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Home My WebLink About2006-07-12MINUTES OF THE REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE Orange County Sanitation District Wednesday, July 12, 2006, 5:00 p.m. A joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on July 12, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Rich Freschi Phil Luebben Joy Neugebauer Mark Waldman Doug Davert, Board Vice Chair DIRECTORS ABSENT: Jim Ferryman, Board Chair James W. Silva STAFF PRESENT: Jim Ruth, Interim General Manager Lisa Tomko, Director of Human Resources Lorenzo Tyner, Director of Finance Jeff Reed, Human Resources Manager Mike White, Controller Lilia Kovac, Committee Secretary Marc Dubois, Contract & Purchasing Manager Paul Loehr, Human Resources Supervisor OTHERS PRESENT: Brad Hogin, General Counsel Dave Kendig, General Counsel Don Mclean, Driver Alliant Juanita Skillman Ryal Wheeler Norbert Gaia (2) APPOINTMENT OF CHAIR PRO TEM FILED IN THE OFFICE OF THE SECRETARY ORANGF f':f"IIINT" -· • ··~-~,,.,,, nt TRICT No appointment was necessary. JUL 19 2006 (3) PUBLIC COMMENTS There were no public comments. ~(, BY __ ..,./_/ ______ _ (4) REPORT OF THE COMMITTEE CHAIR Chair Miller directed the attention to the actuarial proposal letter from a benefits consultant, Bartel Associates, L.L.C., was distributed by the General Manager, who may assign the consulting contract within the General Manager's delegation of authority. Chair Miller also reported that the internal auditors were given a scope of work for the internal audit. Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting July 12, 2006 Page 2 (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, indicated that the Bartel proposal would be discussed in detail during the closed session. (6) REPORT OF DIRECTOR OF FINANCE/TREASURER Lorenzo Tyner, Director of Finance, reported that state's budget restores approximately $18 million property tax revenue, returning the Sanitation District to its previous level. (7) REPORT OF DIRECTOR OF HUMAN RESOURCES/PUBLIC INFORMATION OFFICE Lisa Tomko, Director of Human Resources, had no report. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, had no report. (9) CONSENT CALENDAR ITEMS a. Approve minutes of the June 14, 2006 and June 15, 2006 joint meetings of the Finance, Administration and Human Resources Committee and Steering Committee regular meeting, and Benefits Workshop special meeting. b. FAHR06-51 Receive and file Employment Status Report as of June 23, 2006. c. Item pulled for discussion. d. Item pulled for discussion. Motion: It was moved, seconded and duly carried to approve the recommended action for the item specified as 9(a) and 9(b) under consent calendar. END OF CONSENT CALENDAR (10) ACTION ITEMS c. FAHR06-52 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. Motion: Lisa Tomko, Director of Human Resources, briefly presented the report to the committee; the discussion inquired about the reserve funds for cases that have not been settled. Staff will prepare a report and present it at the September FAHR meeting that will include discussion regarding reserves, how the funds are being invested, and open cases. It was moved, seconded and duly carried to receive and file. · Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting July 12, 2006 Page 3 d. FAHR06-53 Recommend to the Board of Directors to adopt Resolution No. OCSD 06- MOTION: XX, Authorizing the District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks for FY 2006-07; and Repealing Resolution No. OCSD 05-21. Lorenzo Tyner, Director of Finance, reported to the Committee the purpose of the resolution was designed to delegate staff to perform routine investing activities within the state-mandated guidelines. It was also reported that PIMCO, the investment management consultant, will be presenting investment strategies to the FAHR Committee for consideration and approval by the Board of Directors in October 2006. It was moved, seconded and duly carried to recommend approval to the Board of Directors. (11) INFORMATIONAL ITEMS a. FAHR06-54 Insurance level criteria and indemnification. Marc Dubois, Contract & Purchasing Manager and General Counsel, Dave Kendig presented various insurance requirement scenarios anticipated based on current contract possibilities, in order to evaluate the exposure to the District, yet maintain the requests of bidders reasonable and viable. b. FAHR06-55 Insurance Renewal Process. Mike White, Controller, and Don Maclean of Driver Alliant Insurance Broker presented a timeline for next years' insurance premium request process. c. FAHR06-56 Actuarial valuation of the retiree paid medical premium benefit plan and the additional retirement benefit account (ARBA). Mike White, Controller, presented to the committee a summary of a valuation study conducted by Demsey, Filliger and Associates, and the recommended funding levels for the retirement benefit account. Recommendations of alternate funding schedules will be presented at the next FAHR meeting in September. (12) CLOSED SESSION The Committee convened in Closed Session at 6:25 p.m. pursuant to Government Code Section 54957.6 to: (1) Confer with designated representatives Lisa Tomko, Director of Human Resources; Jeff Reed, Human Resources Manager; and Paul Loehr, Human Resources Supervisor, re Meet and Confer Update re contract negotiations for employees represented by 1 ). Orange County Employees Association; 2). International Union of Operating Engineers, Local 501, and 3). Supervisors, Professional Management Team (part of Peace Officers Council ROLL CALL JOINT FINANCE, ADMINISTRATION AND HUMAN RESOURCES AND STEERING COMMITTEES Meeting Date: July 12, 2006 COMMITTEE MEMBERS Darryl Miller (Chair) Mike Duvall (Vice Chair) Bill Dalton Richard Freschi Phil Luebben Joy Neugebauer James W. Silva Mark Waldman Jim Ferryman (Board Chair) Doug Davert (Board Vice Chair) OTHERS I Brad Hagin, General Counsel STAFF Jim Ruth, Interim General Manager Bob Ghirelli, Director of Technical Services Time: 5:00 p.m. Adjourn: ___ _ Lorenzo Tyner, Director of Financen-reasurer David Ludwin, Director of Engineering Jim Herberg, Director of Operations & Mgmt. Lisa Tomko, Director of Human Resources Patrick Miles, Director of Information Technoloav Nick Arhontes, Dir. of Regional Assets & Svcs. Mike White, Controller Lilia Kovac, Committee Secretary Bret Colson, Public Information Manager Jeff Reed, Human Resources Manager Paul Loehr, Human Resources Supervisor c: Lenora Crane AGENDA REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, JULY 12, 2006, AT 5:00 P.M. (1) ROLL CALL ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com (2) APPG>INTMENT OF CHAIR PRO TEM, IF NECESSARY (3) PUBLIC COMMENTS (4) REPORT OF COMMITTEE OHAIR (5) REPORT OF GENERAL MANAGER (6) REPORT OF DIRECTOR OF FINANCE (7) REPORT OF DIRECTOR GF HUMAN RESOURCES/ PUBLIC INFORMATION OFFICE (8) REPORT OF GENERAL COUNSEL (9) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. Approve minutes of the June 14, 2006 and June 15, 2006 joint meetings of the Finance, Administration and Human Resources Committee and Steering Committee regular meeting, and Benefits Workshop special meeting. Book Pagel July 12, 2006 Page2 b. FAHR06-51 Receive and file Employment Status Report as of June 23, 2006. (Book Page 12) c. FAHR06-52 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. (Book Page 16) d. FAHR06-53 Recommend to the Board of Directors to adopt Resolution No. OCSD 06-XX, Authorizing the District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks for FY 2006-07; and Repealing Resolution No. OCSD 05-21. (Book Page 18) END OF CONS'ENT CALENDAR e. Consideration of items deleted from Consent Calendar, if any. (10) ACTION ITEMS (11) INFORMATIONAL ITEMS a. FAHR06-54 Insurance level criteria and indemnification. (Book Page 41) (Lorenzo Tyner -20 Minutes) b. FAHR06-55 Insurance Renewal Process. CBook Page 54) (Lorenzo Tyner -10 Minutes) c. FAHR06-56 Actuarial valuation of the retiree paid medical premium benefit plan and the additional retirement benefit account (ARBA). (Book Page 80) (Lorenzo Tyner -10 Minutes) (12) CLOSED SESSION j During the course of conducting the business set forth on this agenda as a regular meeting of the· Committe~, j i the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, l i pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, ( i 54957 or 54957.6, as noted. l I Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) l i employee actions or negotiations with employee representatives; or which are exempt from public disclosure i i under the California Public Records Act, may be reviewed by the Committee during a permitted closed session 1 t and are not available for public inspection. At such time as final actions are taken by the Committee on any of i t~~::_~-~-~~:~~~~-~:~='.~~~:: .. :'.'..~-~~:~~ .. :.1_'. .. ~~:~'.~:~--~isclosures of information. . . . ----····-·····-...J H:\dept\agenda\FAHR\FAHR2006\0706\03.071206 FAHR Agenda.doc Book Page2 July 12, 2006 Page3 a. Convene in closed session. (1) Conference with designated representatives Lisa Tomko, Director of Human Resources; Jeff Reed, Human Resources Manager; and Paul Loehr, Human Resources Supervisor, re Meet and Confer Update re contract negotiations for employees represented by 1 ). Orange County Employees Association; 2). International Union of Operating Engineers, Local 501, and 3). Supervisors, Professional Management Team (part of Peace Officers Council of California (Government Code Section 54957.6). (2) Confer re appointment of Assistant General Manager. Government Code 54957(8)(1). b. Reconvene in regular session. c. Consideration of action, if any, on matters considered in closed session. (13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTALAGENDAITEMS, IF ANY (14) MATTERS WHICH A DIRECTOR MAY Wl'SH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT (15) FUTURE MEETING DATES The next regular FAHR Committee meeting is scheduled for September 13, 2006, at 5 p.m. (16) ADJOURNMENT H:\dept\agenda\FAHR\FAHR2006\0706\03.071206 FAHR Agenda.doc BookPage3 July 12, 2006 Page4 Agenda Posting: 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. Items Not Posted: 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 because there is a need to take immediate action, which need came to the attention of the Committee subsequent to the posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date. Public Comments: Any member of the public may address the Finance, Administration and Human Resources Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three 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). Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director of staff member, 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. The Committee Chair will determine if any items are to be deleted from the consent calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five (5) days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adjournment: This meeting may be adjourned to a later time and items of business from this agenda may be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 hours). Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Board Secretary's office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. 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: Interim General Manager: Director of Finance: Director of Human Resources: And Public Information Office Darryl Miller Lilia Kovac Jim Ruth Lorenzo Tyner Lisa Tomko (949) 453-5300 (714) 593-7124 lkovac@ocsd.com (714) 593-7110 jruth@ocsd.com (714) 593-7550 ltyner@ocsd.com (714) 593-7145 ltomko@ocsd.com H:\dept\agenda\FAHR\FAHR2006\0706\03.071206 FAHR Agenda.doc Book Page4 MINUTES OF THE REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE Orange County Sanitation District Wednesday, June 14, 2006, 5:00 p.m. A joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on June 14, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Rich Freschi Jim Ferryman, Vice Board Chair Phil Luebben Joy Neugebauer James W. Silva Mark Waldman OMTS COMMITTEE MEMBERS DIRECTORS PRESENT Carolyn Cavecche, Chair Don Bankhead, Vice Chair Sukhee Kang Dave Shawver Dave Sullivan DIRECTORS ABSENT: Steve Anderson, Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Nick Arhontes, Director of Regional Assets and Services Bob Ghirelli, Director of Technical Services Jim Herberg, Director of Operations and Maintenance Patrick Miles, Director of Information Technology Lorenzo Tyner, Director of Finance Jeff Reed, Human Resources Manager Mike White, Controller Bret Colson, Public Information Manager Lilia Kovac, Committee Secretary OTHERS PRESENT: Brad Hogin, General Counsel Don McLean, Driver Alliant Juanita Skillman Ryal Wheeler Norbert Gaia (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS There were no public comments. (4) REPORT OF THE COMMITTEE CHAJR Chair Miller had no report. BookPage6 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting June 14, 2006 Page2 (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, had no report. (6) REPORT OF DIRECTOR OF FINANCE/TREASURER Director of Finance, Lorenzo Tyner, had no report (7) REPORT OF DIRECTOR OF HUMAN RESOURCES/PUBLIC INFORMATION OFFICE Jeff Reed, Human Resources Manager, had no report. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, had no report. (9) a. CONSENT CALENDAR ITEMS Approve minutes of the May 10, 2006 and May 18, 2006 joint meetings of the Finance, Administration and Human Resources Committee and Steering Committee regular meeting, and Benefits Workshop special meeting. b. FAHR06-43 Receive and file Employment Status Report as of May 22, 2006. c. FAHR06-44 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. d. FAHR00-45 Recommend to the Board of Directors to adopt Resolution No. 06-_, amending Resolution No. OCSD 98-33, amending Human Resources Policies and Procedures Manual. Motion: It was moved, seconded and duly carried to approve the recommended action for the item specified as 9(a) through 9(d) under consent calendar. END OF CONSENT CALENDAR (10) ACTION ITEMS a. FAHR06-46 Approve FY 2006/07 and 2007/08 Proposed Operating, Capital, Debt/COP Service and Self-Insurance Budgets for FY 2006-07 and 2007-08, as follows: Net Operations, Maintenance & Working Capital Worker's Compensation Self Insurance General Liability and Property Self-Insurance Net Capital Improvement Program Debt/COP Service Other Requirements Total BookPage7 2006-07 $129,054,210 $526,200 $1,766,100 $266,088,000 $54,410,000 $4,499,800 $456,344,310 2007-08 $135,602,130 $559,400 $2,055,200 $338,818,000 $65,462,000 $2,645,300 $545,142,030 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting June 14, 2006 Page3 Motion: Lorenzo Tyner, Director of Finance, presented the highlights of the District's two-year budget for approval based on the recommended GIP cost reductions and newly-adopted rate increase approved at the May Board of Directors' meeting. It was moved, seconded and duly carried to recommend approval to the Board of Directors b. FAHR06-47 Recommend to the Board of Directors to renew the District's Boiler & MOTION: Machinery Insurance Program for the period July 1, 2006 to June 30, 2007, in an amount not to exceed $25,387. Mike White, Controller, introduced Don Mclean of Driver Alliant, who briefly presented the insurance program for the District's boiler and machinery. Concern was expressed by the Directors on the timing of this proposal, and was requested that these proposals be submitted to the FAHR committee for approval in May of future years, so that time is allowed to review or seek more competitive bids prior to recommending to the full Board for approval. It was moved, seconded and duly carried to recommend approval to the Board of Directors. c. FAHR06-48 Recommend to the Board of Directors to renew the District's Excess Workers' Compensation Insurance for the period July 1, 2006 through June 30, 2007, in an amount to be determined at the June 28, 2006 Board of Directors' meeting. MOTION: It was moved, seconded and duly carried to recommend approval to the Board of Directors. d. FAHR06-49 Recommend to the Board of Directors to renew the District's All-Risk Property and Flood Insurance Program for the period July 1, 2006 through June 30, 2007, in an amount not to exceed $777,833. MOTION: It was moved, seconded and duly carried to recommend approval to the Board of Directors. e. FAHR06-50 Recommend to the Board of Directors to renew the District's Excess General Liability Insurance Program for the period July 1, 2006 through June 30, 2007, in an amount to be determined. MOTION: It was moved, seconded and duly carried to recommend approval to the Board of Directors. BookPage8 MINUTES OF THE JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE SPECIAL MEETING -BENEFITS WORKSHOP Orange County Sanitation District Wednesday, June 15, 2006, 5:00 p.m. A joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on June 15, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (2) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Rich Freschi Phil Luebben Joy Neugebauer Mark Waldman Jim Ferryman, Vice Board Chair James W. Silva DIRECTORS ABSENT: Steve Anderson, Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Lorenzo Tyner, Director of Finance Mike White, Controller Jeff Reed, Human Resources Manager Rich Spencer, Human Resources Supervisor Paul Loehr, Human Resources Supervisor Kim Erickson, Human Resources Analyst Penny Kyle, Committee Secretary OTHERS PRESENT: Brad Hogin, General Counsel Keith Bozart Ryal Wheeler (3) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (4) PUBLIC COMMENTS There were no public comments. (5) a. ARBA Update Paul Loehr, Human Resources Supervisor, described the efforts underway by OCERS to establish a medical investment trust. He also discussed staff was reviewing an actuarial report on ARBA. b. OCSD Retirement Program Overview Staff provided an overview of the retirement program which included detailed information on individual components such as formulas, final average salary, maximum benefit BookPagelO FAHR COMMITTEE Meeting Date 07/12/06 AGENDA REPORT Item Number FAHR06-51 Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: Richard Spencer, Human Resources Supervisor SUBJECT: EMPLOYMENT STATUS REPORT AS OF June 23, 2006 GENERAL MANAGER'S RECOMMENDATION Receive and file the Employment Status Report. SUMMARY The number of full-time equivalent (FTE) employees at OCSD is 590.50; actual headcount is 601. PRIOR COMMITTEE/BOARD ACTIONS N/A PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. l:;gj Not applicable (information item) ADDITIONAL INFORMATION NEW HIRES: 2 Total To Bci. of Dir. Item Number Job Title Division Business Need Le_gislative Affairs Liaison Technical Services Administration Electrical Tech II Electrical/Instrumentation Maintenance H:ldeptlagenda\FAHRIFAHR2006\0706\06.06-51.Employment Status Report.docPage 1 Book Page12 1 -Critical 1 -Critical SEPARATIONS: 4 Total Job Title Division Reason Engineering Supervisor Source Control Retirement Laboratory Supervisor Environmental Sciences Laboratory (ESL) Resignation Senior Mechanic Collection Facilities, RAS Resignation Plant Operator Operations -Plant 1 Resignation PROMOTIONS: 3 Total Name Former Job Title Current Job Title Division Adams, Matt Maintenance Worker Operator in Training Operations, Plant 2 Amaro, Robert A. Storekeeper Senior Storekeeper Contracts, Purchasing & Materials Management Lucena, Efren G. Lead Electrical Tech Maintenance Supervisor Electrical & Instrumentation Maintenance RECRUITMENT STATUS: All current recruitments have been reviewed and approved by the General Manager through the Position Analysis process. RECRUITMENTS GREATER THAN 90 DAYS: 1 Total Job Title Date Posted Engineer-2/6/06 Mechanical ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS Days Division Open 136 O&M Process Engineering 1. June 23, 2006 Employment Status Report Status Interviews are currently being conducted. 