STAFF REPORT. ITEM NO. 1 MEETING DATE: November 15, 2018 MEETING: Board of Directors / Finance Committee SUBJECT:

Transcription

1

2

3 ITEM NO. 1 MEETING DATE: November 15, 2018 MEETING: Board of Directors / Finance Committee STAFF REPORT SUBJECT: SUBMITTED BY: RECOMMENDED ACTION: Minutes of October 25, 2018 Finance Committee Meeting Cheryl Howlett, Finance Analyst, Administrative Services Division Approve ATTACHMENT: 1. Minutes of October 25, 2018 Finance Committee Meeting

4 ** DRAFT ** MINUTES OF OCTOBER 25, 2018 MMWD BOARD FINANCE COMMITTEE MEETING IN ATTENDANCE: MARIN MUNICIPAL WATER DISTRICT BOARD OF DIRECTORS / FINANCE COMMITTEE Directors present: Cynthia Koehler, Jack Gibson, Larry Bragman, and Larry Russell (via teleconference) Directors absent: Armando Quintero CALL TO ORDER: Director Koehler called the meeting to order at 9:31 a.m. ADOPT AGENDA: By simple motion, the agenda was adopted. PUBLIC EXPRESSION: None ITEM 1. Minutes of the September 27, 2018 meeting were approved with change to wording of comments made by Roger Roberts. ITEM 2. Monthly Financial Update The Administrative Services Division Manager/Treasurer (ASDM), Charlie Duggan, presented the financial summary for the month ending September 30, 2018, water revenue was at 31.7% of budget and all other operating revenue was at 24.5% of budget, for total operating revenue of 31.4%. Capital revenue was 9.5%, fire flow revenue was 0.6 %, with the total of all revenue collected being 27.5% of budget. Fiscal year to date, actual operating expenses total 25.1% of budget. Total operating and capital expenses combined were 21.2% of the total FY 2019 budgeted expenses. The total unrestricted reserves were $21M, which is 3.3 months of operating budget. There is currently $29M in the capital reserve fund. Roger Roberts, of San Rafael, commented that with the current rate structure, there was not much room for CIP funding. A brief discussion ensued pertaining to capital maintenance funding and prioritizing capital programs. ITEM 3. Update Disposal Procedure of Surplus Movable Property The Administrative Services Division Manager/Treasurer (ASDM), Charlie Duggan, presented information regarding the current surplus procedures for moveable property like trucks, tractors, etc If the value of the property is higher than $10k, then we need to go out to bid. The current $10k limit is very low and staff requested to increase it to $50k. Director Bragman noted that the code section authorizes the Manager limit up to $35k and that $50k seemed too high. The General Manager, Krishna Kumar, agreed that we should increase the limit from $10k to only $35k and bring to the board for approval. 1

5 ** DRAFT ** MINUTES OF OCTOBER 25, 2018 MMWD BOARD FINANCE COMMITTEE MEETING ADJOURNMENT There being no further business, the meeting of October 25, 2018 adjourned at 9:44 a.m. 2

6 ITEM NO. 2 MEETING DATE: November 15, 2018 MEETING: Board of Directors / Finance Committee SUBJECT: SUBMITTED BY: RECOMMENDED ACTION: STAFF REPORT Monthly Financial Update Charles Duggan Jr. Administrative Services Division Manager/Treasurer Administrative Services Division Information EXECUTIVE SUMMARY: The Monthly Financial Update for October 31, 2018 FISCAL IMPACT: YES NO X FISCAL YEAR: 2018/19 BACKGROUND: Water Sales and Consumption Monthly Water sales for the month of October 2018 were $7,087,165 which is $867,232 or 13.9% above the monthly budget. When compared to the prior year, water sales for October 2018 decreased by $1,105,950 or were 13.5% below October Billed water consumption (in CCFs) for October 2018 was 1,285,253 CCFs, which is 63,656 CCFs or 5.2% above the monthly budget. Compared to the prior year, billed water consumption for October 2018 decreased 82,412 CCFs or 6%. Total meter service charges for the month of October 2018 were $1,837,070 which is $61,662 or 3.5% above budget. Compared to the prior year, meter service charges decreased by $2,316 or 0.13%. The Watershed Fee revenue for the month of October 2018 is $421,334 or $6,843 or 1.65% above budget and $490 or 0.12% below October The total water sales and fixed charges (Service and Watershed Fee) for the month of October 2018 were $9,345,568 which is $935,736 or 11.1% above budget and compared to October 2017, it is a decrease of $1,108,757 or 10.6%. Fiscal Year to Date Fiscal year to date, water sales through October 31, 2018 were $25,285,830, which is $2,194,645 or 9.5% above budget. Compared to the same period last year, water sales through October 31, 2018 decreased by $363,281 or 1.4%.

