,926 Gallons discharged per day 50,000 1090 BOD & 270 SS $ 390,000 Gallons discharged per day 100,000 1090 BOD & 270 SS 780,000 Gallons discharged per day 150,000 1090 BOD & 270 SS 1,170,000 Type of business Warehouse & Light Industrial, 50:50 Square feet of building 1,184,000 774,336 551,779 562,400 Acres occupied by business 53 1,259,651 Type of business Industrial Laundry Square feet of building 12,000 7,848 9,639 9,600 Acres occupied by business 1 25,906 Gallons discharged per day 260,000 256 BOD & 637 SS 1,360,640 Type of business Bottling Company Square feet of building 78,895 51,597 63,376 63,116 Acres occupied by business 4 104,812 Gallons discharged per day 45,000 2632 BOD & 122 SS 667,700 Type of business Hard Drive Manufacturer Square feet of building 100,568 65,771 80,785 80,454 Acres occupied by business 6 149,970 Gallons discharged per day 415,000 172 BOD & 62 SS 964,228 Rac_asmp-Examples 8:38 AM FAH R COMM ITTEE AGE NDA REPORT Orange County Sanitation District FROM: Gary G. Streed, Director of Finance Originator: Michael D. White, Controller Meeting Date 02/10/99 Item Number 13 (d) SUBJECT: CONSIDERATION OF MOTION TO REVIEW AND FILE THE MID-YEAR REPORT PREPARED BY STAFF FOR THE PERIOD ENDED DECEMBER 31, 1998 (FAHR99-10) GENERAL MANAGER'S RECOMMENDATION Staff recommends that the Committee review, approve and forward the 1998-99 Mid-Year Report to the Board of Directors. SUMMARY Attached in a separately bound document is the District's Mid-Year Report for the period ended December 31, 1998. This report is a consolidation of both the financial and operational accomplishments of the District at the mid-point of the 1998-99 fiscal year. Contained within the Mid-Year Financial Report are budget summary reviews of the Joint Operating & Working Capital Funds, the Capital Improvement Program, 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. As indicated within the Overview Section of this report, 44.85 percent or $20,272,000 of the 1998-99 net joint operating budget of $45.2 million has been expended. Net costs have decreased 5.08 percent in comparison with the same period last year. The total cost per million gallons at December 31, 1998 is $448.71 based on flows of 45,179 million gallons, or 245 million gallons per day. This is $29, or 6.02 percent below the budgeted cost per million gallons of $485.63. Capital improvement outlays for the first half of the year were 26.4 percent of budget, or $19,060,000. \lradonldata1 w,p.dtalfin\21 O\crane\FAHR\Fahr99\Feblfahr99-1 O.doc Rellised: 1/5198 Page 1 To Bd. of Dir. 02/24/99 Item Number 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. 121 Not applicable (information item) ADDITIONAL INFORMATION None. ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. District's Mid-Year Financial and Operational Report for the period ended December 31, 1998. MW \lradonldata1 lwp.dtallin\21 O\crane\FAHR\Fahr99\Feb\fahr99-1 O.doc Revised: 1 /5198 Page2 \ FAHR COMMITTEE Meeting Date 2/10/99 AGENDA REPORT Item Number Orange County Sanitation District FROM: Gary G. Streed, Director of Finance Originator: Michael D. White, Controller SUBJECT: CONSIDERATION OF BUDGET ASSUMPTIONS, FISCAL POLICY STATEMENTS, AND BUDGET CALENDAR FOR PREPARATION OF THE 1999-00 BUDGET (FAHR99-11) GENERAL MANAGER'S RECOMMENDATION 13 (e) Approve the 1999-00 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1999-00 budget incorporating these parameters. SUMMARY Each year the FAHR Committee establishes the Budget Assumptions and Fiscal Policy Statements that staff incorporates and publishes in the annual budget. PROJECT/CONTRACT COST SUMMARY 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 None. ALTERNATIVES NIA \lradonldata1 \Np.dta\fin\21 0lcrane\FAHR\Fahr99\Feb\FAHR99-11.doc Ravised: 1/5/98 Page 1 To Bd. of Dir. N/A Item Number CEQA FINDINGS NIA ATTACHMENTS Enclosed are a draft of the budget assumptions, Fiscal Policy Statements, and a budget calendar. Staff will make a brief presentation at the Committee meeting. MW \lradonldata1 'tNp.dt:a\fin\21 Ckrane\FAHR\Fahr99\Feb\FAHR99-11.doc Revised: 1/5198 Page2 1999-00 Proposed Budget Assumptions Economic Assumptions • Inflation for Orange County in 1999-00 is projected to be 2.4 percent based on the percentage change in consumer price index obtained from the December 1998 Economic and Business Review report prepared by Chapman College. Revenue Assumptions • The Board of Directors adopted a five year user fee rate schedule in May of 1997 that provides for rate increases in 1999-00 to six out of the nine revenue areas within the District. The annual sewer service fee increases for single family residences range from 1.3 percent to 12.5 percent, or $1.00 to $10.00, over the prior year. Multi-family and non-residential service fees will increase proportionately. These increases are estimated to generate a net increase in total user fees of $2,964,000. Those areas with minor or no rate increases are projected to have higher ending reserves in comparison to their share of the total joint operating and capital costs of the District at June 30, 2000 than those areas ending up with the larger fee increases. • Connection fees, or capital facilities connection charges, and annexation fees are currently being re-evaluated as part of the strategic plan update to be completed in the last quarter of 1998-99. • Home resales were estimated to have increased 11 . 