2. FY 2005/06 Staffing Report (year to date performance compared to budgeted FTE's) H:\dept\agenda\FAHRIFAHR200610706106,06-51 .Employment Status Report.docPage 2 BookPage13 Cl:l 0 0 ~ "'d = ~ -"'- DIV 110 General Management Admin I1.:1enera1 M,magement I otals 210 Finance Administration 220 Accounting 230 Contracts, Purch. & Materials Mgmt !Finance 1ota1s 310 Public Affairs Administration 320 Board Services 330 Public Information Office I Public Attalrs lotals 410 Reglonal Assets & Services Admin 420 Collection Facilities O&M 430 Facilities Maintenance Svcs 11<eg1onal Assets & Services I otals 510 Human Resources Admin 520 Employee Development/Training 530 Safety & Health 540 Workforce Support Services 550 Employee & Labor Relations iHuman Resources Tota,s 610 Technical Services Adm.in 620 Environmental Assessment 630 Environmental Sciences Lab 640 Source Control 660 Environmental Compliance Svcs 1 echnical services 1 otals 710 Engineering Admln 740 Planning 750 Project Management Office 760 Engineering & Construction 'Engineering Totals 810 O&M Administration 820 O&M Process Engineering 830 Operations, Plant No. 1 840 Operations, Plant No. 2 850 Mech Main! & Power Production 860 Electrical & Instrumentation Main! ,uperat1ons & Maintenance Totals 910 IT Administration 930 IT Customer & Network Support 940 IT Programming & Database Sys 950 IT Process Controls Integration llnformat1on Technology Totals GRAND TOTAL FTEs REG 2.00 2.00 2.00 20.00 27.00 49.00 2.00 5.00 7.00 14.00 8.00 24.00 30.00 62.00 2.00 3.00 8.00 8.00 4.00 25.00 4.00 15.00 36.00 39.00 19.00 113.00 3.00 16.00 15.00 64.00 98.00 5.00 14.00 42.00 46.50 58.00 54.00 219.50 3.00 17.00 12.00 13.00 45.00 627.50 EMPLOYMENT STATUS REPORT AUTHORIZED FTE 0.50 0.75 TOTAL REG . . 2.00 2.00 -. 2.00 2.00 . -2.00 2.00 . . 20.00 15.00 0.50 . 27.50 24.00 0.50 . 49,50 41.00 --2.00 - 0.50 . 5.50 5.00 . -7.00 7.00 0.50 . 14.50 n.oo . . 8.00 7.00 . . 24.00 21.00 . . 30.00 26.00 -. o.:.oo 54.00 1.00 . 3.00 2.00 . . 3.00 3.00 . -8.00 8.00 9.50 . 17.50 5.00 0.50 . 4.50 4.00 11.00 . 36,00 "12:lTO . -4.00 3.00 -. 15.00 15.00 1.00 -37.00 32.00 - -39.00 38.00 -. 19.00 18.00 1.00 -114,00 JUb.UU --3.00 2.00 -. 18.00 16.00 . 0.75 15.75 14.00 . . 64.00 57.00 -0.75 98.75 89.00 . . 5.00 4.00 0.50 -14.50 11.00 0.50 0.75 43.25 40.00 --48.50 44.00 0.50 . 58.50 56.00 0.50 . 54.50 48.00 2.00 0.75 222.25 203.00 . -3.00 3.00 . . 17.00 16.00 . -12.00 11.00 . . 13.00 12.00 . . 45,00 42.ua 15.00 1.50 # 571.00 AUTHORIZED FTE = 644.00 AGTUALFTE Recruitment1 Vacancies 0.50 Q,lQ LOA IQI& --. 2.00 ----. 2.uu -- -. . 2.00 . - --1.00 16.00 2.00 4.00 0.50 -1.00 25.50 2.00 2.00 0.50 -z.uu 'IJ.:w 4.uu 6.00 . . -. -2.00 0.50 --5.50 . --. 7.00 -- o.5lJ --12.:,u -2.00 ---7.00 1.00 1.00 --1.00 22.00 -2.00 . --26.00 2.00 4.00 . -T.UU ;,;,.uu 3.00 7.00 1.00 -. 3.00 -- -. . 3.00 . - -. -8.00 -- 5.00 . -10.00 1.00 7.50 0.50 --4.50 -. T.50 . . za.:,u 1.uu 7.50 ---3.00 1.00 1.00 --. 15.00 . - 2.00 --34.00 2.00 3.00 -- -38.00 -1.00 -. 1.00 19.00 -- 2.iJl1 -1.uu TU!I.UU 3.uu 5.00 -. -2.00 -1.00 - --16.00 -- -0.75 -14.75 -1.00 . -1.00 58.00 -6.00 . 0.75 1.00 11u.r:, . 8.00 ---4.00 -1.00 0.50 --11.50 2.00 3.00 0.50 0.75 -41.25 -2.00 0.50 --44.50 1.00 2.00 0.50 -1.00 57.50 1.00 1.00 0.50 --48.50 2.00 6.00 2.5lJ 0.75 1.00 :.t.lJf.25 6.00 15.00 ---3.00 -- ---16.00 1.00 1.00 ---11.00 -1.00 - --12.00 -1.00 . . . .. ~.uu 1.00 3.00 12.00 1.50 6.00 18.00 == vacanc r.s ACTUAL F!];_ + (less rer~11ltrnenl~l 590.50 35.50 c:j Q Q ~ "'d ~ IJQ ~ -(It 700.00 - Authorized FTE* Actual FTE** Difference*** Recruitments Vacancies *Authorized FTE as of July •·•Actual FTE as of June • • SEP 644.00 597.50 46.50 36.50 10.00 **'Difference = Recruitments + Vacancies • • OCT 644.00 595.50 48.50 38.50 10.00 STAFFING REPORT • • • • • • • • • • • • • • • • NOV DEC FEB MAR APR MAY JUN JUL 644.00 644.00 644.00 644.00 644.00 644.00 644.00 644.00 595.50 598.50 601.00 598.50 596.50 591.50 593.50 590.50 48.50 45.50 43.00 45.50 47.50 52.50 50.50 53.50 38.50 36.50 16.50 24.00 21.00 22.00 17.50 18.00 10.00 9.00 26.50 21.50 26.50 30.50 33.00 33.50 I-+--Authorized FTE* -a:--Actual FTE** I FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: James Matte, Safety & Health Supervisor Meeting pate To Bd. of Qlr. 07/12/06 Item Number Item Number FAHR06-52 SUBJECT: OSHA INCIDENCE RATES AND WORKERS' COMPENSATION CLAIMS AND COSTS REPORT GENERAL MANAGER'S RECOMMENDATION Receive and file the OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. SUMMARY The Safety and Health Division tracks OSHA Incidence Rates for DARi-<1> Cases (DART Incidence Rate) and Total Accidents (Total Injury Frequency Rate) and the District's Workers' Compensation Claims and Costs. The data for January-May 2006 are shown in the table below: OCSD DART Cases OCSD DART Rate'.:' OSHA Recordable Accidents District OCSD Total lniurv Frequency Rate'..,, NOTES: (1) Days Away, Restricted or Transfer (2) Industry Average for DART is 2.80 (3) Industry Average for TIFR is 6.00 Injuries January- May 2006 2 0.83 8 3.31 May 2006 Data 1 2.09 2 4.17 The two recordable injuries for this reporting period are as follows: Change (April to May) 1 2.09 1 2.09 • On May 11 , a Senior Mechanic slipped while climbing up a ladder and caught himself with left arm, causing a left shoulder strain. He was on restricted duty for 28 days. This injury is classified as a DART case. • On May 22, a Maintenance Worker developed pain in his wrist after using jackhammer. This injury is classified as an OMT case. Revised: 06/04/03 Page 1 BookPage16 Claims and Costs The Division also tracks the District's Workers' Compensation Claims and Costs. Information regarding OCSD workers' compensation claims is presented below. January -May 2006 OCSD Workers' Compensation Claim Count (report period) 6 OCSD Workers' Compensation Claim Cost (report period) $9,663 Total Open Claims 30 Total OCSD Workers' $1,821,185 Compensation Claim Cost Closed Cases No closed cases for this reporting period. PRIOR COMMITTEE/BOARD ACTIONS NIA PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. (Line item: ) May 2006 Data 2 $2,618 D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. !Z1 Not applicable (information item) ADDITIONAL INFORMATION The reporting period ends May 31 . ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS N/A Revised: 06/04103 Book Page17 Change (April to May) 1 $7,045 Page2 FAHR COMMITTEE Meeting P_ate To Bel. of Dir. 07/12/06 07/19/06 AGENDA REPORT Item Nt.(mber Ilem Number Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance/Treasurer Originator: Michael D. White, Controller FAHR06-53 SUBJECT: ANNUAL REVIEW AND ADOPTION OF THE DISTRICT'S INVESTMENT POLICY STATEMENT AND DELEGATION OF INVESTMENT AUTHORITY TO THE DIRECTOR OF FINANCE/TREASURER GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 06-XX, Authorizing the District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks for FY 2006-07; and Repealing Resolution No. OCSD 05-21. SUMMARY This agenda item presents the annual review of the District's Investment Policy Statement to the Finance, Administration and Human Resources Committee (FAHR) for consideration in the Committee's capacity as the oversight committee for the Investment Policy (Section 16.2). With adoption of the attached Resolution, the Board of Directors would readopt the District's current Investment Policy Statement, portfolio performance benchmarks, and monitoring and reporting requirements for FY 2006-07. The District's Investment Policy Statement is recommended for adoption for FY 2006-07 that includes a revision that matches the legislative changes made to the State Government Code since the adoption of the FY 2005-06 Investment Policy. The District's FY 2006-07 Investment Policy Statement is recommended for adoption with only one minor change from FY 2005-06 as a result of a change in the State Government Code. Section 53601 of the State Government Code has reduced the maximum percentage rate that the portfolio may be invested in commercial paper (An unsecured, short-term debt instrument issued by a corporation) from 30 percent to 25 percent, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. Accordingly, staff has revised Sections 8.3 and 11.6 of the District's Investment Policy Statement to reflect this legislative restriction. Staff will continue to monitor pending legislative and regulatory proposals in the public finance area for their potential impact on the District's existing financial programs. The District's Investment Policy Statement has received the Investment Policy Certification of Excellence Award from the Municipal Treasurer's Association of the United States and Canada. H:ldeptlagenda\FAHR\FAHR2006\0706\06,06-53.lnvest Funds Resolution.doc Revised: 06/04/03 BookPage18 Page 1 PRIOR COMMITTEE/BOARD ACTIONS The District's current Investment Policy Statement was reviewed and approved by FAHR on July 13, 2005, and adopted by the Board of Directors on July 20, 2005 (Resolution No. 05-21). PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. IZ] Not applicable (information item) ADDITIONAL INFORMATION Background The Investment Policy governs the investment activities of Pacific Investment Management Company (PIMCO), the District's external money manager, on behalf of the District. On April 25, 2005, the District's Investment Policy Statement received the Investment Policy Certification of Excellence Award from the Municipal Treasurer's Association of the United States and Canada. A copy of the letter of certification is included each year in the annual Investment Policy document. The District received its first Award of Excellence for the Investment Policy Statement in December 1996. The Investment Policy document itself consists of the Investment Policy Statement and the following eight appendices: A. Summary of Investment Authorization B. Treasury Management Procedures C. Investment Manager Certification D. Investment Pool Questionnaire (LAIF) E. Board Resolution No. OCSD-05-21 F. Sample Monthly & Quarterly Investment Program Monitoring Reports G. Sections of the California Government Code Pertinent to Investing Public Funds H. Glossary of Investment Terms This document will be updated and delivered to FAHR Committee members following the adoption of the District's investment policy statement. H:ldept\agenda\FAHRIFAHR2006\0706106.06-53.lnvest Funds Resolution,doc Revised: 06/04/03 Book Page19 Page2 Annual Review of Investment Policy The Investment Policy includes the requirement that the District shall review its Investment Policy annually (Sections 1.2 and 16.1 ). This staff report presents the annual review of the District's Investment Policy Statement to the FAHR Committee for consideration in the Committee's capacity as the oversight committee for the District's investment program (Section 16.2). With adoption of the attached Resolution, the Board of Directors would re-adopt the District's current Investment Policy Statement, portfolio performance benchmarks, and monitoring and reporting requirements. The District's Investment Policy Statement is recommended for adoption for FY 2006-07 with a minor change from FY 2005-06 due to a change in the State Government Code. Section 53601 of the State Government Code has reduced the maximum percentage rate that the portfolio may be invested in commercial paper from 30 percent to 25 percent, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. Accordingly, staff is proposing that Sections 8.3 and 11.6 of the District's Investment Policy Statement be changed to reflect this legislative restriction reducing the maximum percentage rate from 30% to 25% of the portfolio that may be invested in commercial paper, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. Staff will continue to monitor pending legislative and regulatory proposals in the public finance area for their potential impact on the District's existing financial programs. Annual Delegation of Investment Authority Effective January 1 , 1997, Section 53607 of the Code states that governing boards of local agencies may only delegate authority to invest and/or reinvest agency funds to the agency's Treasurer for a one-year period. Wrth adoption of the attached Resolution, the Board of Directors would renew its delegation of investment authority to the Director of Finance/Treasurer for a one-year period in compliance with the requirements of Section 53607. Each year, the Board of Directors will consider similar actions along with the annual reconsideration of the District's Investment Policy. ATTACHMENTS 1. Proposed Resolution No. OCSD 06-XX 2. Exhibit A -OCSD's FY 2006-07 Investment Policy Statement 3. Exhibit B -Performance Monitoring & Reporting H:ldeptlagenda1FAHRIFAHR2006\0706\06.06--53.lnvest Funds Resolution.doc Revised: 06/04/03 BookPage20 Page 3 RESOLUTION NO. OCSD-06-XX AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, AND ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICTS FUNDS, AND ADOPTING DISTRICTS INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS; AND REPEALING RESOLUTION NO. OCSD 05-21 *************** WHEREAS, on July 20, 2005, the Board of Directors adopted Resolution No. 05-21, readopting the District's Investment Policy Statement, and establishing specific performance benchmarks and objectives, together with a schedule of frequency of investment performance reports; and, WHEREAS, pursuant to California Government Code Section 53607, the Board of Directors may delegate authority to invest and/or reinvest District's funds to the Treasurer for a one-year period; and, WHEREAS, pursuant to California Government Code Section 53646, the District is required to review its Investment Policy annually and readopt its Policy at a public meeting, which Policy will establish specific performance benchmarks and objectives, and specific monitoring and reports. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: That the authority of the Board of Directors to invest or reinvest District's surplus funds, or to sell or exchange securities so purchased, or to deposit for safekeeping the funds and investments of the Districts with depositories, as provided for in California Government Code Sections 53608 and 53630, is hereby delegated to the District's Treasurer for a one-year period commencing on the date this Resolution is adopted, as authorized by California Government Code Section 53607. BookPage21 Section 2: That the Board of Directors hereby adopts the Investment Policy Statement of the Orange County Sanitation District, as set forth in Exhibit "A", attached hereto and incorporated herein by reference. Section 3: That the Board of Directors hereby adopts the following specific performance benchmarks for their two investment funds in accordance with Section 14.0 of the District's Investment Policy: LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared to the three month T-Bill rate, and the Callan Active Cash Flow Income Style Group. The Callan Active Cash Flow Income Style Group represents a peer group of managers who operate with a maximum maturity of one year. LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be compared to the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index and to the Callan Defensive Fixed Income Style Group. Section 4: That the Board of Directors hereby adopts a performance monitoring and reporting schedule, as required by Section 15.0 of the District's Investment Policy, which schedule is attached hereto as Exhibit "B", and incorporated herein by reference. Section 5: That Resolution No. OCSD 05-21 is hereby repealed. PASSED AND ADOPTED at regular meeting held July 19, 2006. Chair ATTEST: Board Secretary H:\dept\agenda\FAHRIFAHR2006\0706\06.06-53.lnvest Funds Resolution -At! 1.doc BookPage22 ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT Proposed for Review and Approval By Finance, Administration and Human Resources Committee On July 12, 2006 And for Adoption By Board of Directors On July 19, 2006 BookPage23 1.0 Policy: ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT It is the policy of the Orange County Sanitation District (OCSD) to invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonably anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. 1.1. This Investment Policy is set forth by OCSD for the following purposes: 1.1.1. To establish a clear understanding for the Board of Directors, OCSD management, responsible employees and third parties of the objectives, policies and guidelines for the investment of the OCSD's idle and surplus funds. 1.1.2. To offer guidance to investment staff and any external investment advisors on the investment of OCSD funds (see Appendix "A"). 1.1.3. To establish a basis for evaluating investment results. 1.2. OCSD establishes investment policies which meet its current investment goals. OCSD shall review this policy annually, and may change its policies as its investment objectives change. 