STAFF REPORT. ITEM NO. 1 MEETING DATE: January 26, 2017 MEETING: Board of Directors / Finance Committee SUBJECT:

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3 ITEM NO. 1 MEETING DATE: January 26, 2017 MEETING: Board of Directors / Finance Committee STAFF REPORT SUBJECT: SUBMITTED BY: RECOMMENDED ACTION: Minutes of December 15, 2016 Finance Committee Meeting Cheryl Howlett, Finance Specialist, Finance Division Approve ATTACHMENT: 1. Minutes of December 15, 2016 Finance Committee Meeting

4 ** DRAFT ** MINUTES OF DECEMBER 15, 2016 MMWD BOARD FINANCE COMMITTEE MEETING IN ATTENDANCE: MARIN MUNICIPAL WATER DISTRICT BOARD OF DIRECTORS / FINANCE COMMITTEE Directors present: Cynthia Koehler, Larry Bragman, Jack Gibson, Armando Quintero and Larry Russell Directors absent: None CALL TO ORDER: Director Koehler called the meeting to order at 9:34 a.m. ADOPT AGENDA: By simple motion, the agenda was adopted. PUBLIC EXPRESSION: None ITEM 1. Minutes of November 22, 2016 meeting were approved. ITEM 2. Monthly Financial Update The Finance Manager, Oreen Delgado, presented the staff report to members of the Finance Committee and advised that on a fiscal year to date basis, water sales as of November 30, 2016 were $25,039,876 or 3% above budget. On an actual to actual monthly basis, water sales for the month of November 2016 were $399,314 below November 2015 or 12%. Billed water consumption in CCFs, fiscal year to date through November 30, 2016 was.2% above budget and 8% above the same period last year. Water production for the month of November 2016 was 10.5% below November Budget to actual operating expenses and capital purchases for the period ended November 30, 2016 are 34% of budget. Revenues as of November 30, 2016 are 49% of budget. Total revenues for Capital and Fire Flow funds are $887K or 10% of budget as of November 30, Spending on capital and fire flow projects is at 38% of budget The reserve balance summary as of November 30, 2016, unrestricted/undesignated operating reserves are $27M or 4.6 months of budgeted operating expenses for 2016/17. ADJOURNMENT There being no further business, the meeting of December 15, 2016 adjourned at 9:40 a.m. 1

5 ITEM NO. 2 MEETING DATE: January 26, 2017 MEETING: Board of Directors Finance Committee SUBJECT: SUBMITTED BY: RECOMMENDED ACTION: STAFF REPORT Preliminary Operating and Capital Budget for FY18 and FY19 Krishna Kumar, General Manager Mikyung Pustelnik, Interim Finance Manager Review and Comment on Preliminary Operating and Capital Budget for FY18 and FY19 EXECUTIVE SUMMARY: Staff has prepared preliminary budget for FY18 and FY19 in conjunction with the 2016 Draft Cost of Service Analysis (COSA) and long range financial planning. The draft budget and the draft COSA will be distributed at the meeting. A staff presentation will be made at the meeting to provide an overview of the preliminary operating and capital budget requests. The District s budget review will begin on January 26, 2017 and continue on February 23, 2017 Finance Committee meeting. No action is requested at this time. SUMMARY: The proposed budget is comprised of $116.7 million in FY18 and $130.0 million in FY19, for a two-year total of $246.7 million. Expenses for FY18 and FY19 include operating expenses of $151.6 million, capital projects of $75.4 million, and debt service expenditures of $19.6 million. Projected revenues for FY18 and FY19 include: water sales of $150.1 million (assuming 7% revenue increases each year), other operating revenues of $8.3 million, and capital grants, connection fees and fire flow fees of $21.3 million. The remaining capital projects will be funded by Pay Go amount of $13.0 million, a new debt issue of $40.8 million in FY2018 and reserve funding of $0.3 million. FY18 Budget: FY18 preliminary budget totals $116.7, which is $2.8 million (2.5%) higher than the FY17 budget. Cost increases are primarily due to higher debt service, consistent with payment schedules for the long term bonds, and higher capital project expenditures. Table 1 on page 2 provides comparative budgeted expenditures for FY18 and FY19.

