HomeMy WebLinkAbout04-28-21 Board Packet 1
OTAY WATER DISTRICT
SPECIAL MEETING OF THE BOARD OF DIRECTORS
BY TELECONFERENCE
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY, CALIFORNIA
WEDNESDAY
April 28, 2021
12:00 P.M.
AGENDA
1. ROLL CALL
2. PLEDGE OF ALLEGIANCE
3. APPROVAL OF AGENDA
4. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO
SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S
JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
This meeting is being held via teleconference. Members of the public may submit
their comments on agendized and non-agendized items by either of the following
two methods:
a) No later than a half hour before the start of the meeting, complete the Re-
quest to Speak Form and email it to BoardSecretary@otaywater.gov. Your
request to speak will be acknowledged during the “Public Participation” por-
tion of the meeting when the board will hear your public comment. When
called to speak, please state your Name and the City in which you reside.
You will be provided three minutes to speak.
OR
b) No later than a half hour before the start of the meeting, email your comment
to BoardSecretary@otaywater.gov and it will be read aloud during the “Public
Participation” portion of the meeting. Please provide your Name and the City
in which you reside, with your comment. Your comment must not take more
than three minutes to read.
The District’s meeting is live streamed. Information on how to watch and listen to
the District’s meeting can be found at this link: https://otaywater.gov/board-of-
directors/agenda-and-minutes/board-agenda/
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WORKSHOP
5. DISCUSSION OF THE FISCAL YEAR 2022 BUDGET KEY FIGURES AND AS-
SUMPTIONS (KOEPPEN)
6. ADJOURNMENT
All items appearing on this agenda, whether or not expressly listed for action, may be
deliberated and may be subject to action by the Board.
The Agenda, and any attachments containing written information, are available at the
District’s website at www.otaywater.gov. Written changes to any items to be considered at
the open meeting, or to any attachments, will be posted on the District’s website. Copies
of the Agenda and all attachments are also available by contacting the Acting District
Secretary at (619) 670-2253.
If you have any disability which would require accommodation in order to enable you to
participate in this meeting, please call the Acting District Secretary at 670-2253 at least 24
hours prior to the meeting.
Certification of Posting
I certify that on April 23, 2021, I posted a copy of the foregoing agenda near the
regular meeting place of the Board of Directors of Otay Water District, said time being at
least 24 hours in advance of the special meeting of the Board of Directors (Government
Code Section §54954.2).
Executed at Spring Valley, California on April 23, 2021.
/s/ Tita Ramos-Krogman, Acting District Secretary
STAFF REPORT
TYPE MEETING: Budget Workshop MEETING DATE: April 28, 2021
SUBMITTED BY: Kevin Koeppen, Assistant Chief
of Finance
PROJECT: DIV. NO.All
APPROVED BY:
(Chief) Joseph R. Beachem, Chief Financial Officer
Jose Martinez, General Manager
SUBJECT: Informational Item to Present FY 2022 Budget Key Figures and
Assumptions Impacting the Upcoming Budget Proposal
GENERAL MANAGER’S RECOMMENDATION:
This is an informational item presenting the FY 2022 budget key
figures and assumptions.
PURPOSE:
The purpose of this informational item is to present to the Board
key figures and assumptions impacting the FY 2022 budget.
BACKGROUND:
The District’s budget process begins in January and ends with the
adoption of the next fiscal year budget at the June Board meeting,
and implementation of rates the following January. This Budget
Workshop represents the second of three presentations related to the
FY 2022 budget covering the key budget assumptions and inputs. The
first presentation, the 2021 Economic Study was presented to the
Board on April 7, 2021. The final presentation of the consolidated
budget is scheduled for the June 2nd Board meeting. At the June 2nd
Board meeting, staff will be presenting the consolidated FY 2022
budget and requesting that the Board approve the following items:
the FY 2022 Operating and Capital Improvement Program (CIP) Budget,
Interfund Transfers, actions associated with recommended rate
changes, and the Salary Schedule. In addition, staff plans to
request the Board approve a reinstatement of penalties to be
effective on July 1, 2021.
The budget is put together presenting the most realistic set of
factors and assumptions based on information received from various
sources including: the wholesale water suppliers, the Metropolitan
Water District of Southern California (MWD), the San Diego County
Water Authority (CWA), and the City of San Diego (the City); vendors
such as SDG&E, and an economic report prepared this year by the
Xpera Group. Staff uses this information in conjunction with other
AGENDA ITEM 5
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economic indicators affecting taxes and revenues, such as inflation
and interest rates, to prepare the budget.
FY 2021 Projected Results
Through February 28, 2021, the District has an operating surplus of
$5.5 million due to the adverse impacts of COVID-19 being less than
anticipated. Staff is projecting the surplus will remain at this
level for the remainder of the fiscal year. In addition, the
District’s reserves have benefitted from a $3.1 million refund from
CWA and a recycled volume credit of $1.2 million from the City.
Staff is proposing that these benefits be utilized to offset items
placing pressure on rates in FY 2022 and the six-year projection
including: increasing CIP, increasing potable water purchase costs,
and ongoing COVID-19 impacts.
Budget Strategy
The culmination of the budget process is the recommendation of
changes to water and sewer rates, which meet the following primary
budget objectives:
•Recommend rates that are compliant with the requirements of
Proposition 218,
•Maintain target reserve levels for the next six (6) years,
•Maintain debt coverage, excluding growth, above the 150%
target level for the next six (6) years and
•Maintain debt coverage, including growth, above the covenant
requirement of 125% for water and 115% for sewer for the
next six (6) years,
•Support the Strategic Plan initiatives.
Strategic Planning
In addition to the budget and rate setting process, the District’s
focus on strategic planning has played a positive role in the
financial strength of the District. By managing staffing,
automating processes, and implementing Best Management Practices,
the District has become more efficient and cost effective. The
Strategic Plan is foundational to the budget process as it drives
many of the programs of the District which are funded through the
budget process.
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Proposition 218
The State of California has well-established legal constraints
regarding utility rate setting, of which California Constitution
Article XIII D, Section 6 (commonly referred to as “Proposition
218”), is at the forefront. Proposition 218 requires that water and
sewer utilities establish cost-based rates for the services
provided. To comply with this requirement, the District performs
periodic cost of service studies and Proposition 218 hearings.
Water completed a cost of service study in 2017 and the District
held a Proposition 218 hearing on October 4, 2017. At the
conclusion of the 218 hearing the Board approved the terms of the
218 Notices, which allowed for rate increases to pass-through 100%
of cost increases from the District suppliers of water and power,
and up to 10% rate increases for internal costs for a period up to
five (5) years. The five-year effective period for water expires in
FY 2022. A water cost of service study is scheduled to be performed
in FY 2022 and will affect the January 1, 2023 rates.
Sewer completed a cost of service study in 2020 and the District
held a Proposition 218 hearing on October 7, 2020. At the
conclusion of the 218 hearing the Board approved the terms of the
218 Notices, which allowed for rate increases to pass-through 100%
of cost increases from the District sewer service and power
providers, and up to 10% rate increases for internal costs for a
period up to five (5) years. The five-year effective period for
sewer expires in FY 2025.