0 percent in 1997-98 over the prior year and are projected to increase another 4.6 percent according to the December 1998 Economic and Business Review report prepared by Chapman College. Property tax revenues in 1999-00 are being proposed at a modest 2.0 increase as these taxes begin to ratchet upwards as a result of resales and from new development. A more definitive estimate will be determined following the annual meeting with the Assessor's Office in late February. • After discussions with the District's External Investment Manager, PIMCO, earnings on the investment of the District's operating cash and reserves will budgeted at 6.0 Proposed Budget Assumptions percent. PIMCO estimates the next year's rate of return on investments will be 5. 75 to 6.00 percent for the long-term portfolio and 4.75 to 5.00 percent for the liquid portfolio. Operating Assumptions • The cost to treat and dispose of 1 million gallons is proposed at $472 per million gallons of wastewater treated, a decrease of 2.9 percent from the 1998-99 estimate of $486 per million gallons. Total wastewater flows for 1999-00 are budgeted to remain the same at 255 million gallons per day (mgd}. This is a 10.6 percent increase from the first six months average of 246 mgd for 1998-99, but is 17 mgd below the strategic plan estimate of 272 mgd used in capital planning. • Base joint works operating, maintenance and administration costs are proposed to be $44,000,000 for 1999-00, a net decrease of 2. 7 percent or $1,200,000 from the 1998-99 budget. • Total staffing follows the guidelines of the five year staffing plan and will be budgeted at 521.5 full time equivalents (FTE) for the start of the 1999-00 fiscal year, decreasing to 515.5 at year-end. This represents a decrease of 27.5 FTE's or five percent from the 1998-99 budget. • Cost of living salary increases and management incentive increases have not yet been determined since bargaining agreements for all units expire during the fiscal year. Step increases of 5.5 percent will be budgeted for all non-exempt employees not currently at the top of their salary range. Memorandum of Understanding adjustments will be funded from salary savings from vacant positions. • The proposed joint operating budget will continue to reflect an emphasis on safety, technical, and management training. The proposed 1999-00 budget will again include a budget for training and meetings equal to two percent of salaries and wages. In addition, $100,000 of training funds will be set aside specifically for DART. • An amount equal to one percent of the joint operating budget will be a contingency for Page 1 of 2 1998-99 Budget prior year reappropriations. Since the current year's budget lapses on June 30 of each year, a contingency is needed in the succeeding budget for goods or services ordered at the end of one budget year but not delivered until the following year. Reserve Assumptions • The five year sewer service rate schedule adopted in May 1997 was established at a level that will be sufficient to maintain compliance with the Districts' current reserve policies. • The current reserve policy was reviewed in conjunction with the strategic plan update and was revised accordingly beginning in fiscal year 1998-99. Capital Improvement Program Assumptions • The joint works capital improvement budget (CORF) is proposed not to exceed $86,567,000, as determined by the Strategic Plan Update. • Collection system capital improvement budgets, in total, are being proposed at $20,511,000 and consist mostly of trunk sewer construction and rehabilitation projects. Debt Financing • The Districts will issue debt of $70 million in Certificates of Participation for the Capital Improvement Program in accordance with the five-year debt issuance schedule approved as part of the 1997-98 Sewer Service User Fee adoption process and with the completion of the Strategic Plan Update. Page 2 of 2 Fiscal Policy Statement Completed General Financial Goals To maintain a financially viable Sanitation District that can