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Home My WebLink About2006-10-11MINUTES OF THE REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE Orange County Sanitation District Wednesday, October 11, 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 October 11, 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: I 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: James W. Silva Jim Ferryman, Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Bob Ghirelli, Acting Assistant General Manager Lorenzo Tyner, Director of Finance and Administrative Services David Ludwin, Director of Engineering Jeff Reed, Human Resources Manager Mike White, Controller Lilia Kovac, Committee Secretary Norbert Gaia Juanita Skillman OTHERS PRESENT: Brad Hogin, General Counsel Brian Gruber, Lance, Soll & Lunghard Richard Kikuchi, Lance, Soll & Lunghard Shirish Patel, Lance, Soll & Lunghard Ed Soong, Public Resources Advisory Group Lori Koh (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS There were no public comments. (4) REPORT OF THE COMMITTEE CHAIR Chair Miller did not give a report. (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, did not give a report. FILED IN THE OFFICE OF THF SECRETARY ORANGE r,.., ,.,-,, -· .,-•..-•NI n1STRICT OCT 2 5 2006 /!·. ~z BY _ __:. _______ _ Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting October 11 , 2006 Page 2 (6) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES Lorenzo Tyner, Director of Finance, did not give a report. (7) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, informed the Committee members that he would be conducting Ethics training in-house, as required by Assembly Bill AB 1234. He also asked those directors that have already completed their Ethics training submit a copy of the certificate of completion to the Board Secretary's office of the Sanitation District for the files. (8) 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 September 13, 2006 joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee meeting. b. FAHR06-67 Receive and file Employment Status Report as of September 18, 2006. c FAHR06-68 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. d. FAHR06-69 Recommend to the Board of Directors to Approve Amendment No. 1 to the agreement with the State of California, Department of Parks and Recreation, providing for a change to the billing methodology for sewer services for Bolsa Chica State Beach. e. (9) Motion: It was moved, seconded, and duly carried to approve the recommended action for the item specified as 8(a) through 8(d). Director Freschi abstained from voting on Item 8(a). END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. ACTION ITEMS a. FAHR06-70 Recommend to the Board of Directors to authorize extension of a service contract with Public Resources Advisory Group (PRAG) for financial advisory services for an additional five-year period effective November 2006. Motion: It was moved, seconded, and duly carried to approve the recommended action. Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting October 11, 2006 Page 3 (10) INFORMATIONAL ITEMS a. FAHR06-71 Independent Accountant Report on the Capital Improvement Program's Procurement Procedures and Internal Controls Lorenzo Tyner introduced Richard Kikuchi of Lance, Soll and Lunghard who presented their independent report and findings of the District's Capital Improvement Program's Procurement Procedures and Internal Controls. Director of Engineering, David Ludwin, presented a response to the recommendations made on the auditors report. b. FAHR06-72 Retirement and benefits program review Lorenzo Tyner presented a verbal report on Bartel Associates, LLC's Benefits Review. A follow up meeting was scheduled for Thursday, October 26, 2006. c. FAHR06-73 Succession Management Program Update Jeff Reed presented the major components of the Succession Management program, and will be periodically reporting progress to the committee. d. FAHR06-74 Management of Property and Liability Insurance Programs Mike White briefly presented facts on the different joint insurance programs available to the Sanitation District for the various needs of the agency this size. Staff will prepare a comparative analysis of joint powers insurance authority and report back to the committee in November with options. (11) CLOSED SESSION There was no closed session. (12) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There were none. (13) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. ROLL CALL JOINT FINANCE, ADMINISTRATION AND HUMAN RESOURCES AND STEERING COMMITTEES Meeting Date: September 13, 2006 COMMITTEE MEMBERS Time: 5:00 p.m. Adjourn: 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, Acting Assistant General Manager Lorenzo Tyner, Director of Finance and --Administrative Services David Ludwin, Director of Engineering Jim Herberg, Director of Operations & Mgmt. Patrick Miles, Director of Information Technoloqy Nick Arhontes, Director of Regional Assets --and Services Ed Torres, Acting Director of Technical Services Bret Colson, Public Information Manager Jeff Reed, Human Resources Manager Mike White, Controller Lilia Kovac, Committee Secretary c: Lenora Crane AGENDA REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, OCTOBER 11, 2006, AT 5:00 P.M. (1) ROLL CALL ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com (2) APPOINTMENT OF CHAIR PRO TEM, IF NECESSARY (3) PUBLIC COMMENTS (4) REPORT OF COMMITTEE CHAIR (5) REPORT OF GENERAL MANAGER (6) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES (7) REPORT OF GENERAL COUNSEL (8) 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 September 13, 2006 joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee meeting. b. FAHR06-67 Receive and file Employment Status Report as of September 18, 2006. Book Page 10 c. FAHR06-68 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. Book Page 14 Book Page 1 October 11, 2006 Page2 d. FAHR06-69 Recommend to the Board of Directors to Approve Amendment No. 1 to the agreement with the State of California, Department of Parks and Recreation, providing for a change to the billing methodology for sewer services for Bolsa Chica State Beach. Book Page 17 END OF CONSENT CALENDAR e. Consideration of items deleted from Consent Calendar, if any. (9) ACTION ITEMS a. FAHR06-70 Recommend to the Board of Directors to authorize extension of a service contract with Public Resources Advisory Group (PRAG) for financial advisory services for an additional five-year period effective November 2006. Book Page 19 Lorenzo Tyner -10 Minutes (10) INFORMATIONAL ITEMS a. FAHR06-71 Independent Accountant Report on the Capital Improvement Program's Procurement Procedures and Internal Controls Book Page 26 Lorenzo Tyner -30 Minutes b. FAHR06-72 Retirement and benefits program review Book Page 36 Lorenzo Tyner-30 Minutes c. FAHR06-73 Succession Management Program Update Book Page 42 Jeff Reed - 5 Minutes d. FAHR06-74 Management of Property and Liability Insurance Programs Book Page 45 Lorenzo Tyner -15 Minutes (11) CLOSED SESSION [ During the course of conducting the business set forth.on this agenda as a regular meeting of the Com~ittee, '\ 1 the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, \ l pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, \ f 54957 or 54957.6, as noted. j ~ ~ \ Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) l j employee actions or negotiations with employee representatives; or INhich are exempt from public disclosure j / under the California Public Records Act, may be reviewed by the Committee during a permitted closed session ~ l and are not available for public inspection. At such time as final actions are taken by the Committee on any of l .. these .. subj~s •. ttie_ minutes. will reflect. all. required. disclosures. of in~orl"!)atior;1 ... , ...................... -.................... __ .. _... .. ...................... l H:\dept\agenda\FAHR\FAHR2006\ 1006\03.101106 FAHR Agenda.doc Book Page 2 October 11, 2006 Page3 a. Convene in closed session . . b. Reconvene in regular session. c. Consideration of action, if any, on matters considered in closed session. (12) OTHER BUSINESS, GOMMUNICATIONS OR SUPPLEMENTAL AGEN0A ITEMS, IF ANY (13) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT (14) FUTURE MEETlfN.G DATES The next regular FAHR Committee meeting is scheduled for November 8, 2006, at 5 p.m. (15) ADJOURNMENT H:\dept\agenda\FAHR\FAHR2006\1006\03.101106 FAHR Agenda.doc Book Page 3 October 11, 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 st,1b$equent to the posting of ag_enda, or as set forth on a supplemental agenda posted in the manner as above, not les$ than 72 hours prior to the meeting date. Public C0mments: 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 th~ specific item is taken ·tor 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 c0nsent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for Fesolutions included on the consent calendar. All items remov~d 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 Adj0urnment: This meeting may be adjpurned to a later time and items of business from this agenda may be con·sidered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 h0urs). Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require an~ special disability related accommodations, please contact the Orange County Sanitation District Board Secretary's office at (714) 59.3-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommQdation 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: Acting Assistant General Manager Director of Finance and Administrative Services Human Resources Manager: Darryl Miller Lilia Kovac Jim Ruth Bob Ghirelli Lorenzo Tyner Jeff Reed (949) 453-5300 (714) 593-7124 (714) 593-7110 (714) 593-7400 (714) 593-7550 (714) 593-7144 H:\dept\agenda\FAHR\FAHR2006\ 1006\03.101106 FAHR Agenda.doc Book Page 4 lkovac@ocsd.c::om jruth@ocsd.com bghirelli@0csd.com ltyner@ocsd.com jreed@ocsd.com MINUTES OF THE REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE Orange County Sanitation District Wednesday, September 13, 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 September 13, 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: Mike Duvall, Vice Chair Bill Dalton Phil Luebben Joy Neugebauer Mark Waldman Jim Ferryman, Board Chair DIRECTORS ABSENT: James W. Silva Darryl Miller, Chair Doug Davert, Board Vice Chair Rich Freschi STAFF PRESENT: Jim Ruth, Interim General Manager Lorenzo Tyner, Director of Finance Jeff Reed, Human Resources Manager Mike White, Controller Jim Matte, Health & Safety Supervisor Bret Colson, Public Information Office Lilia Kovac, Committee Secretary OTHERS PRESENT: Brad Hogin, General Counsel Juanita Skillman Norbert Gaia Don Hughes Lori Koh Christina Telish John Miller Dan Duncan John Bartel. (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS There were no public comments. (4) REPORT OF THE COMMITTEE CHAIR Committee Vice Chair Duvall did not give a report. (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, briefly reported that a new policy has been presented for approval which addresses nepotism. Book Page 6 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting September 13, 2006 Page2 (6) REPORT OF DIRECTOR OF FINANCE/TREASURER Lorenzo Tyner, Director of Finance, reported that the Sanitation District hosted a contractor's open house and 80 people attended representing 60 different companies. A survey was taken and 20 responses have been received indicating their interest to bid future contracts. Mr. Tyner also referred the Directors' attention to a news article highlighting the city of Hollister's sewer rate structure, and a comparison rate of similar agencies putting the