2.0 Scope: This Investment Policy applies to all financial assets of OCSD; except for the proceeds of OCSD's capital projects financing program, which are invested in accordance with provisions of their specific bond indentures; and such other funds excluded by law or other Board-approved covenant or agreement. These funds are accounted for by OCSD as Enterprise Funds as represented in OCSD's Comprehensive Annual Financial Report. 3.0 Standard of Prudence: The standard of prudence to be used by OCSD internal staff, and any authorized investment advisor(s), shall be as described in Section 53600.3 of the California Government Code as follows: Except as provided in subdivision (a) of Section 27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, Page 1 of 14 Book Page25 prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. 4.0 Investment Objectives: The primary objectives of OCSDs investment activities, in priority order, and as described in Section 53600.5 of the California Government Code, shall be: 4.1 Safety: The safety and preservation of principal is the foremost objective of the investment program of OCSD. Investments shall be selected in a manner that seeks to ensure the preservation of capital in OCSD's overall portfolio. This will be accomplished through a program of diversification, more fully described in Section 11.0, and maturity limitations, more fully described in Section 12.0, in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 4.2 Liquidity: The investment program will be administered in a manner that will ensure that sufficient funds are available for OCSD to meet its reasonably anticipated operating expenditure needs. 4.3 Return on Investments: The OCSD investment portfolio will be structured and managed with the objective of achieving a rate of return throughout budgetary and economic cycles, commensurate with legal, safety, and liquidity considerations. 5.0 Delegation of Authority: 5. 1 Authority to manage OCSD's investment program is derived from the California Government Code Sections 53600 et seq. and Sections 53635 et seq. The Board of Directors hereby delegates management responsibility for the OCSD investment program to its Director of Finance/ Treasurer, who shall establish written procedures for the operation of the investment program, consistent with this Policy. The Controller/Assistant Treasurer shall be responsible for day-to-day administration, monitoring, and the development of written administrative procedures for the operation of the investment program, consistent with this Policy. The current treasury management procedures are presented in Appendix "B." No person may engage in an investment transaction except as provided under the terms of this Policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken by OCSD internal staff, and shall establish a system of controls to regulate the activities of internal staff and external investment advisors engaged in accordance with Section 5.3. Page 2 of 14 BookPage26 5.2 The administrative procedures for the operation of OCSD's investment program will provide for, but not be limited to, the following: 5.2.1 Formats for monthly and quarterly reports to the Finance, Administration and Human Resources Committee, and the Board of Directors. 5.2.2 Compliance with generally accepted accounting principles of the Government Accounting Standards Board. 5.2.3 Establishment of benchmarks for performance measurement. 5.2.4 Establishment of a system of written internal controls. 5.2.5 Establishment of written procedures for competitive bids and offerings of securities that may be purchased or sold by internal OCSD staff. 5.2.6 Establishment of a Desk Procedures Manual for treasury operations and management. 5.3 The Board of Directors of OCSD may, in its discretion, engage the services of one or more registered investment advisors to assist in the management of OCSD's investment portfolio in a manner consistent with OCSD's objectives. Such external investment advisors, which shall be selected through a competitive process, shall be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. Such advisors must be registered under the Investment Advisers Act of 1940, or be exempt from such registration. 6.0 Ethics and Conflicts of Interest: 6.1 Officers and employees of OCSD involved in the investment process shall refrain from personal business activities that could conflict with proper execution of OCSD's investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the General Manager any material financial interests in financial institutions that conduct business within OCSD's boundaries, and they shall further disclose any large personal financial/investment positions, the performance of which could be related to the performance of positions in OCSD's portfolio. 7.0 Authorized Financial Dealers and Institutions: 7.1 For investment transactions conducted by OCSD internal staff, the Treasurer will maintain a list of financial institutions authorized to provide investment services to OCSD, including "primary" or regional dealers that qualify under Page 3 of 14 BookPage27 Securities and Exchange Commission Rule 15C3-1 (Uniform Net Capital rule), and Federal or State of California chartered banks. No public deposit shall be made except in a qualified public depository as established by State law. All financial institutions which desire to become qualified bidders for investment transactions with OCSD must supply the following for evaluation by the Treasurer: 7.1.1. Audited financial statements for the institution's three (3) most recent fiscal years. 7 .1.2. A statement, in the format prescribed by the Government Finance Officers Association (GFOA), certifying that the institution has reviewed OCSD's Investment Policy and that all securities offered to the Districts shall comply fully and in every instance with all provisions of the California Government Code and with this Investment Policy. The current statement is presented in Appendix "C." 7.1.3. A statement describing the regulatory status of the dealer, and the background and expertise of the dealer's representatives. Selection of financial institutions, broker/dealers, and banks authorized to engage in transactions with OCSD shall be made through a competitive process. An annual review of the financial condition of qualified institutions will be conducted by the Treasurer. 7.2 Selection of broker/dealers used by external investment advisors retained by OCSD, shall be in compliance with contract provisions between OCSD and any external investment advisors, and shall be in substantially the following form: Use of Securities Brokers: Neither the Investment Advisor nor any parent, subsidiary or related firm shall act as a securities broker with respect to any purchases or sales of securities which may be made on behalf of OCSD, provided that this limitation shall not prevent the Investment Advisor from utilizing the services of a securities broker which is a parent, subsidiary or related firm, provided such broker effects transactions on a "cost only" or "nonprofit" basis to itself and provides competitive execution. The Investment Advisor shall provide the Districts with a list of suitable independent brokerage firms (including names and addresses) meeting the requirements of Government Code Section 53601.5, and, unless otherwise directed by OCSD, the Investment Advisor may utilize the service of any of such independent securities brokerage firms it deems appropriate to the extent that such firms are competitive with respect to price of services and execution. Page 4 of 14 BookPage28 8.0 Authorized and Suitable Investments: All investments shall be made in accordance with the California Government Code including Sections 16429.1 et seq., 53600 et seq., and 53684, and as described within this Investment Policy. Permitted investments under this Policy shall include: 8.1 Securities, obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by the US Government, a federal agency, or a US Government-sponsored enterprise pursuant to Section 53601 (e) of the California Government Code. Investment in mortgage-backed bonds and CMOs is not governed by this Section 8.1, even if such bonds are issued by agencies of the US Government. See Section 8.2 for conditions of purchase of mortgage- backed securities. See Section 8.12 for conditions of purchase of CMOs. 8.2 Mortgage-backed securities issued by an agency of the US Government, which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Purchase of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE-REMICs (Real Estate Mortgage Investment Conduits), is hereby prohibited. 8.3 Commercial paper of "prime" quality and rated "P1" by Moody's Investor Services (Moody's), and rated "A 1" by Standard & Poor's Corporation (S&P}, and issued by a domestic corporation organized and operating in the United States with assets in excess of $500 million and having a rating of "A" or better on its long-term debt as provided by Moody's or S&P. Purchases of eligible commercial paper may not exceed 270 days to maturity from the date of purchase. Purchases of commercial paper shall not exceed 15% of the market value of the portfolio, except that a maximum of 25% of the market value of the portfolio may be invested in commercial paper, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. No more than 5% of the market value of the portfolio, or 10% of the issuer's outstanding paper, may be invested in commercial paper issued by any one (1) eligible corporation. 8.4 Banker's acceptances issued by institutions, the short-term obligations of which are rated a minimum of "P1" by Moody's, or "A 1" by S&P provided that: (a) the acceptance is eligible for purchase by the Federal Reserve System; (b) the maturity does not exceed 180 days; (c) no more than 40% of the total portfolio may be invested in banker's acceptances; and (d) no more than 30% of the total portfolio may be invested in the banker's acceptances of any one ( 1) commercial bank. 8.5 Medium term (or corporate) notes of a maximum of five (5) years maturity issued by corporations organized and operating within the United States, or issued by depository institutions licensed by the United States, or any state, and operating within the United States with assets in excess of $500 million, and which is rated in a rating category of "A" or better ori its long-term debt Page 5 of 14 Book Page29 as provided by Moody's or S&P. Notes eligible for investment under this section shall be rated at least "A3" or better by Moody's, or "A-"or better by S&P. If, at the time of purchase, an eligible note is rated in a rating category of "A" or better by only one rating agency, the note shall also be rated at least "BBB" by the other rating agency. If, after purchase, the rating of an eligible note in a rating category of "A" or better, is downgraded to "BBB," the external investment advisor shall notify the District of the downgrade, and shall present an analysis and recommendations as to the disposition of the note consistent with the investment objectives of this Investment Policy. The above restrictions pertain to the "direct issuer" and do not extend to the parent corporation of the direct issuer. No more than 35% of the portfolio may be invested in both medium term notes, as described here in 8.5, and notes, bonds, or other obligations, as described in 8.6. 8.6 Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by California Government Code Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by California Government Code Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. No more than 35% of the portfolio may be invested in securities described in 8.5 and 8.6. 8. 7 Shares of mutual funds investing in securities permitted under this policy and under Section 53601 (k) of the California Government Code. Such funds must either: (1) attain the highest ranking, or the highest letter and numerical rating, provided by not less than two of the three largest nationally recognized rating services; or (2) have an Investment Advisor registered with the Securities and Exchange Commission with not less than five (5) years of experience investing in the securities and obligations authorized under this Policy and under California Government Code Section 53601, and with assets under management in excess of $500 million. The purchase price of shares of beneficial interest purchased pursuant to this policy, and the California Government Code may not include any commission that the companies may charge, and shall not exceed 15% of the District's surplus money that may be invested pursuant to this section. However, no more than 10% of the District's surplus funds may be invested in shares of beneficial interest of any one (1) mutual fund pursuant to this section. Page 6 of 14 BookPage30 8.8 Certificates of deposit: 8.8.1 Secured (collateralized) time deposits issued by a nationally or state-chartered bank or state or federal savings and loan association, as defined by Section 5102 of the California Financial Code, and having a net operating profit in the two (2) most recently completed fiscal years. Collateral must comply with Chapter 4, Bank Deposit Law, Section 16500 et seq., and Chapter 4.5, Savings and Loan Association and Credit Union Deposit Law, Section 16600 et seq., of the California Government Code. 8.8.2 Negotiable certificates of deposit (NCDs) issued by a nationally or state-chartered bank or state of federal savings and loan association, as defined by Section 5102 of the California Financial Code; and which shall have a rating of "A" or better on its long-term debt as provided by Moody's or S&P; or which shall have the following minimum short-term ratings by at least two (2) rating services: "P1" for deposits by Moody's, "A1" for deposits by S&P, or comparably rated by a nationally recognized rating agency which rates such securities; or as otherwise approved by the District's Board of Directors. 8.8.3 To be eligible to receive local agency money, a bank, savings association, federal association, or federally insured individual loan company shall have received an overall rating of not less than "satisfactory" in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California's communities, including low and moderate income neighborhoods, pursuant to Section 2906 of Title 12 of the United States Code. 8.9 Taxable or tax-exempt municipal bonds issued by the State of California or its subdivisions. Such securities must be rated "A3" or higher by Moody's, or "A-" or higher by S&P; or as otherwise approved by the Districts' Board of Directors. 8.10 The State of California Local Agency Investment Fund (LAIF). The LAIF is an investment alternative for California's local governments and special districts managed by the State Treasurer's Office. LAIF is more fully described in the Glossary (See Appendix "H. ") The District shall use LAIF as a short-term cash management facility. Investment of District funds in LAIF shall be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy. See Appendix "D" for investment pool questionnaire. 8.11 The Orange County Treasurer's Money Market Commingled Investment Pool (OCCIP). The OCCIP is a money market investment pool managed by the Orange County Treasurer's Office. OCCIP is more fully described in the Glossary. (See Appendix "H. ") The District has no funds invested in OCCIP at this time. Investment of District funds in OCCIP would be subject to Page 7 of 14 Book Page31 investigation and due diligence prior to investing, and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy. 8.12 Collateralized mortgage obligations (CMOs) issued by agencies of the US Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset- backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE-REMICS (Real Estate Mortgage Investment Conduits), is hereby prohibited. Securities eligible for purchase under this Section 8. 11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of mortgage-backed securities, CMOs and asset-backed securities as authorized under within Section 8.0, may not exceed 20% of the total Long-Term Operating Monies portfolio. 8.13 Repurchase agreements provided that: 8.13.1 All repurchase agreements shall be collateralized with securities eligible for purchase under this Policy. In order to anticipate market changes and to provide a level of security for all repurchase agreement transactions, collateralization shall be maintained at a level of at least 102% of the market value of the repurchase agreements, and shall be adjusted no less than weekly. 8.13.2 All repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by The Bond Market Association. 8.14 Reverse repurchase agreements provided that: 8.14.1 No more than five percent (5%) of OCSD's portfolio shall be invested in reverse repurchase agreements, and there shall be no long-term reverse repurchase agreements unless otherwise authorized by the Districts' Board of Directors. 8.14.2 The maximum maturity of reverse repurchase agreements shall be ninety (90) days. 8.14.3 Reverse repurchase agreements shall mature on the exact date of a known cash flow which will be unconditionally available to repay the maturing reverse repurchase agreement. 8.14.4 Proceeds of reverse repurchase agreements shall be used solely to supplement portfolio income or to provide portfolio liquidity, and shall not be used to speculate on market movements. Page 8 of 14 BookPage32 8.14.5 All reverse repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the reverse repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by The Bond Market Association. 8.15 Sales of OCSD-owned securities in the secondary market may incur losses in order to improve the risk or return characteristics of the portfolio, to prevent anticipated further erosion of principal, or when trading for securities that result in an expected net economic gain to OCSD. 8.16 If securities owned by the OCSD are downgraded by either Moody's or S&P to a level below the quality required by this Investment Policy, it shall be OCSD's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a decision is made to retain the downgraded securities in the portfolio, their presence in the portfolio will be monitored and reported monthly to the OCSD General Manager, the Finance, Administration and Human Resources Committee and Board of Directors. 