7 Monthly Financial Update November 15, 2018 Page 2 Billed water consumption (in CCFs), through October 31, 2018 was 4,493,501 CCFs, which is 274,322 CCFs or 6.5% above budget. Compared to the same period last year, billed water consumption through October 31, 2018 increased by 5,353 CCFs or 0.12%. Fiscal year to date, total water sales and fixed charges (service and Watershed Fee) through October 31, 2018 was $32,991,210 when compared to the budget of $30,293,149 is $2,698,061 or 8.9% above budget. The 2018/19 water sales and fixed charges compared to prior fiscal year through October 31, 2017 of $32,892,214 is an increase of $98,996 or 0.3%. Budget to Actual Comparison All Funds Attached is the budget to actual comparison for fiscal year 2018/19 as of October 31, The budget to actual comparison is prepared by fund and includes revenues, expenditures and reserve balances. As of October 31, 2018 the year to date net increase for the Operating Fund was $9,607,586. For the Operating Fund, total revenues as of October 31, 2018 are $34.2 million or 43.9% of budget. Total operating expenditures of $24.6 million, not including depreciation and amortization, is 32.3% of budget. For the Capital and Fire Flow Funds, total revenues are $1.2 million or 8.4% of budget. Spending on capital and fire flow projects at $7.4 million is 20.5% of budget as of October 31, The Watershed Fund as of October 31, 2018 reflects a surplus of $370,467. Fund Balances Per the attached Reserve Balance Summary as of October 31, 2018, unrestricted / undesignated - operating reserves are $23.6 million net of encumbered amount of $3.0 million for purchase orders, or 3.7 months of annualized projected operating expenses for 2018/19. STRATEGIC PLAN ALIGNMENT: The requested action aligns with the district s Strategic Plan Goal 2: Financial Stewardship - Strategy 2 ensure activities are transparent and reporting is accurate Objective 3 provide monthly reporting. REVIEWED BY: A.S.D. Manager/Treasurer [ X ] NA [ ] General Counsel [ ] NA [ X ] General Manager [ X ] NA [ ]

8 Monthly Financial Update November 15, 2018 Page 3 ATTACHMENTS: 1. Total Water Sales and Fixed Charges & Fees 2017/ /19 2. Billed Water Consumption in CCFs FY 2009/ /19 3. Budget to Actual Comparison for 2018/19 as of October 31, Reserve Balance Summary as of October 31, CIP Budget to Actual Comparison for 2018/19 as of October 31, Watershed Fund & Non-Rate Based Revenue as of October 31, 2018

9 Total Water Sales and Fixed Charges & Fees Fiscal Years 2016/ /19 Fixed Charges Water Sales Service Charges Watershed Fee Total Water Sales and Fixed Charges 17/18 18/19 18/19 17/18 18/19 18/19 17/18 18/19 18/19 17/18 18/19 18/19 Month Actual Budget Actual Actual Budget Actual Actual Budget Actual Actual Budget Actual July $ 4,513,602 $ 4,708,000 $ 4,628,570 $ 1,154,510 $ 1,161,533 $ 1,290,015 $ 270,839 $ 273,160 $ 305,405 $ 5,938,951 $ 6,142,693 $ 6,223,990 August 7,709,448 7,318,800 8,038,881 1,647,846 1,646,966 1,856, , , ,274 9,731,921 9,340,387 10,315,121 September 5,232,947 4,844,452 5,531,215 1,233,287 1,252,588 1,268, , , ,780 6,767,018 6,400,237 7,106,531 October 8,193,115 6,219,933 7,087,165 1,839,386 1,775,408 1,837, , , ,334 10,454,325 8,409,832 9,345,568 November 4,258,259 3,825,519 1,297,305 1,253, , ,461 5,862,214 5,383,411 - December 4,431,406 4,630,103 1,808,017 1,773, , ,989 6,655,574 6,817,446 - January 2,003,113 2,268,410 1,154,911 1,248, , ,169 3,430,351 3,820,922 - February 4,058,223 3,408,017 1,952,994 1,754, , ,843 6,461,592 5,573,609 - March 1,966,918 2,065,365 1,282,794 1,265, , ,046 3,555,295 3,637,529 - April 3,366,127 3,706,568 1,821,708 1,762, , ,025 5,606,442 5,881,316 - May 2,817,477 3,085,596 1,291,229 1,252, , ,102 4,415,126 4,642,983 - June 5,299,302 6,133,484 1,807,578 1,765, , ,516 7,522,439 8,311,979 - TOTAL $53,849,936 $52,214,248 $25,285,830 $18,291,565 $17,912,475 $6,252,588 $4,259,747 $4,235,621 $1,452,792 $76,401,247 $74,362,344 $32,991,210 Original Budget-to-Actual Basis 8.91% Actual-to-Actual Basis 0.30% % of total budget received 44.37% 4 Monthly Water Sales - FY Water Sales ALL Water