Sanitation District's current rates very low, and still lower based on the Capital Improvement Program. (7) REPORT OF DIRECTOR OF HUMAN RESOURCES/PUBLIC INFORMATION OFFICE No report was given. (8) REPORT OF GENERAL COUNSEL General Counsel did not give a report. (9) CONSENT CALENDAR ITEMS a. Approve minutes of the July 12, 2006 joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee meeting. b. FAHR06-57 Receive and file Employment Status Report as of August 23, 2006. c. FAHR06-58 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. d. FAHR06-59 Recommend to the Board of Directors to adopt Resolution No. 06-22, amending Resolution No. OCSD 98-33, amending Human Resources Policies and Procedures Manual. e. FAHR06-60 Recommend to the Board of Directors to adopt Resolution No. OCSD 06- 23, Adoption of District's 2006 Conflict of Interest Code, and Repealing Resolution No. OCSD 04-24. f. FAHR06-61 Recommend to the Board of Directors to receive and file report of General Manager approved purchases in amounts exceeding $50,000 in accordance with Board purchasing policies. g. FAHR06-62 Recommend to the Board of Directors to receive and file the FY 2005-06 Quarterly Financial Report for the period ended June 30, 2006. h. FAHR06-63 Recommend to the Board of Directors to approve revisions to SAFETY- POL-101, Injury and Illness Prevention Program Policy, as provided for in Resolution No. OCSD 02-5 regarding the District's Injury and Illness Prevention Program. Book Page 7 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting September 13, 2006 Page3 Motion: It was moved, seconded and duly carried to approve the recommended action for the item specified as 9(a) and 9(h) under consent calendar. END OF CONSENT CALENDAR (11) INFORMATIONAL ITEMS a. FAHR06-64 Investment Strategies Christine Telish and John Miller of PIMCO reviewed the investment strategies and market trend information used for managing the Sanitation District's investment portfolio. Ms. Telish and Mr. Miller answered the Directors' questions and gave justification to the satisfaction of the committee members. b FAHR06-65 RetiremenUBenefits -30-day update Mr. John Bartel of Bartel & Associates, presented the current benefits structure, and clarified the position of the Sanitation District and its obligation to fulfill its commitment to current and retired employees. Alternatives for consideration at labor negotiations will be presented in future meetings. c. FAHR06-66 Joint Powers Insurance Authority (JPIA) Feasibility Analysis Due to the time·constraints of the evening, Mr. Tyner proposed that this item be brought back to the FAHR Committee in October. (12) CLOSED SESSION The Committee convened in Closed Session at 7:05 p.m. pursuant to Government Code Section 54957.6 to confer with General Counsel re: open compensation claims (Government Code Section 54956.9): Heller, Lynda; Nguyen, Nguyen; Nguyen, Thuthuy; Smith, Suzanne; Woodside, Frankie. Confidential Minutes of the Closed Session held by the Finance, Administration and Human Resources Committee have been prepared in accordance with California Government Code Section 54957.2, and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. No reportable actions were taken re Agenda Item No. 12(a)(1). (13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There were none. Book Page 8 SEPARATIONS: 3 Total Job Title Division Reason Engineer O&M Process Engineering Resignation Program Assistant Board Services Resignation Intern Environmental Assessment Term Internship PROMOTIONS: 3 Total Current Pay Former Job Pay Name Division Job Title Grade Title Grade Human Executive Resource 70 Assistant 69 Maravilla, Laura Human Resources Analyst Engineering 92 Engineer 84 Pelletier, Christopher Source Control Supervisor Senior Laboratory Environmental Sciences Laboratory 73 69 Ross, Kelly L. Analyst Analyst Lab 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 Engineer -Mechanical ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS Date Days Posted Open 2/6/2006 225 1. September 18, 2006 Employment Status Report Division Status O&M Process Interviews are currently Engineering bE]ing conducted. 2. FY 2006/07 Staffing Report (year to date performance compared to budgeted FTE's) H:\dept\agenda\FAHRIFAHR200611006I08.06-67.Employment Status RpLdoc Page2 Book Page 11 o:l 0 0 :,;-- '"O ~ ro -N 110 150 151 152 153 210 220 230 240 410 420 430 610 620 630 640 660 710 740 750 760 810 820 830 840 850 860 910 920 930 940 EMPLOYMENT STATUS REPORT DIVISION/DEPARTMENT AUTHORIZED FTE ACTUALFTE VACANCIES General Management Administration 2.50 2.50 . Assistant General Manager Administration 3.50 2.50 1 00 Board Services 7.50 5.00 2.50 Public Information Office 7.00 7,00 . Safety & Health 8.00 8.00 . General Management Totals 28.50 25.00 3.50 Finance Administration 2.00 2.00 - Accounting 19.00 17.00 200 Contracts, Purchasing & Materials Management 29.50 27.50 2.00 Human Resources 19.00 16,00 3.00 Administrative Services Totals 69.50 62.50 7.00 Regional Assets & Services Administration 8.00 8.00 - Collection Facilities O&M 24.00 20.00 4,00 Facilities Maintenance Services 19.00 17.00 2.00 Regional Assets & Services Totals 51.00 45.00 6.00 Technical Services Administration 2.00 2.00 . Environmental Assessment 16.00 15 00 1.00 Environmental Sciences Laboratory ~ 38.00 36 50 1.50 Source Control 39.00 3800 1.00 Environmental Compliance Services 21.50 19.50 2.00 Technical Services Totals 116.50 111.00 5.50 Engineering Administration 3.00 2.00 1,00 Planning 16.00 16.00 - Project Management Office 15.75 14 75 1.00 Engineering & Construction 63.50 59.50 4.00 Engineering Totals 98.25 92.25 6.00 O&M Adminislration 4.00 4.00 - O&M Process Engineering 14.50 10_50 4.00 Operations, Plant No. 1 42.25 40 25 2.00 Operations, Plant No. 2 47.50 44.50 3.00 Mech Maint & Power Production 73.00 6800 5.00 Electrical & Instrumentation Maintenance 68.00 62.00 6.00 Operations & Maintenance Totals 249.25 229.25 20.00 IT Administration 2.00 2,00 . IT Customer Support 9.00 8.00 1.00 IT Network Support 8.00 8.00 . IT Programming & Database Systems 12.00 1000 2.00 Information Technology Totals 31;00 28.00 3.00 GRAND TOTAL FTEs AUTHORIZED FTE ACIUALFTE VACANCIES &44.00. 593.00 51 OD # o"tVacancies Nol In Recru1tmenll RECRUITMENTS -- 1.00 . - 1.00 - 2.00 2.00 - 4.00 - 4.00 - 4.00 - 1.00 1.00 -- 2.00 -. - 2.00 2.00 . 3.00 2.00 2.00 5.00 3.00 fS.00 -- 1.00 1.00 2.00 In Reeh.iltm~nt aq.o·o 21.00 to 0 0 :;,;-" "' ~ (1l -\.;J 700.00 • -• - - NOV Authorized FTE* 644.00 Actual FTE** 595.50 Difference*** 48.50 In Recruitment 38.50 Vacancies 10.00 ~Authorized FTE as of August .. Actual FTE as of August ... Difference = Recruitments + Vacancies • • DEC 644.00 598.50 45.50 36.50 9.00 STAFFING REPORT • • • • • • • • • • • • • • • • FEB MAR APR MAY JUN JUL SEP OCT 644.00 644.00 644.00 644.00 644.00 644.00 644.00 644.00 601.00 598.50 596.50 591.50 593.50 590.50 591.50 593.00 43.00 45.50 47.50 52.50 50.50 53.50 52.50 51.00 16.50 24.00 21.00 22.00 17.50 18.00 28.00 30.00 26.50 21.50 26.50 30.50 33.00 35.50 24.50 21.00 I-+-Authorized FTE* ~ Actual FTE** I FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Bob Ghirelli, Acting Assistant General Manager Originator: James Matte, Safety & Health Supervisor Meeting Date To Bel. of Dir. 10/11/06 Item Number Item Number FAHR06-68 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 DART<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-July 2006 are shown in the table below: : OCSD DART Cases OCSD DART Rate1..:::i OSHA Recordable Accidents District OCSD Total Injury Frequency Rate1"1 NOTES: (1) Days Away, Restricted or Transfer (2) Industry Average for DART is 2.80 (3) Industry Average for TIFR is 6.00 Revised: 06104/03 January- August 2006 6 1.55 12 3.11 Book Page 14 August Change 2006 (July to Data August) 1 1 2.08 2.08 1 1 2.08 2.08 Page 1 Injuries The one recordable injury for this reporting period is as follows: • On August 1 an Environmental Technician sustained a low back strain after unloading his truck. He worked light duty for 13 days and was released to full duty. This injury is classified a DART case. 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-August Change August 2006 2006 Data (July to August) OCSD Workers' Compensation Claim Count (report period) 11 2 2 OCSD Workers' Compensation Claim Cost (report period) $44,472 $4,000 $4,000 Total Open Claims 32 Total OCSD Workers' $1,782,261 Compensation Claim Cost Closed Cases The one closed case for this reporting period is as follows: • A claim involving an IT Analyst Ill who sustained an elbow fracture tripping & falling on steps on June 21 closed with a total incurred cost of $110.40 PRIOR COMMITTEE/BOARD ACTIONS NIA 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. ~ Not applicable (information item) ADDITIONAL INFORMATION The reporting period ends August 31 . Revised: 06/04/03 Book Page 15 Page2 ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS N/A Revised: 06/04/03 Page 3 Book Page 16 FAMR COMMITTEE Meeting Date To Bel. of Dir. 10/11/06 10/25/06 AGENDA REPORT Item Number Item Number FAHR06-69 Orange County Sanitation District FROM: Mike White, Controller Originator: Angela Brandt, Accounting Supervisor SUBJECT: AMENDMENT NO. 1 TO BOLSA CHICA STATE BEACH SEWAGE AGREEMENT GENERAL MANAGER'S RECOMMENDATION Approve Amendment No. 1 to the agreement with the State of California, Department of Parks and Recreation, providing for a change to the billing methodology for sewer services for Bolsa Chica State Beach. SUMMARY The Sanitation District currently invoices the Department of Parks and Recreation for sewage service for Bolsa Chica State Beach on an annual basis. The original agreement stipulates that the charge be based upon water consumption from a specific water meter at the State's metering facility. The Sanitation District also invoices the Department of Parks and Recreation for sewage service for Huntington State Beach on an annual basis. The methodology for determining the sewer service charge within this agreement is based upon water consumption from all water meters servicing the beach. That water meter located at Bolsa Chica State Beach is no longer operational and the Department of Parks and Recreations has requested that the charge be computed in the same manner as the Huntington State Beach Sewage Agreement, or based upon the water consumption from all water meters servicing the Bolsa Chica State Beach. PRIOR COMMITTEE/BOARD ACTIONS The Bolsa Chica State Beach Sewage Agreement was entered into on March 15, 1974. The Huntington State Beach Sewage Agreement was entered into on July 13, 1983. PROJECT/CONTRACT COST SUMMARY N/A Form No. DW-102-4 Dept. 320 Page 1 Book Page 17 Agenda Report -FAHR Revised: 10/4/2006 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 NIA AL TERNA TlVES N/A CEQA FINDINGS N/A ATTACHMENTS N/A Form· No. DW-102-4 Dept. 320 Page 2 Book Page 18 Agenda Report -FAHR RBVised: 10/4/2006 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance Originator: Mike White, Controller SUBJECT: RENEWAL OF FINANICAL ADVISOR CONTRACT GENERAL MANAGER'S RECOMMENDATION Meeting Date 10/11/06 Item Number FAHR06-70 Authorize extension of a service contract with Public Resources Advisory Group (PRAG) for financial advisory services for an additional five-year period effective November 2006. SUMMARY To Bd. of Dir. 10/25/06 Item Number In November 2001, the Board of Directors appointed PRAG as the District's Financial Advisor for a three-year period beginning with fiscal year 2001-02, with an option of extending the service period for an additional two years upon Board approval. This was done after staff conducted a competitive selection process for Financial Advisor to assist with the