9.0 Collateralization: Generally, the value to secure deposits under this Policy shall comply with Section 53652 of the California Government Code. Collateralization will be required for secured time deposits, as more fully described in Section 8.7.1; and repurchase agreements, as more fully described in Section 8. 12. 1. Collateral will always be held by an independent third- party, as more fully described in Section 10.1. The right of collateral substitution is granted. 10.0 Safekeeping and Custody: 10.1 All securities transactions, including collateral for repurchase agreements, entered into by, or on behalf of OCSD, shall be conducted on a delivery-versus-payment (DVP) basis. Securities will be held by OCSD's third-party custodian bank, which shall be selected through a competitive process, or that agent's representative, or in the agent's account at the Federal Reserve Bank, or within clearing corporations in the U.S., and evidenced by book entry statements. 11.0 Diversification: OCSD will diversify its investments by security type, issuer, and financial institution in accordance with the following: 11 . 1 There is no limit on investment in securities issued by or guaranteed by the full faith and credit of the U.S. government. Page 9 of 14 BookPage33 11.2 No more than 20% of the portfolio may be invested in securities of a single agency of the U.S. government, which does not provide the full faith and credit of the U.S. government. 11.3 No more than 5% of the portfolio may be invested in securities of any one issuer, other than the U.S. government or its agencies. Investment in mutual funds is not governed by this Section 11.3. See Section 11.8 for conditions of purchase of mutual funds. 11.4 No individual holding shall constitute more than 5% of the total debt outstanding of any issuer. 11.5 No more than 40% of the portfolio may be invested in banker's acceptances. 11.6 No more than 15% of the portfolio may be invested in commercial paper, except that 25% of the portfolio may be so invested so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. 11. 7 No more than 30% of the portfolio may be invested in medium-term (corporate) notes. 11.8 No more than 15% of the portfolio may be invested in mutual funds. However, no more than 10% of the District's portfolio may be invested in shares of beneficial interest of any one (1) mutual fund. 11.9 No more than 30% of the portfolio may be invested in negotiable certificates of deposit. 11.10 No more than 10% of the portfolio may be invested in eligible municipal bonds. 11. 11 No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs and asset- backed securities. Mortgage-backed securities, CMOs and asset-backed securities may only be purchased by the Districts' external money managers, Pacific Investment Management Company (PIMCO), with prior Board approval (authorized by Board Minute Order, January 22, 1997), and may not be purchased by the District's staff. 11. 12 No more than the lesser of 15% of the portfolio or the statutory maximum may be invested in LAIF. 11 .13 No more than 15% of the portfolio may be invested in the Orange County Investment Pool. 11. 14 No more than 20% of the portfolio may be invested in repurchase agreements. Page 10 of 14 Book Page34 11. 15 No more than 5% of the portfolio may be invested in reverse repurchase agreements. 12.0 Maximum Maturities: To the extent possible, OCSD will attempt to match its investments with reasonably anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall designate, from time-to-time, the amounts to be allocated to the investment portfolio. OCSD monies invested in accordance with this Policy are divided into two (2) categories: 12.1 Liquid Operating Monies. Funds needed for current operating and capital expenditures are known as Liquid Operating Monies. 12. 1. 1 The maximum final stated maturity of individual securities in the Liquid Operating Monies account portfolio shall be one ( 1) year from the date of purchase. 12.1.2 The average duration of the Liquid Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts' cash flow requirements, but may never exceed 180 days. 12.2 Long Term Operating Monies. Funds needed for longer term purposes are known as the Long Term Operating Monies. 12.2.1 Except for the purchase of securities by the District's external money manger, PIMCO, the maximum final stated maturity of individual securities in the Long Term Operating Monies account portfolio shall be five (5) years from the date of purchase. PIMCO may purchase any security that is permitted under Section 8.0 of this policy, including those which may have a stated maturity of more than five (5) years from the date of purchase when, in the opinion of PIMCO, such an investment meets the investment objectives of this portfolio and the duration requirements are met below. 12.2.2 The duration of the Long Term Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts' five- year cash flow forecast, but may never exceed 60 months. 12.2.3 The duration of the Long Term Operating Monies account portfolio shall never exceed 120% of the duration as established in accordance with Section 12.2.2. 12.2.4 The duration of the Long Term Operating Monies account portfolio shall never be less than 80% of the duration as established in accordance with Section 12.2.2 Page 11 of 14 BookPage35 13.0 Internal Control: 13.1 The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. The current treasury management procedures are presented in Appendix "B." 14.0 Performance Obiectives and Benchmarks: 14.1 Overall objective. The investment portfolio of OCSD shall be designed with the overall objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and reasonably anticipated cash flow needs. 14.2 The Liquid Operating Monies. The investment performance objective for the Liquid Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index approved by the Finance, Administration and Human Resources Committee, and by the District's Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16 (see Appendix "E"). 14.3 The Long Term Operating Monies. The investment performance objective for the Long Term Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index selected by the Finance, Administration and Human Resources Committee and approved by the Districts' Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16 (See Appendix "E"). 15.0 Reporting: 15.1 Monthly and quarterly investment reports shall be submitted by the Treasurer to the Finance, Administration and Human Resources Committee which shall forward the reports to the District's Board of Directors. The monthly reports shall be submitted to the Finance, Administration and Human Resources Committee within 30 days of the end of the month in accordance with California Government Code Sections 53607, 53646, and this Investment Policy. The quarterly reports shall provide clear and concise status information on the District's portfolios at the end of each reporting period, including performance measures using the benchmarks described in Section 14.0 of this Investment Policy. Sample monthly and quarterly reports are presented in Appendix "F." These reports shall contain listings of individual securities held at the end of each reporting period, and shall disclose, at a minimum, the following information about the risk characteristics of OCSD's portfolio: Page 12 of 14 BookPage36 15.1.1 15.1.2 Cost and accurate and complete market value of the portfolio. Modified duration of the portfolio compared to Benchmark. 15.1.3 Dollar change in value of the portfolio for a one-percent (1 %) change in interest rates. 15.1.4 Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. 15.1.5 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. 15.1.6 Average portfolio credit quality. 15.1. 7 Percent of portfolio with credit ratings below "A" by any rating agency, and a description of such securities. 15.1.8 State that all investments are in compliance with this policy and the California Government Code, or provide a listing of any transactions or holdings which do not comply with this policy or with the California Government Code. 15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year to date, and since inception compared to the Benchmark returns for the same periods. 15.1.1 O State that sufficient funds are available for OCSD to meet its operating expenditure requirements for the next six months, or if not, state the reasons for the shortfall. 15.2 OCSD's Treasurer shall meet quarterly with the Finance, Administration and Human Resources Committee to review investment performance, proposed strategies and compliance with this Investment Policy. External investment advisors may be required to attend said meetings at the discretion of the Chairman of the Finance, Administration and Human Resources Committee. 16.0 Investment Policy Adoption and Revision: 16.1 The Investment Policy of OCSD shall be reviewed by the Finance, Administration and Human Resources Committee and shall be adopted by resolution of the Board of Directors of OCSD. The Policy shall be reviewed on an annual basis in accordance with California Government Code Section 53646, and this Investment Policy, by the Finance, Administration and Human Resources Committee, which shall recommend revisions, as Page 13 of 14 Book Page37 appropriate, to the Board of Directors. Any modifications made thereto shall be approved by the Board of Directors. 16.2 The Finance, Administration and Human Resources Committee shall serve as the oversight committee for the District's Investment program and shall adopt guidelines for the ongoing review of duration, quality and liquidity of the District's portfolio. Page 14 of 14 BookPage38 APPENDIX "A" SUMMARY OF INVESTMENT AUTHORIZATION INTERNAL AND EXTERNAL MANAGERS SHORT TERM OPERA TING FUND INVESTMENT U.S. Treasuries Federal Agencies Mortgage-backed Commercial paper Banker's Accept. Medium Term Notes Mutual Funds Negotiable CDs Municipal Bonds LAIF OCIP CMOs Asset-backed Repurchase Agree. Reverse Repos INTERNAL OK Fixed coupon, fixed mat. NO OK OK Fixed coupon, fixed mat.* Money Market Only** Fixed coupon, fixed mat.* OK* OK OK NO NO OK OK* EXTERNAL OK OK NO OK OK OK Money Market Only OK NO NO NO NO NO OK OK LONG TERM OPERA TING PORTFOLIO INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO OK Mutual Funds Money Market Only** OK Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* OK LAIF OK NO OCIP OK NO CMOs NO With Board Approval Asset-backed NO With Board Approval Repurchase Agree. OK OK Reverse Repos OK* OK *With prior approval of the Finance, Administration and Human Resources Committee. **Using financial institutions approved by the Finance, Administration and Human Resources Committee. H:ldeptlagenda\FAHRIFAHR200610706106.06-53.lnvest Funds Resolution -Alt 2.doc BookPage39 ti::, 0 0 ::,:- ""1::1 ::.. (It! ff> ""' Q POLICY REFERENCE 15.1.1 15.1.2 15.1.3 15.1.4 15.1.5 15.1.6 15.1.7 15.1.8 15.1.9 ADDL** ADDL** ADDL** ADDL** 15.1.10 Notes *M = Monthly *Q = Quarterly EXHIBIT "B" ORANGE COUNTY SANTIATION DISTRICT PERFORMANCE MONITORING & REPORTING FOR THE DISTRICT'S INVESTMENT PROGRAM PERFORMANCE CHARACTERISTIC Cost and market value of the portfolio (monthly mark-to-market). Modified duration of the portfolio compared to benchmark. Dollar change in value of the portfolio for a 1 % change In interest rate. Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. Average portfolio credit quality. Percent of portfolio with credit ratings below "A" by any rating agency, and a description of such securities. Listing of any transaction or holdings which do not comply with this policy or with the California Government Code. Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year-to-date, and since inception compared to the benchmark returns for the same periods. Comparison of portfolio performance to market index benchmark. Comparison of Manager's performance to peer group benchmark. Monitoring of organizational and structural changes of investment management firm. Audit portfolios for compliance with investment policy guidelines. REPORTING PARTY* PIMCO MELLON CALLAN M,Q M,Q a M,Q a M,Q a M,Q M,Q a M,Q a M,Q a M,Q M,Q a M,Q a a a a OCSD will report if sufficient funds are available for it to meet operating expenditure requirements for the next six months, or if not, state the reason for the shortfall. ** ADDL= Monitoring of Additional Performance Characteristics H:\dept\agenda\FAHR\FAHR2006\0706\06.06-53.lnvest Funds Resolution -Att 3.doc FAHR COMMITTEE Meeting Date 07/12/06 AGENDA REPORT I tem Number FAHR06-54 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance and Treasurer Originator, Marc Dubois, C.P.M., Contracts I Purchasing Manager SUBJECT: INSURANCE LEVEL CRITERIA & INDEMNIFICATION GENERAL MANAGER'S RECOMMENDATION Information only SUMMARY To Bd. of Dir. Item Nun;iber At the May 2006 Finance, Administration and Human Resources (FAHR) Committee meeting, the Committee was presented with information regarding the OCSD insurance and indemnification activities. The report provided general information pertaining to OCSD insurance requirements, procedures for setting insurance requirements and the advantages and disadvantages of an owner controlled insurance program (OCIP). Subsequently, the FAHR Committee provided helpful feedback on areas of concern. The Committee and staff discussed the concept of requiring contract specific insurance, and focused on existing insurance; whether they are too low, too high, or if the breadth of the requirements covered all potential losses. The Committee directed staff to evaluate insurance levels for a few past and current contracts and to identify and discuss some hypothetical claims. The hypothetical scenarios would provide allow for the examination of the District's ability to manage the loss based upon the insurance requirements applied through our current and past system. Working with District staff, General Counsel has provided a recap of contract scopes, insurance levels applied to those contracts, and an analysis of the strengths and weakness of our requirements. It should be noted that the examples were developed based on the nature of each contract, and before the amounts of insurance required for each was reviewed. Staff and Counsel were aware that the District could be made to look over-insured or under- insured depending on the examples chosen. The hypothetical claims described below were selected based on the scope of work and represent claims that, though bad, are not the "worst cases" possible. Revised: 06104103 513129.1 BookPage41 Page 1 Next Steps Based on Committee discussions and further staff analysis, below are some of next steps to could be pursued: 1. Staff will review the cost of requiring project-specific limits of insurance liability on all purchase contract and construction contracts and to implement such a requirement if the additional cost appears reasonable. 2. Staff will continue to use current project-by-project review of possible construction project and purchase contract risks that require elevated levels of insurance for projects and contracts which staff concludes involve a greater-than normal potential for under-insured claims. 3. Staff will determine the additional expense or burden created if all Level 1 contracts required the contracting party to obtain an endorsement or insurance similar to the limits applied on a project-specific basis, and implement the requirement if the additional cost and burden is not significant. 4. Staff proposes that the District require that standard general liability coverage on Level 1 contracts be doubled to $1,000,000 per occurrence, $2,000,000 aggregate. PRIOR COMMITTEE/BOARD ACTIONS N/A PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT • • • [8] This item has been budgeted. (Line item: ) This item has been budgeted, but there are insufficient funds. This item has not been budgeted. Not applicable (information item) Revised: 06/04/03 513129.1 BookPage42 Page2 ADDITIONAL INFORMATION Example 1: Chemical Contract C-2005-247 -Liquid Ferric Chloride (FeCl3) Summary of contract The District estimates that it uses up to 7,500 tons of ferric chloride annually in primary treatment to enhance the sedimentation process and to control hydrogen sulfide in the digesters. The supplier is required to deliver the product to the District on a "Free-on- Board" Destination basis (FOB). That means the supplier owns and bears the risk of loss of the supplied material up to the delivery point at the District. FOB does not address who bears the risk of claims brought for injuries to third parties, however. Hypothetical Bad-Case Claim During delivery, a truck containing the chemical is involved in an accident caused by the driver of the truck, an employee of the supplier. The driver of the truck and a family in a car involved in accident are injured by the force of the accident and by exposure to the chemicals, and the father in the auto is killed. Losses and injuries to the driver total $200,000. The family has medical, lost wages pain and suffering and related claims totaling $1.5 million. Summary of Insurance under the Actual Contract: Under Contract C-2005-24 7, the supplier was required to carry the following insurance types and amounts: General Liability -$2,000,000 aggregate/per occurrence with project-specific limits, or $5 million combined single limit, with a per occurrence limit of $2 million if not project- specific. -Additional insured endorsement required (naming OCSD) -Additional General Liability limit of $1 million for product liability. -Coverage required to be endorsed to be "primary and non-contributory" Auto Liability: $5 million combined single limit. -Additional insured endorsement required -Worker's Compensation -$1 million -Waiver of subrogation required. Analysis: Injuries to the employee of the trucking company would likely be covered by the worker's compensation insurance in place. The waiver of subrogation provision would protect the OCSD against the insurance company seeking reimbursement for those payments from the OCSD. Revised: 06/04/03 513129.1 BookPage43 Page 3 Injuries to the third parties would likely be covered by the auto (for vehicle-caused bodily and property injuries) and general liability (for chemical-caused bodily injuries). The supplier would be covered by its own insurance, and OCSD would be covered by those same policies because of the additional-insured