6 Table 1: FY18 and FY19 Preliminary Budget Comparison Preliminary FY18 and FY19 Budget January 26, 2017 Page 2 Description FY16 FY17 FY18 Incr/Decr FY19 Incr/Decr Actual Budget Preliminary % Preliminary % Personnel Services $37.7 $42.0 $ % $ % General & Admin % % Materials & Supplies % % Operations % % Allocation to Capital % % Total Operating Fund % % Capital and Fire Flow Funds % % Total Operating & Capital Funds $92.3 $113.9 $ % $ % FY19 Budget: The preliminary FY19 budget of $130.0 million is $13.3 million (11.4%) higher than the preliminary FY18 budget. The cost increase includes $8.4 million in planned capital projects, $3.3 million in personnel services, and other expenditures of $1.6 million. Staffing: The FY18 budget reflects no additional staffing requests with a marginal decrease of $0.2 million (0.5%) as staff continues to assess the necessity for filling vacant positions and assessing current positions. The FY19 budget includes $3.3 million (7.9%) increase compared to the FY18 budget reflecting an anticipated increase in health benefit and an increase in CalPERS employer rate from 28.17% in FY18 to 30.99% in FY19. Reserves and Debt Coverage Ratio: The proposed operating budget results in a debt coverage ratio of 1.61 and 1.59 for FY18 and FY19, respectively, after transfers of $6.0 million to Capital Fund and $1.2 million to Rate Stabilization Fund in FY18, and $7.0 million to Capital Fund in FY19. Projected unrestricted reserves are $17.8 million or 3 months of budgeted operating expenses at June 30, 2018 and $16.2 million or 3 months of budgeted operating expenses at June 30, Projected unrestricted operating reserves are $17.8 million and $16.2 million for FY18 and FY19 respectively. Both reserves represent 3 months of operating expenses. The district s minimum debt coverage ratio is 1.25x annual debt service. The proposed FY18 and FY19 operating budgets results in a debt coverage ratio of 1.61 and 1.59, respectively.

7 Preliminary FY18 and FY19 Budget January 26, 2017 Page 3 Table 2: Comparative Reserves Description FY16 Actual FY17 Estimate FY18 Proposed FY19 Proposed Restricted Board Designated Rate Stabilization Fund Fire Flow Fund Capital Fund Operating - Unrestricted Total Reserves Pay GO Months Reserve Debt Coverage Ratio Cost of Service Analysis: The updated 2016 Draft COSA recommends a 7% increase in FY18 and FY19 with an estimated effective date July 1, 2017 and July 1, 2018 respectively. Projected increases in operating revenues are $5.2 million in FY18 from the Estimated FY17 Operating Revenue and $5.1 million in FY19 from the FY18. The preliminary FY18 and FY19 Operating and Capital Budget document and 2016 Draft COSA copies will be distributed and available at the January 26, 2017 Finance Committee meeting. STRATEGIC PLAN ALIGNMENT: The requested action aligns with the district s Strategic Goal 2: Financial Stewardship We will prudently manage the public resources entrusted to us and Strategy 1: Ensure financial planning is sufficient to address MMWD needs and risks. ATTACHMENTS: NONE

8 FY 17/18 & FY 18/19 Preliminary Budgets Finance Committee January 26, 2017 District Mission To manage our natural resources in a sustainable manner and to provide our customers with reliable, high quality water at a reasonable price. Bon Tempe Reservoir Lake Lagunitas Mt. Tamalpais Watershed 1

9 Alignment with MMWD Strategic Plan Strategic Goal 2: Financial Stewardship We will prudently manage the public resources entrusted to us Strategy 1: Ensure financial planning is sufficient to address MMWD needs and risks Long Term Budgetary Objectives Maintain exemplary Level of Service Maintain fiscal stability Maintain a healthy balance of Pay Go and bond funding for capital expenditures Debt coverage ratio of 2 Operating reserves of 6 months Maintain AA+ or above bond ratings for current and future borrowing 2

10 Significance of Pay Go Provides internal source for capital funding Reduces the need for borrowing Reduced interest payments Results in higher Debt Coverage Ratio Healthy balance for CIP funding between borrowing and own sources (50/50) Results in better credit rating Preliminary 2 Year Budget Highlights Restores Rate Stabilization Fund to $6.9M Pay Go of $13M & capital funding of $65M Fully funds first two years of BFFIP ($1.7M ) Maintains a coverage ratio of 1.5+ Maintains 3 months of operating reserves Meets S&P AA+ criteria Staff levels remain unchanged (245 employees) Recommended rates remain below $0.01/gallon 3

Description Expenditures (in millions) FY 15/16 Actual FY 16/17 Budget FY17/18 Incr/Decr FY 18/19 Incr/Decr Proposed % Proposed % Personnel Services 37.7 42.0 41.8 (0.5)% 45.1 7.9% General & Admin 21.