maintain an adequate level of wastewater treatment services. To maintain financial flexibility to be able to continually adapt to local and regional economic changes. To maintain and enhance the sound fiscal condition of the District. To ensure that the value added of every program and v' activity within the District is proportional to its cost; and eliminate those programs and activities that do not contribute to the District's mission. To provide training opportunities for available jobs within the organization for those employees working in programs or activities that have been reduced or eliminated to the greatest extent possible. To provide employees with cross-training opportunities in order to achieve multi-tasking capabilities. Operating Budget Policies The District will adopt a balanced budget by June 30 of each year. The budget will be used as a fiscal control device as well as a financial plan. Budget preparation and monitoring will be performed by each division within the District, the level at which accountability and control will be held. The Director of Finance will prepare a budget calendar no later than January of each year. An annual operating budget will be developed by verifying or conservatively projecting revenues and expenditures for the current and forthcoming fiscal year. During the annual budget development process, the existing programs will be thoroughly examined to assure removal or reduction of any services or programs that could be eliminated or reduced in cost. Current operating revenues will be sufficient to support current operating expenditures. Page 1 In Progress Fiscal Policy Comments Fiscal Policy Statement Annual budgets including reserves will provide for adequate design, construction, maintenance and replacement of District capital plant and equipment. The District will maintain all physical assets at a level adequate to protect the District's capital investment and to minimize future maintenance and replacement costs. The District will project equipment replacement and maintenance needs for the next five years and will update this projection each year. From this projection a maintenance and replacement schedule will be developed and followed. The District will avoid budgetary and accounting procedures which balance the current budget at the expense of future budgets. The District will forecast its Joint Wol1<'s expenditures and revenues for each of the next five years and will update this forecast at least annually. Revenue Policies Because revenues are sensitive to both local and regional economic conditions, revenue estimates adopted by the Board of Directors must be conservative. Staff will estimate annual revenues by an objective, analytical process utilizing trend, judgmental, and statistical analysis as appropriate. Ad valorem property tax revenues of the District will be dedicated to debt service. Sewer Service User Fees will be projected for each of the next five years and this projection will be updated annually. Expenditure Policies The District will maintain a level of expenditures which will provide for the health, safety and welfare of the residents of the community. The District will set fees and user charges at a level that fully supports the total direct and indirect costs of operations, capital improvements, and debt service requirements not covered by reserves. Completed ...; Page 2 In Progress Fiscal Policy Comments Fiscal Policy Statement Capital Improvement Budget Policies The District will make all capital improvements in accordance with an adopted and funded capital improvement program. The adopted capital improvement program will be based on need. The District will develop an annual five-year plan for capital improvements, including design, development, implementation, and operating and maintenance costs. All capital improvement projects approved in the annual operating budget are approved at the budgeted amounts through the completion of the project. The Board of Directors approve both the individual project total budget and the projected cash outlays for all capital improvement projects for the current fiscal year. Completed Staff will identify the estimated costs, potential funding ...; sources and project schedule for each capital project proposal before it is submitted to the Board of Directors for approval. The District will use intergovernmental assistance to finance only those capital improvements that are consistent with the Capital Improvement Plan and District's priorities, and whose operating and maintenance costs have been included in the budget. Staff will coordinate development of the capital improvement budget with the development of the operating budget. All costs