development of a financial plan for the capital improvement program through the year 2020, including groundwater replenishment, and for assistance in the issuance of the $280 million Certificates of Participation, Series 2003 fixed rate debt. In February 2005, the Board of Directors extended the service contract with PRAG as the District's financial advisor for an additional two-year period beginning with fiscal year 2004-05. During this time period, PRAG produced an update of the long-term capital improvement program financing plan, including variable and fixed rate debt capacities, and assisted in the issuance of $200 million Certificates of Participation, Series 2006 variable rate debt. During the original competitive selection process, PRAG was deemed to be the most competent firm to meet the District's financing needs by the Evaluation Team, a team consisting of the Director of Finance, the Controller and two external professionals. This finding was based on proposal evaluations and interviews of the four finalists as to the overall qualifications of each firm, the experience of each firm, quality of each firm's professional personnel assigned, services and products offered by each firm, understanding of the District's needs and each firm's proposed solutions, and the financing approach proposed by each firm. Staff was pleased with the results provided by PRAG on both the development of the capital improvement program financial plans and in the assistance provided on the two GOP debt issuances. PRAG's assistance is now needed to evaluate the current market H:\dept\agenda\FAHRIFAHR200611006109.06-70.Financial Advisors.doc Page 1 Book Page 19 conditions and how they may impact the Sanitation District's five outstanding debt issues. For example, the Sanitation District's debt policy states that we should consider the refunding of existing debt if the present value savings are at least three percent of the par amount of the refunding bonds. In addition, staff needs to begin establishing the financing team that will be necessary for the Sanitation District's next scheduled debt issuance in FY 2007-08. One of the first steps in moving forward with the next debt financing will be to update the Sanitation District's long-term capital improvement financing plan. PRAG's bond financing fee is being proposed in some cases to match the original FY 2001-02 proposal and, in other cases, the original proposed amount plus inflation. In addition, PRAG has proposed additional fees for non-transactional financial advisory services to perform work as directed by the Sanitation District while lowering their quarterly Swap Report preparation fees by two-thirds from $3,000 to $1,000. Staff therefore requests that the Committee recommend that the Board of Directors renew the financial advisory service contract with PRAG and authorize the General Manager to complete a negotiated agreement for a five-year period beginning with fiscal year 2006-07. PRIOR COMMITTEE/BOARD ACTIONS In November 2001, the Board of Directors appointed Public Resources Advisory Group (PRAG) as the District's Financial Advisor for a three-year period beginning with fiscal year 2001-02, with an option of extending the service period for an additional two years upon Board approval. In February 2004, the Board of Directors extended the contract of Public Resources Advisory Group (PRAG) to serve as the District's Financial Advisor for an additional two years beginning with fiscal year 2004-05. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. !Z1 Not applicable (information item) H:ldept\agenda\FAHRIFAHR2006\1006\09.06-70.Financial Advisors.doc Book Page 20 Page2 ADDITIONAL INFORMATION Following is PRAG's response to staff's request that they maintain fees at the levels from our original contract. They have respectively requested the following changes from the original contract and the justification for setting such requested fees: 1. Fixed Rate New Money fees a. Previously $75,000 (original contract) b. PRAG proposes $85,000 c. CPI-Uhas increased by 14.9% between January 2002 (original contract was December 2001) to July 2006 (latest CPI-U figure available); therefore, $75,000 multiplied by the increase in the CPI-U would equal $86,180. 2. Fixed Rate Refunding fees a. Refunding fees were not specifically categorized in the original contract b. PRAG proposes $100,000 c. The effort to conduct a fixed rate refunding is more involved than a new money fixed rate issuance (arbitrage restrictions, refunding escrow component, escrow agreement documentation, procurement and working with an escrow agent and verification agent) d. We believe the additional $15,000 (over the proposed fixed rate new money fee) is justifiable due to the additional complexities and required effort. 3. Variable Rate New Money fees a. Previously $100,000 (original contract) b. PRAG proposes no change in fee, even thought the CPI-U has increased by 14.9% 4. Variable Rate Refunding fees a. Refunding fees were not specifically categorized in the original contract b. PRAG proposes $115,000 c. Additional effort for refundings (see 2.c.) d. We believe the additional $15,000 (over the proposed variable rate new money fee) is justifiable due to the additional complexities and required effort. e. If the previous fee (original contract) of $100,000 for variable rate debt (although variable refunding debt was not specifically mentioned) was escalated by the change in CPI-U, the current fee would be $114,906 which rounds to the proposed $115,000 5. Swap Reports a. Proposed fees for 1992 and 1993 COPs quarterly swap reports reduced to $1,000 per swap from the current $3,000 fee, or a total reduction from $6,000 per quarter to $2,000. b. Proposed fees for any new swap would be $2,000 for each report during the first year. After the first year, the report fee would reduce to $1,000 per swap. H:\dept\agenda\FAHRIFAHR2006\1006\09.06-70.Financial Advisors.doc Page 3 Book Page 21 Although PRAG's proposed fee structure may seem more complicated than in the original contract, they believe it more accurately reflects the effort involved in implementing the various types of potential transactions available to the Sanitation District. Attached to this report is there specific full and complete fee proposal. ALTERNATIVES Direct staff to initiate a new competitive selection process. CEQA FINDINGS N/A ATTACHMENTS None. H:\dept\agenda\FAHR\FAHR2006\1006\09.06-70.Financial Advisors.doc Book Page 22 Page4 Public Resources Advisory Group 11845 West Olympic Boulevard • Suite 640 • Los Angeles, California 90064 • Phone (310) 477-8487 • Fax (310) 477-0105 Mr. Michael White Controller Orange County Sanitation District 10844 Ellis A venue Fountain Valley, CA 92708-7018 Dear Mr. White: September 5, 2006 Public Resources Advisory Group ("PRAG") is pleased to submit a proposal to extend its service as financial advisor to the Orange County Sanitation District (the "District"). As financial advisor, PRAG will continue to provide consulting services in conjunction with the District's capital funding, debt, swaps, and investment programs. PRAG will provide qualified personnel for all financial advisory services, including, but not limited to the following: • Making available qualified personnel for consultations and conferences with staff and officials on an as needed basis; • Maintain and refine the Capital Financing Plan model which projects components of the District's revenue and expenses, cash reserves, and capital project expenditures for the collection system and joint treatment works, as well as repayment obligations for the District's outstanding and projected debt obligations; • Conduct regular reviews of the District's debt structure and explore refinancing and restructuring opportunities available in the current market, including increasing or decreasing variable rate exposure; • Issuance of debt and swaps • Assist in the selection process of other financing · team members, including underwriters, legal counsel, swap providers, credit enhancement providers, paying agents, auction agents, trustees, printers, and verification agents; • Develop the financing structure with a focus on the benefits and risks to the District; • Prepare financing schedules and agendas for meetings of the financing team; • Review and provide comments on bond resolutions, offering statements and other financing documents; • Devise and implement credit ratings strategies, including arranging to obtain ratings for debt, preparation of presentations, conducting H:ldept\agenda\FAHRIFAHR2006\1006\09.06-70. Financial Advisors-Alt 1.doc Book Page 23 Public Resources Advisory Group meetings, arranging tours, responding to inquiries from rating analysts, and maintaining regular contact with rating analysts; • Assess the cost effectiveness of credit enhancement options for the financing; and • Participate in the pre-closing and closing activities, to assure that a smooth closing is accomplished; • Perform other financial advisory services as may be required from time to time. PRAG typically bills clients on an hourly basis for non-transactional work and fixed fees for transactional work. Our proposed billing rates for non-transactional work is the following: --------------------- Hourly Rates ~ Chairman / Co-President $350 Executive Vice President / 300 Senior Managing Director Managing Director 275 Vice President 250 Assistant Vice President 200 Associate / Analyst 150 For transactional work, we propose the following fees: -----------F-~---- Fixed Rate New Money Issuance $85,000 (Competitive or Negotiated) Fixed Rate Refunding Issuance 100,000 (Competitive or Negotiated) Variable Rate New Money Issuance 100,000 Variable Rate Refunding Issuance 115,000 SwapsCbXcJ 125,000 Swap Reports Existing Swaps (1992 and 1993 COPs) 1 ooo<d) ' New Swaps (during 1st year) 2 ooo<d) ' New Swaps (starting 2nd year) 1 ooo<d) ' Bidding of an lnvestmenf bJ (e) (a) Discounts for simultaneous or close proximity multiple issues (including swaps and investments) will be negotiated prior to commencing work on the transactions. (b) Payable by the counterparty if the District prefers. (c) Not to exceed. Actual fee to be negotiated based on the complexity of the transactioD (i.e. substantial discounting if there is an associated bond transaction and/or existing swap documents). (d) For each outstanding swap. (e) For new investments. not to exceed the amount pennitted by the ·•safe harbor" provisions of the federal arbitrage regulations (currently $32,000). For escrow restrncturings, 5% of savings on the first million and 2.5% of incremental savings thereafter. H:\dept\agenda\FAHR\FAHR2006\1006\09.06-70. Financial Advisors-Att 1.doc -2- Book Page 24 Public Resources Advisory Group In addition, PRAG will bill the District for out-of-pocket expenses associated with providing transactional and non-transactional financial advisory services, which are detailed below: : I Administrative Fee 10%(a) Computer Charges: Databases at cost Munifacts $250 per bond issue Travel at cost(bJ Automobile: Rental Cars at cost Personal Cars $0.445/mile(c) Other Expenses<dJ at cost (a) Thls fee pertains only to non-personnel expenses which are billed through PRAG, such as The Bond Buyer, printer, and disclosure message charges. Any such charges by PRAG will be disclosed to the District prior to being incurred. (b) PRAG professionals would endeavor to use the lowest cost transportation that scheduling permits. Advance notification will be given to the District on all travel costs outside of mileage reimbursement. (c) Or the current standard mileage rate as determined by the U.S. Internal Revenue Service. (d) Must be preapproved by the District's Project Manager. PRAG thanks you for the opportunity over the past few years of providing financial advisory services to the District. We would very much like to continue serving the District in this capacity. If the above proposal is acceptable to you, please counter sign below and return a copy to me at the above address. H:ldeptlagenda\FAHRIFAHR2006\1006109.06-70. Financial Advisors-At! 1.doc Book Page 25 Sincerely, Edmund Soong Executive Vice President -3- FAHR COMMITTEE Meeting Date To Bel. of Dir. 10/11/06 AGENDA REPORT Item Number Item Number FAHR06-71 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance and Administrative Services Originator: Michael D. White, Controller SUBJECT: INDEPENDENT ACCOUNTANT REPORT ON THE CAPITAL IMPROVEMENT PROGRAM'S PROCUREMENT PROCEDURES AND INTERNAL CONTROLS GENERAL MANAGER'S RECOMMENDATION: Informational item. SUMMARY At the direction of the FAHR Committee, a review of some of OCSD's internal controls was requested. OCSD has engaged the firm of Lance, Soll & Lunghard, LLP (LSL) to assist the Sanitation District in evaluating certain aspects of internal control procedures relating to the Capital Improvement Program (CIP). LSL reviewed 12 distinct CIP projects and 4 Facilities Engineering Projects. At the conclusion of this audit, LSL determined that ''the District's policies and procedures are adequate in form and function." However, LSL did note areas that required improvement. These areas are summarized in the attached report. LSL will provide a more detailed explanation of the audit scope, methodology, and their findings at the October FAHR Committee meeting. 