COVID-19 Experience
The FY 2021 six-year projection included a cumulative $8.8 million
adverse impact of COVID-19 over a six-year period. COVID-19
continues to impact the District’s operations and revenues. The
District continues incurring additional operating costs to prevent
the spread of the virus and the ongoing ban on locking continues to
adversely impact our collections. While these items continue to
impact the District, other areas have not experienced the levels of
adverse impacts anticipated when the FY 2021 budget was prepared:
•Water sales volumes to date have not declined.
•Property taxes have not experienced anticipated reductions.
•Development continues at a relatively constant pace to pre-
COVID-19 anticipated levels.
•Changes in lien practices and utility assistance programs have
reduced the District’s bad debt exposure on delinquent
accounts.
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Through March 31, 2021, the adverse impact of COVID-19 is estimated
to be approximately $1.4 million, which consists of:
• $622 thousand in lost revenue related to waiving penalties.
• $449 thousand in payroll operating expenses invested in
responding to COVID-19 related issues.
• $225 thousand in non-payroll operating and CIP expenses for
operating safely in a COVID-19 environment.
• $140 thousand in COVID-19 related time-off in accordance with
the CARES Act allowances for employees.
• $110 thousand in estimated bad debt related to delinquent
accounts due to the ban on locking for non-payment.
Based on the identification of allowable expenses under the FEMA
standards, the District has submitted a $218 thousand claim for
reimbursement with FEMA and is awaiting their response. Staff is
also monitoring the recent stimulus package. Apart from aid for
delinquent accounts, no additional funding has been identified to
further reduce the District’s remaining unreimbursed costs incurred
to date or future anticipated costs.
Collections continue to be an ongoing issue; however, changes to the
District’s lien practices and the recent utility stimulus funding is
anticipated to reduce the adverse impacts of delinquent accounts.
The impact of delinquent accounts is discussed further in the FY
2022 Challenges section of this staff report.
Legislative Issues
There are several legislative issues that are impacting the
District. The unprecedented economic impact the state is
experiencing due to the COVID-19 pandemic, including the necessary
disruptions to in-person work and Governor Newsom’s executive order
prohibiting water shutoffs, have made water districts’ revenue and
financial planning more unpredictable. The District, along with
other water agencies, continues to seek federal and state funding
sources for COVID-19 relief from unpaid or late water bills. This
includes near-term emergency relief for water bill delinquencies due
to the pandemic and long-term systemic issues related to low-income
water rate assistance and discontinuation of water service.
The District has joined a coalition with the California Municipal
Utilities Association, California Special Districts Association,
Association of California Water Agencies, California Association of
Sanitation Agencies, and others to request the allocation of
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additional dedicated funding of at least $1 billion for past-due
public water and wastewater agency and publicly owned electric
utility bills due to the pandemic. Also, to assist special district
local governments in stabilizing operations and impacts due to the
pandemic response, the District is working with other water-related
organizations to urge the Governor’s administration and the
legislature to extend access to COVID-19 fiscal relief to these
essential segments of local government. Unlike other government
entities such as the state, schools, cities, and counties,
California’s special districts have received no direct access to
COVID-19 relief funding programs. The District is also monitoring
funding from the Consolidated Appropriations Act, which will provide
$50 million to $65 million to California and from the American
Rescue Plan Act, which will provide approximately $40 million to $50
million to the state.
In late March, President Biden proposed the American Jobs Plan,
which is a $2 trillion infrastructure package. Major funding
components of the infrastructure proposal include clean drinking
water infrastructure, electric grid, high-speed broadband,
infrastructure resiliency, broadband deployment, grid resiliency and
lower energy costs, and homes and commercial buildings. Until the
plan is approved, it is unknown how this plan will affect the
District’s costs.
Water affordability will continue to be a challenge for the District
and other water agencies throughout the state. Senator Bill Dodd
introduced two bills to attempt to address this issue. SB 222 would
establish the Water Affordability Assistance Program to help provide
water affordability assistance for both drinking and wastewater
services to low-income ratepayers experiencing economic hardships.
SB 223 seeks to expand and extend existing statutorily required
protocols and procedures to protect low-income households that face
or have already experienced water service disconnections due to the
water customers’ inability to pay their water bill. Significant
provisions include requiring water agencies to develop arrearage
management plans including debt discharge and the prohibition of
disconnection for an extended period. Both bills were recently
amended.
Due to Proposition 218, there is not much flexibility for the
District and other water agencies to provide customer assistance
during the COVID-19 pandemic. However, the Association of
California Water Agencies (ACWA) introduced a sponsored bill, SB 323
(Caballero), which would improve financial stability for public
agencies by creating a statute of limitations for legal challenges
to water and sewer service rates, while still ensuring that adopted
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rates and charges comply with Proposition 218 and other existing
laws. This bill is an important measure to ensure that existing
legal protections are consistent to improve financial predictability
for utility providers. The District supports this measure.
The District will also continue to monitor the state’s drought
response and preparation. As a result of two consecutive dry years,
there will be an increased focus on drought-related issues across
the state.
Water-use efficiency legislation will continue to be a challenge for
the District and other water districts throughout the state. Passed
in 2018, SB 606 and AB 1668 are in the implementation stage by the
State Water Resources Control Board (SWRCB) and the Department of
Water Resources (DWR) and will very likely trigger additional costs
for the District.
In addition to the water-use efficiency laws requiring water
agencies to establish an arbitrary residential indoor gallons per
capita per day (GPCD) goal of 55, effective in 2023, and the SWRCB
adopting an outdoor water-use standard by June 2022, a new bill, AB
1434 (Friedman), was introduced this year that would revise the
indoor residential water use standards within the context of the AB
1668 and SB 606 water-use efficiency statutes. AB 1434 would modify
the indoor water use standards to 48 GPCD beginning January 1, 2023,
44 GPCD beginning January 1, 2025, and 40 GPCD beginning January 1,
2030 (current law is 55, 52.5, and 50 GPCD, respectively).
The Bay-Delta watershed also continues to be an area of focus for
the state. The proposed Delta Conveyance Project, which seeks to
modernize State Water Project conveyance, continues to
move forward. This is consistent with the Governor’s Water
Resilience Portfolio, the state’s blueprint to prepare for extreme
droughts and floods, rising temperatures, declining fish
populations, overreliance on groundwater, delta resilience, and
other challenges. DWR prepared a public outreach plan that
identifies information and engagement opportunities and milestones
in preparation of the release of a Draft Environmental Impact Report
for public review in mid-2022.
State Resources Bonds, focusing on climate resiliency, totaling
approximately $12.2 billion are anticipated to be on the November
2022 ballot. The goal of these bonds is to focus on wildfire
prevention, safe drinking water, drought preparation, climate
resiliency, flood protection, and more. If passed in 2022,
approximately $400 million of these bonds would be set aside for
recycled water projects. ACWA and the WateReuse Association
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continue to advocate for additional funding for recycled water
projects.