10 Actual to Monthly Actual 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 18/19 Budget % Month Actual Actual Actual Actual Actual Actual Actual Actual Actual Budget Actual Variance Change July 958, , , , , , , , , , , % 2.29% August 1,524,804 1,505,682 1,373,824 1,552,514 1,483,888 1,387,986 1,141,147 1,312,021 1,396,443 1,322,457 1,413, % 1.22% September 1,016,214 1,005, ,293 1,016, , , , , , , , % 5.83% October 1,374,363 1,431,554 1,326,605 1,377,982 1,400,285 1,209,902 1,125,237 1,205,260 1,367,665 1,221,597 1,285, % -6.03% November 687, , , , , , , , , ,407 December 825, , , ,615 1,059, , , , , ,634 January 491, , , , , , , , , ,197 February 698, , , , , , , , , ,617 March 394, , , , , , , , , ,977 April 707, , , , , , , , , ,999 May 528, , , , , , , , , ,241 June 1,044,386 1,118,447 1,215,077 1,377,068 1,150,742 1,020,910 1,079,197 1,052,513 1,095,760 1,090,071 TOTAL 10,251,300 10,286,367 10,308,698 11,016,248 11,059,765 9,906,304 8,849,444 8,977,994 10,009,204 9,555,322 4,493,501 Budget-to-Actual Basis 6.50% Actual-to-Actual Basis 0.12% % of total budget 47.03% Billed Water Consumption In CCF's Fiscal Year 2009/ /19 5 Water Consumption Monthly Water Sales - FY

11 Marin Municipal Water District Budget to Actual Comparison for 2018/19 - All Funds Actual as of October 31, 2018 Unaudited Actual as of % of Revenues and Expenditures 2018/19 Adopted Budget October 31, 2018 Budget Revenues: Water Sales and Service Charge: Water Sales $ 52,214,248 $ 25,285, % Service Charge 17,912,475 6,252, % Watershed Management Fee 4,235,621 1,452, % Total Water Sales and Service Charge 74,362,344 32,991, % Other Revenues: Rents and Royalties 740, , % Grants 250, % Watershed Rents and Royalties 920, , % Watershed Payments 420, , % Late Payment and Special Read Charges 370, , % Interest 250, , % Miscellaneous 750,000 70, % Total Other Revenues 3,700,000 1,247, % Total Operating Revenues 78,062,344 34,238, % Expenditures: Personnel services 45,105,349 14,587, % Materials and supplies 2,434, , % Operations 6,360,498 1,498, % Water conservation rebate program 599,500 57, % Electrical power 4,000,361 1,872, % Water purchased 6,674,509 1,950, % Insurance, including claims 1,260, , % General and administrative 3,020, , % Debt service - interest and principal 10,200,976 2,550, % Overhead cost allocated to capital (3,327,320) (543,792) 16.3% Total Expenditures and Capital Purchases 76,328,758 24,630, % Transfer out to Capital Fund (PayGo) 2,000, % Net Operating Fund Increase(Decrease) $ (266,414) $ 9,607,586 Operating Reserves Opening Reserves $ 20,249,272 $ 20,249,272 Net Operating Fund Increase(Decrease) (266,414) 9,607,586 Encumbrances for Purchase Orders - (2,983,325) Accrual adjustments - (3,249,596) Ending Reserves $ 19,982,858 $ 23,623,937 11/13/2018 6