endorsement. Project-Specific Limits One issue that arose during the May FAHR committee meeting was the risk created by accepting a combined single limit for a supplier's operations. In short, if a supplier suffered multiple claims with other clients as well, the limits of such a policy could be exhausted before the claim for this particular incident would be paid. If both the auto and general liability limits were exhausted, then it is possible the supplier and OCSD could be sued and that the suppliers' insurance would not Requiring all policies to have project-specific limits appears desirable to eliminate that risk. However, there could be additional premium costs to provide that additional protection, and in many cases, those costs would likely be passed through as addition project costs to the District. The staff recommendation above would direct staff to review the likely cost of requiring project-specific limits on all contracts and to implement such a requirement if the additional cost appears reasonable. Revised: 06104103 513129.J BookPage44 Page4 Example 2 -Electrical Contract R-2005-2458D -Infrared Inspection Ports -Electrical Equip. Summary of Contract A project to retrofit existing switchgear and motor control center access panels with infrared inspection ports to allow infrared scanners to find hot spots during future maintenance. Hypothetical Bad-Case Claim The retrofit is negligently performed causing shorts and arcing to occur in the electrical equipment behind the panels. A fire results, causing $700,000 damage to OCSD's equipment and two District employees are injured. Medical expenses, pain and suffering and lost wages total $500,000. Summary of Insurance under the Actual Contract: Under Contract R-2005-2458D, the contractor was required to carry the following insurance types and amounts: General Liability -$1,000,000 per occurrence and aggregate if there are project-specific limits, or $1,000,000 per occurrence/$2 million aggregate without project-specific limits. -Additional insured endorsement required (naming OCSD) Auto Liability -$2 million combined single limit. -Additional insured endorsement required Worker's Compensation -$1 million -Waiver of subrogation required . Analysis: Injuries and lost wages to OCSD employees in the course of their work would be covered initially by the OCSD's Worker's Compensation program. However, for a claim of $500,000, there would like be a subrogation claim brought by the insurer against the negligent contractor's insurer for those costs. Thus, the General Liability policy limits would be reduced by the amount of that claim (in this scenario, by $500,000.) As a result, the $1,000,000 per occurrence limit under the general liability policy would not be sufficient to cover the OCSD's property damage. (This is true even if the aggregate limit is $2,000,000, since the property damage and bodily injuries presumably arose from the same "occurrence".) In the event of an under-insured loss, the OCSD would demand payment of the difference by the negligent contractor, who would have executed an Indemnification clause when it agreed to perform the services. This provision typically requires the contractor to pay all costs arising from injuries to persons and from damage to property Revised: 06/04/03 513129.1 Book Page45 Pages "arising directly or indirectly out of the negligence or willful misconduct" of the Contractor. If the contractor failed to pay upon demand, the OCSD and its counsel would evaluate whether to proceed with litigation to compel such a payment. There is a policy issue to be balanced when considering the smaller work jobs. On the one hand, large claims can in fact result from small work tasks, so perhaps higher policy limits may be warranted based on such possibilities. On the other hand, fewer small contractors carry high-limit policies, so a requirement to carry high limits could reduce the competitive pool of contractors who might perform smaller contracts, or could increase (perhaps significantly) the costs of insurance related to the many smaller contracts the District engages in. Unfortunately, the risk of claims versus the risk of increased costs of contracting is very difficult to quantify, at best. Thus, the policy decision is not one that is easily guided by quantifiable cost/risk comparisons. The recommended action above would direct staff to continue to use current project-by- project review of possible project risks that requires elevated levels of insurance for projects which staff concludes involve a greater-than normal potential for under-insured claims. (Note that an exception for "Level 1 Contracts" -those involving less than $50,000-is discussed below.) Revised: 06104103 513129.1 Book Page46 Page6 Example 3: Job 1-2-4 -Bushard Trunk Sewer Rehabilitation -(March 2002) Summary of Contract Job 1-2-4 is the 2002 contract for the construction of a 108-inch trunk sewer and appurtenances between Plant No. 2 and Ellis Avenue. The project includes various structures, removal of existing trunk sewer in reaches and abandonment in others, street overlay and pavement reconstruction, and construction of various sewer lines to accommodate the new trunk sewer. In addition, the project involved relocation of waterlines, construction of storm drain facilities and work at three treatment plant entrances. Hypothetical Bad-Case Claim Contractor negligently shores trenches during construction when heavy equipment overburdens the neighboring soil, the trench fails, killing a Contractor employee in the trench (losses total $1,000,000) and undermining the pavement in one lane of traffic still traveled by cars and causing three vehicles with a total of five occupants to crash and be seriously injured (property damage, medical, pain and suffering and lost wages total $2,500,000). Property damage to an adjacent residential lot also occurs as a result of unstable soil. Property damage is $250,000. Summary of Insurance under the Actual (2002) Contract Under Job 1-2-4, the contractor was required to carry the following insurance types and amounts: General Liability -$2,000,000 per occurrence and aggregate if there are project-specific limits, or $2,000,000 per occurrence/$5 million aggregate without project-specific limits, or $5,000,000 Combined Single Limit. -Additional insured endorsement required (naming OCSD) Auto Liability -$5 million combined single limit. -Additional insured endorsement required Worker's Compensation -$1 million -Waiver of subrogation required . Analysis: Injuries and lost wages to a contractor employee in the course of their work would be covered by the Contractor's Worker's Compensation program. . The waiver of subrogation provision would protect the OCSD against the insurance company seeking reimbursement for those payments from the OCSD. Bodily injury and property damage claims would be brought as third-party claims against the OCSD and the Contractor by the injured persons and property-owners. Revised: 06/04/03 513129.1 BookPage47 Page 7 If so, the OCSD would tender defense of those claims to the Contractor pursuant to the Indemnification provision in the Job contract documents, and to the General Liability insurance carrier, since OCSD is required to be named an additional insured. Since claims totaling the $2,750,000 could exceed the required insurance amounts, the OCSD would demand the Contractor to pay any under-insured claims per the indemnification provision. If the contractor failed to pay upon demand, or failed to defend the claims upon demand, the OCSD and its counsel would evaluate whether to proceed with litigation to compel such a payment, or to withhold portions of progress payments to the contractor to cover such expenses. Insurance requirements since this 2002 contract have been revised and generally require higher levels of auto and general liability insurance to be in place (particularly for jobs that will be performed in public areas outside the OCSD plant areas). (See the 2006 example discussed in Example 4 below.) The question of project-specific limits applies to this example also, as the contractor on this large work contract could have satisfied the insurance requirements with policy in place applicable to all its projects with limits of only $5,000,000 aggregate. If the contractor had just a few significant claims at this and other locations, then the limits of that insurance policy could have been quickly exhausted, potentially exposing the Contractor and the OCSD to non-covered losses. If the Contractor proved unable to pay remaining non-covered claims itself, then it would likely be unable to pay such claims on behalf of the OCSD, and the OCSD could the be at risk to pay such claims. Revised: 06/04/03 513129.1 BookPage48 Page 8 Example 4: Job 1-2-4A -Bushard Trunk Sewer Rehabilitation -Ellis & Bushard Intersection Summary of Contract Job l-2-4A is the 2006 contract for the construction of the Bushard Diversion Box and associated structures and piping. The contract is for just under $12,000,000. The project includes significant rerouting of traffic to accommodate work in the intersection, construction and operation of bypass pumping system, and construction of a new portion of 108-inch diameter Bushard trunk sewer through the Ellis Avenue intersection, new manholes, dewatering measures, relocating and constructing new City water lines, replacing a reclaimed water line, abandonment of some existing sewer and manholes. Hypothetical Bad-Case Claim During shipping of piping materials to the project site, a delivery truck jack-knifes on a freeway and large pipes are scattered onto the lanes of the freeway, damaging many cars, injuring a dozen people and killing 2. Property damage is $500,000. Bodily injury and death claims total $8 million. Summary of Insurance under the Actual (2006) Contract: Under Job l-2-4A, the contractor was required to carry the following insurance types and amounts: General Liability-$11,000,000 per occurrence and aggregate if there are project- specific limits, or $11,000,000 per occurrence/$22 million aggregate without project- specific limits. -Additional insured endorsement required (naming OCSD) Auto Liability-$11 million combined single limit. -Additional insured endorsement required Worker's Compensation -$1 million -Waiver of subrogation required. Analysis: The bodily injury and property damage claims would likely be brought as third-party claims against the OCSD and the Contractor by the injured persons and property- owners. If so, the OCSD would tender defense of those claims to the Contractor pursuant to the Indemnification provision in the Job contract documents, and to the General Liability insurance carrier, since OCSD is required to be named an additional insured. With higher limits of auto liability and general liability in place due to project-specific risk review (no less than $11,000,000 per occurrence is required) it appears the claims in the hypothetical example would be covered by the insurance required. Revised: 06/04/03 513129.1 Book Page49 Page9 Example 5: Job No. P2-66 -Plant No. 2 Headworks Replacement (2005) Summary of Contract P2-66 is a $192,000,000 project to construct a new headworks facility and appurtenances at Plant No. 2, including a diversion structure, influent metering structure, bar screen facility, screenings washing facility, screenings loading facility, influent pump station, grit basins, odor control facilities, stand-by power and several other related facilities. Hypothetical Bad-Case Claim Contractor negligently performs commissioning work, and in doing so, significantly delays and extends the period during which a third of the primary treatment capacity at Plant 2 is not operating. The OCSD schedule planned to have the work occur during dry periods of the year, but as a result of the contractor's delays, that portion of the primary treatment facility is inoperable during a peak wet weather event. The resulting flows overwhelm the diminished treatment capacity. Untreated sewage flows then back up into the headworks, and then back up and out through low points upstream in streets and private property, causing property damage and illnesses at dozens of locations upstream. Property testing and remediation costs total $3 million. Illnesses and injuries associated with the releases result in claims for $4 million. Summary of Insurance under the Actual (2002) Contract: Under Job P2-66, the contractor was required to carry the following insurance types and amounts: General Liability-$10,000,000 per occurrence and aggregate if there are project-specific limits, or $20,000,000 per occurrence and aggregate without project-specific limits. -Additional insured endorsement required (naming OCSD) Auto Liability-$1 million combined single limit. -Additional insured endorsement required Worker's Compensation -$1 million -Waiver of subrogation required . Course of Construction, flood and earthquake insurance of $50,000.000. Analysis: Third-party claims against the OCSD and the Contractor would be tendered to the general liability insurance company since the OCSD is an additional insured. However, of coverage is limited to $10,000,000 aggregate, then policy limits could be exhausted by a significant event like the one described. The OCSD would demand payment of any under-insured claims by the contractor. Revised: 06/04/03 513129.J BookPage50 Page 10 P2-66 was subjected to project-specific risk analysis before the minimum insurance requirements were established. The recommended action above would direct staff to continue to use current project-by-project review of possible project risks that requires elevated levels of insurance for projects which staff concludes involve a greater-than normal potential for under-insured claims. (Note that an exception for "Level 1 Contracts" -those involving less than $50,000 -is discussed below.) Revised: 06/04/03 513129.1 Book Page51 Page 11 Example 6: Elevator Maintenance Service Plants 1 & 2 Summary of Contract This is a Level 1 Contract (that is, a contract for services of less than $50,000) for elevator maintenance. Hypothetical Bad-Case Claim Negligent maintenance causes an elevator to fail during maintenance, severely injuring the repair person ($400,000) and injuring the occupants of an elevator. ($600,000) Summary of Insurance Required Level 1 contracts carry uniform insurance requirements. Specifically: General Liability-$500,000 per occurrence with $1.0 million aggregate or alternatively, $500,000 aggregate separate for project-specific limits. -Additional insured endorsement required (naming OCSD) Auto Liability-Combined single limit of $1.0 million or alternatively, $500,000 per person for bodily injury and $500,000 per accident for property damage. -Additional insured endorsement required Worker's Compensation -$1 million -Waiver of subrogation required. Analysis: Injuries and lost wages of $400,000 to a contractor's employee acting in the course of their work should be covered by the Contractor's Worker's Compensation program. The waiver of subrogation provision would protect the OCSD against the insurance company seeking reimbursement for those payments from the OCSD. However, with current limits set at $500,000 per occurrence, a $600,000 claim would exceed the policy limits and could expose the contractor and OCSD to non-covered claims. In addition, if multiple claims are made against a contracting party with relatively low limits, it is possible that the insurance could be exhausted even before the claims against the OCSD is defended or paid. Even Level 1 (relatively small) contracts may involve risks of significant losses and injuries. Staff does not believe that a standard practice of project-by-project risk analysis is necessarily a better solution. There are many Level 1 Contracts handled by Purchasing staff every year, and staff questions whether the assembly and review of risk information on small contracts woutd be an efficient use of the District's limited human resources. Revised: 06/04/03 513129.1 BookPage52 Page 12 However, per-occurrence limits of $500,000 seem like low coverage, particularly since coverage of $1,000,000 is routinely offered in the insurance market. Staff recommends that standard coverage be doubled to $1,000,000 per occurrence, $2,000,000 aggregate. It is further recommended that staff be directed to investigate what additional expense or burden would be created if all Level 1 contracts required the contracting party to obtain an endorsement or insurance such that the limits applied on a project-specific basis, and then to implement the requirement if the additional cost and burden was not significant. Revised: 06/04/03 513129.1 BookPage53 Page 13 FAt.lR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance and Treasurer Originator, Mike White, Controller SUBJECT: INSURANCE RENEWAL PROCESS GENERAL MANAGER'S RECOMMENDATION Information only. SUMMARY Meeting Date To Bel of Dir. 07,/12/06 Item Number Item Number FAHR06-55 At the June 2006 Finance, Administration and Human Resources (FAHR) Committee meeting, staff presented four agenda reports requesting Committee/Board approval to renew the following Sanitation District insurance policies: 1) Boiler and Machinery Insurance Program 2) All-Risk Property and Flood Insurance Program 3) Excess General Liability Insurance 4) Excess Worker's Compensation Insurance However, as a result of the current availability of the information required to obtain accurate cost estimates, at the date of these presentations, the cost for items (3) Excess General Liability Insurance and (4) Excess Worker's Compensation Insurance were not yet determined. While the renewal of all four policies was ultimately recommended, the Committee expressed concern regarding the calendar currently in place to renew these policies. It left little, if any, time to review and discuss the applicable costs or coverages. Subsequently, the Committee directed staff to provide a detailed explanation of the current timeline and why final quotations are not presented in a timely manner. The summary contained in the "Additional Information" portion of this report provides that detail. PRIOR COMMITTEE/BOARD ACTIONS NIA PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT lZI This item has been budgeted. • This item has been budgeted, but there are insufficient funds. Revised: 06104/03 513129.1 BookPage54 D This item