Other legislative and/or policy issues that staff will continue to
monitor how they affect the District’s budget include the SWRCB’s
Water Loss Performance Standards Regulations; water quality-related
legislation regarding Maximum Contaminant Level compliance periods
and a potential dedicated program for Constituents of Emerging
Concern including PFAS, microplastics, etc. to proactively improve
the understanding of their occurrence and public health significance
in drinking water sources; Water Resilience Portfolio implementation
and progress; wildfires and climate change; and regional workforce
development including but not limited to military veteran outreach
and education and clarifying the SWRCB process regarding AB 1588.
In addition, increased water, sewer, reclamation plant, and
laboratory regulatory fees and regulatory creep continue to be
considerable cost drivers. CWA projects could also be cost drivers,
for example, CWA is currently exploring the viability of a regional
conveyance system to transport water from the Colorado River to San
Diego County.
FY 2022 Challenges
COVID-19
At the time the FY 2021 budget was prepared between January and May
of 2020, the impacts of COVID-19 were largely unknown. The
District’s six-year projection included an estimated $8.8 million of
adverse COVID-19 financial impacts across several areas including
water revenues, tax revenues, and growth revenues.
The District anticipates there to be continued impacts of COVID-19
in FY 2022; however, at this point the financial impacts are lessor
than estimated in the prior year’s budget. The most significant
COVID-19 related item to-date is the continued waiver of penalties.
At the onset of the COVID-19 pandemic, in March of 2020, the
District stopped charging penalties. Since the waiver was
initiated, the District has waived $861 thousand of penalties.
Prior to COVID-19, total annual penalty revenue was approximately
$850 thousand. Penalties are assessed at 5% of the previous month’s
unpaid balance. At current billing levels, the average penalty for
a residential customer would be $5.85 per month.
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Penalty Reinstatement
As part of the FY 2022 budget process staff plans on requesting the
Board approve the reinstatement of penalties effective July 1, 2021.
While staff continues to monitor the state of the pandemic, recent
reductions in COVID-19 levels, reinstatement of similar charges by
other agencies, and reopening of the economy have led staff to
incorporate a July 1, 2021 effective date assumption into the FY
2022 budget.
The following discussion contains additional details regarding the
purpose for charging penalties, the re-opening of the economy, and
information from other water agencies regarding the status of their
penalty charges.
Historically, locking accounts and imposing penalties were the
primary tools the District used to encourage timely customer
payments. Due to the Governor’s executive order banning locking for
non-payment, imposing penalties is the only remaining tool for
encouraging timely payments. To provide additional security the
District also liens properties. While liens provide some security
that the District will receive payment, the collection process often
takes much longer, and payment is not guaranteed as the District is
not a secured lienholder. As of April 5, 2021, there are
approximately 3,000 accounts carrying a combined average balance of
$320 thousand. This amount is almost four times the pre-COVID-19
level of $83 thousand. Of those past due accounts, approximately 11
have committed to a payment plan with the District, 78 have not
responded to the District’s collection efforts (have not paid since
prior to the start of the pandemic), and the remaining 2,900 have
made some form of payment or payments but continue to carry
delinquent balances. If penalties were reinstated, penalties would
be waived for the 11 accounts currently committed to payment plans
and any additional accounts that commit to payment plans.
Since early 2021, COVID-19 case rates have continued to decline and
vaccination availability has increased, allowing many of the state
and county business restrictions to be reduced, reopening the
economy, and reducing unemployment. The following table compares
the current unemployment levels to COVID-19 peak unemployment, and
unemployment during the housing crisis.
Period Unemployment %
March 2010 11.5%
March 2020 15.0%
March 2021 6.9%
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If case rates continue to decline, additional reopening of the
economy and reductions in unemployment are expected to occur.
In a survey of 17 other San Diego County water agencies, three (3)
agencies never implemented a waiver of penalty fees. Of the
remaining 14 that implemented penalty waivers, four (4) have
reinstated fees after having paused them at the beginning of the
pandemic. The following table summarizes the status of agencies
penalty charges.
All agencies currently charging penalties have stated that they
continue to be flexible with customers and continue to waive
penalties for customers that show an economic burden due to COVID-19
who have entered into long-term payment arrangements. The
District’s Code of Ordinances allows for a one-time penalty fee
waiver every 12 months, and the General Manager delegates additional
authority to do billing adjustments, including waiving additional
penalties, to the customer service manager. While it is not
currently a common practice, this delegated authority will allow our
customer service manager to be sensitive to individual customer’s
situations. In addition, any customers who enter into long-term
payment arrangements will not be charged penalties if payments are
made as scheduled.
In addition, the City of Chula Vista had implemented a waiver of
parking citations in the downtown area of Chula Vista to assist in
promoting the area’s commercial businesses that had been adversely
impacted by COVID-19. The City reinstituted parking citations on
November 2, 2020.
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Based on trending reductions in COVID-19 cases, other agencies
reinstituting similar charges, and anticipated continued reopening
of the economy, the FY 2022 budget assumes penalties will be
reinstated July 1, 2021. As part of the final budget approval
process staff plans to include a request for the Board to reinstate
penalties on this date. If the impacts of the pandemic do not
continue to improve or worsen, staff may recommend deferring the
reinstatement of penalties to a later date.
Other COVID-19 Items
The FY 2022 budget assumes ongoing incremental annual COVID-19
related expense budgets of:
•$15 thousand of non-payroll related operating expenses
associated with safety measures recommended by the Center for
Disease Control (CDC) to prevent the spread of COVID-19.
•$110 thousand of bad debt expense related to the ongoing ban
on locking for non-payment. The total budgeted bad debt
expense of $220 thousand for FY 2022 is a 100% increase
compared to pre-COVID-19 levels and a 50% decrease compared to
the FY 2021 budget. The ongoing ban on locking has resulted
in an increase in the level of delinquent account balances,
which have increased from $318 thousand pre-COVID-19 levels to
a current total delinquent account balance of $964 thousand.
The District’s change in lien practices and the recent
stimulus funds are anticipated to reduce the District’s bad
debt exposure which is the reason for a decrease in the FY
2022 budget compared to the FY 2021 budget.
CIP Projects
The six-year CIP projection is increasing due to the need for newly
identified CIP projects. The total six-year CIP is increasing $9
million from $92 million in FY 2021 to $101 million in FY 2022. The
proposed CIP six-year budget is discussed further in the CIP section
of this staff report.
Water Costs
CWA is currently performing a long-term rate analysis. As a
preliminary estimate of CWA rates, staff is incorporating 6% annual
rate increases from FY 2022 to FY 2027. Staff is anticipating the
final rates from CWA will be available closer to the District’s June
Board meeting and final budget presentation. At this time staff is
anticipating annual 6% rate increases across all CWA rate and fee
categories.