12 Capital and Fire Flow Funds Revenues and Expenditures 2018/19 Adopted Budget Actual as of October 31, 2018 % of Budget Revenues: Connection Charges $ 1,865,000 $ 465, % Interest Income 15,000 25, % Transfer-in from Operating (PayGo) 2,000,000 - Contributed Capital: Fire Flow 4,500,000 28, % Connection Fees and Grants 6,218, , % Total Revenues and Contributed Capital 14,598,000 1,220, % Capital Expenditures: Capital Projects - District 29,613,000 4,627, % Capital Projects - Fire Flow 4,500,000 2,170, % Capital equipment purchases 1,736, , % Total Capital and Fire Flow Expenditures 35,849,000 7,359, % Net Capital and Fire Flow Fund Increase(Decrease) $ (21,251,000) $ (6,138,715) 28.9% Capital Reserves 70.0% Capital Fund Opening Reserves $ 35,455,721 $ 35,455,721 Net Capital Fund Increase(Decrease) (19,530,000) (3,435,530) Capital equipment purchases (1,736,000) (560,713) - - Encumbred for Contracts (3,998,466) Accrual adjustments - (2,261,159) Ending Reserves $ 14,189,721 $ 25,199,853 Fire Flow Fund Opening Reserves $ (1,973,265) $ (1,973,265) Net Fire Flow Fund Increase(Decrease) - (2,142,473) Encumbered for Contracts (535,967) Accrual adjustments - (18,586) Ending Reserves $ (1,973,265) $ (4,670,291) 11/13/2018 7

13 Reserve Balance Summary Actual Preliminary Projected 6/30/2015 6/30/2016 6/30/2017 6/30/ /31/2018 Restricted $ 9,501,989 $ 9,327,468 $ 7,723,634 $ 1,958,730 $ 3,365,356 Board Designated 11,491,220 9,441,758 9,847,168 10,425,446 10,425,446 Watershed Fund - 35, , ,982 Rate Stabilization Fund 5,900,000 5,700,000 8,000,000 9,400,000 9,400,000 Pension Reserve Fund ,000,000 2,000,000 Fire Flow Fund 1,939, , ,571 (1,973,265) (4,670,291) Capital (including bond proceeds) 30,044,160 18,974,590 1,610,857 35,455,721 25,199,853 Unrestricted/undesignated - Operating 19,959,569 16,947,253 20,077,803 20,249,272 23,623,937 Total $ 78,836,467 $ 61,047,907 $ 47,721,458 $ 77,630,418 $ 69,829,282 Months Reserve Unrestricted - Operating to Annualized Actual Expenditure Debt Coverage Ratio As of September 30, 2018 Principal Interest Total 2012 Bond 80,580, ,085, ,665, Bond 31,380, ,847, ,227, Bond 35,385, ,109, ,494, Total Bond Debt 147,345, ,042, ,387, MERA 40, , CREB 733, , AEEP 2,450, ,450, LGVSD 5,427, ,570, ,997, Total Other Debt 8,651, ,570, ,221, Total Outstanding Debt 155,996, ,613, ,609, /13/2018 8

14 Marin Municipal Water District Watershed & Other Non Rate Based Revenue and Expenditures Actual as of October 31, 2018 Unaudited 2018/19 Actual as of % of Revenues and Expenditures Budget October 31, Budget Watershed Revenues Watershed Management Fee $ 4,235,621 $ 1,452, % Rent and Leases 910, , % Permits, Parking and Passes 400, , % Grants Other 5,872 Total Watershed Revenues 5,545,621 1,884, % Expenditures Operating and Capital Operating 5,996,709 1,498, % Capital equipment purchases 147,947 15, % Total Expenditures and Capital Purchases 6,144,656 1,513, % Surplus (Deficit) (599,035) 370, % Transfer from Operating Fund 599,035 Net Surplus (Deficit) $ $ 370,467 Other Non Water Revenue Rent and Leases Non Watershed 215,979 Total Non Rate Based Other Revenues 215,979 Discount Program for Low Income & Medically Disabled Low Income Fee waived 74,615 Medically Disabled Fee waived 36, ,560 Net Surplus (Deficit) 104,419 11/13/2018 9