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. [g] Not applicable (information item) Form No. DW-102-4 Dept. 320 Page 1 Book Page 26 Agenda Report -FAHR Revised: 10/412006 ADDITIONAL INFORMATION N/A ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. Lance, Soll & Lunghard, LLP -Independent Accountant's Report Fonn No. DW-102-'I Depl.~O . Page2 Bo.ok P~ge 27 Ag~nd'.' R,epo~ -F'"ili~ RevTsed, 10/4/2006 11511 ~trd LLP CER.TIFll;..O /1U8LJC ACCOVN'TANTS Finance, Administration and Human Resources (FAHR) Ccrnmittee Orange County Sanitation District September 5, 2006 Page2 CAPITAL IMPROVEMENT PROGRAM # PROJECT NAME Capital Improvement Program Projects: Plant2 1 Headworks at Plant 2 2 Solids Storage and Truck Loading Facility 3 Utility Corridor, Parking Area, and Pump Station for Contractor Staging Collections 4 Replacement of Ellis Pump Station 5 Bushard Trunk Sewer 6 Warner Ave Relief Sewer Secondary Treatment 7 Secondary Activated Sludge Facility 2 at Plant 1 Joint Works 8 Effluent Pump Station Annex 9 Short Term Ocean Outfall Bacteria Reduction Planning 10 Air Quality Improvements 11 Central Generation Automation Special Projects 12 Electrical Equipment Refurbishment and Protection Facilities Engineering Projects Plant 1 1 VFD Replacement at Plant No. 1 WSS Pump Station 2 Water Distribution System Modifications 3 Underground Storage Tank Rehab at Auto _Body Shop Plant2 4 Hydrogen Peroxide Facilities Mods Findings: Not applicable. PROJECT NUMBER P2-66 NT P2-60 P2-66-3 1-10 1-2-4 11-22 P1-102 J-77 J-87 J-79 J-79-1 SP-81 FE 03-24 FE 05-20 FE 05-33 FE 02-08 3. Procedures Performed: We verified that the projects selected were appropriately budgeted. Findings: No exceptions were noted as a result of our procedures. Book Page 29 II SIi uJ:trd LLP C£RTIFIED PUBLIC IICCOUN7AN7S Finance, Administration and Human Resources (FAHR) Committee Orange County Sanitation District September 5, 2006 Page3 4. Procedures Performed: We identified certain key policies and procedures relating to the design phase of projects in the Capital Improvement Program (noted in #2 above). We obtained related files for the projects selected to ascertain whether the procedures in place were appropriately being followed. The key policies include: A. Policy: Section D50 (5.1.1) of the Engineering Policy and Procedure Manual (Engineering Manual) states, "The Project Manager shall compile a list of firms capable of performing the project and the final list of interested firms shall be approved by the Director of Engineering prior to the preparation of the request for proposal (RFP)." Findings: The procedure as written is not being performed. Based on our discussions with engineering personnel, the alternative procedure in place is that the Project Manager prepares the RFP cover letters which are then reviewed by the Construction Manager and subsequently forwarded to the Director of Engineering for approval and signature before being sent out to prospective bidders. Recommendation: As part of our review of the current procedures, we recommend additional procedures be implemented to better support and document the Consultant selection process. It is our understanding that i:x'ior to a project beginning, a project team is assigned. We recommend that upon formation of the project team, the team meet with the purpose of developing a list of consultants capable of performing the project. In addition, we recommend the meeting be documented and the list prepared should contain the rationale and reasoning behind the selections. The meeting and list should then be reviewed and approved for appropriateness by the Director of Engineering. B. Policy: Section D50 (5.4) of the Engineering Manual states that each RFP shall contain, at a minimum, a cover letter, RFP, scope of work, attachments, and sample professional service agreement. Findings: All projects that required an RFP package had one present. We did note that for project No. 87, project No. FE 02--08, and project No. FE 05-20 that the projects were sole sourced. We reviewed and verified supporting documentation for proper sole source justification. C. Policy: Section D50 (5.5, 5. 7, 5.8.2) of the Engineering Manual states that members of the staff committee shall evaluate and score each proposal. The Project Manager shall then rank the firms based on the staff committee's combined scores for each criterion. Once the firms have been ranked, the staff committee shall open the sealed fee proposals for each of the ranked, qualified firms. The staff committee then makes a recommendation to the Director of Engineering. An agenda report is prepared to inform the Board of the committee selection and to request award of contract. Findings: No exceptions were noted as a result of our procedures. We did note that for Facilities Engineering (FE) projects the procedures are different. The procedures are established under section 5.06 of the Delegation of Authority (04-08) and we noted no exceptions. Book Page 30 Finance, Administration and Human Resources (FAHR) Committee Orange County Sanitation District September 5, 2006 Page5 Findings: We noted, when applicable, project phases of completion were referred to as, "DS1, DS2, DS3, and final." From our conversation with Engineering personnel, the terms are synonymous with 30%, 60%, 90%, and 100%. Recommendation: We recommend procedures be updated to reflect the proper terminology being used. 5. Procedures Performed: We identified certain key policies and procedures relating to the construction phase of projects in the Capital Improvement Program. We obtained related files for the projects selected to ascertain whether the procedures in place were appropriately being followed. The key policies include: A. Policy: Section 20783 of the Public Contract Code states, "When the expenditure required for work exceeds $35,000, it shall be contracted for and let to the lowest responsible bidder after notice." Findings: No exceptions were noted as a result of our procedures. B. Policy: Section 20783 of the Public Contract Code states, 'The first publication or posting of the notice shall be at least 10 days before the date of opening the bids. The notice shall be published at least twice, not less than five days apart, in a newspaper of general circulation, printed and published in the district, or if there is none, it shall be posted in at least three public places in the district that have been designated by the district board as places for posting this notice." Findings: No exceptions were noted as a result of our procedures. C. Policy: Section C 040 (5.25.3, 5.30.6) of the Capital Improvements Program Construction Policies and Procedures (CIP Manual) states that original documents including all bid packages, bidder sign-in sheet, typed bid tabulation, completed bid tab summary, and executed construction contract shall be on file with the Board Secretary. Findings: No exceptions were noted as a result of our procedures. D. Policy: Section C 040 (5.28.1) of the CIP Manual states an agenda report shall be prepared for the award of contract. Findings: No exceptions were noted as a result of our procedures. E. Policy: Section C 070 (5.2.5) of the CIP Manual states that contractor certified payroll records shall be checked on a quarterly basis. Findings: From our conversations with the Contracts Administration Department and the Engineering Department, certified payroll records are requested as needed but not necessarily on a quarterly basis. Recommendation: We recommend that the District reevaluate the current procedure in place to determine its appropriateness. Book Page 32 11511 ~Ld LLP CERTIFIED PUHLJC ACCOUNTANTS Finance, Administration and Human Resources (FAHR) Committee Orange County Sanitation District September 5, 2006 Page6 F. Policy: Section C 080 (5.8) of the GIP Manual states that all change orders must obtain required approvals per the Delegation of Authority. Findings: No exceptions were noted as a result of our procedures. G. Policy: Section C 080 (5.8.1.2) of the GIP Manual states that Contracts Administration approval of change orders must be documented through the Approval Form/Merit Determination. Findings: We noted no exceptions as a result of our procedures; however, we noted some disconnect between the Contracts Administration Department and Engineering Department. Through our review of the Approval Form/Merit Determination for change orders, we noted one particular instance for Project No. P2-66 where Contracts Administration noted comments and potential issues with a few change orders. When we inquired with Contracts Administration regarding the issues, they responded that the issues were still pending. However based on our review, the change orders had already been approved by the Board of Directors. Per our conversation with the Engineering Departmeni the decision was made by Engineering to proceed in light of the issues brought up by the Contracts Administration. Recommendations: The Contracts Administration Department began to handle the construction portion of the Capital Improvement Program a few years ago. One significant area which needs improvement relates to the coordination of policies and procedures between the Engineering Department and the Contracts Administration Department in carrying out the construction portion of the Capital Improvement Program. The Engineering Department does not have policies and procedures to address the situation noted above. We recommend that procedures be implemented which coordinate the procedures of these two departments. H. Policy: Section C100 (5.10) of the GIP Manual states that a close out agreement and a Notice of Completion is prepared upon completion of the project. Findings: No exceptions were noted as a result of our procedures. 6. Procedures Performed: From the sample selected, we reviewed the Finance Department records for progress payments for the design consultant and construction contractor. We reviewed payments for approved purchase orders, ~propriate approvals being obtained on invoices, invoices being reviewed for accuracy, appropriate posting in general ledger, and proper accounting for retentions liability. Findings: No exceptions were noted as a result of our procedures. 