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Recently, the City published its latest cost of service study
proposing a 27.5% increase in the recycled unit price from $1.73 per
unit to $2.21 per unit and a 62.9% increase in the monthly recycled
fixed fee from $1,333.75 to $2,172.25, per month. The timing of the
increase is anticipated to be January 1, 2022. In addition, the
City is proposing 4% annual recycled rate increases from 2023 to
2026, which are also assumed to be effective January 1st of each
respective year. When considering the City’s last recycled rate
increase was January 1, 2017, the increases equate to annual
increases of 5.5% and 12.6%, respectively. When considering the
contractual volumes, the rate increases are estimated to increase
the District’s recycled purchase costs by approximately $1.2 million
per year through FY 2026. The current contract with the City
terminates in the second half of calendar year 2026, which results
in the six-year rate model reflecting the termination of the take-
or-pay penalty volume in fiscal year 2027. The average penalty
between 2022 and 2026 is estimated to be approximately $3.1 million
per year.
Sewer Challenges
The primary long-term challenges for sewer continue to be the City’s
increasing wastewater fees and projected debt issuances necessary to
fund CIP projects. In addition, a short-term challenge for sewer is
a temporary increase in the County of San Diego’s fees related to a
rehab project for facilities operated by the County and shared by
the District.
The City’s Pure Water program, which incorporates a secondary
equivalency for the Point Loma WWTP, impacts the wastewater fees
paid for by the District’s sewer customers for sewage treatment.
The ultimate cost of the City’s Pure Water program remains the most
significant cost increase facing the sewer customers over the next
six (6) years, and beyond. There is still significant ambiguity on
how these costs will affect our customers. As mentioned in an April
3, 2019 Engineering Staff Report, the District’s sewer customer’s
share of Pure Water Phase I is estimated at $2.6 million and Phase
II is estimated at $5.7 million. The combined effect on rates
totaling 29% will need to be phased into the District’s sewer rates
over the next 15 years. A modification in annual average daily
metro capacity from 1.287 MGD to 0.38 MGD under the new Metro
amended agreement has reduced the District’s ultimate pure water
burden. While estimates of the Pure Water program are built into
the budget projections, the separate billing of the Pure Water
program has not been incorporated into the City’s sewage treatment
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fees, so there is still some risk regarding the ultimate outcome to
the District.
The City has received grant funding and low-cost State Revolving
Fund (SRF) financing for its Pure Water program. These funding
sources directly reduce the overall Pure Water cost and reduce the
District’s pay-go funding requirement, smoothing out the cashflow
impact to the District’s customers. Payments for SRF do not start
until a year after construction completion, meaning the Pure Water
program cost impacts covered by SRF are expected to be delayed until
the 2023 or 2024 timeframe.
For the CIP component of Pure Water, staff is assuming a $62
thousand increase of the District’s operating Metro fees based on an
estimate provided by the City in FY 2023. In addition to the
operating fees, the District has established a CIP project
associated with the capacity under the new amended agreement. The
sewer CIP is estimated to cost $8.3 million over the next 15 to 20
years. Based on information from the City, the current six (6) year
CIP projection includes $480 thousand for the Pure Water program.
The District is also anticipating an increase in costs related to a
shared-facility agreement with the County of San Diego (the County).
A section of the District’s sewer system is a shared facility owned
and operated by the County. The County is undergoing a necessary
rehab project of the shared facility, which is estimated to cost the
District’s sewer operation approximately $400 thousand over the next
four (4) years.
Drought Resiliency
The state has historically experienced periods of drought. Over the
last four years rainfall has averaged 5.9 inches per year which is
below the historic annual average of 10.4 inches. The lack of
rainfall has prompted drought discussions to resurface. There have
been two droughts in recent history. Following is a history of the
volume reductions experienced by the District during those two
droughts.
The last drought occurred from around FY 2014 through FY 2016.
During that timeframe water volumes decreased 23% from a peak of
13.7 million units in FY 2014 to a low of 10.5 million units in FY
2016. Due to permanent conservation measures, volumes have still
not recovered to 2014 levels.
Prior to the 2014 drought, the region experienced a drought which
began in 2007 and ended in 2011. During that timeframe volumes also
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declined 23% from a peak volume of 16.1 million units in 2007 to a
low of 12.4 million units in 2011.
While permanent conservation measures taken during the last two
droughts have reduced the probability of a 23% reduction occurring
again, the last two droughts have been impacted by the same
percentage. The following table contains reference points on the
financial impacts of conservation at various levels.
At 10% conservation the District’s debt service coverage and
reserves would remain well above covenant and target levels. At 20%
the District’s debt service coverage would remain well above the
covenant level and reserves would remain well above the targeted
levels. The no-growth debt service coverage would decrease below
target. At this time, the assumptions used to prepare the budget
and the resulting financials would be sufficient to absorb these
levels of conservation, including the historic 23%. Continuing
impacts of ongoing drought mandates would be reflected in future
budgets.
CalPERS and OPEB Update
As of June 30, 2019, which is the most recent CalPERS actuarial
pension valuation, the District’s pension is 86.6% funded and the
unfunded pension liability is approximately $19.4 million. The
pension and OPEB liabilities carry an interest cost of 7.0%, which
is the District’s highest interest cost. By focusing on reducing
and eliminating the unfunded pension liability the District is
reducing the highest interest cost liability, which represents a
savings opportunity to the District.
As of June 30, 2019, the OPEB plan was fully funded, and the plan
began reimbursing the District for retiree medical costs. In FY
2021 the District received its first reimbursement of retiree
medical costs since the plan was expanded in 2010. Prior to FY
2021, the District utilized the approximate $1.2 million per year to
advance fund the retiree medical unfunded liability. With the full
funding of the OPEB the advance shifted in FY 2021 to advance fund
the CalPERS unfunded pension liability. Staff estimates this
pension liability funding strategy will save $5.0 million over the
next 12 years.
%
Conservation Volumes Reserves Debt Service Rate
-10% -1.6M -$2M -20% 0.3%
-20% -3.2M -$4M -42% 0.7%
Impacts
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In 2018, the District made a $31.8 million advance payment to
CalPERS, which was estimated to save the District $16.4 million over
25 years. Other efforts to reduce pension costs have included:
staff reductions, reducing the benefit through PEPRA, advanced
funding of the District’s pension and OPEB obligations, and plans to
shift advanced OPEB funding to the pension. Based on the revised
estimated UAL from CalPERS and the finalized debt terms, the
District is estimating a savings of approximately $16.0 million.
As part of the FY 2022 budget process, staff is evaluating an
additional lump sum advance funding similar to the 2018 advance
funding to further reduce the unfunded pension liability. The
objective of this advance funding would be to save the ratepayers
money. In evaluating the ability to make another lump sum payment,
staff must consider all other financial obligations of the District
to ensure the advance funding will not adversely affect the
District’s overall financial position. Any recommended additional
advance PERS funding will be brought as a separate item to the
Board; however, staff is planning on incorporating the maximum
feasible lump sum payment into the budget planning process to
maximize the savings and reduce rate increases. Based on the latest
actuarial report from CalPERS, the District’s unfunded pension
liability is approximately $20 million. Preliminary calculations
have determined that paying off 100% of the unfunded liability would
save the District approximately $6.0 million above the current
advance funding strategy over the next 12 years.