has not been budgeted. D Not applicable (information item) ADDITIONAL INFORMATION Overview In general, the public agency insurance marketplace has fewer viable insurers than other market place segments due to the size and complexity of governments. Whereas in other insurance marketplaces where 60 day quotes are fairly common because of the lack of viable insurers, it is much more difficult for a large public agency to obtain an insurance policy commitment prior to the actual date of renewal. Additionally, insurers often are unwilling/unable to commit early on due to the relatively large size of the governmental insurance policy and due to potential catastrophes that might impact the overall public sector market place. Catastrophes are more easily absorbed in other insurance markets due to the low threshold of insurance coverages. All Risk Prop.erty and Flood, and Boiler and Machinery lnsurarice Renewal Process For an eighth consecutive year, Driver Alliant, the Sanitation District's Broker of Record, marketed renewal of the District's All-Risk Program through a nationwide joint purchase property insurance program called Public Entity Property Insurance Program (PEPIP). It is important to note that the joint purchase property insurance program involves no pooling or sharing of coverage with any other public entities. Multiple insurance carriers underwrite the All-Risk program to distribute risk exposure and to ensure competitively bid premiums. Thus, the Sanitation District's premium costs are controlled, while obtaining maximum coverage levels for the District. The Sanitation District's FY 2004-05 All-Risk Program covered it's property with a $300 million blanket loss limit for flood and $750 million blanket loss limit for all other perils, including fire damage. The deductible for flood perils is $100,000 per occurrence and the deductible for all other perils is $25,000 per occurrence for a total premium of $729,388. In FY 2005-06, the All-Risk Program coverages and deductibles remained the same except for an increase in coverage for all perils except for flood from the $750 million blanket loss limit to $1 billion. In addition, premiums were reduced to $656,158. The Sanitation District's Boiler & Machinery insurance program provides coverage ($100 million per occurrence/ with deductibles ranging from $25,000 to $350,000) for losses caused by covered machinery breakdown (e.g., motors, steam turbines, digesters, co-gen engines). Damages to the equipment, as well as damages to other property and improvements caused by the machinery breakdown, are covered by the boiler & machinery insurance. FY 2006-07 Renewal Cycle Revised: 06104103 513129.1 BookPage55 The Sanitation District and Driver Alliant began the FY 2006-07 renewal process for All Risk Property and Flood, and Boiler and Machinery utilizing the following timeline: • December 21, 2005 -Renewal Package Sent to PEPIP members • February 1, 2006 -Completed Applications submitted to Driver Alliant • March 3, 2006 -Specifications Sent to Underwriters • May 17 -June 20, 2006 -Proposals Delivered to Members • June 20, 2006 -Bind Orders Due from Members • July 1, 2006 -Coverage Renewed • July 1, 2006 -Binders of Coverage Sent to Members • July 3 -July 7 -Certificates of Insurance Mailed The renewal package delivered to Driver Alliant on February 1, 2006 included the application for the renewal of All Risk Property and Flood, and Boiler and Machinery Insurance, certificate of holder listing, and an update of the Sanitation District's property schedules for insurable values. The negotiation on the all risk property and flood, and boiler and machinery insurance renewal for FY 2006.-07 has been a very tenacious process due to the following: • The constriction and deterioration of the entire property insurance marketplace due to the Gulf Coast storms damage last fall of approximately $75 billion, a new annual record of insured natural catastrophe losses that are nearly twice as high as the previous record set in 2004. • Consecutive years of record losses combined with anxiety over the new hurricane season. • Six of the ten costliest storms in U.S. history have occurred within fourteen months of the 2004-05 hurricane season. • Conservative computer loss modeling programs and loss of available reinsurance support are now dictating extremely negative underwriting guidelines to the detriment of policyholders. • Rating agencies, such as A.M. Best, are now imposing additional capital requirements on insurers which is reducing the "supply" of available insurance within the marketplace. As a result of the significant purchasing power (in excess of $70 million in combined annual premiums) of the PEPIP joint purchase program, the FY 2006-07 renewal option is being proposed to maintain the existing $1 billion million blanket loss limit for most other perils, including fire damage. However, due to the reduced capacity in this year's renewal market, a decrease of the current $300 million blanket loss limit for flood to $175 million is being proposed. The deductibles for perils of flood and the deductibles for all basic risk perils are proposed to remain at $250,000 and $25,000, respectively. The premium increase to $777,833 is an increase of $121,675, or 18.5 percent over the prior year's total of $656,158, and an increase of $48,445, or 6.6 percent from the premium paid two years ago. The 18.5 percent increase from FY 2004-05 to FY 2005- Revised: 06/04/03 513129.1 BookPage56 06 represents a 6.9 percent increase in insurable property values and an 11.6 percent increase in rates. The 11.6 percent increase in the rate to $0.042 per $100 of property value compares favorably with rates of alternative insurers. For example, Affiliated FM Insurance Company proposed rates of $.062 on $500 million coverage with a $10 million deductible and $0.070 on $500 million coverage with a $100,000 deductible for two other Driver Alliant large public agency clients. Preliminary indications on a proposal from Affiliated FM based on the Sanitation District's excellent loss history was that an approximate rate of $0.060 would be their best offer. Informal discussions were conducted with other insurers such as Allianz, Chubb, Energy, Starr Technical, Travelers, and Zurich. These insurers who have the ability to offer all risk coverage at the needed high limits of insurance suggest that a $500 million placement would require several insurance layers with the first layer of $100 million alone at an approximate rate of $0.050. This layered approach would be much more expensive than either the Affiliated FM or PEPIP approach. Driver Alliant has reviewed the current state of the Boiler & Machinery insurance market and recommended that the Sanitation District renew Boiler & Machinery insurance coverage with Lexington Insurance Company for the primary layer of $10 million and with two group of carriers, CNA Insurance Company, and two foreign excess insurance companies, providing coverage jointly on the second layer of $90 million for the period of July 1, 2006 through June 30, 2007. The combined proposed insurance premium of $25,387 is a 6.9 percent increase over the prior year premium of $23,753. There are few boiler and machinery insurers who have the technical capability to insure Sanitation District property and facilities, most notably Chubb, Hartford Steam Boiler, and Travelers. Each of these insurers have similar premium development formulas which would generate premiums of approximately $80,000 at a minimum. Excess General Liability Insurance Renewal Process The current liability insurance program provides the Sanitation District with a $25 million policy of comprehensive coverage for municipal liability, bodily injury and property damage, and personal injury. The program was structured to also include Employment Practices, and Public Officials Errors & Omissions coverage. The $25 million coverage is per occurrence, with a self-insured deductible of $250,000 per occurrence. Since 1997, the Employment Practices portion of coverage was enhanced from a $2 million sub-limit, to the full $25 million policy limit. This insurance program is provided through the California Municipal Excess Liability program (CAMEL) and consists of two separate layers of coverage. The first layer is the "Basic" $10 million program with self-insured retention of $250,000. The second layer consists of $15 million of coverage in excess of the first layer of $10 million. In FY 2005-06, the CAMEL program utilized American International Group (AIG) for renewal of the "Basic" $10 million program with a Best Guide Rating of A+. The second layer was placed with Traders and Pacific Insurance Company, a carrier that held a Best Guide Rating of A. Total premium cost for these two layers of coverage, including Revised: 06/04/03 513129.1 BookPage57 terrorism coverage, totaled $408,330, a 3.2 percent increase over the prior year total of $395,632. FY 2006-07 Renewal Cycle The Sanitation District and Driver Alliant began the FY 2006-07 renewal process for Excess General Liability Insurance renewal utilizing the following timeline: • January 20, 2006 -Renewal Package Sent to CAMEL members • February 24,2006 -Submitted to Driver Alliant ten-years of claims loss data • February 24, 2006 -Completed Application Submitted to Driver Alliant • March 1 , 2006 -Specifications Sent to Underwriters • May 17 -June 28, 2006 -Proposals Delivered to Members • June 28, 2006 -Bind Orders Due from Members • July 1 , 2006 -Coverage Renewed • July 1, 2006 -Binders of Coverage Sent to Members • July 3 -July 7 -Certificates of Insurance Mailed The renewal package delivered to Driver Alliant on February 24, 2006 included the application for the renewal of Excess General Liability Insurance, certificate of holder listing, and ten-years of claims loss data. The negotiation on the excess liability insurance renewal for FY 2006-07 was also a difficult process due to the following: • Although the public agency excess liability insurance marketplace remained relatively stable, there are few viable insurers and therefore little real competition to fuel cost reductions. • The following insurers declined to provide quotations: Ace, Axis, Gensis, Markel Specialty (Evanston), Munich American Re, and St. Paul Travelers due to their inability to meet the pricing and coverage parameters outlined in the underwriting submission. • Argonaut and Clarendon were not approached due to their relatively low limits of coverage on restrictive forms (no employment practices liability, mold, etc). • No quotations from foreign based insurers such as Bermuda or London were sought due to imposed aggregated limits on coverage at pricing still well above domestic insurers. • AIG had previously afforded coverage but never offered a formal quotation to confirm their previous advice that premiums would be similar to current levels. Driver Alliant has concluded negotiations for the FY 2006-07 Excess General Liability coverage through the CAMEL program and has selected Everest for renewal of the "Basic" $10 million program with a Best Guide Rating of A+. The second layer was again placed with Traders and Pacific Insurance Company. Total premium cost for Revised: 06104103 513129 I BookPage58 these two layers of coverage, including terrorism coverage, totaled $391,233, a 4.4 percent decrease over the prior year total of $408,330. Excess Workers' Compensation The Sanitation District's use of Excess Workers' Compensation insurance dates back to 1989-90. At that time, the Fiscal Policy Committee approved a self-insured retention (SIR), or deductible, of $250,000, for such coverage. Due to the hardening of the workers' compensation market, this deductible was raised to $500,000 beginning in FY 2002-03 through a policy with Employers Reinsurance Corporation (ERC) that provided coverage to $25 million with a self-insured retention (SIR), or deductible of $500,000. The premium cost charged by ERC for the period July 2002 to June 30, 2003 was $69,090. Staff has reviewed the Sanitation District's most recent five-year workers' compensation loss history with Cambridge Integrated Services Group, the Sanitation District's third- party workers' compensation administrator, and has verified that the Sanitation District has not incurred a loss which exceeded the $500,000 SIR. In FY 2003-04, the Sanitation District joined the California Public Entity Insurance Authority (CPEIA), the lowest responsible provider, and approved the District's Excess Workers' Compensation Insurance, with limits of $50 million, a self-insured retention of $500,000, in an amount totaling $168,720. CPEIA, a joint powers authority, was formed in 2001 to address a developing marketplace crisis of dramatically increasing rates and the withdrawal of many insurers from the State. In FY 2004-05, the Sanitation District again renewed with CPEIA with increased limits from $50 million to $100 million while maintaining the self-insured retention of $500,000, in an amount totaling $208,384. In FY 2005-06, CPEIA negotiated an increase in the $100 million coverage limit to $150 million, with the same $500,000 self-insured retention, at a rate of $.00370 per actual payroll, or a total estimated premium of $196,772. Even with the $50 million increase in the coverage limit, this is a 14.5 percent reduction from the prior year rate of $0.00433 per actual payroll. FY 2006-07 Renewal Cycle The Sanitation District and Driver Alliant began the FY 2006-07 renewal process for Excess Workers' Compensation renewal utilizing the following timeline: • August 23, 2005 • September 30, 2005 • September 30, 2005 • Oct. -Dec. 2005 • January 2006 Revised: 06/04/03 513129.1 -Renewal Package Sent to CPEIA members -Update on the District's entire loss run history reports provided to CPEIA from the District's Third- Party Administrator, Cambridge Integrated -Completed Application submitted to CPEIA -CPEIA verifies payroll and exposure changes on application -CPEIA submits finalized member information and loss run history to Driver Alliant Book Page59 • Nov. 2005 -Apr. 2006 -Actuary completes annual valuation and submits to CPEIA • April 2006 -CPEIA submits actuary results to Driver Alliant • January -May 2006 -Driver Alliant submits specifications to Underwriters • May -June 2006 -Proposals Delivered from Driver Alliant to CPEIA • June 2006 • June 2006 • July 2006 • July 2006 • July 2006 -CPEIA decides on best proposals on behalf of its members and instructs Driver Alliant to place bind orders. -Driver Alliant Bind Orders on behalf of CPEIA -Coverage Renewed -Binders of Coverage Sent to Members -Certificates of Insurance Mailed There are relatively few insurers of public agencies excess workers compensation insurance in California, and premiums remain at the historic high levels of the past four years. This condition is in marked contrast to much of the general commercial primary California workers compensation marketplace where rates are significantly decreasing in direct response to recent state legislation reform. In addition, CPEIA continues to offer competitive terms to its participating members to the point that most commercial excess insurers are unwilling to offer alternative quotations. Following are examples of responses Driver Alliant has received in their marketing efforts: • ACE- • AIG- • American RE/Munich Provided a premium rate indication of $0.50 for $50 million limit of coverage subject to a $750,000 SIR. In a proposal to another CPEIA member, ACE's rate at a $10 million SIR was higher than CPEIA's rate at a $2 million SIR. In a quote to a large city, ACE's rate was approximately 25 percent higher at the same retention level. Provided a premium indication of $300,000 (rate= .51) at $25 million limit of coverage subject to a minimum $1 million SIR. American-Can only provide $5 million in limits of coverage and will not insure locations where there are more than 75 employees. • CNA- • Discover Re/St. Paul One of the more aggressive insurers who can provide higher limits of coverage at a $500,000 SIR, however, they specifically declined to quote an individual sanitation district. In addition, they have declined to compete with CPEIA in the past. Travelers-Has recently withdrawn from the marketplace. • Midwest Employers-Can only provide $10 million in limits of coverage subject to $1 million SIR. Revised: 06/04/03 513129.1 Quotation was requested but insurer declined to provide. BookPage60 • Safety National-Declined to quote a sanitation district. In FY 2006-07, CPEIA negotiated an increase in the $150 million coverage limit to $200 million, with the same $500,000 self-insured retention (SIR), at a rate of $.00365 per actual payroll, or a total estimated premium of $202,000. Even with the $50 million increase in the coverage limit, this is a 1.4 percent reduction from the prior year rate of $0.00370 per actual payroll. ALTERNATIVES N/A CEQA FINDINGS NIA ATTACHMENTS (1) Letter dated June 30, 2006 from Driver Alliant, re: All Risk Property and Boiler and Machinery Insurance -Public Entity Property Insurance Program (PEPIP). (2) Listing of PEPIP members. (3) Letter dated June 30, 2006 from Driver Alliant, re: Excess Liability Insurance (4) Listing of California Municipal Excess Liability (CAMEL) members. (5) Letter dated June 30, 2006 from Driver Alliant, re: Excess Workers' Compensation Insurance -California Public Entity insurance Association (CPEIA) (6) Listing of CPEIA members. Revised: 06/04/03 513129.1 BookPage61 dr·,ver -H;""t"e· •. INSURANCE SERVICES -.C!l,:;>,~.,:::. •••••• June 30, 2006 Mr. Michael White, Controller Orange County Sanitation District P.O. Box 8127 Fountain Valley, CA 92728-8127 Re: All Risk Property and Boiler and Machinery Insurance Public Entity Property Insurance Program (PEPJP) Dear Mike, There has been considerable recent discussion of the current turmoil in the catastrophic property insurance marketplace and the now intensifying restriction in available coverage capacity for all risk property insurance for those policyholders, both public and private. who have property and facilities valued in excess of several hundred million dollars. Following several months of modestly increasing rates, the entire property insurance marketplace began to rapidly constrict at the end of April and has continued to deteriorate at an intensifying rate. The impetus of the current crisis was the significant