7. General Comment From our conversation with the Engineering Department, there should be one central location for all files related to a project. Through our review, we noted that not all files/documents were being kept in a "central" file location. A number of files'documents were being kept in other locations, such as the Electronic Database Management System (EDMS), with the Project Manager, and in other locations. Also, we noted a number of documents that were not properly filed and instances where copies in the files were not the final version. Recommendations: We recommend that the central location for the project files contain all necessary documents and that the files should be organized in a manner in which the file is useful. We recommend that specific person( s) be assigned the responsibility of maintaining the central files. Book Page 33 11 <cil~~trd ~~LLP CERTIFIED PU8l..JC ACCOUNTANTS Finance, Administration and Human Resources (FAHR) Committee Orange County Sanitation District September 5, 2006 Page 7 Per our conversation with the Engineering Department, the lack of organization of the files is due to the limitation of current resources available for this function. Summary of Results Based on our review of the internal control policies that relate to the Capital Improvement Program, we feel that, overall, the District's policies and procedure are adequate in form and function. The review was conducted in order to assess and to provide feed back to the District regarding policies and procedures that are in place. As noted in the previous sections, we performed tests on procedures, conducted inquiries and reviewed the policies that have been established by the District. In terms of application of policies and procedures, we found that there were areas that could be improved upon as mentioned above. Our procedures and key recommendations would be: 1. Item 1, page 1 -no recommendations 2. Item 2, page 1 -no recommendations 3. Item 3, page 2 -no recommendations 4. Item 4A, page 3 -The Design Consultant selection process requires improvement and increased documentation. We feel that it would benefit the District and provide greater fairness and impartiality if more persons were involved in the selection process and ultimately this may lead to more qualified firms being identified as prospective bidders. Also there was a lack of documentation that identified the rationale determining which Firms were being sent RFP's and which Firms were being exduded. 5. Item 4B, page 3 -no recommendations 6. Item 4C, page 3 -no key recommendations 7. Item 4D, page 4 -no key recommendations 8. Item 4E, page 4 -no recommendations 9. Item 4F, page 4 -no key recommendations 10. Item 4G, page 4 -no key recommendations 11. Item SA, page 5 -no recommendations 12. Item 5B, page 5 -no recommendations 13. Item SC, page 5 -no recommendations 14. Item SD, page 5 -no recommendations 15. Item SE, page 5 -no key recommendations 16. Item SF, page 6 -no recommendations Book Page 34 FA HR COMM ITT EE Meeting Date To Bel. of Dir. 10/11/06 AGE NDA REPORT Item Number Item Number FAHR06-72 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance & Administrative Services Originator: Jeff Reed, Acting Human Resources & Employee Relations Manager SUBJECT: RETIREMENT AND BENEFITS PROGRAM REVIEW GENERAL MANAGER'S RECOMMENDATION Information only. SUMMARY In July 2006, Bartel Associates was engaged by the District to perform an evaluation of the following areas: Pension Plan, Active Employee Medical Plan, and Retiree Medical Plan. At the September 2006 FAHR Committee meeting, Bartel provided a preliminary report on his findings. At that meeting, the Committee directed staff to work with Bartel to develop an initial list of potential strategies to address the evaluation areas. These strategies will focus on pensions, and health and medical programs. A written report form Bartel providing additional information and options will be presented at the October Committee. PRIOR COMMITTEE/BOARD ACTIONS The General Manager assigned the consulting contract according to the delegation of authority policy. It was approved at the July 12, 2006, FAHR Committee meeting. 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. [Z1 Not applicable (information item) Form No. DW-102-4 Dept. 320 Page 1 Book Page 36 Agenda Report -FAHR Revised: 10/4/2006 ADDITIONAL INFORMATION N/A ALTERNATIVES N/A CEQA FINDINGS NIA ATTACHMENTS 1. 09/13/06 Committee Report Form No. DW-102-4 Dept. 320 Page2 Book Page 37 Agenda Report-FAHR Revised: 10/4/2006 ... ;, ;- :!• •,• ,' FAHR COMMITTEE Meeth;l Dote ToBd. of Dir 09/13;tl6 AGENDA REPORT ItemNJmter Item Nurrber FPI-RIJ5-65 Orange County Sanit.ation District FROM: Lorenzo Tyner, Director of Finance & Administrative Services Originator: Jeff Reed, Acting Human Resources & Employee Relations Manager SUBJECT: RETIREMENT AND BENEFITS PROGRAM REVIBN GENERAL MANAGER'S RECOMMENDATION Information only. SUMMARY At the May 2006 FAHR Committee meeting, Acting General Manager, James Ruth, was ·directed to provide an update of the OCSD retirement and benefits programs; In June, members of the FAHR committee, Mr. Ruth and staff met with consultant John Bartel of Bartel & Associates, LLC (Bartel) to discuss his proposal to review these programs. Subsequently, Bartel was engaged by the District to perform an evaluation of the following areas, focusing on providing an understanding of these programs, including costs and potential options: • Pension Plan • Active Employee Medical Plan • Retiree Medical Plan In August, staff met with Bartel to obtain an update of this review. Attached is a summary of the topic areas discussed at the meeting. At the September FAHR Committee, Bartel will provide a more detailed report intended to provide a foundation for understanding the current benefits plan and alternatives for future consideration. Additional materials will be made available atthat meeting. PRIOR COMMITTEE/BOARD ACTIONS The General Manager assigned the consulting contract according to the delegation of authority policy. It was approved at the July 12, 2006 FAHR Committee meeting. PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT H\1le~\agenda\FAHRIFAHR2006W9000&-65 Relirement and Beoefrts.ooc Book Page 38 ::: --·-•'• ;:· ;,: -~: ,;, ·, -:· ? . • .•. .. .. Orange County Sanitation District Agenda August 29, 2006 District's current benefits are: • Pen.vion: • Orange County Employees' Retirement System (OCERS) 2.5%@ 55 benefit effective July 1, 2005. • Dis1rictpays 3.5% of the employee contribution. • Employees do not participate in Social Securi1y, but do participate in Medicare. • 2006/07 District Contribution rate = 20.15% of~TIQU (:~$QJ _million.), • --·2u01T08District'Confu.ou.tio11, ra: -=-20.87% of payroll (:::::$10.4 million). • A1edical: • 3 Medical plan choices o Blue Cross California Care (HMO). o Blue Cross Point of Service and o Kaiser. • District pays 80-90% of the employee's coverage and 75-80% of dependent coverage, depending on bargaining group and plan selection. • Retiree Jl;fe.dicai: • Hired< July 1, 1988 o District pays 2.5 months of medical premium after retirement for each year of District service, with the retiree paying any additional amount. o Retiree cost based on blended premium (active and retiree experience). • Hired ~ July 1, 1988 o Allowed to continue to participate in District's medical program . o Retiree cost based on blended premium (active and retiree experience) . • AREA Benefit o $250 per month o Reduced for service < 25 years o Hired< July 1, 1988 ✓ Begins after District benefit stops ✓ Smvivor benefit o Hired~ July 1, 1988 ✓ Begins immediately ✓ No survivor benefit -1 - Book Page 40 ., .·• Orange County Sanitation District Agenda August 29, 2006 Alternaiives: • Pension: • Current employees: o Vested Rights o District employees pay more of cost ✓ Impact of each additional 1 % of pay • Future employees: o Defined Benefit plan ✓ Same plan ✓ Alternative plan o Defined contribution plan ✓ Fixed Employee and District contribution ✓ Fixed Employee contribution & District contribution varies based on age/service > District contribution rate increases as age and/or service increases • Medical,: • TBD • RetireeMedical: • Separate members into following groups o Current retirees eligible for Medicare o Current retirees not eligible for Medicare o Active employees eligible to retire o Active employees :'..". 40 o Active employees< 40 • Alternative benefits: o Eliminate entirely o Defined Contribution Plan ✓ Contribute to account that can be used after retirement to pay for medical benefits ✓ Set up account with "seed money" at retirement based on District se1vice o Charge retirees actual (non blended) cost o Set benefit attarget $ amount and target age (e.g. $10 per month beginning at 62) ✓ Decrease (e.g. 5% eachyearJ for retirement before target age, ✓ Increase ( e.g. 5% each year) for retirement after target age, and ✓ Reduce (e.g. 50%) when/if eligible for Medicare at 65 -2 - Book Page 41 FAHR COMMITTEE Meeting Date To Bel. of Dir. 10/11/06 AGENDA REPORT Item Number Item Number FAHR06-73 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance and Administrative Services Originator: Richard Spencer, Human Resources Supervisor SUBJECT: SUCCESSION MANAGEMENT PROGRAM UPDATE GENERAL MANAGER'S RECOMMENDATION Information only. SUMMARY In July 2006, the Human Resources Division presented the General Manager with a draft of a succession management program for the District in an effort to address future staffing, workforce planning, retention, training, and development implications. The following provides an update of the program, including the program's benefits, the organization and staff, groups involved in the process, key program components, and implementation steps that have been taken to date. Additional updates will be provided as necessary. 