15 Marin Municipal Water District Budget to Actual Comparison for 2018/19 - Capital Fund Actual as of October 31, 2018 Unaudited CIP Projects FY2018/19 Adjusted Budget Capital Projects YTD Actual Expenditures Encumbered for Contracts Total Capital & Fire Flow As of 10/31/18 As of 10/31/18 As of 10/31/18 District Pipeline Replacement / Improvement $ 9,615,118 $ 2,940,382 $ 1,052,107 $ 3,992,489 Replacements - Tank Maintenance & Replacement $ 3,516,282 $ 7,445 $ 12,957 $ 20,402 Replacements - Treatment Plant Facilities $ 6,172,502 $ 131,297 $ 339,893 $ 471,190 Replacements - Dam/Pump/Control System/Meters $ 5,196,372 $ 491,325 $ 1,295,778 $ 1,787,103 Fire Chief's Fund $ 150,000 $ $ 426 System Improvements $ 558,583 $ 51,705 $ - $ 51,705 Watershed - Minor Structures I/R/R 4,797 9,579 - $ 9,579 Watershed - Ranger Residence & Minor Structure Impro 87,822 9,692 60,491 $ 70,184 Watershed - Road Repair & Improvement 2,191, , ,898 $ 1,370,821 Reimbursable Grant Projects 1,404,518 86, ,460 $ 261,472 Reimbursable Customer Projects $ 530,753 $ 223,608 $ - $ 223,608 Information Technology - Capital Equipments/Projects $ 619,005 $ 107,032 $ 99,775 $ 206,807 Fire Flow Replacement $ 4,500,000 $ 2,170,943 $ 535,967 $ 2,706,910 Capital Equipment Purchases $ 1,729,284 $ 560,713 $ 160,106 $ 720,818 Total Capital Projects $ 36,276,436 $ 7,359,080 $ 4,534,433 $ 11,893,514 10

16 ITEM NO. 3 MEETING DATE: November 15, 2018 MEETING: Finance Committee STAFF REPORT SUBJECT: SUBMITTED BY: RECOMMENDED ACTION: FY2020 FY2023 Expenditures and Revenues Preliminary Budget Approach Discussion Charles M. Duggan Jr., Division Manager/Treasurer Administrative Services Division Michael Ban, P.E., Division Manager Environmental and Engineering Services Division Direction to Staff EXECUTIVE SUMMARY: Staff and Board alignment is essential when developing a new budget. For this reason, as we prepare for the next biennial budget adoption (FY20-21) in May 2019, it is important and timely to review projections for the next four fiscal years and to establish spending and revenue targets. Staff has created a budget approach and is seeking the Board s initial guidance. For the last three fiscal years the District has been able to limit operating and maintenance cost increases to an average of 4% each year by restricting spending to the minimum levels necessary to maintain service goals. In keeping with that practice, staff proposes to continue to control spending, thereby limiting overall expense increases to 4%, while committing to maintain our reputation for service excellence. Current debt owed is approximately $156 million and when the District s final obligations are met in 2052 total debt payments made will equal $297 million (principal and interest). Continued funding of capital projects by borrowing, even at the proposed minimal funding levels, would raise that principal total to nearly $300 million within ten years and require interest payments of $171 million during the term of the loans. Consequently, staff recommends creating a dedicated capital maintenance fee to fund the capital improvement plan (CIP) for a ten year period without resorting to continued borrowing. Finally, per Board direction, staff has evaluated a Super Saver program to benefit the ten percent of the District s lowest water users, approximately 6000 customers, with an annual bill credit of $24. Similar to our other two existing assistance programs, this proposed program is to be paid out of non-rate payer revenue. The program is estimated to cost $155,000 in its first year.