Gulf Coast storms damage last fall of approximately $75 billion which established a new annual record of insured natural Catastrophe losses nearly twice as high as the previous record set in the 2004 year. These consecutive years of record losses combined with anxiety over the new hurricane season -six of the ten costliest storms in U.S. history have occurred within fourteen months of the 2004-2005 hurricane season -has fostered a reactionary insurer environment. New, evermore conservative computer loss modeling programs and loss of available reinsurance support are now dictating extremely negative underwriting guidelines to the detriment of policyholders. Additiona1Jy, rating agencies, such as A.M. Best, are now imposing additional capital requirements on insurers which further limits the availability of insurance and is reducing "supply". Consequently, we are now contending with catastrophic coverage rates increasing several fold in many cases and. more typically, underwriters providing coverage of both catastrophic and all risk property perils at fractions of current levels. It appears that this a global insurance marketplace catastrophic capacity and pricing problem which shows little sign of abating this year. These general marketplace conditions have specifically negatively affected the property insurance program as all risk rates have increased and there is a possibility of reduced limits of coverage (although ,ve continue our negotiations). Drive, Alitant 1nsu,anc.e Service~, ;~c 1301 Doves~· Suite: 200. Ne'.l'.1port Beach. CA 92660-2j3() • 949-756-0271 BookPage62 Despite these marketplace difficulties, we have been able to negotiate an all risk rate of $.042 which compares very favorably with rates that alternative insurers may quote. For example we have negotiated specific optional quotations with Affliated FM Insurance Company, a member of the Factory Mutual Group, who alone has the capability to provide $500 million in limits of coverage, for several of our larger public agency clients. In one case, a premium rate of S.062 subject to a $10,000,000 million deductible was proposed. In the other, a rate of $.07 subject to a $100,000 deductlble was proposed. In our opinion, District properties present an appealing schedule to an insurer such as Affliated as evidenced by the excellent loss history. We therefore sought a more aggressive rate profile in specific discussions with the underwriter on your behalf, only to be advised that an approximate $.06 rate would be their best offer. Affliated FM also has the ability to provide boiler and machinery insurance on a separate policy basis at a premium range of $60,000 to $75,000 annually. There are several other insurers who have the ability to offer all risk coverage at the needed high limits of insurance such as Allianz, Chubb Energy, Starr Technical, Travelers, or Zurich. Informal discussions with these insurers and our admittedly limited experience in working with them suggest that a $500 million placement would require using several, if not all, and that the first layer of $100 million alone would cost out at an approximate $.05 rate. Accordingly, this "layered" coverage approach would be much more expensive than the Affliated FM alternative, which, in tum, is more expensive than PEP IP. There are few boiler and machinery insurers who have the technical capability to insure District property and facilities, most notably, Chubb, Hartford Steam Boiler, and Travelers. Each of these insurers have similar premium development fommlas which would generate premiums of approximately $80,000 at minimum. Such costs would be somewhat similar to the 2002 policy year premium of$101,980 charged by CNA before the coverage was placed within the PEPlP program in 2003 policy year. Note that the current boiler premium is $25,387 which compares very favorably to these costs. Mike, we hope these points will afford some background to the current environment in general and to the current property placement in particular. We continue to believe that PEPIP offers sound competitive advantage and appreciate your patience as we contend with adverse marketplace conditions. Sincerely, DRI}'::Eil ALLL\NT INSURANCE SERVICES ./ •' ..I/ ---~--~-/ _,. . ./7 / /C-,.; . ...... .!,,,.,,.,,,,,. ..... ✓r,'./ / --·· 4".• -~::..-!· .•.• y__.. / -~--...g· -. ~ / .• /"' ~~- Donald H. McLean-.--· Senior Vice President BookPage63 PEPIP USA California Members as of 6/30/06 ABAG Plan Corporation Advantacare Health Partners AHMC, Inc. Alameda Contra Costa Transit District Alameda County Schools Insurance Group (JPA) !Antelope Valley Healthcare District Aquarium of the Pacific Avalon Medical Development Corporation Barton Healthcare System Bay Cities Joint Powers Insurance Authority (BCJPIA) Beach Cities Health District Bear Valley Community Healthcare District Beta Healthcare Group Betty Ford Center Beverly Community Hospital Association Bloss Memorial Health Care District Butte Schools Self Funded Programs JPA California Association for Park and Recreation Insurance (CAPRI) California Fair Services Authority California Insurance Pool Authority (CIPA) California Sanitation Risk Management Authority (CSRMA) California State University Risk Management Authority -AGPIP California State University Risk Management Authority -CampuS!;!S California Western School of Law Cambria Community Healthcare District Capitol Area Development Authority Central California Foundation For Health Central San Joaquin Valley Risk Management Authority Chowchilla District Memorial Hospital Citrus Valley Health Partners City & County of San Francisco City & County of San Francisco, Convention Facility, Moscone North & South, Loe. No. 1 City & County of San Francisco, Municipal Railway Department, Market Street Subway, sched loc. 53 City & County of San Francisco, SF Airport East Terminal, Scheduled Loe. No. 4 City & County of San Francisco, SF Airport lnt'I Terminal, Scheduled Loe. No. 1 City & County of San Francisco, SF Airport North Terminal, Scheduled Loe. No. 2 City & County of San Francisco, SF Airport South Terminal, Scheduled Loe. No. 3 City of Anaheim City of Anahiem Convention Center, Scheduled Location 89 City of Belmont City of Burbank City of Carlsbad City of Cathedral City City of Corona City of Costa Mesa City of Daly City 1 of 5 Book Page64 PEPIP USA California Members as of 6/30/06 City of El Cajon City of Fontana City of Fresno City of Garden Grove City of Glendale City of Glendale, Steam Electric Generating Plant, Scheduled Location No. 1 City of Hayward City of Long Beach City of Long Beach, Harbor Department City of Merced City of Modesto City of Monterey City of Mountain View City of Oxnard City of Palmdale City of Palo Alto City of Pasadena City of Sacramento City of San Buenaventura City of Santa Ana City of Santa Barbara City of Santa Clara City of Santa Cruz City of Santa Maria City of Santa Monica City of Simi Valley City of Thousand Oaks City of Torrance City of Victorville City/County Capital Improvements & Financial Agency, a JPA College Health Enterprises Community Development Commission of the County of Los Angeles Community Hospital of Long Beach Community Hospital of the Monterey Peninsula Community Hospital of the Monterey Penninsula, the Hospital at Scheduled Location No. 1 Community Hospitals of Central California Corcoran District Hospital Cottage Health System Cottage Health System, Scheduled Location No. 1 for SANTA BARBARA COTTAGE HOSPITAL Cypress Surgery Center Dameron Hospital Association Del Puerto Health Care District Doctors Hospital of West Covina Downey Regional Medical Center Eastern Plumas Health Care Foundation El Camino Hospital District 2 of 5 Book Page65 PEPIP USA California Members as of 6/30/06 El Camino Hospital District, Main Tower, Scheduled Location No. 1 Bldg. C El Centro Regional Medical Center Emanuel Medical Center Enloe Health System Fresno Heart Hospital Good Samaritan Hospital, BAKERSFIELD Hazel Hawkins Memorial Hospital Healthsmart Pacific, Inc. Henry Mayo Newhall Memorial Hospital Heritage Golf Group Hi-Desert Memorial Health Care District Hoag Memorial Hospital Presbyterian Hoag Memorial Hospital Presbyterian, One Hoag Drive, Building 1, scheduled Location No. 1 .Indian Valley Health Care District Irvine Ranch Water District John Muir Health Kaweah Health Care District Kern Valley Healthcare District Kingsburg District Hospital Lodi Memorial Hospital Association Inc. Los Angeles Unified School District Madera Community Hospital Marshall Medical Center Mayers Memorial Hospital District Mendocino Coast District Hospital Modesto Irrigation District Monterey Bay Area Self Insurance Authority Monterey Bay Unified Air Pollution Control District Motion Picture & Television Fund Municipal Pooling Authority North Bay Schools Insurance Authority JPA North Kern-South Tulare Hospital District Doing Business As: Delano District Skilled Nursing Facilit North Sonoma County Hospital District Northern California Cities Self Insurance Fund Northern Inyo Hospital Oak Valley Hospital District Orange County Sanitation District (OCSD) Orohealth Corporation Palm Drive Health Care District doing business as "Palm Drive Hospital" Palomar Pomerado Health System Palomar Pomerado Health System.Palomar Medical Center located at 555 EAST VALLEY PARKWAY PAMC, Ltd., Doing Business As: Pacific Alliance Medical Center Parkview Community Hospital Medical Center Pioneers Memorial Health Care District Plumas District Hospital Pomona Valley Hospital Medical Ctr. 3 of 5 Book Page66 PEPIP USA California Members as of 6/30/06 Port of Oakland Public Agency Risk Sharing Authority of California (PARSAC) Queenscare, Inc. Redlands Community Hospital Redwood Empire Schools' Insurance Group JPA Ridgecrest Regional Hospital Sacramento Public Library San Antonio Community Hospital San Diego County Regional Airport Authority San Diego Hospital Association DBA: SHARP Healthcare, Sharp Memorial Hospital located at 7901 FROST San Diego Pooled Insurance Program Authority (SANDPIPA) San Diego Unified Port District San Diego Unified School District San Gorgonio Memorial Hospital San Joaquin Delta Community College San Mateo Schools Insurance Group Santa Barbara County Air Pollution Control District Santa Teresita Hospital Schools Insurance Authority Seneca Health Care District Sequoia Healthcare District Sherman Oaks Health System (Prime Healthcare Services II, LLC, DBA) Sierra Kings District Hospital Small Cities Organized Risk Effort Soledad Community Health Care District Sonoma Valley Health Care District South Bay Area Schools Insurance Authority South Bay Community Hospital Southern California Public Power Authority Southern Humboldt Community Healthcare District Southern Inyo Healthcare District Southern Mono Healthcare District Doing Business As: Special District Risk Management Authority (SDRMA) Special Property Insurance Program Surprise Valley Health Care District Tahoe Forest Hospital District Tehachapi Valley Healthcare District The Bishop Schools Torrance Unified School District Town of Corte Madera Transportation Corridor Agencies of Orange County Tri-City Healthcare District Tulare District Hospital Twin Cities Police Department University of California Hastings College of Law Valley Health System Mammoth Hospital 4 of 5 Book Page67 PEPIP USA California Members as of 6/30/06 Vector Control Joint Powers Authority (VCJPA) Verdugo Hills Health Services Victor Valley Community Hospital Washington Township Health Care District West Side Community Healthcare District 5 of 5 BookPage68 driver+alliant I 1NSURANCE SERVICES CALIFORNIA MUNICIPAL EXCESS LIABILITY PROGRAM (CAMEL) PARTICIPANTS JULY 1, 2006 TO JULY 1, 2007 City of Carlsbad Community Development Commissionof the County of Los Angeles City of Corona Town of Corte Madera City of Costa Mesa City of El Cajon City of Fresno City of Garden Grove City of Hemet City of Industry City of Long Beach City of Montebello Orange County Sanitation District City of Riverside City of San Buenaventura City of Simi Valley City of Thousand Oaks City of Torrance Twin Cities Police Authority BookPage70 INSURANCE SERVICES J unc 30, 2006 Mr. Michael White, Controller Orange County Sanitation District P.O. Box 8127 Fountain Valley, CA 92728-8127 Re: Excess Workers Compensation Insurance California Public Entity Insurance Association (CPEIA) Dear Mike, As discussed there are relatively few insurers of public agencies excess workers compensation insurance in California, and premiums remain at the historic high levels of the past four years. This condition is in marked contrast to much of the general commercial primary California workers compensation marketplace where rates are significantly decreasing in direct response to recent state legislative reform. The District currently maintains coverage through the California Public Entity Insurance Authority, a JPA fanned in the year 2001 to address a developing marketplace crisis of dramatically increasing rates and the withdrawal of many insurers from the state. The program continues to offer competitive tenns to its participating members to the point that most commercial excess insurers are unwi11ing to offer alternative quotations, citing their inability to be competitive. To illustrate that point, we itemize below California excess insurers and their current underwriting posture in specific response to our marketing efforts. Please note that CPEIA provides a $200 million limit of coverage at a .365 rate subject to a $500,000 Self Insured Retention. ACE-Provided a premium rate indication of $.50 for S50 million limit of coverage subject to a $750,000 SIR. We have had several opportunities to provide ACE quotations to other CPEIA members. In one case ACE's rate at a $10,000,000 SIR for a large municipal .JPA was higher than CPEIA's rate at a $2.000,000 SIR. In another instance, ACE's rate quotation for a large city was approximately 25% higher at the same retention level. American International Group (AIG) -Provided a premium indication of$300,000 (rate =.51) at $25 million limit of coverage subject to their minimum S 1,000,000 SIR. Driver ~liiant Insurance Services, Inc. 130~ Dove St Sui,r. 200, ~lt-:wport Bea.ch. CA 92660-2436 • 949-756-027' L!c .tOC36861 • ,;;w•,:.cn•:eraliiant corr, Book Page71 American Re/ Munich American -can provide only $5 million in limits of coverage and will not insure locations where there are more than 75 employees. Consequently we did not approach this market. CNA-one of the more aggressive insurers who can provide higher limits of coverage at a $500,000 SIR, however, they specifically declined to quote an individual sanitation district. Furthem1ore, in the past they have declined to compete with CPEIA. Discover Re/ St Paul Travelers -has recently withdrew from the marketplace Midwest Employers -can provide only $10 million in limits of coverage subject to $1,000,000 SIR. We did ask for quotation, but insurer declined. Safety National -declined to quote a sanitation district. Mike, we hope this brief overview and accompanying rate history will offer you additional marketplace perspective and will underscore the fact that there is an ongoing absence of meaningful excess workers compensation insurance alternatives for California public agencies. Sincerely, DRIVER ALLIANT INSURANCE SERVICES , .. -------\ / ! ~ / f ,,/ .✓.-;,/ }, .I __ ....,,; _,,....✓.~,<:: _,/ ·:_:?' /~ .✓-i' ._ • ..--•• '--"'"" / ~/,1 ~ Donald H. McL~a~ /.r -~ Senior Vice Presioent / BookPage72 CSAC EXCESS INSURANCE AUTHORITY (CSAC EIA) EXCESS WORKERS' COMPENSATION PROGRAM PROPOSAL COVERED PARTY: Orange County Sanitation District COVERAGE PROVIDED BY: CSAC Excess Insurance Authority with Excess and Reinsurance layers provided by companies stated below BEST'S GUIDE RATING*: CSAC EIA: Not Applicable STANDARD & POOR'S RATING,...: CALIFORNIA STATUS: COVERAGE TERM: COVERAGE: LIMITS OF LIABILITY: Renaissance Re: A, Excellent, Financial Size Category 13, $1,250,000,000 to $1,500,000,000 National Union Fire Insurance Co. of Pittsburg, PA: A+, Superior Financial Size Category 15; $2,000,000,000 or more Lloyd's of London: A, Excellent: Financial Size Category 15; $2,000,000,000 or more. CSAC EIA: Not applicable Renaissance Re: A+, Stable National Union Fire Insurance Co. of Pittsburg, PA: A++ Lloyd's of London: A, Strong CSAC EIA: Not applicable Renaissance Re: Not applicable (reinsurance) National Union Fire Insurance Co. of Pittsburg, PA: Admitted Lloyd's of London: Not Applicable (reinsurance) July 1, 2006 to July 1, 2007 Coverage per the CSAC Excess Insurance Authority Excess Workers' Compensation Program Memorandum of Coverage Workers' Compensation Coverage: Pooled Retention $ 5,000,000 Workers' Compensation and Employers Liability each occurrence (difference between $5,000,000 and the Covered Party's SIR) Excess Layers: Layer 1: $45,000,000 in excess $5,000,000 Workers' Compensation each occurrence; reinsured By Renaissance Re (excluding Terror coverage) Terror Coverage (including NBCR): $45,000,000 in excess of $5,000,000 each occurrence, $90,000,000 Annual Aggregate: reinsured by Lloyd's of London and other London/ Bermuda re insurers Layer 2: $150,000,000 in excess of $50,000,000 Workers' Compensation each occurrence; excess insurance coverage provided by National Union Fire Insurance Co. of Pittsburg, PA (including Terror coverage) NOTE: THIS PROPOSAL JS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT AMEND, EXTEND OR ALTER THE POLICY IN ANY WAY. PLEASE REFER TO THE POLICY FORM FOR COMPLETE COVERAGE AND EXCLUSION /NFORMA TION BookPage73 CSAC EXCESS INSURANCE AUTHORITY (CSAC EIA) EXCESS WORKERS' COMPENSATION PROGRAM PROPOSAL SELF INSURED RETENTION: $500,000 SIR Per Occurrence MAJOR EXCLUSIONS: 2006-2007 ESTIMATED ANNUAL PAYROLL: ESTIMATED ANNUAL DEPOSIT PREMIUM: TOTAL ESTIMATED ANNUAL DEPOSIT PROGRAM PREMIUM: PREMIUM AUDIT: PROGRAM SERVICES: Self Insured Retention is eroded by allocated claims expense Per the CSAC Excess Insurance Authority Excess Workers' Compensation Program Memorandum of Coverage, including: • L.C. 4850 benefits • L.C. 4856 benefits • Any payments in excess of the benefits regularly provided by the Workers' Compensation law $56,723,800 $ 500.000 SIR $ 118,272 Pool Premium (Deposit) 58,352 Reinsurance and Excess Premium (Deposit) 10,408 EIA Administration Fee 883 Public Entity Fee 13,831 Broker Fee -----'O,._ EIA One-Time Development Fee $ 201,746 Total Estimated Annual Deposit Premium $64,152,589 as of June 26, 2006 includes pool, excess and reinsurance premiums and all fees Premiums are auditable and adjustable at June 30, 2007 based on actual payroll • Premium includes a $1,000 Annual Loss Prevention Subsidy (can accumulate up to a maximum of 5 years) • Premium includes a $2,000 Actuarial Subsidy • Premium includes cost for claim audit requirement (Audit to include access to all files handled by TPA) NOTE: THIS PROPOSAL IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT AMEND, EXTEND OR ALTER THE POLICY IN ANYWAY. PLEASE REFER TO THE POLICY FORM FOR COMPLETE COVERAGE AND EXCLUSION INFORMATION BookPage74 PROGRAM CONDITIONS: BROKER: PROPOSAL DATE: CSAC EXCESS INSURANCE AUTHORITY (CSAC EIA) EXCESS WORKERS' COMPENSATION PROGRAM PROPOSAL • Premium subject to change. , Subject to: • Agreement to the terms of the Excess Worker's Compensation MOU as proposed for amendment, and agreement to execute the Excess Worker's Compensation MOU within 30 days of Final Amendment • Subject to: o Receipt of a copy of Certificate of Consent to Self Insure DRIVER ALLIANT INSURANCE SERVICES INC. Don McLean Jr.