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. IZI Not applicable (information item) Form No. ow-102-4 Dept, 320 Page 1 Book Page 42 Agenda Report-FAHR Revised: 10/4/2006 ADDITIONAL INFORMATION Benefits of a succession management program to the organization and its staff: • Stable performance and organizational viability into the future • Leadership continuity • Pools of skilled workers • Ensures OCSD complies with its permits and regulations • Attraction of prospective employees • Retention of existing employees • Enhanced knowledge transfer • Defined career paths and associated competencies • Structured, personalized training and development opportunities to maximize employee potential • Preparation of existing employees for future opportunities The Succession Management review process involves the following groups: • Bargaining units • Business Agents • Labor Management Committee • Executive Management Team • Management Team • Steering Committee • Human Resources Division • All interested employees The following steps have been taken to date: • GM approved the drafted plan created by the Human Resources Division • EMT received, reviewed, and provided feedback on the draft • Managers received, reviewed, and provided feedback on the draft • The document draft was taken to the Labor Management Committee for review • A draft of the document was given to the Business Agents for feedback • A draft of the document was made available for all employees to solicit feedback and ideas • The Public Information Office has begun initial work on a communications plan and strategy • A Succession Management Oversight Committee is currently being formed Form No. DW-102-4 Dept. 320 Page2 Book Page 43 Agenda Report-FAHR Revised: 10/4/2006 Some key components of succession management include: • Workforce planning • Competency models • Skill assessments • Apprenticeships • Internships • Knowledge management • Recruitment and selection • Training and development • Performance management • Compensation and benefits OCSD recognizes that many of the features of the Succession Management Program will, of course, be subject to the meet and confer process with the representatives of the recognized employee organizations. Therefore, potential exists for features described within the Succession Management Program document to be implemented differently than originally conceived. The next step is the formation of the Succession Management Oversight Committee (SMOG) to guide the program through implementation with the inclusion of input from staff and the bargaining units. The SMOG will be tasked with driving OCSD efforts in workforce planning strategies; competency models; skills assessments; training and retention programs; tracking, monitoring, measuring, and reporting; analysis of existing policies as related to succession management; apprenticeship program; and internship program enhancements. ALTERNATIVES NIA CEQA FINDINGS N/A ATTACHMENTS N/A Form No. DW-102-4 Dept. 320 Page 3 Book Page 44 Agenda Report -FAHR Revised: 10/4/2006 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance Originator: Michael D. White, Controller Meeting Date To Bel. of Dir. 10/11/06 Item Number Item Number FAHR06-74 SUBJECT: MANAGEMENT OF PROPERTY AND LIABILITY INSURANCE PROGRAMS GENERAL MANAGER'S RECOMMENDATION: Informational item. SUMMARY At the June 2006 FAHR Committee Meeting, staff was requested to review the feasibility of becoming a member of a joint powers insurance authority (JPIA) for property and excess general liability insurance coverage beginning July 1, 2007. Alternatively, staff was requested to conduct a competitive selection on an insurance broker of record. Driver Alliant has served as the Sanitation District's broker of record continuously since 1996. There was one JPIA, California State Association of Counties Excess Insurance Authority, that staff would believe is worthy of additional consideration. The advantages of this program are provided below. Staff will continue to investigate the feasibility as to whether they can meet the Sanitation District's needs. Should this program appear to be inappropriate for the Sanitation District, staff will conduct a request for proposal for an insurance broker of record. PRIOR COMMITTEE/BOARD ACTIONS N/A PROJECT/CONTRACT COST SUMMARY N/A Form No. DW-102-4 Dept. 320 Page 1 Book Page 45 Agenda Report -FAHR Revised: 1014/2006 BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. IZI Not applicable (information item) ADDITIONAL INFORMATION A JPIA provides a method for local governments to pool their funds to provide for their individual insurance needs. JPIA's allow governments to make a group purchase of insurance at an affordable cost through economies of scale. However, the entire pool shares in the individual losses of each member of the pool. After an extensive search and investigation, staff uncovered the following JPIA's for membership consideration: • Association of California Water Agencies Joint Powers Insurance Authority (ACWA JPIA) • California State Association of Counties Excess Insurance Authority (CSAC EIA) • California Joint Powers Insurance Authority (California JPIA) • California Joint Powers Risk Management Authority (CJPRMA) • California Affiliated Risk Management Authorities (CARMA) • Public Agency Risk Sharing Authority of California (PARSAC) • Public Entity Risk Management Authority (PERMA) • Special District Risk Management Authority (SDRMA) Based on the size and complexity of the Sanitation District, very few of the above JPIA's can provide the insurance at the coverage amounts that is currently being held. PARSAC and SDRMA only provide $15 million and $10 million of excess liability insurance in comparison to the Sanitation District's current limit of $25 million. ACWA and PERMA only provide $50 million property insurance coverage while CARMA does not provide any, and the Calif. JPIA does not provide any flood coverage, in comparison to the Sanitation District's current limit of $350 million for all perils other than flood and earthquake, and $300 million for the perils of flood. CJPRMA only provides $20 million of boiler and machinery in comparison with the Sanitation District's coverage of $100 million. Finally, membership into ACWA is currently limited to only water providers. Lastly, five out of the nine listed JPIA's utilize the same insurance broker as the Sanitation District, Driver Alliant, as two others provide their own internal brokerage services. Form No. DW-102-4 Dept. 320 Page2 Book Page 46 Agenda Report -FAHR Revised: 10/4/2006 CSAC EIA appears to be the only viable JPIA that can meet the Sanitation District's coverage limits that are currently in place today. In addition, the Sanitation District has been a member of the CSAC EIA Workers' Compensation JPIA since July 1, 2003, as recommended by Driver Alliant as a result of the hardening of the workers' compensation insurance market. Staff is currently working with CSAC EIA in comparing rates and insurance coverage currently available in the CSAC EIA with the rates and coverage that are currently provided to the Sanitation District through Driver Alliant. Proposed Time Frame for Potential Changes to the Management of the Property and Liability Insurance Programs of the Sanitation District: November 2006 December 2006 February 2007 ALTERNATIVES N/A CEQA FINDINGS N/A Form No. DW-102-4 Dept. 320 -Complete analysis of CSAC EIA JPIA and make recommendation to FAH R. -Submit application to CSAC EIA JPIA (or solicit request for proposals for insurance broker of record based on direction received from FAHR in October). -Submit proposed agreement with CSAC EIA JPIA to FAHR and Board for approval (or make recommendation on the selection of a insurance broker of record). Page 3 Book Page 47 Agenda Report -FAHR Revised: 10/4/2006 ORANGE COUNlY SANITATION DISTRICT (714) 962-2411 www.ocsd.com Mailing Address: P.O. Box 8127 Fountain Vatley, California 92728-8127 Street Address: 10844 EIHs Avenue Fountain Valley, California 92708-7018 PUBLIC RESOURCES ADVISORY GROUP (PRAG) FACT SHEET Public Resources Advisory Group (PRAG) is an independent financial and investment advisory firm headquartered in New York City. PRAG has offices in Los Angeles, Philadelphia, St. Petersburg and Oakland. Since the firm's founding in 1985, it has advised on over $450 billion of financings for a variety of state and local governments, authorities, agencies, and not-for-profit entities 1) Currently, PRAG serves about 50 governmental clients. 2) PRAG is the number one or number two (based on par amount) nationwide financial advisor in each of the past ten years. 3) PRAG is the number one (based on par amount) California financial advisor in eight of the past ten years. 4) Since 2001, PRAG has been the financial advisor on over 550 financings totaling over $200 billion, of which 59 financings totaling over $12 billion were for municipal water and wastewater clients. 5) PRAG's Clients include: a) The two largest municipal issuers in the nation: State of California and City of New York b) California clients include: 1) State of California (routinely issues $4+ billion per year of GO bonds) 2) The Metropolitan Water District of Southern California (largest water wholesaler in nation) 3) The Department of Water and Power of the City of Los Angeles (largest municipal utility in nation) 4) The City of Los Angeles Wastewater System ~istributed at (D /,t ,° p FAHR Meeting BENEFIT SUMMARY Pension • Eligibility • Age 50 with 10 years service • Age 70 • 30 years service • Benefit • 2.5%@55 • Final Average Earnings: -Tier 1 (hired< 9/21/79) -Highest Year -Tier 2 (hired> 9/21/79) -Highest 3 Years OCERS Benefit Factors 3.0% 2.5% ----•-• . . _.__..._ .,___. .. .. .r-'------__ ..----. • ~2.0% --i · ------: . . . . --., . I! 1.5% .,.__..... . . -= .. • -+-Tier l 5 LO% -~ • Tier 2 0.5%" +2.5%@55 - 0.0%-' ' 50 55 60 65 Age (fyi) October 11. 2006 BENEFIT SUMMARY Pension • District • 2006/07 20.15% of payroll :::::$ 9.3 million Contribution Rate • 2007/08 20.87% of payroll :=:::$10.4 million • District Pays first 3.5% of Employee Contribution -2006/07 :::::$ 1.6 million -2007/08 :::::$ 1. 7 million • Other • Employees Do Not Participate in Social Security Medical • Plans • Blue Card (Indemnity) • Blue Cross California Care (HMO) • Blue Cross (POS) • Kaiser • Contribution • District pays 80-90% of the employee's coverage and 75-80% of dependent coverage, depending on bargaining group and plan selection. • 2006/07 Contribution :::::$ 4.9 million ~ October 11, 2006 2 BENEFIT SUMMARY 2006 Premiums N Md' on-e 1care Er 'bl l 12) e Plan EE EE+l Familv Blue Card $ 678.94 $ 1,432.39 $ 2,037.03 Blue Cross (POS) 476.84 963.18 1,380.61 Blue Cross (HMO) 289.83 608.36 869.42 Kaiser 281.79 563.58 797.46 Md' e 1care Eli 'bl 121 e Plan EE EE+l Familv Blue Card $ 724.05 $ 1,501.09 NIA Blue Cross (POS) 426.01 852.02 $1,278.03 Blue Cross (HMO) 236.50 473.00 709.50 Kaiser Sr. Adv. 105.36 210.72 446.1 ~ October 11, 2006 5 DATA SUMMARY Current Healthcare Plan Coverage Active Medical Plan EE only EE+l EE+2 ~ HMO 78 39 94 211 Kaiser 37 17 50 104 POS 117 71 75 263 Waived n/a n/a n/a §_ <Total> 232 127 219 584 Dental Plan EE only Family <Total> Delta Dental 188 392 580 Waived n/a n/a i <Total> 188 392 584 Vision Plan EE only EE+l EE+2 <Total> VSP 175 129 276 580 ~ n/a n/a n/a i <Total> 175 129 276 584 ~ October 11, 2006 6 DATA SUMMARY ______ A...,..ct __ i~ __ e -Total Service Aire x< 1 l<=x< 5 S<=x< 10 lO<=x< 15 l5<=x<20 x<25 Count 3 6 - Pay 39,644 36,699 -- 25<=x <30 Count 4 20 -- Pay 31.153 57,522 --- 30<= X <35 Count 6 20 6 4 - Pay 49,132 54.665 76.662 72,354 . 35<=x<40 Count 4 19 19 14 14 Pav 49.279 64,422 84,179 90.938 68.615 40<= X < 45 Count 9 20 14 26 37 Pay 60,569 77.810 93.421 86,750 81,128 45<=x<50 Count 3 19 5 25 36 Pav 71.252 74,424 92,476 81,485 82053 S0<=x<SS Count 2 18 5 20 36 Pay 67,602 78,612 96,696 90,076 83,641 55<=x<60 Count 9 6 12 20 Pay -83,402 109,077 88,045 82.426 60<= X <65 Count 1 5 3 4 16 Pav 38,459 80,028 88.556 83,815 76,070 65<=x Count -2 -2 7 Pav . 81,180 . 