for internal professional services needed to implement the CIP will be included in the operating budget for the year the CIP is to be implemented. The District will use intergovernmental assistance and other outside resources whenever possible. Cost tracking for components of the capital improvement program will be updated quarterly to ensure project completion against budget and established time lines. Vehicle Replacement Policy In order to provide safe, reliable transportation appropriate to the work to be performed, the following policies have been established: • The newest vehicles will be used for those purposes requiring the highest annual mileage. Page 3 In Progress Fiscal Po li cy Comments Fiscal Policy Statement Completed Vehicle Replacement Policy (cont.) • Vehicles will be replaced when they are 1 0 years v' old or have accumulated 100,000 miles. • A vehicle may be replaced in advance of the above v' criteria, if it can be reallocated to a low mileage use between the plants. • Electric vehicles are to be purchased for all in-plant only uses. • Dual fuel or CNG powered vehicles will be purchased whenever practical. Short-Tenn Debt Policies The District may use short-term debt to cover temporary or emergency cash flow shortages. All short-term borrowing will be subject to Board approval by resolution. The District may utilize Board approved inter-Revenue Area loans rather than outside debt instruments to meet short-term cash needs. Inter-Revenue Area loans will be permitted only if an analysis of the affected Revenue Area indicates excess funds are available and the use of these funds will not impact the Revenue Area's current operations. The principal, along with interest at the prevailing rate as established by the District's Treasurer, will be paid to the lending Revenue Area. Long-Tenn Debt Policies The District will confine long-term borrowing to capital improvements that cannot be financed from current revenue. In accordance with the 1989 Master Plan, one-half of all future long-term capital improvements will be funded from long-term debt with the remaining cost funded from capital improvement reserves and current revenues. Proceeds from long-term debt will not be used for current on-going operations. Before any new debt is issued, the impact of debt service payments on total annual fixed costs will be analyzed. Accumulated Funds & Reserve Policies A cash flow/contingency reserve will be established to (1) fund operations and maintenance expenses for the first half of the fiscal year prior to the receipt of taxes Page 4 In Progress Fiscal Policy Comments Fiscal Policy Statement and user fee revenues, (2) provide for non-recurring, unanticipated expenditures, and (3) fund the annual principal debt se,vice payments and semi-annual interest payments due in August of each year. The level of this rese,ve will be sum of (1) an amount equal to six months of the total District Operating costs, (2) ten percent of the District's Operating costs, and (3) the total of all annual debt se,vice payments due in the month of August for each year. A capital improvement rese,ve will be maintained to fund approximately 50 percent of the average annual capital outlay plus the entire projected cost of funding specific near-tenn capital projects. Completed A renewal/replacement rese,ve will be maintained to y' fund the District's renewal, rehabilitation and replacement requirement costs associated with the District's existing capital plant and system of underground pipeline over the next thirty years. The reserve will be initially set at $50 million beginning in 1998-99 and, with an assumed interest rate level of five percent and annual increments, will grow to meet the identified demands out to 2030. Self-insurance reserves for property (fire, flood, and earthquake), general liability, and workers' compensation will be maintained at a level which, together with purchased insurance policies, FEMA Disaster reimbursement funding, and State Disaster Assistance payments would adequately protect the District. Based on a potential infrastructure loss of $495 million, the reserve level has been set at $57 million. Investment Policies The District's Treasurer will annually submit an investment policy to the Board of Directors for review and adoption. The investment policy will emphasize safety and liquidity before yield. Accounting, Auditing, and Financial Reporting The District's accounting and financial reporting systems will be maintained in conformance with generally accepted accounting principles and standards promulgated by the Governmental Accounting Standards Board. Page 5 In Progress Fiscal Policy Comments Fiscal Policy Statement A fixed asset system