-Senior Vice President Rennetta Poncy -Vice President Esther Ruvalcaba-Account Administrator June 29, 2006 NOTE: THIS PROPOSAL IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT AMEND, EXTEND OR ALTER THE POLICY IN ANYWAY. PLEASE REFER TO THE POLICY FORM FOR COMPLETE COVERAGE AND EXCLUSION INFORMATION BookPage75 CSAC EXCESS INSURANCE AUTHORITY (CSAC EIA) EXCESS WORKERS' COMPENSATION PROGRAM PROPOSAL THIS SUMMARY OF INSURANCE IS PROVIDED AS A MATTER OF CONVENIENCE AND INFORMATION ONLY. ALL INFORMATION INCLUDED IN THIS SUMMARY, INCLUDING BUT NOT LIMITED TO PERSONAL AND REAL PROPERTY VALUES, LOCATIONS, OPERATIONS, PRODUCTS DATA, AUTOMOBILE SCHEDULES. FINANCIAL DATA AND LOSS EXPERIENCE, IS BASED ON FACTS AND REPRESENTATIONS SUPPLIED TO DRIVER ALLIANT INSURANCE SERVICES., INC. BY YOU. THIS SUMMARY DOES NOT REFLECT ANY INDEPENDENT STUDY OR INVESTIGATION BY DRIVER ALLIANT INSURANCE SERVICES, INC., OR ITS AGENTS AND EMPLOYEES. THIS SUMMARY IS NOT CONFIRMATION OF INSURANCE AND DOES NOT ADD TO, EXTEND, AMEND, CHANGE OR ALTER ANY COVERAGE IN ANY ACTUAL POLICY OF INSURANCE YOU MAY HAVE. ALL POLICY TERMS, CONDITIONS, EXCLUSIONS AND LIMITATIONS APPLY. FOR SPECIFIC INFORMATION REGARDING YOUR INSURANCE COVERAGE, PLEASE REFER TO THE POLICY ITSELF. DRIVER ALLIANT INSURANCE SERVICES, INC WILL NOT BE LIABLE FOR ANY CLAIMS ARISING FROM OR REIJ>.TED TO INFORMATION INCLUDED IN OR OMITTED FROM THIS SUMMARY OF INSURANCE. COMMISSIONS ARE CUSTOMARILY PAID BY THE INSURANCE CARRIERS TO THEIR AGENTS AND TO BROKERS AS A PERCENTAGE OF PREMIUMS. IN ADDITION TO THE COMMISSIONS THAT DRIVER ALLIANT RECEIVES. ITS RELATED ENTITY, ALLIANT SPECIALTY INSURANCE SERVICES, INC. (''ASIS"J MAY RECEIVE COMPENSATION FROM DRIVER ALLIANT AND/OR THE CARRIER FOR PROVIDING UNDERWRITING SERVICES. THE FINANCIAL IMPACT OF THE COMPENSATION RECEIVED BY ASIS IS A COST INCLUDED IN THE PREMIUM. ADDITIONALLY, THE RELATED ENTITIES OF DRIVER SIGNATURE SERVICES AND/OR STRATEGIC HR MAY RECEIVE COMPENSATION FROM DRIVER ALLIANT AND/OR THE CARRIER FOR PROVIDING DESIGNATED, VALUE-ADDED SERVICES. SERVICES CONTRACTED FOR BY THE CLIENT DIRECTLY WILL BE INVOICED ACCORDINGLY. OTHERWISE, SERVICES WILL BE PROVIDED AT THE EXPENSE OF DRIVER ALLIANT AND/OR THE CARRIER. FURTHER INFORMATION IS AVAILABLE UPON WRITTEN REQUEST DIRECTED TO: DRIVER ALLIANT INSURANCE SERVICES, ATTENTION: CHIEF OPERATING OFFICER, 1620 FIFTH AVENUE, SAN DIEGO. CA 92101 . •A.M. BEST HAS AN EXTENSIVE DATABASE OF NEARLY 6,000 LIFE/HEALTH, PROPERTY CASUALTY AND INTERNATIONAL COMPANIES. YOU CAN VISIT THEM ATWWW.AMBEST COM. •· FOR ADDITIONAL INFORMATION REGARDING INSURER FINANCIAL STRENGTH RATINGS VISIT STANDARD AND POOR'S WEBSITE AT WWW.STANDARDANOPOORS.COM. TO LEARN MORE ABOUT COMPANIES DOING BUSINESS IN CALIFORNIA, VISIT THE CALIFORNIA DEPARTMENT OF INSURANCE WEBSITE AT WWW.INSURANCE.CA.GOV. DRIVER ALLIANT INSURANCE SERVICES, INC. NOTE: THIS PROPOSAL IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT AMEND, EXTEND OR ALTER THE POLICY IN ANYWAY. PLEASE REFER TO THE POLICY FORM FOR COMPLETE COVERAGE AND EXCLUSION INFORMATION BookPage76 CSAC Excess Insurance Authority EXCESS WORKERS' COMPENSATION PROGRAM Effective July 1, 2006 BINDER ADDENDUM $1501000 Self Insured Retention County Members Public Entity Members None City of Ridgecrest $250,000 Self Insured Retention County Members Public Entity Members San Luis Obispo County Berkeley Unified School District Shasta County City of Carmel by the Sea Golden State RMA $300,000 Self Insured Retention County Members El Dorado County Imperial County Kings County Mariposa County Merced County Placer County Sonoma County Tuolumne County $350,000 Self Insured Retention Lake Elsinore USO Northern California Special District Insurance Authority (NCSDIA) Special Dist. Risk Mgmt Authority (SDRMA) Public Entity Members City of Lompoc City of Millbrae City of Moreno Valley City of Napa City of San Clemente PASIS -San Bernardino County Members Public Entity Members Napa County Campbell Union High School District City of Daly City City of Redwood City Monterey Salinas Transit Authority $400,000 Self Insured Retention County Members Public Entity Members Monterey County ACCEL -City of Monterey ACCEL -City of Mt. View City of El Monte $500,000 Self Insured Retention County Members Fresno County Marin County San Joaquin County Santa Barbara County Santa Cruz County Stanislaus County City of Rialto Public Enfity Members ACCEL -City of Bakersfield ACCEL -City of Ontario ACCEL -City of Santa Cruz Bay Area Housing Authority Risk Management Agency BICEP -City of Oxnard BICEP -City of Santa Ana California Fair Services Authority City of Chula Vista BookPage77 $500,000 Self Insured Retention Cont. CSAC Excess Insurance Authority EXCESS WORKERS' COMPENSATION f>ROGRAM Effective July 1, 2006 BINDER ADDENDUM Public Entity Members City of Concord City of Covina City of Cupertino City of Escondido City of Fremont City of Hawthorne City of National City City of Oceanside City of San Buenaventura City of Santa Clara City of Simi Valley City of So. San Francisco City of Sunnyvale City of Whittier Community Development Commission of the Co. of Los Angeles Elk Grove Unified School District Golden Empire Transit District Municipal Pooling Authority Northern Ca. Cities Self Ins. Fund (NCCSIF) Orange County Sanitation District Park & Recreation District Employee Compensation (PARDEC) Public Agcy. Self Ins.System-San Diego (PASIS-San Diego) Santa Barbara Metropolitan Transit District Santa Cruz Metropolitan Transit Dist. YoloPARMIA $750,000 Self Insured Retention County Members Public Entity Members Contra Costa County ACCEL -City of Modesto ACCEL -City of Palo Alto ACCEL -City of Santa Barbara City of Bell City of Downey City of Fairfield City of Stockton Riverside Transit Authority $1,000,000 Self Insured Retention County Members Public Entity Members Santa Clara County ACCEL -City of Anaheim Central Fire District ACCEL -City of Santa Monica AC Transit Antelope Valley Healthcare Dist. BICEP -City of Huntington Beach BICEP -City of San Bernardino BICEP -City of West Covina Book Page78 These three funding schedules include the "pay-as-you-go" costs. Therefore, the amount of pre-funding is the excess over the "pay-as-you-go" costs. These funding schedules were provided by the Actuary as examples of the various alternatives available to the District to pre-fund its other post employment benefit obligations. The three funding schedules are simply three different examples of how the District may choose to spread its cost over time. By comparing the schedules, it is apparent the effect early pre-funding has on the total amount the District will eventually have to pay. Because of investment earnings on fund assets, the earlier the contributions are made, the less the District will have to pay in the long run. Of course, the advantages of pre-funding will have to be weighed against other uses of the funds. ALTERNATIVES To be provided at the September FAHR meeting. CEQA FINDINGS NIA ATTACHMENTS NIA Form No. ow-102-4 Dept. 320 Pages Book Page79 Agenda Report -FAHR Revised: 7/6/2006 FAHR COMMITTEE Meeting Date To Bel. of Dir. 07/12/06 07/19/06 AGENDA REPORT Item Number Item Number FAHR06-56 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance Originator: Mike White, Controller SUBJECT: ACTUARIAL VALUATION OF THE RETIREE PAID MEDICAL PREMIUM BENEFIT PLAN AND THE ADDITIONAL RETIREMENT BENEFIT ACCOUNT (ARBA) GENERAL MANAGER'S RECOMMENDATION INFORMATIONAL ITEM. SUMMARY At the May FAHR Committee, staff informed the committee members that staff had initiated an independent actuarial study to identify future retiree medical benefit funding obligations and compliance requirements. The actuarial study provides valuable information to assist in the development of a funding strategy to outline future retiree medical benefit costs, investment options, compliance issues, available administrative mechanisms, and foreseeable changes to retiree medical benefits. The District selected Demsey, Filliger and Associates to perform an actuarial valuation as of July 1, 2006. Following is a summary of their valuation: Benefit Plan Provisions OCSD provides two different retiree medical benefits: The Retiree Paid Medical Premium Plan and the Additional Retiree Benefit Account (ARBA). The Retiree Paid Medical Premium Plan provides employees hired prior to July 1, 1988 with 2.5 months of fully paid medical premiums for each year of continuous service if they retire. OCSD administers this benefit and the costs are paid directly to insurance carriers. The District pays the applicable tiered rate (retiree, retiree plus spouse, or retiree plus family) for the duration of the benefits. Survivor benefits are provided in the event that a retiree pre-deceases his/her spouse. When this benefit is exhausted, the retiree begins receiving ARBA benefits. Employees hired after July 1, 1988 are not eligible for this benefit. ARBA benefits are a retiree medical premium offset plan. Retirees who have a vested right in this benefit are provided with $10 per month for every year of service up to a maximum of 25 years or $250 per month to offset the costs associated with health insurance premiums. Survivor benefits are provided in the event that a retiree pre- deceases his/her spouse. Unlike the retiree paid medical premium plan, ARBA benefits are sent directly to the retiree in the retirement benefits payment from OCERS. As such, ARBA benefits are taxable to the retiree. Form No. ow-102-4 Oept 320 Page 1 Book Page80 Agenda Report -FAHR Revised: 7/6/2006 Valuation Data • The Actuarial Valuation date is July 1, 2006. • Retired participants and surviving dependents total 139 with an average age of 65.8 years. • Active employees total 590 with an average age of 46.65 years and an average service of 12.18 years. Major Actuarial Assumptions Turnover rates-Standard actuarial tables reduced by 20 percent at all ages to more closely match recent historical District turnover experience. Discount rate-6.0 percent per annum based on the actuaries' best estimate of expected long-term healthcare plan experience. Financial Results • The accrued liability, or past service liability, totals $16,136,165, or $10,738,569 for active employees and $5,397,596 for retirees. • The Present Value of all benefits expected to be paid by the District for its current and future retirees is $19,675,520. • The annual expense, or Annual Required Contribution, for FY 2006-07 under General Accounting Standards Board (GASS) Statement No. 45 would be $1,664,161, and represents the current year service cost of $682,243 and 30-year amortization of the past service liability. Although this annual expense is defined by GASS 45 as the annual required contribution, it is neither required nor necessarily contributed. However, the actuary recommends funding between 50 percent and 70 percent of a plan's accrued liability. Alternative funding schedules follow within this report. PRIOR COMMITTEE/BOARD ACTIONS None. PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT ~ This item has been budgeted. (Current year service cost only). Form No. DW-102-4 Dept 320 Page2 Book Page81 Agenda Report -FAHR Revised: 7/6/2006 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 GASB Compliance Issues Although designed as a medical premium offset plan, ARBA benefits may be used for purposes other than the actual offsetting of retiree health premiums since the benefit is sent directly to the retiree as part of the retirement benefit payment from OCERS. As such, these benefits are inclusive of the retirement benefits provided to members through the Orange County Employee's Retirement System that are currently being reported within the District's financial statements in accordance with GASB Statement No. 27, "Accounting for Defined Benefit Pension Plans". GASB Statement No. 45, "Accounting and Financial Reporting by Employers for Post- employment Benefits Other Than Pensions", published in June 2004 with a scheduled implementation date for the year ended June 30, 2007, will require the District to record the annual expense, or annual required contribution, for the Retiree Paid Medical Premium Plan as an expense to the District's income statement. This standard applies only to the expense to be charged to the District's income statement but does not require pre-funding of retiree health care plans. Although described as the Annual Required Contribution (ARC), it is neither required nor necessarily contributed. The actuary performing this valuation does not believe it is necessary or desirable for an agency to contribute the full ARC on a cash basis each year. GASB Statement No. 45 pertains to the income statement, and funding pertains to cash flow, and there is no need or desire for the two to be directly linked. In general, they recommend that a reasonable goal is to fund between 50 percent and 70 percent of a plan's accrued liability. GASB Statement No. 45 specifies that in order for a retiree fund to be counted as "assets" for purposes of this statement, the fund must be set aside in a separate, irrevocable trust that may not be used for any purpose besides the payment of plan benefits for retirees. The trust must also be beyond the reach of creditors of both the employer and/or the plan administrator, if any. The actuary recommends that the District consider taking steps to establish a retiree fund that meets the GASB requirements as soon as possible. Funding Schedules There are many ways to approach the pre-funding of post-employment benefits. The annual expense is an orderly methodology developed by GASB to account for retiree post-employment benefits. This amount will fluctuate from year to year based on asset performance and as the population matures. It will eventually reach zero when the last eligible retiree dies. The actual annual expense has no direct relation to amounts the District may set aside to pre-fund post-employment benefits. Form No. DW-102-4 Dept. 320 Page 3 Book Page82 Agenda Report -FAHR Revised: 7/6/2006 The table on the next page provides the District with three alternative schedules for funding (as contrasted with expensing) the Retiree Paid Medical Premium Plan and ARBA. The schedules all assume that the retiree fund earns 5.0 percent per annum on its investments, and that contributions and benefits are paid mid-year. Level Level% of Un-Level% of Year Pay-as-you-go Contribution funded AL Payroll 2006 $682,243 $1,650,700 $2,677,248 $1,288,551 2007 745,088 1,650,700 2,392,303 1,327,208 2008 870,374 1,650,700 2,147,893 1,367,024 2009 929,164 1,650,700 1,940,404 1,408,034 2010 973,901 1,650,700 1,762,252 1,450,276 2011 968,068 1,650,700 1,608,821 1,493,784 2012 983,811 1,650,700 1,475,281 1,538,597 2013 1,074,498 1,650,700 1,359,543 1,584,755 2014 1,160,500 1,650,700 1,260,857 1,632,298 2015 1,229,000 1,650,700 1,176,334 1,681,267 2016 1,288,510 1,650,700 1,103,235 1,731 ,705 2017 1,382,564 1,650,700 1,039,455 1,783,656 2018 1,456,902 1,650,700 983,967 1,837,166 2019 1,517,850 1,650,700 934,763 1,892,281 2020 1,568,424 1,650,700 890,316 1,949,049 2021 1,639,170 1,650,700 849,422 2,007,520 2022 1,649,710 1,650,700 811,449 2,067,746 2023 1,640,041 1,650,700 774,869 2,129,778 2024 1,633,890 1,650,700 739,128 2,193,672 2025 1,650,722 1,650,700 704,066 2,259,482 2026 1,582,406 -669,624 - 2027 1,536,067 -635,078 - 2028 1,477,015 -600,766 - 2029 1,412,503 -566,756 - 2030 1,386,185 -533,211 - 2031 1,351,164 -498,661 - 2032 1,275,555 -451,688 - 2033 1,222,358 -409,863 - 2034 1,156,605 -372,542 - 2035 1,102,426 -339,159 - 2040 837,302 -216,255 - 2045 635,187 -140,427 - 2050 428,713 -90,292 - 2055 252,362 -56,076 - Total thru 2055 $40,700,278 $33,014,000 $32,212,004 $34,623,849 The above scenarios contrasted against actual cash outlays, or "pay-as-you-go", are as follows: 1. A level contribution amount for the next 20 years; 2. A level percent of the unfunded liability; and 3. A contribution that increases by a level percentage (3%) each year. Fonn No. DW-102--4 Dept. 320 Page4 BookPage83 Agenda Report -FAHR Revised: 7/6/2006 These three funding schedules include the "pay-as-you-go" costs. Therefore, the amount of pre-funding is the excess over the "pay-as-you-go" costs. These funding schedules were provided by the Actuary as examples of the various alternatives available to the District to pre-fund its other post employment benefit obligations. The three funding schedules are simply three different examples of how the District may choose to spread its cost over time. By comparing the schedules, it is apparent the effect early pre-funding has on the total amount the District will eventually have to pay. Because of investment earnings on fund assets, the earlier the contributions are made, the less the District will have to pay in the long run. Of course, the advantages of pre-funding will have to be weighed against other uses of the funds. ALTERNATIVES To be provided at the September FAHR meeting. CEQA FINDINGS N/A ATTACHMENTS N/A Form No. ow-102-4 Dept. 320 Page5 BookPage84 Agenda Report -FAHR Revised: 716/2006 ORANGE COUNTY SANITATION DISTRICT (714) 962-2411 www.ocsd.com Mailing Address: P.O. Box 8127 Fountain Valley, California 92728-8127 Street Address: 10844 Ellis Avenue Fountain Valley, California 92708-7018