Major Assumptions
Potable Sales Volumes
Through March 31, 2021, actual potable water sales were 9.5 million
units, which was 20% above budget of 7.9 million units. The surplus
is due to below average rainfall and an unrealized reduction due to
COVID-19. Through March 31, 2021, year—to-date rainfall of 4.8
inches was 54% below the historic average. In addition, the FY 2021
potable volumes were reduced 12% in anticipation of COVID-19 related
reductions equivalent to reductions during the prior recession and
an AWWA study on COVID-19 impacts to water systems.
As volumes have not been adversely impacted by COVID-19, staff is
returning to a pre-COVID-19 practice of using historical averages to
forecast future volumes. The use of historical averages to project
future volumes results in volumes that are in the median range of
recent annual high and low volumes. Using this methodology
anticipates that, over the long term, rainfall will equal average
15
levels reducing the likelihood of rate spikes due to shifts between
wet and dry years.
For the FY 2022 budget, staff is using a four-year average from FY
2018 to FY 2021, plus a growth factor based on the Xpera Economic
Study presented at the April Board meeting. While staff recognized
FY 2021 was not normal, the overall FY 2021 potable volume is
consistent with other similar rainfall years and the inclusion or
exclusion of FY 2021 has less than a 1% impact on the total budgeted
volume.
The following table contains a chart of historical potable volumes,
rainfall, the four-year average, and the FY 2022 volume calculated
as the four-year average, plus growth.
Following are the projected unit sales assumptions proposed for the
FY 2022 six-year rate model. Additional discussion pertaining to
the projected volumes can be found immediately following the table.
The following analysis shows historic and projected volumes compared
to last year’s projections and ranges.
•The green line represents a maximum volume year based on
relevant historical actual volume.
•The red line represents the minimum volume year based on
relevant historical actual volume.
•The yellow section represents the volume associated with
growth.
•The black solid line represents the FY 2022 projection,
totaling the existing (blue) plus the growth (yellow) volumes.
•The grey dotted line represents the FY 2021 budget and six-year
projection.
Projected Average Budget
FY 2018 FY 2019 FY 2020 FY 2021 4-Year FY 2022
Rainfall 3.4 12.6 16.7 4.8 9.4 N/A
Units 12,227 11,327 11,390 12,013 11,739 11,762
Note: Long-term average annual rainfall is 10.4 inches
Historical Unit Sales (in 000's HCF) and Rainfall (in inches)
Actual
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 6-year Ave Growth %
11,762 11,798 11,834 11,870 11,906 11,942 11,852 0.29%
Projected Unit Sales (in 000's HCF)
6-Year Rate Model Projection
16
As FY 2021 was a dry year, staff does not think it would be prudent
to anticipate volumes to remain at FY 2021 levels for the next six
years.
Recycled Sales Volumes
Through March 31, 2021, the actual recycled water sales volume was
1.3 million units, which was 38% above budget. The surplus volume
is largely due to less than average rainfall discussed in the
previous potable sales volume section of this report. In addition,
the FY 2021 budget included a 15% decline in recycled volume due to
COVID-19. The COVID-19 related decline was based on declines
experienced during the housing crisis. To date the FY 2021 actual
recycled volumes have not declined by 15%. The FY 2022 volume
projections have been prepared using the same historical average
plus growth methodology used to prepare the potable volume
projection. The following table contains a chart of historical
recycled volumes, rainfall, the four-year average, and the FY 2022
volume calculated as the four-year average, plus growth.
Otay Water District
Potable Sales Projection Analysis
FY 2022 Budget and Six-Year Projection
12,227
12,430
11,327
11,530
FY 2021
12,013
FY 2022
11,762
11,942
10,000
10,500
11,000
11,500
12,000
12,500
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Base Volume Cumulative Growth Ceiling Floor FY 2021 Budget
17
Following are the projected unit sales assumptions proposed for the
FY 2022 six-year rate model. Additional discussion pertaining to
the projected volumes can be found immediately following the table.
The following analysis shows historic and projected volumes compared
to last year’s projections and ranges.
•The green line represents a maximum volume year based on
relevant historical actual volume.
•The red line represents the minimum volume year based on
relevant historical actual volume.
•The yellow section represents the volume associated with
growth.
•The black solid line represents the FY 2022 projection,
totaling the existing (blue) plus the growth (yellow).
•The grey dotted line represents the FY 2021 budget and six-year
assumptions.
Projected Average Budget
FY 2018 FY 2019 FY 2020 FY 2021 4-Year FY 2022
Rainfall 3.4 12.6 16.7 4.8 9.4 N/A
Units 1,737 1,463 1,452 1,614 1,567 1,569
Note: Long-term average annual rainfall is 10.4 inches
Historical Unit Sales (in 000's HCF) and Rainfall (in inches)
Actual
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 6-year Ave Growth %
1,569 1,571 1,572 1,574 1,576 1,578 1,573 0.25%
6-Year Rate Model Projection
18
Capital Improvement Program (CIP) Budget
As a component of the annual budget development process, the
Engineering staff update the CIP budget using the following process:
•CIP projects are selected based on the Water Facilities Master
Plan (WFMP), the Urban Water Management Plan (UWMP), Sub Area
Master Plans (SAMP), Integrated Water Resources Plan (IRP),
Wastewater Management Plan (WWMP), the Cathodic Protection
Plan, the District’s Strategic Plan, and other focused or
specific planning documents and reports to manage growth,
maintenance, and the life extension of assets.
•The CIP goes through an iterative process to meet the criteria
of growth, service levels, supply targets, and system
reliability.
•CIP target expenditures for the next six (6) years are refined
and used in the rate model.
The following general criteria are used to determine the
reasonableness of a project before it is considered for inclusion
within the CIP budget:
FY 2022 Budget and Six-Year Projection
Otay Water District
Recycled Sales Volume Analysis
1,737 1,748
1,452 1,463
FY 2021
1,614 FY 2022
1,569 1,578
1000
1200
1400
1600
1800
2000
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Base Volume Cumulative Growth Ceiling Floor FY 2021 Budget
19
•Safety and existing facility conditions
•Operating system conditions and energy improvements
•Water and sewer system deficiencies
•Regulatory and permitting agencies requirements
•Developer driven requirements
•Economic outlook
•Growth projections
•Water supply diversification goals
•Board and management directives
This year, the total six-year CIP budget of $101.3 million is
increasing by $9.0 million versus last year. The total water CIP
budget for the six-year period is $93.4 million, which is an $8.0
million increase compared to FY 2021 and the sewer CIP of $7.9
million is increasing $1.0 million compared to FY 2021. To maintain
reserves at target levels, staff is projecting a debt issuance for
water in 2024, and debt issuances for sewer in 2024 and 2026. As
the District approaches the timing of issuing debt an analysis will
be performed to determine the cost benefit of combining the two
sewer debt issuances into a single issuance. The following schedule
contains a roll-forward of the six-year CIP budget followed by
explanations for the roll-forward amounts.