94,201 85.232 <Total> Count 32 138 58 107 166 Pav 52,125 68.017 90.229 86,326 80,660 (ij:i) October 11, 2006 9 PLAN DESIGN ALTERNATIVES • Separate members into following groups: • Current retirees eligible for Medicare • Current retirees not eligible for Medicare • Active employees eligible to retire • Active employees ~ 40 and not eligible to retire • Active employees < 40 • Review MOU Language • Legal Issues • Vested rights • Establish Goals (fy.i) October 11, 2006 10 20<=x<25 25<=x <Total> --9 --37,681 --24 --53,127 --36 --59,375 --70 --75,061 7 1 114 70.994 94.108 81.206 8 9 105 75.829 86,533 80,635 18 14 113 95,608 94.290 87.498 IO 8 65 90,008 102,903 89,745 3 4 36 80,633 92,839 79,720 1 -12 146.001 -91,116 47 36 584 87,500 94.098 79.476 Page 2 of 3 October 11, 2006 In response to this recommendation, we have recently modified the process to include a memorandum from the Project Manager to the Director of Engineering, formally documenting the list of potential proposers, and the justification for their inclusion on the list. That memorandum will be made available to the gate meeting participants and will be discussed at the gate meeting. The memorandum will also be filed in the official project file. Recommendation No. 17 Item 5G, Page 6 -We noted some disconnect in the communication between the Engineering Department and Contracts Administration Department. The Contracts Administration Department has been tasked with overseeing the construction phase of projects; however, Engineering plays a critical role in the construction portion and does not appear fully aware of all the policies that are being administered by Contracts Administration. Our recommendation is that a committee be set up that is comprised of members of both Engineering and Contracts Administration to review the comprehensive set of procedures developed by Contracts Administration related to the construction aspects of a project, with the ultimate goal of the two departments reaching agreement as to the application of these procedures. Response The Contracts Administration Division in the Finance Department and the Engineering Department have been working collaboratively and cooperatively to develop and implement numerous procedures that will provide professional contract management, additional oversight, and numerous checks and balances to assure that our construction contracting process is as effective and efficient as possible. New procedures have been incorporated into many new and ongoing projects, requiring operational modifications and staff cultural changes. Much progress has been made; although, more work is needed to fully realize the potential. The departments have been conducting frequent coordination meetings, both at the staff and management levels, to facilitate discussion of issues and to more fully understand the new policies and procedures being implemented. These meetings have been productive in achieving the recommended goal. Recommendation No. 20 Item 7, Page 6 -We noted that project documents are not being maintained in one central file location. Although we were ultimately able to locate the documents that we needed, there was a fair amount of effort involved in obtaining this information. We would recommend that a central file location be maintained and that someone be assigned the task of monitoring the flow of documents within this location. Page 3 of 3 October 11, 2006 Response Due to the large number of active projects and the magnitude of the documentation, paper and electronic, generated by each one, logistical issues do exist. Although there is a filing system in place and staff is assigned to maintain the project files, there is currently no central file for all project documents due to space and staff limitations. Staff has been aware of these challenges for some time and has been working to better define the problem and find potential solutions that can be implemented, including the possibility of a central file. We want to assure our project files are kept in a consistent manner and their integrity maintained. Until a revised filing system is in place, staff has been instructed to fully comply with the existing system. If you have any questions about these comments, or if you would like additional information, please contact me at 714.593.7300. DAL:gc H:\dept\71 O\ludwin\memos\FAHR -Response to Accountant's Recommendations Succession Management Program Orange County Sanitation District DRAFT Revised: September 13, 2006 l L Preface This document represents the Orange County Sanitation District's (OCSD) roadmap to the future. OCSD anticipates significant changes in the workforce over the next decade, and this Succession Management Program is OCSD's strategy for ensuring a relatively smooth transition from its current state to that future. Succession management will support the organization in its evo tftion , ensuring people are ready to step into leadership positions when OCSD needs them :-0 do so. This program will provide opportunities for self-motivated staff to shape their own careers and to strengthen OCSD as they grow. During my term at the Orange County Sanitation District I have placed focus on the importance of establishing a succession manage ent prog ram. There is oo much at stake for OCSD not to take action. Workforce emograp ics, economic factors-; and the changing job market compel OCSD to strengther:i its appr0ach to workforce i sues. This document summarizes what OCSD will do to · plement best practices, build on existing programs, and address areas for improvement. We already do many things well, but better integration of related elements and the incl sion of additional strategic components will allow OCSD to strengtn.en its own talent a con inue to remain a leader in the industry. OCSD's Succession Management Program has the full support of the organization. This document has be revie ed and crit1 . ed by the oard of Directors, Executive Management Team1 anagets, and the Lab©r Management Committee. Feedback from OCSD's general w0rkforc t\as been sought and incorporated. Every one of us is a stakeholder in this o ~anizatio , and we all h ve an interest in ensuring OCSD's Succession MaAagement Pro ratn is implenJented to the best of our abilities. 4 r r r r r r r L L L L L L L L L Executive Summary Background The U.S. Bureau of Labor Statistics projects a shortfall of 10 million workers by 201 0 as Baby Boomers (ages 43 to 59) head into retirement. The public sector is projected to experience the impact of this shortage more quickly and significantly since the average age of public sector employees is higher than that of employees ih the private sector. Also, the public sector has proportionally fewer younger worke s. li.. s·gnificant percentage of employees at all levels are approaching retirement eligibility. Water and wastewater industry statistics indicate that 50 percent of rnplolees will be eligible for retirement in the next 1 O years, and 25 percent within tfi'e next fil;.f.e years. It is essential that the Orange County Sanitation District (OCSD) plao o the future staffing needs of the organization by implementing a succession management program. The Succession Management Program will become OCSD's P,ass ort to tl;).e future. For municipal agencies, these changing demographics nave e en more profound impacts. Not only is the average age of a worker higher t an in other industries, but also future job positions will call for more skilled workers, increas·ng the competition for the limited labor pools required to fill those positions. These issues re·ntorce the need for practical guidance, specific tools and procedures to convert tf::lis challenge of the changing workforce into an opportunity t0 proactively d velop a highly effective prepared future workforce. The idea of establisMi g a formal succession management program becomes more important when oeso oonside s additional fa tors that influence its future labor needs. As the labor pool shrin s, comJ!)etttio for skillei:t alent increases. As competition increases, empleyees wit strong skill sels become more valuable. This has the ability to create real rete tjon ·ssues at OCSD as current employees are sought after by other compan1 s. Retention issues oan be e amined through detailed turnover reports. OCSD or example sa an increase in turnover from 2.70% in FY 04/05 to 8.61 % in FY 05/06. 0CSD expects this t~end t0 continue as more of its staff becomes eligible for retirement. n addition to the shrinking labor pool and increasing turnover, OCSD must look at one ac1ditional exte al factor that will influence the organization's workforce - college graduates a d thei fields of study. For example, universities are producing fewer engineering §Jraduates, which is a predominant career path at OCSD. Finding qualified engineers is already becoming difficult at the organization, as well as others. OCSD will continue to face challenges associated with the "war for talent" if a system is not developed to address these issues. That system is Succession Management. What Is Succession Management? An effective succession management program enables an organization to identify and prepare the right people for the right positions at the right time. Succession 5 L 4. OCSD must define the required competencies by conducting assessments and aligning competencies with the organization's strategic goals, vision, mission, and values. Competencies are an effective tool for identifying future leadership needs. 5. OCSD's employees will be more motivated to achieve career goals through self- development when specific career paths are clearly defined and training opportunities align with career goals. 6. OCSD's future leaders will need stronger financial skills, greater emotional intelligence, and the capacity to build and bridge relationships across the organization. 7. OCSD's partners (Labor Management Committee, Executive Management Team, Board of Directors, and employees) will receive early itientification and inclusion to help minimize potential barriers to policy and program implementation and assist in making the program more effective and efficient.* 8. OCSD must design a robust succession management process from both the employees' and employer's points of view. Eacli perspective must be considered and included in the process to create a balanced and equitable approach . 9. OCSD must ensure that several success factors are in place to ensure effective development and implementation of a successim:i management program: 1) priority for Executive leadership; 2) employees committed to self-development; 3) integration into OCS0 St~ategic Goals; 4) integratiom into the organization's long- term business; 5) analysis of organizatiolilal workforce data and accessibility of critical knowledge, processes, and resources. 10. OCSD must ensure continu0us communication throughout the implementation process, whicti is essential to ensure organizational support and effective use of the program. 11. OCSD must provide structured training programs, which provide focus for all employees to achieve ~oals and develop core competencies. 12. OCSD's defined career paths will guide employees who seek to become future leaders of the mganization. *OCSD recognizes that many of the features of the Succession Management Program will, of course, be subject to the meet and confer process with the representatives of the recognized employee organizations. Therefore, potential exists for features described within the Succession Management Program document to be implemented differently than originally conceived. 7 r r L L L l L percent of the national workforce and about 62.6 percent of OCSD's workforce. As Baby Boomers retire and leave the labor market, their absence will severely impact the talent pool of available workers and will create employee retention challenges. In addition to this problem, organizations will be left to recruit, manage, and retain four different generations of workers with differing motivators. Each of the four generations now in the workforce was influenced by the society in which it was raised. The critical events of "their time" influenced the generations' lifestyle characteristics, social values and workplace characteristics. In much the same way, their resulting lifestyle characteristics and social values will influence the structure, management style and needs of organizations in the future. As the Baby Boomers leave the workplace to enjoy their retirement years, a poten,tial y critical shortage of skilled and professional workers will take place, causing o gan zations to compete increasingly for talented and skilled employees. The U.S. Bu rea abor Statistics predicts that by 2010, 60 percent of new jobs will r~uir sRills possessed by only 20 percent of the workforce. Management must be prepared to lead a diverse workgroup with varying values and motivators in order to retain val uable human re sources. The four demographic workforce groups include: Depression Generation Born before 1946 (age 60 and older) Baby Boomer Generation Bo n between 1946 antJ 19 3 (age 43 to 59) Generation X Born 6 tween 964 and 1'979 (age 27 to 42) Generation Y Born between 198G and no (age 26 and under) Figure 11 shows the distribution of OCSD employees by age group. 