17 BACKGROUND: FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 2 Beginning with the September 2017 session covering the District s long term debt outlook the Board has participated in a series of Finance Committee meeting discussions leading up to the next step of developing the next biennial budget. In addition to debt, these conversations also covered topics ranging from structurally balanced budgets, pension and retiree healthcare costs, capital improvement plan/projects, as well as expenditure projections and revenue requirements. Acknowledging that staff and Board alignment is essential when developing a new budget it is important and timely to review projections for the next four fiscal years and to establish spending and revenue targets. Staff has created a budget approach and is seeking the Board s initial guidance leading up to the next biennial budget adoption (FY20-21) in May OPERATING AND MAINTENANCE The District has been able to limit operating and maintenance cost increases in FY2016, FY2017, and FY2018 to an average of 4% each year by restricting spending to the minimum levels required to preserve current service goals. The District has taken many measures to tighten its belt over the years which have allowed us to keep rising costs in check. A few examples are: staff numbers have been reduced from a high of 266 to 240 FTEs; PEPRA has been fully implemented thereby limiting future pensions for hires new to the retirement system; and we have refinanced debt to take advantage of lower interest rates. A major consideration regarding our containment of expenditures is the fact that many of our costs are largely outside of our control. Since 2016, utility costs have risen by 25.2%, purchased water prices have increased 18.7%, and the Bay Area Urban Consumer CPI (Bay Area CPI-U) itself has increased an average of 3.3% per year, and cumulatively 9.8% since DEBT FUNDING OF CAPITAL PROJECTS The District has taken a close look at capital spending this past year resulting in a revised capital improvement plan with many projects deferred and, thus, allowing us to reduce the amount of funds needed annually from above $30 million down to $15.5 million (plus Fire Flow funded projects of $4.5 million). For several budget cycles the District has relied almost entirely on debt to fund the capital program resulting in increased yearly debt service of 48.7% since Fitch Ratings reports that for the Far West sector it is more common to debt finance only 20% of capital spending. Our practice of 100% is unusual for all sectors studied. The District s current principal and interest debt obligation stands at $297 million and will be satisfied in Continuing to rely on debt for the next ten years will add $150 million in principal, extend payments to past 2060, and cost an estimated $170 million in interest while funding only ten years of projects.

18 FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 3 Additionally, an analysis of the rating agency reports from our last bond issuance points out several metrics causing a negative outlook on our AA bond rating and could lead to a slide to single A if not improved. Examples of which are: our current high amount of debt, lower than usual Debt Service Coverage (DSC), and the small amount of principal paid off within 20 years. A downgrade from AA to A could result in significantly higher interest costs for future borrowings. PRELIMINARY DRAFT CIP TEN-YEAR PLAN The District s Capital Improvement Program (CIP) consists of the Ten-Year Capital Improvement Program and the Two-Year Capital Improvement Program Budget. The Ten-year CIP guides long-range policy, prioritizes and schedules capital projects for the ten year period, and establishes a plan for generating the financial resources to complete these capital projects. The preliminary draft CIP Ten-Year Plan for FYs 2020 through 2029 includes 79 projects and programs totaling $198.2 million. Table 1 presents a summary of the preliminary draft CIP Ten- Year Plan. Table 1 Summary of Preliminary Draft CIP Ten-Year Plan FYs 2020 through 2029 Category 10-Year CIP Investment Amount ($M) Transmission $97 Storage 44 Buildings, Grounds & Equipment 19 Treatment Facilities 16 Watershed 13 Communications & Monitoring 7 Program Management 2 Total $198 ASSET MANAGEMENT The objective of the District s asset management program is to focus our limited capital funds on projects and programs that reduce the risk of critical asset failure. Even though development of a comprehensive asset management plan is not anticipated to occur for several more years, given the complexity of our water system and the large number of assets, the District s Asset Management Steering Committee (AMSC), comprised of technical leads from throughout the District, has already begun applying asset management practices to help inform and guide this preliminary Draft CIP Ten-Year Plan. Specifically, the AMSC evaluated critical assets in the most

19 FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 4 deteriorated condition with the highest consequence of failure to identify risk mitigation options and help prioritize capital projects. HIGHLIGHTED PROJECTS AND PROGRAMS ROSS RESERVOIR REPLACEMENT Replacement of Ross Reservoir was discussed at the September 21, 2018 District Operations Committee meeting and was determined by the AMSC as one of the highest priority capital improvement projects. This project will replace the existing 1.0 million gallon reservoir with a new 4.0 million gallon reservoir. Ross Reservoir was constructed in 1927 and is part of the Ross Valley gravity system which now provides water to approximately 44,000 customers. As discussed at the DOC meeting on September 21st, there is a storage deficiency of 8 million gallons in the Ross Valley gravity system. In addition, the Ross Reservoir has reached the end of its useful life. This project will demolish the existing reservoir and replace it with a 4 million gallon reservoir. The need for the additional 4 million gallons of new storage will be evaluated in the future. This project s total estimated cost is $20,700,000. SIR FRANCIS DRAKE PIPELINE REPLACEMENT This project will replace 5,300 feet of 12-inch cast iron water main that was constructed in the 1920s in Sir Francis Drake from Manor to Ross Terrace. This project also includes the installation of 2,500 feet of 18-inch water main from the Larkspur Ferry Terminal to Eliseo Drive in Sir Francis Drake. This project is being driven by and conducted in coordination with the County of Marin s Sir Francis Drake Boulevard Rehabilitation Project. The project s total estimated cost is $2,500,000. SMITH SADDLE STORAGE TANKS REHABILITATION This project will rehabilitate the District s Smith Saddle Storage Tank Nos. 1 and 2. Constructed in 1960, these two welded steel tanks have a capacity of 5 million gallons each and have been in service for nearly 60 years. The tank coatings are original and have reached the end of their useful life - there is visible evidence of rust and deterioration throughout the interior and exterior of both tanks. This project s total estimated cost is $6,000,000.