0% Total Operating Fund 72.0 84.2 83.2 (1.2)% 88.0 5.8% Capital and Fire Flow Funds 20.3 29.7 33.5 12.8% 41.9 25.1% Total All Funds 92.3 113.9 116.7 2.5% 130.0 11.

11 Description Expenditures (in millions) FY 15/16 Actual FY 16/17 Budget FY17/18 Incr/Decr FY 18/19 Incr/Decr Proposed % Proposed % Personnel Services (0.5)% % General & Admin % % Materials & Supplies (16.3)% % Operations (11.2)% % Allocation to Capital (2.7) (2.8) (3.3) 17.9% (3.3) 0.0% Total Operating Fund (1.2)% % Capital and Fire Flow Funds % % Total All Funds % % Description Revenues (in millions) FY 15/16 Actual FY 16/17 Budget FY17/18 Incr/Decr FY 18/19 Proposed % Proposed Incr/Decr % Total Water Sales % % Total Other Revenues % % Total Operating Fund % % Fire Flow % % Grant & Other Revenues (9.3)% % Total Capital Funds (4.5)% % Total All Funds % % 4

Ending Reserves (in millions) Description FY 15/16

Proposed Restricted 9.3 9.6 9.6 9.6 Board Designated 9.

9 6.9 Fire Flow Fund 0.7 0.7 0.7 0.7 Capital Fund 19.

8 16.2 Total Reserves 61.0 46.8 67.7 44.

12 Ending Reserves (in millions) Description FY 15/16 Actual FY 16/17 Estimate FY17/18 Proposed FY 18/19 Proposed Restricted Board Designated Rate Stabilization Fund Fire Flow Fund Capital Fund Operating Unrestricted Total Reserves Draft Cost of Service Study Update January

13 7% Rate increases in line with original recommendations Millions $120 $100 $80 $60 $40 $20 $ Projected Cash Flows Expenses PAYGO Debt Service Expenditures Revenues (7% Increases) Revenues (No Increases) 11 SFR Rates Existing Proposed Alternate Bimonthly fixed Service Charge (5/8") $33.85 $36.14 $36.14 Watershed Fee (5/8") Volumetric Tier 1 $3.96 Tier Tier Tier $ $

14 FY 2013/14 Water Revenue Projected FY 2017/18 Water Revenue Quasi Fixed 44% Fixed 15% Variab le 41% Fixed 31% Quasi Fixed 41% Varia ble 28% 59% Fixed 72% Fixed Higher fixed revenue could mitigate revenue risk caused by swings in demand 13 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $ Meter Charge (5/8") Watershed Fee Tier 1 Tier 2 $62 Existing $68 Proposed 2017/18 $72 Proposed 2018/19 $76 Existing $81 Proposed 2017/18 5 CCF 8.5 CCF $87 Proposed 2018/19 Monthly Bill Increase $2.54 $2.35 $2.58 $2.84 *Average monthly use, 8.5 CCF 14 7

15 220 Nellen Avenue Corte Madera, CA marinwater.org (415) Thank you. 8

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17 20 PAYGO Reduces Bond Funding with Time The key to this plan is two times debt service coverage. The District s credit rating should be AA+ or better. 10

Next Steps & Schedule Date Meeting Milestone/Venue January 26 th Finance Budget

February 23 rd Finance Budget review continued March 7 th Board Seek authorization

Center May 16 th Board Consideration of rate increase June 6 th Board Adoption of FY

18 Next Steps & Schedule Date Meeting Milestone/Venue January 26 th Finance Budget Review Begins February 15 th Communications Communications strategy discussion February 23 rd Finance Budget review continued March 7 th Board Seek authorization to issue Prop 218 Notice April 11 th Public Rate Workshop Corte Madera Community Center May 16 th Board Consideration of rate increase June 6 th Board Adoption of FY 18 & FY 19 budget 220 Nellen Avenue Corte Madera, CA marinwater.org (415) Thank you. 11

STAFF REPORT. ITEM NO. 1 MEETING DATE: March 31, 2017 MEETING: Board of Directors / Finance Committee SUBJECT:

STAFF REPORT. ITEM NO. 1 MEETING DATE: March 31, 2017 MEETING: Board of Directors / Finance Committee SUBJECT: ITEM NO. 1 MEETING DATE: March 31, 2017 MEETING: Board of Directors / Finance Committee STAFF REPORT SUBJECT: SUBMITTED BY: RECOMMENDED ACTION: Minutes of February 23, 2017 Finance Committee Meeting Cheryl