The $16.8 million for 19 new CIP projects consists mainly of the
following:
•$8.2 million for eight (8) potable pipeline replacement
projects.
•$6.25 million for the replacement of the 20-inch recycled water
pipeline on Olympic Parkway.
•$600 thousand total in two (2) sewer CIP budgets for
improvement of the grit chamber and the blowers at the RWCWRF.
FY 2021 6-Year CIP 92.3$
New Projects 16.8$
Completed Projects (0.5)$
Deferred Projects -$
Ongoing Project Changes
Budget Adjustment (6.6)$
Budged expenditures for ongoing projects in-progress (0.7)$
FY 2022 6-Year CIP 101.3$
20
Financing Plan
The District uses a comprehensive approach to financing. The Debt
Policy provides guidance for debt issuance and refinancing. The
Reserve Policy provides guidance on both fund transfers and reserve
balances. With these policies, a six-year financing plan is
formulated that identifies the timing and amounts of debt issuances,
the level of rate increases, debt coverage ratios, reserve balances,
and necessary transfers.
Open Items
Following is a list of items that are in process and will be
presented at the final Budget Workshop on June 2nd:
•Overall budget summary
•Rates and rate increases
•Debt service coverage
•Sewer annual and winter average updates
•CWA Rates and Fixed Charges
•Labor and benefits
•Materials and maintenance expense
•Administrative and legal expense
•Salary Schedule
•Rate comparison
•Budget approval
•Penalty Reinstatement
FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer
This is an informational item. Each one of the items discussed
above will impact the proposed rate increases over the next six-year
period. Recommended changes to rates will be based on the District
maintaining reserves at target levels, meeting its debt coverage
covenants, and being sensitive to the customer’s challenges during
this pandemic. To the degree that these targets and covenants are
met, the financial impact of the items discussed in this staff
report will be phased in over multiple years.
For both water and sewer, staff is estimating that debt service
coverages and the reserve requirements will be above targeted levels
for the six-year period.
21
STRATEGIC OUTLOOK:
The District ensures its continued financial health through long-
term financial planning and debt planning.
LEGAL IMPACT:
None.
Attachments:
A)Presentation – FY 2022 Budget Workshop
OTAY WATER DISTRICT
FY 2022 BUDGET
WORKSHOP
APRIL 28, 2021
1
Attachment A
WORKSHOP AGENDA
➢Introduction and Objectives (Joe Beachem)
➢Legislative Initiatives, Challenges, and Strengths (Jose Martinez)
➢Strategic Plan Initiatives (Adolfo Segura)
➢Capital Improvement Budget (Michael Long and Bob Kennedy)
➢Key Assumptions, Financing Plan, and Conclusion (Kevin Koeppen)
2
BUDGET OBJECTIVES
3
➢Support Strategic Plan objectives
➢Support essential operations of the District
➢Reserves at or above target for all six years
➢Debt coverage target, excluding growth, of 150% for both water and
sewer for all six years
➢Fund the Six-Year CIP budget
➢Establish rates that are compliant with Proposition 218
BUDGET SCHEDULE
4
April Board
Meeting
➢Economic
Study
presented
Today,
April 28th
➢Budget
Workshop
June Board
Meeting
➢Budget
Approval
BUDGET PROCESS
5
Six-Year
Rate Model
Year-end
Balances
Operating
Budget Input
Six-Year CIP
Budget Input
MWD/CWA & City
Sewer Rates
Strategic
Plan
Assumptions
Interest Rates
Inflation
Growth
Sales
Targets
Debt Coverage
Reserve Levels
Operating
Budget
CIP
Budget
Water
&
Sewer
Rates
PROPOSITION 218 –WATER
6
➢Timeline
▪Last Cost of Service Study Performed –2017
▪Completed Proposition 218 Hearing –October 4, 2017
▪Next Cost of Service Study Planned –FY 2022
▪Next Proposition 218 Hearing –October 2022
➢Board Approved Terms
▪5-years
▪100% pass-through of supplier-related costs, including SDG&E
▪Up to 10% rate increases for internal costs
PROPOSITION 218 –SEWER
7
➢Timeline
▪Last Cost of Service Study Performed –2020
▪Completed Proposition 218 Hearing –October 7, 2020
▪Next Cost of Service Study –FY 2025
▪Next Proposition 218 Hearing –October 2025
➢Board Approved Terms
▪5-years
▪100% pass-through of sewer service provider costs and SDG&E
▪Up to 10% rate increases for internal costs
LEGISLATIVE INITIATIVES,
CHALLENGES, AND
STRENGTHS
(JOSE MARTINEZ)
8
LEGISLATIVE INITIATIVES –
ECONOMIC STIMULUS FUNDING
➢COVID-19 –Federal and State Utility Debt Relief
➢Federal American Jobs Plan
➢Community Project Funding
➢Climate Resiliency/Water Bonds –Wildfire prevention, safe drinking water,
drought preparation, climate resiliency, and flood protection
9
LEGISLATIVE INITIATIVES –ONGOING
➢Drought Response & Preparation
➢Water Use & Efficiency Legislation
▪Water Loss Performance Standards (adoption July 2021)
▪20% reduction in per capita water usage (SB 606 & AB 1668 adopted in 2018)
▪Legislation with arbitrary residential indoor GPCD goal of 55 vs. Otay at 64
(March 2021) & 147 (July 2019)
➢Delta Conveyance/State Water Project and Voluntary Agreements
10
LEGISLATIVE INITIATIVES –ONGOING
(CONTINUED)
11
➢Regional Workforce Development Veteran Water Industry Advocacy
➢Water Resilience Portfolio and Regional Resiliency
➢Regulatory fees and regulatory creep increases across all agencies
➢Water Authority projects
LEGISLATIVE INITIATIVES –NEW ISSUES
12
➢Water use and efficiency
▪AB 1434 –Urban water-use objectives for indoor residential water use including
further reductions of the GPCD goal
➢Water access and affordability
▪SB 222, SB 223, and CWA-initiated relief
➢Water Quality
▪SB 230 –State Water Resources Control Board: Constituents of Emerging Concern
▪AB 377 –Impaired Waters
➢Recycled Water
▪$100 million in SB 45 and $300 million in AB 1500 for recycled water projects
▪Request for more funding for recycled water and reuse projects
CHALLENGES
13
➢Increase in Six-Year CIP plan
➢Potable water purchase cost (6% in 2022, 36% over the next six years)
➢Recycled water purchase cost (27% in 2022*, 47% over the next six years)
➢Workforce turnover
➢Proposition 218 challenges/Water Cost of Service study
➢Sewer –City of San Diego Pure Water
➢Sewer –County of San Diego shared facilities rehabilitation projects
➢COVID-19/Penalty reinstatement timing
*Last City of San Diego recycled rate increase was January 1, 2017.