20 FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 5 PINE MOUNTAIN TUNNEL REPLACEMENT Constructed in 1919 to convey and treat water from Alpine Lake to San Rafael and Ross Valley, Pine Mountain Tunnel (PMT) was converted from a conveyance facility to a 3 million gallon storage facility in Ideally located at an elevation of 495-feet, PMT provides critical storage needed to serve the Ross Valley, is severely deteriorated, and presents potential water quality issues. Upon completion of the 4 million gallon Ross Reservoir Replacement Project, this project will demolish PMT and remove it from the system. At that time, it will also be determined whether the additional 4 million gallons of new storage is still needed to serve the Ross Valley. Pine Mountain Tunnel Replacement was identified by the AMSC as one of the District s highest priority projects. This project s total estimated cost is $20,000,000. FIRE FLOW IMPROVEMENT PROGRAM Since 1997 the Fire Flow Improvement Program has enabled the District to invest over $100,000,000 in the replacement of over 85 miles of fire flow deficient pipelines as well as seismic retrofits at the treatment plants and transmission tanks. The program is funded by an annual $75 per parcel fire flow fee. The preliminary draft CIP 10- Year Plan anticipates investing $45,000,000 for the replacement of approximately 25 to 30 miles of fire flow deficient pipes throughout the district s service area. PIPELINE REPLACEMENT PROGRAM Beneath Marin County s local streets lies a complex 900-mile network of water pipes. Constructed of various materials, including welded steel, cast iron, ductile iron, plastic and galvanized steel, the average age of this complex pipeline network is over 70-years old. This program funds replacement of District pipes. Selection of the pipes to be replaced is based on location, age, material, leak history and in close coordination with local cities and agencies to plan replacements at the same time as other utility and street rehabilitation or paving projects. This approach reduces the impact to neighborhoods. Total funding for this program is $29,800,000.

21 FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 6 TOCALOMA PUMP STATION PROJECT Constructed in 1961, the Tocaloma Pump Station is a critical pump station for the district because it annually delivers over 7,400 acre-feet of water from Nicasio Reservoir to our water system. Originally designed to convey water to Kent Lake at a constant rate, Tocaloma Pump Station now conveys water directly to the San Geronimo Treatment Plant. This project includes replacement of various electrical components that have reached the end of their useful lives and need to be replaced in order to prevent failure of the pump station. This project s total estimated cost is $500,000. Staff has prepared a supplemental booklet detailing the Preliminary Draft CIP Ten Year Plan and will deliver a copy to the Board members at the meeting. PROPOSED REVENUE PLAN At current rates and with no increases, the District is projected to have deficits beginning at $13 million in 2020, increasing to $22 million in 2023, and resulting in a cumulative, four year deficit of $69 million. With sensitivity to the burden placed on rate payers as a result of rate increases, yet with a desire to maintain current service level excellence, staff proposes to satisfy the projected shortfall by setting the FY2020 O&M revenue increase to 4% while holding FY2021-FY2023 revenue increases equal to the Bay Area CPI-U. Furthermore, to fund the minimal capital maintenance investments of $62 million, avoid an additional $150 million in debt principal as well as $171 million in interest payments, staff proposes to establish a Capital Maintenance Fee (CMF) to annually raise $15.5 million to fund capital. CAPITAL MAINTENANCE FEE The District s capital improvement program is singularly dedicated to maintaining, upgrading and rehabilitating our existing and aging assets. Instead of continuing with the past practice of relying solely on issuing debt to fund this program, staff is proposing creating a Capital Maintenance Fee designed to fund the Ten Year Capital Improvement Plan. The CMF would be a fee collected on customer property tax bills similar to our Fire Flow fee. However, since this charge is related to regular, necessary system maintenance the fee amount is based on the customer s meter size and corresponds to the relative burden placed on the system by each customer. A fee apart from bi-monthly charges allows for a definitive separation between revenues used for capital spending versus operations (administration, water purchases,