will be maintained to identify all District assets, their condition, historical cost, replacement value, and useful life. Quarterly financial reports will be submitted to the Board of Directors and will be made available to the public. Full disclosure will be provided in the general financial statements and bond representations. The District will maintain a good credit rating in the financial community. An annual audit will be perfonned by an independent public accounting finn with the subsequent issue of an official Comprehensive Annual Financial Report, including an audit opinion and a management letter. Completed y y y Page 6 In Progress Fiscal Policy Comments Budget Calendar Tasks Responsibility Event/Due Date PHASE I • BUDGET PREPARATION CIP -Database Collection Developed CIP Process Team 12/1/1998 CIP -Forms Developed CIP Process Team 12/1/1998 CIP -Instruction Manual Developed Financial Planning and 12/1/1998 O&M CIP -Budget Preparation Training Financial Planning & 12/2/98 and O&M CIP -Project Request Development CIP Budget 1/15/99 Coordinators Budget Calendar Published Financial Planning 1/15/99 New Directors Workshop General Manager 1/15/99 Preliminary Budget Parameters identified by Budget Team 1/29/99 Budget Team and EMT &EMT CIP -Request Review -On-Line Department - Supervisors/Managers 1/29/99 & Department Heads Preparation for Budget Kickoff / Training Session: Financial Planning 2/3/99 • Salary and Benefit Calculations Downloaded From JOE System to Excel Worksheets (Five Year Staffing Plan) • Develop Line Item Worksheets With Mid-Year Actual Expense and encumbrance Incorporated • Prepare / Update Budget Instruction Manual Budget Kickoff/ Training Session: Financial Planning 2/9/99 -Distribute Budget Manual Update -Conduct Budget Training Session -Distribute Budget Worksheets for each division including - -Prior year actuals -Current year budget -Six months of current year actuals & encumbrances 1 Budget Calendar Tasks Responsibility Event/Due Date Budget Parameters Presented to FAHR Budget Team FAHR -2/10/99 Committee OMTS -3/3/99 PDC-3/4/99 Mid-Year Financial Report to FAHR Finance Department 2/10/99 CIP -Request Finalization and Department Department Heads 2/11/99 Approval Critical Goals & Strategic Planning -Steering General Manager 2/20/99 Committee & EMT Meeting JO -Complete Base Operating Budget (excluding Division Coordinators 3/11/99 Personnel & Capital Outlay): -Projection of current year actuals -Proposed for 1999-00 JO -Preliminary Divisional Budget Package Due: Division Coordinators 3/11/99 -Draft budget overview (budget highlights & current year's work plan) -Training Budget -Educational reimbursement budget -Capital equipment decision requests -New program/position decision requests, along with supporting requirements (i.e., computer) -Reclassification decision requests (The above items will be collated and bound by Financial Planning for review by the General Manager's Office) PHASE II -BUDGET REVIEW CIP -Committee Review CIP Committee 2/25/99 CIP -Resource Availability Review Engineering & O&M 2/25/99 CIP -Review Workshop Financial Planning & 2/25/99 Department Heads CIP -PDC/Board Committee Presentation Engineering/O&M 3/4/99 CIP -General Manager and Designee(s) Approval General Manager 3/12/99 2 Budget Calendar Tasks Responsibility Event/Due Date JO-Compilation and Review of Prelim. Div. Financial Planning 3/10/99 Budget Packages Completed JO -Distribution of Preliminary Line Item Base Financial Planning 3/18/99 Budgets to Department Heads and Budget Coordinators JO -Budget Review Meetings with GM staff, General Mgrs. Office, 3/22/99 budget staff and department representatives Financial Planning, & - -review budget & initial decision packages Division Coordinators 3/29/99 JO -Final Preliminary Budget Decisions General Mgrs. Office 4/2/99 PHASE Ill -BUDGET PRESENTATION CIP -Finalize CIP List Financial Planning 3/31/99 JO -Submit Narrative Budget Document: Division Coordinators 4/5/99 -Final Budget Overview -Organization Charts (Prepared by H/R) -Service Descriptions -FTE's JO -Submit Performance Budget Documents: Division Coordinators 4/12/99 -Performance Results (1998-99) -Performance Measures (1999-00) CIP -Final CIP Budget Document Preparation Financial Planning 4/19/99 and Incorporate into Final Budget Document JO -Completion of Preliminary Budget Financial Planning 4/23/99 Proposed Budget finalized Financial Planning 4/30/99 General Manager Budget Message completed General Mgrs. Office / 5/20/99 Financial Planning Overview of Proposed Budget with Directors General Manager/ 5/XX/99 Financial Planning Proposed Budget to printer Financial Planning 5/25/99 Proposed Budget mailed to OMTS, PDC, and Financial Planning 