18 r r r r r r r r r [ [ L L L L L L L L classroom study with planned, supervised work. The program allows students to explore opportunities at OCSD, establish professional relationships, receive mentoring, and provide OCSD with innovative ideas and a motivated, low cost workforce. Internships are a cost effective method for OCSD to augment the workforce, and they afford the organization an excellent time period to evaluate new talent for entry-level professional positions. OCSD recognizes that many of the features of the Succession Management Program will, of course, be subject to the meet and confer process with the representatives of the recognized employee organizations. Therefore, potential exists for eatures described within the Succession Management Program document to b implemented differently than originally conceived. 30 L L L l L provides the necessary processes and tools for that development, the more likely it is to develop a mindset and culture of leadership throughout the organization. A culture of leadership is an environment where employees feel connected to their jobs and the larger mission of the organization. Leadership is no longer connected to a position of authority or power, but rather creates an environment where employees feel a great sense of responsibility for what happens and how it happens. The concept of the leadership pipeline is often confused with leadership development. Leadership development efforts feed the leader pipeline. In this sense, those who are in the pipeline are candidates for a succession management progr m. The pipeline is made up of employees identified for potential strategic rol es aeross ttie organization who are being groomed to perform leadership roles. First, the organization must define its future leade rship needs and th various leadership competencies that match those needs N'ext, OCSD must build the necessary skills and experiences that will produce the desired compet ncies. Identifying future leadership needs of the organization can e completed y competency modeling, conducting cultural assessments, and alignin e-velopment actjvities with what the strategic goals indicate will be required for I a ership success. OCSD recognizes that many of the fe tures of the Succession Management Program will, of course, be subject to the meet and center process ith th -representatives of the recognized employee organizations. Tti refore, potential exists for features described within the Succession Management Progr::am doc merit te be implemented differently than originally conceived. 32 [ 1 L L L L l L L policy must encompass the fundamental elements of a comprehensive succession management program. Also, it will serve the purpose of institutionalizing the program and will emphasize its valve and the organization's commitment to the program's success. The responsibility for succession management rests with the full leadership of OCSD. Collectively and individually, the General Manager, the Assistant General Manager and each Department Head, Manager, and Supervisor should be directly responsible for ensuring the policy's implementation organization-wide and in their immediate areas of responsibility. Other OCSD policies should be considered when implerne ti g a succession management policy. It is important to address and cha ge existin policies that may inhibit or limit the organization's succession managemen efforts. A succession management policy will be drafted, along with other, rec mmended policY, changes, to ensure succession management program cont'Aufty and validation . Certain policies may require consideration durin include, but are not limited to, the following: These al Additionally, sin..ce training a d development is a key component for succession management, as parate and distinct policy must also be developed and implemented. This will ensure trai ing fully supports the program. 36 r r r r- r r r ( L L L L L L L L before a successor fills a position. Additional FTE considerations should be explored when designing and implementing this program. Policies and procedures are also an essential tool for transferring valuable operating and management information to future generations. They are a very effective method to lessen the effects of seasoned and experienced employees leaving the organization over a relatively short period of time. Due to OCSD's responsibilities in public health and the environment, policies and procedures are fundamental to responsible management and operations. Additionally, the more that fundamental activities, systems, and programs are formally documented and trained on t e less management and staff will need to focus on inconsistencies, mistakes and emergencies caused by non-existent, obsolete or undisclosed procedures. Current y, OCSD's departments differ in regard to preparation of policies and procedures for core functions and systems, with some having very strong systems and others havin t w or none. Departments with low overhead may need support from outside se ices department's With existing expertise. Department-specific knowledge for all core functions will be a cumented i rndividual departmental policies and procedures. HR will sec re t e services of a consultant to create a template for these documents and a working list of procedures to be documented based on discussions with aivlsions. Each dep rtment will then be responsible for producing, validating, imQlem nfng, and up ting a comprehensive reference manual of its departmental and divisional processes and procedures. This will include lists of learning points for new emP.IO ees, wh0 will be provided with the checklist by their supervisor a d empowered o pursue he knowledge and skills they need to acquire for eir posjfons. wastewater collection, treatment and disposal The Succession Ma agement Oversight Committee will work to identify critical positions within the organizati0n as soon as possible, analyzing retirement forecast data and statistical data from OCERS to assist with this task. The data will allow the SMOG to look at retirement patterns and forecasts for specific groups such as the Executive Management Team (EMT), Managers, Supervisors, or even by job classification. In addition the data may be sorted by department or division. OCSD, for example, will look at how many supervisors are predicted to retire in the Operations & Maintenance Department over the next five years (Figure 16). 43 r r r r r r r r [ L L L L L L L L Conclusion As mentioned in the Executive Summary, the U.S. Bureau of Labor Statistics projects a shortfall of 10 million workers by 2010. The public sector is projected to experience the impact of this shortage more quickly and significantly, since the average age of public sector employees is higher than that of employees in the private sector. Water and wastewater industry statistics indicate that 50 percent of employees will be eligible for retirement in the next 10 years, and 25 percent within the next five years. It is essential that OCSD plan for the future staffing needs of the organizatio by implementing a succession management program. An effective succession management program will enal9J OCSD to identify and prepare the right people for the right positions at the right time to identify, secure, and grow the organization's knowledge base, leadership, ana staff. The program ill ensure a continuous flow of qualified labor. Succession anagement is insurance fa the future. Potential successors will be identified early ane lven approeriate training so tnat disruption is minimized and success is maximizea when tfie time comes fo their move to roles within the organization. OCSD can enhance retention and development of key employees by creating a succession management pro a that actively and successfully aligns employee career evel0pment with th organizational strategic goals. There are numerous benefits to both the e strong succession managemeflt program. tie benefits o OCSD include stable performance, continuity of leader,shi p, pools f skilled workers, maximized employee potential, attractio.Jl.-of p ospec ive employees retention through growth, development and advancement, ant! enhance nowledge t aAsfer. OCSD reco,gni es that ma Yi of the features of the Succession Management Program will, of course be subject he meet and confer process with the representatives of the recognized employee orgar,uzations. Therefore, potential exists for features described within the Success·on Management Program document to be implemented differently than originally conceivecl. Key strategies for implementation of OCSD's Succession Management Program: • Succession Management Oversight Committee • Workforce planning • Competency models and assessment • Skills assessments • Personal succession management plans 58 r r r r r r r r [ ( L L L L L L L L • Integration and expansion of existing programs If OCSD is to remain competitive and position itself in preparation for the future, it must implement and maintain a succession management program. This Succession Management Program is OCSD's passport to the future. 59 r L L Sources Association of Metropolitan Water Agencies (AMWA) and National Association of Clean Water Agencies (NACWA), The Changing Workforce ... Seizing the Opportunity. AMWA and NACWA, 2006. Eastern Municipal Water District, Professional Career Development Plan. 1998. Hastings, Sandra, Succession Planning: Take Two. Irvine Ranch Water District, IRWD Succession Plan. Draft, 2006. Kraft Foods North America, Human Resources Planrflng 'G uide. f'J Public Resource Consultants, Orange County Sa itation Distri9t: Successjon Plan and Career Investment Program (Phase/), July 2005. Wolfe, Rebecca Luhn, Systematic S ccession Planning: Building Leadership from Within. Menlo Park, California: Crisp ublicatt0ns, 1996. 60 [ r Acknowledgements This project is the result of much research and consideration, and the Orange County Sanitation District (OCSD) wishes to recognize those who have made significant contributions to its accomplishment. Richard Spencer inspired and guided staff to create this document. Thanks to James D. Ruth, OCSD's Interim General Manager, for providing focus ari direction to the project and ensuring organizational commitment. OCSD appreciates the willingness of fellow public agenci.es te share information. East Bay Municipal Utilities District, Columbus Water Wo11ks, and Irvine Ranch Water District have provided successful models for OCSD's consideratioA. A~WA and NACWA produced a manual that sparked many of the 1aeas for OCSD's proposed program. Public Resource Consultants (PRC) contributed to tne e oluti0n of OCSD's Succession Management Program with foundational work condu tea in 2004 and 2005. Marilyn Leuck of PRC made OCSD aware of its own existing programs that support succession management and potential barriers to imp le enting a successful program. The following OCSD staff contributed to this dbeument: • Kim Erickson, Human Resources Analyst • Janine Filter, Human Resources Analyst • Laurie Kltnger Senior Jfluman fleS<;>urces Analyst • L ra Mara ilia, 'Executive Assistant • De ise Martinez, Senior Hum n Resources Analyst • Ant1tew Nau, Senior Human Resources Analyst • Jeff Reed, Human FR sources Manager • Richard Spencer, uman Resources Supervisor - Succession Management Project Leader • Ann Sullivan, Principal Human Resources Analyst August2006 Human Resources Orange County Sanitation District 61