22 FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 7 salaries, pension, etc.). To mitigate the impacts of inflation staff is also proposing to annually adjust the CMF per the Bay Area CPI-U. Included in this proposal is the intent to adopt a tenyear CIP forging a commitment with rate payers to hold maintenance costs at minimum levels. Table 2 below displays a possible scenario of rates for each meter size. Meter Size # of Meters Table 2 Capital Maintenance Fee CAPITAL MAINTENANCE FEE (Proposed) % of Customers Annual Per Meter Charge $ Monthly Fee $ Annual Revenue 5/8" 42, % $ 6,455,915 3/4" 3, % $ 749,368 1" 12, % $ 4,828, /2" 2, % $ 1,710,424 2" % 1, $ 785,026 3" % 2, $ 445,213 4" % 4, $ 214,656 6" % 10, $ 201,406 8" % 18, , $ 109,032 Totals 61, % $ 15,499,829 Of all single family residential accounts 74% of them have 5/8 meters and, as is evident from the chart above, these accounts will pay the equivalent of less than $13 a month to avoid the projected debt burden of $326 million. CITIZENS INFRASTRUCTURE REVIEW PANEL District staff is recommending a Citizens Infrastructure Review Panel be assembled. The Panel will include 7 interested citizens who will review the District s capital improvement plan, evaluate staff s infrastructure recommendations, and provide input to staff on the plan. We anticipate the panel will begin meeting in December 2018, and meet on a monthly basis through spring After the two-year FY 2020 & 2021 budget is adopted, District staff will assemble the panel annually to review progress on the infrastructure investments and the plan for the upcoming year. The following residents of the District have agreed to serve the Board in this capacity: Jason Weber, Debra Stutsman, Holli Their, Louie Rios, Phil Sotter, Larry Minikes, and Roger Roberts.

23 EXISTING ASSISTANCE PROGRAMS FY2020 FY2023 Expenditures and Revenues November 15, 2018 Page 8 The District prides itself on providing assistance programs for the medically disabled and our low income customers. For FY2018 the fees waived for low-income individuals are $235,052 and for medically disabled accounts they are $111,158 equaling a total of $346,211 for both programs. Over the last three years the District has waived a total of $913,613. Service Charge Waiver Program for Low Income Customers For qualifying accounts, the bimonthly meter service charge and the watershed management fee are waived. Water use is billed according to our usual and current rate structure. Medical Disability Discount For qualifying accounts, the bimonthly meter service charge and the watershed management fee are waived, and an additional twelve CCFs are billed at the Tier 1 base rate. Current Utilization: Fiscal Year Low Income Program Medical Disability Program Total Total Subsidy FY $235,893 FY $331,509 FY $346,211 PROPOSED NEW SUPER SAVER PROGRAM Per Board direction, staff has evaluated a Super Saver program to benefit the ten percent of customers with the lowest water consumption, approximately 6,000 customers. Qualifying customers will receive bi-monthly credits up to a maximum annual bill credit of $24. Similar to our other two other existing assistance programs, this new program is to be paid out of nonrate payer revenue and is estimated to cost $155,000 in the first year. BOARD ACTON Based on Board s input, staff is prepared to create a Cost of Service Analysis (COSA) based on a 4% revenue requirement for FY2020 FY2023, establishing a CMF and creating a Super Saver Program. Staff is seeking input and direction from the Board on the proposed budget approach and schedule. The chart on the following page displays a proposed schedule of key dates leading up to final budget and rate adoption.

24 FY2020 FY2030 Expenditure and Revenue November 15, 2018 Page 9 PROPOSED SCHEDULE December 19, 2018 January 24, 2019 February 5, 2019 February 19, 2019 April 2019 May 7, 2019 Revisit budget proposals and seek further Board guidance Draft Preliminary Budget FY20/FY21 Budget Presentations & Discussion Draft COSA presentation, approval of Prop 218 notice Public Rate Workshops Prop 218 public hearing Establish rates for FY and Adopt 2 year budget REVIEWED BY: A.S.D Manager/Treasurer X NA General Counsel X NA General Manager X NA Attachments: none