STRENGTHS
14
➢Strategic Planning process
➢CWA diversification of regional supply (drought-proofing San Diego)
➢Fully-funded OPEB
➢Efficiency Gains (since 2007)
▪35% increase in customers per FTE
➢Bond Rating
▪S&P ‘AA’ rating
➢Sound Financial Management
▪Reserve, Debt, and Investment Policies
BOARD’S PROACTIVE APPROACH TO
FINANCIAL AND OPERATIONAL STABILITY
15
➢Financial strength through establishing debt coverage targets and
Reserve Policy
➢Investment in disaster preparation from policies to disaster kits
➢Invested in staffing, software, equipment, and other infrastructure to
allow remote operations
➢Reduced equipment and vehicles
➢Converted variable bonds to fixed
➢Limited exposure to CalPERS changes in future discount rates by making
advanced payment
STRATEGIC PLAN
FY2019 –FY2022
(ADOLFO SEGURA)
16
OVERVIEW
17
The District’s Strategic Plan (SP) is designed to set priorities, resource allocation, strengthen
operations, improve customer service, performance execution, and ensure that the agency
is working toward common goals. The District’s four-year SP, FY19 –FY22, is designed to
address new initiatives, financial sustainability, continued process improvement, and track
essential day-to-day performance metrics. Key areas of focus are:
Employee development programs
Asset Management (AM) and Capital Improvement Project (CIP) Programs
Customer engagement
Cybersecurity
Long-term business planning of the sewer and recycled water system
Pension and OPEB liability financing
Management of new water regulations
SP: 19 strategies, 52 objectives, and 42 KPIs
EmployeesWe see each individual as unique and important. We value diversity and open communication to promote fairness, dignity, and respect.
IntegrityWe commit ourselves to doing the right thing. Ethical behavior trust-worthiness, and accountability are the District’s foundation.
CustomersWe take pride that our commitment to customer-centered service is our highest priority.
ExcellenceWe strive to provide the highest quality and value in all that we do.
Vision
To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices.
InnovationWe constantly seek better, more efficient, and cost-effective ways to deliver our services.
Mission
To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner.
Statement of Values
As Otay Water District Employees we dedicate ourselves to:
TeamworkWe promote mutual trust by sharing information, knowledge, and ideas to reach our common goals.
18
BALANCE SCORECARD PERSPECTIVES
“Alignment of the District’s mission, vision, and plan execution”
Employee growth/
Retention
Financial results and
growth
Increase customer
satisfaction/Engagement
Improve operational
efficiency
Customer Financial
Internal
Business
Processes
Learning &
Growth
19
CUSTOMER
Enhancement and building of awareness and engagement
among the District’s customers and stakeholders and within
the San Diego Region of the District’s strategies,policies,
projects,programs,and legislative/regulatory issues (3
objectives)
Assessment and enhancement of communication tools and
increase online presence and social media exposure (1 master
objective,12 sub)
Answer Rate
Technical Water Complaint
Potable Water Compliance Rate
STRATEGIES | 2
TOTAL OBJECTIVES | 4
KEY PERFORMANCE INDICATORS (KPIs) | 3
Execute and deliver services that meet or exceed customer expectations and increase customer engagement in order to improve District Services.
20
21
FINANCIAL
Integration of resource planning and facility optimization (3 objectives)
Evaluation of key system alternatives and financial impact (2 objectives)
Enhancement of business systems (7 objectives)
Enhancement of the Asset Management (AM) and Capital Improvement
Programs (CIP) (4 objectives)
Development of alternative Public Employees’ Retirement System (PERS)
financing strategy to fund ahead of PERS schedule (1 objective)
Negotiation and implementation of new labor agreement and optimize
employee benefit programs (2 objectives)
STRATEGIES | 6
TOTAL OBJECTIVES | 19
Plan and execute sound financial activities that are essential to running and sustaining District operations, with the lowest possible impact to customers.
22
FINANCIAL
Plan and execute sound financial activities that are essential to running and sustaining District operations, with the lowest possible impact to customers.
CIP Project Expenditures vs.
Budget
Construction Change Order
Incidence
O&M Cost per Account
Billing Accuracy
Overtime Percentage
Sewer Rate Ranking
Water Rate Ranking
Water Debt Coverage Ratio
Sewer Debt Coverage Ratio
Reserve Levels
Account per Full-Time Employee (FTE)
Percent of Customers Paying Bills
Electronically
Distribution System Loss
Planned Potable Water Maintenance Ratio
in $
Planned Recycled Water Maintenance Ratio
in $
Planned Wastewater Maintenance Ratio in $
Direct Cost of Treatment per MGD
Leak Detection Program
Injury Incident Rate
KEY PERFORMANCE INDICATORS (KPIs) | 19
INTERNAL BUSINESS
PROCESSES
STRATEGIES | 10
TOTAL OBJECTIVES | 27
Optimization of meter activity operations (3 objectives)
Enhancement of customer experience (Customer Service &
Communications) (2 objectives)
Evaluate and leverage the use of available Human Resources self-
service and capital management technology solutions (3 objectives)
Maintain a reliable, scalable, secure, and high-performing technology
infrastructure to support current and future service needs (4 objectives)
Enhancement of the Supervisory Control and Data Acquisition (SCADA)
system services via SCADA roadmap project (1 objective)
Enhancement of enterprise geographic data (4 objectives)
Enhancement of maintenance and program standards (5 objectives)
Enhancement of contracting and facility services (3 objectives)
Enhancement of the Confined Space Program (1 objective)
Optimization of the District’s Hazardous Waste Operations and
Emergency Response (HAZWOPER) and Confined Space Emergency
Response Team (1 objective)
Improve business
services by continually
improving essential
processes, invest in
strategic technology, and achieve new efficiencies.
23
24
Enterprise Technology Services
Availability
Mark-out Accuracy
Project Closeout Time
Annual Recycled Water Site
Inspections
Recycled Water Shutdown Testing
Easement Evaluation and Field
Inspection
Recycled Water System Integrity
Sewer Overflow Rate
System Valve Exercising Program
Potable Water Distribution System
Integrity
Emergency Facility Power Testing
Potable Tank Inspection and
Cleaning
Main Flushing and Hydrant
Maintenance
Critical Valve Exercising
Percent of Preventative
Maintenance Completed (Fleet
Maintenance)
Percent of Preventative
Maintenance Completed
(Reclamation Plant)
Percent of Preventative
Maintenance Completed
(Pump/Electric)
INTERNAL BUSINESS
PROCESSES
Improve business
services by continually
improving essential
processes, invest in
strategic technology, and achieve new efficiencies.
KEY PERFORMANCE INDICATORS (KPIs) | 17
25
Enhancement of leadership and employee training programs,
and knowledge transfer process.(2 objectives)
Employee Voluntary Turnover Rate
Training Hours per Employee
Safety Training Program
STRATEGIES | 1
TOTAL OBJECTIVES | 2
LEARNING AND
GROWTH
Provide hands-on leadership, support, and empowerment of staff, in order to maintain an accountable high-performing workforce.