5/27/99 FAHR 3 Budget Calendar Tasks Responsibility Event/Due Date PHASE IV -BUDGET DELIBERATIONS Proposed Budget Presented to Committees Financial Planning OMTS -6/2/99 PDC-6/3/99 FAHR -6/9/99 Public Hearing & Adoption Board of Directors 6/23/99 PHASE V -DISTRIBUTION OF BUDGET Final line item budget and equipment budgets Financial Planning 7/9/99 distributed to Departments Final approved budget distributed Financial Planning 7/16/99 PHASE VI -BUDGET DEBRIEFING Budget Debriefing Financial Planning 7/20/99 -What is contained within the budget -What changed since the Department's original submittal -What changes occurred as a result of Board action -Results of Budget Survey -Overview of Budget Monitoring with JD Edwards Software and review of Budget Coordinator's Responsibility -Suggestions for 2000-01 Budget Process Improvements 4 FAHR COMMITTEE AGENDA REPORT County Sanitation Districts of Orange County, California FROM: Gary Streed, Director of Finance . Originator: Steve Kozak, Financial Manager Meeting Date 02/10/99 Item Number 12 (f) SUBJECT: ANNUAL RENEWAL OF BOILER & MACHINERY INSURANCE FOR THE PERIOD MARCH 1, 1999 TO MARCH 1, 2000 (FAHR99-06) GENERAL MANAGER'S RECOMMENDATION Renew boiler & machinery insurance for the District for the period March 1, 1999 to February 29, 2000, with Hartford Steam Boiler Insurance Company, in an amount not to exceed $71,286. SUMMARY Robert F. Driver Associates, the District's Broker of Record, has completed their survey of the current boiler & machinery insurance market, and recommends that the District renew boiler & machinery insurance coverage with Hartford Steam Boiler Insurance Company for 1999-00. 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) \lradon\data1\wp.dtalfinl210\crane\FAHR\Fahr99\Feb\FAHR99-06.doc Revised: 1 /5/98 Page 1 To JI:. Bds. 02/24/99 Item Number ADDITIONAL INFORMATION The District's boiler and machinery insurance program provides coverage ($100 million per occurrence/$100,000 deductible) for losses caused by covered machiner;y breakdown (e.g., motors, steam turbines, digesters, co-gen engines). Damages·to the equipment, as well as damages to other property and improvements· caused by the machinery breakdown, are covered by the boiler & machinery insurance. This program augments the District's all-risk property insurance which covers perils such as fire, flood, and earthquake. To analyze available coverage levels and premium costs, Driver marketed the District's boiler & machinery insurance requirements to four insurance carriers. After reviewing the renewal proposals, Driver entered into negotiations with Hartford, the District's current boiler & machinery insurance underwriter, and secured policy renewal with no increase in premium cost (see attached letter). Hartford Insurance Companies, with more than $1 billion in reserves, is rated "A+"/FSC X (Superior) by A.M. Best Company (the insurance industry rating agency), for its overall ability to meet its obligations to policyholders. Hartford remains one of the few insurance companies to offer boiler & machinery insurance with high coverage levels for operations as large and complex as the District, and they offer the most competitive pricing for the 1999-00 renewal period. Staff concurs with Driver's findings and recommendation. Sufficient funds are contained in the current budget to cover premium costs ($71,286). ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. Broker of Record Letter SK:lc \lradonldata1 lwp,dta\fin\21 0"'rane\FAHRIFahr99\FeblFAHR99-06.doc Revised: 1/5198 Page2 ROBERT F. DRIVER ASSOCIATES a Division of Robert F. Driver Co., Inc. ASSOCIATES' Founded on knowledge, integrity and service. February 1, 1999 Mr. Steve Kozak Orange County Sanitation District P.O. Box 8127 Fountain Valley, CA 92728 RE: Boiler & Machinery Insurance Dear Steve, Confirming our recent discussions, we have now negotiated renewal terms and conditions with Hartford Stearn Boiler Insurance Company, the Districts' current insurer at a $71,206 (same as expiring) annual premium. We did approach several insurers in this relatively small specialty insurance marketplace - Travelers, Chubb and CNA -but these carriers have not been able to offer more competitive pricing. Furthermore, Hartford's experience in servicing large and complex operations (such as the co-generation facility, which many companies do not wish to insure) is an asset in the Districts' management of risk. We recommend your authorizing us to implement coverage. Sincerely, Newport Beach 4041 MacArthur Blvd., #300, P.O. Box 6450, Newport Beach, California 92658-6450 • (949) 756-0271 • Fax (949) 756-2713 Lie# 0C36861 • www.ifdriver.com San Diego Escondido Sacramento , Fresno