KEY PERFORMANCE INDICATORS (KPIs) | 3
26
CAPITAL IMPROVEMENT PROGRAM
FY 2022 –FY 2027
(MICHAEL LONG & BOB KENNEDY)
GROWTH PROJECTIONS1
27
FISCAL YEARS
2022 2023 2024 2025 2026 2027
Single-Family Dwelling
Units 160 260 360 290 250 250
Condominium Units 200 400 450 450 450 450
Apartment Units 250 800 800 700 700 700
1Source: The Xpera Group’s February 2021 report (all dwelling units reflected above do not have a one-to-one ratio with an EDU and are converted to EDUs for budget purposes)
GROWTH PROJECTIONS1
(CONTINUED)
28
FISCAL YEARS
2022 2023 2024 2025 2026 2027
Hotel Rooms --125 125 150 150
Industrial (SF.)500,000 400,000 400,000 400,000 400,000 400,000
Amazon (SF)3,200,000 -----
Retail/Office (SF)-0 /
150,000
20,000 /
150,000
90,000 /
150,000
15,000 /
15,000
15,000 /
15,000
1Source: The Xpera Group’s February 2021 report
METER SALES AND GROWTH
29
-
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
ED
U
'
s
Fiscal Years
Equivalent Dwelling Units (EDU's) -Actual and Projected
Actual
Projected 2022
Projected 2021
FY 2022 Projected –303 EDU’s
FY 2021 Forecast –575 EDU’s
FY 2021 Budgeted –333 EDU’s
CONSTRUCTION CLIMATE/MITIGATION
The current economic climate is expected to increase the number of
bids the District will receive on future projects.
Other Factors Influencing Construction Climate
➢Shortage of Skilled and Unskilled Labor
➢Regional Competition for Contracting Resources
➢Materials Cost Escalation Due to Demand and Material Shortages
Mitigation Strategies
➢Value Engineering
➢Grouping Projects to Attract Bidders
30
CIP BUDGET GUIDELINES
➢Development trend is expected to be unchanged in FY 2022
➢New development with multi-family dwellings in greater proportion
to single-family dwellings
➢In preparing the budgets for the individual CIP projects, the
Engineering Department used recent construction and bidding
data to adjust costs for each project
➢Reprioritized projects based on District’s planning documents and
to control spending to keep rates stable
31
CIP SIX-YEAR BUDGET LOOK FORWARD
($Millions)
32
FY 2021
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Totals $ 8.5 $ 12.6 $ 13.8 $ 16.1 $ 20.4 $ 20.9
Six-Year Total: $92.3
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Totals $ 8.7 $ 15.6 $ 20.0 $ 24.3 $20.1 $12.6
Six-Year Total: $101.3
FY 2022
$3.9 / 31%
Reduction
$1.8 / 13%
Increase
SIX-YEAR BUDGET DIFFERENCES
FY 2021 vs. FY 2022 $ Millions (Negative Value)
FY 2021 Six-Year CIP Budget $ 92.3
New Projects 16.8
Completed Projects (0.5)
Deferred Projects -
Ongoing Project Changes
Budget Adjustment
Budget Expenditures for FY 2021
(6.6)
(0.7)
FY 2022 Six-Year CIP Budget $ 101.3
33
Pipeline Replacement Projects (24 Total)
458-1 Reservoir Interior/Exterior Coating
Other Coating/Cover/Liner Projects (15 Total)
Equipment & Vehicles
RWCWRF Projects (12 Total)
1090-1 Pump Station Upgrade
AMI Pilot Project
$ 1.9
0.9
0.5
0.5
0.5
0.4
0.2
Total Expenditure Projection $ 4.9
% of Total FY 2022 Budget 57%
34
HIGH PROFILE CIP PROJECTS
Fiscal Year 2022 ($ Millions)
HIGH PROFILE CIP PROJECTS
Fiscal Year 2022 –2027 CIP ($ Millions)
Various Waterline Replacements (24 Total)
Reservoir Improvements (15 Total)
Pump Station Upgrades & Modifications
AMR/AMI Meter and Vault Replacements
Sewer Basin Improvements
$ 31.9
17.9
15.2
7.2
6.7
Total Expenditure Projection
% of Total FY 2022 -2027 Budget
$ 78.9
78%
35
KEY ASSUMPTIONS,
FINANCING PLAN, AND
CONCLUSION
(KEVIN KOEPPEN)
36
FY 2022 ASSUMPTIONS
37
➢Revenues
▪Budgeted volumes
▪Penalties
▪Growth revenues
▪Property taxes
➢Operating Expenses
▪Recovering economy
▪Continued delinquency issues
▪Operating costs reflect minor COVID-19 prevention costs
➢CIP
▪Not impacted by COVID-19
WATER VOLUMES
38
➢Average Usage Approach
▪Four-year historic average usage
▪Ceiling based on highest volume/driest year
▪Floor based on lowest volume/wettest year
➢Goal = Projected Volumes at the Midpoint
▪Long-term accuracy of rate projections
➢Budget Drought Resiliency
▪23% volume reductions during last two droughts over multiple years
▪$4 million reserve reduction
▪40% debt service coverage reduction
▪Reserves maintain above target and debt service coverage above covenant
39
FY 2022 BUDGET VOLUMES
Potable Units
(000's)
Recycled Units
(000's)
Rainfall
(inches)Notes
2018 Actual 12,227 1,737 3.4 Dry year with below average rainfall
2019 Actual 11,327 1,463 12.6 Wet year with above average rainfall
2020 Actual 11,390 1,452 16.7 Wet year with above average rainfall
2021 Projected 12,013 1,614 4.8 Dry year with below average rainfall
4-year Average 11,739 1,567 9.4 Long-term average 10.4 inches
Growth 0.20%0.15%
FY 2022 Budget 11,762 1,569
POTABLE WATER VOLUMES
Unit Sales (in thousands)
40
12,227
12,430
11,327
11,530
FY 2021
12,013
FY 2022
11,762
11,942
10,000
10,500
11,000
11,500
12,000
12,500
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Base Volume Cumulative Growth Ceiling Floor FY 2021 Budget
RECYCLED WATER VOLUMES
Unit Sales (in thousands)
41
1,737 1,748
1,452 1,463
FY 2021
1,614 FY 2022
1,569 1,578
1000
1200
1400
1600
1800
2000
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Base Volume Cumulative Growth Ceiling Floor FY 2021 Budget
POTABLE WATER COST PROJECTION
CWA All-In Treated Water Cost Per AF
42
▪72
43
PENSION & OPEB STRATEGY
➢OPEB –Fully funded –Actuarial Study planned in 2022
▪District will reimburse the general fund for retiree medical costs
➢Continue transfer of $1.2 million to advance fund PERS
▪$5 million savings over 12 years
➢Review cost-benefit of lump sum UAL paydown option in FY 2022
▪$6 million –Additional savings potential
▪June budget approval –Evaluation and staff recommendation
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PENALTY REINSTATEMENT
➢Waiver Since March 2020
▪$861,000 penalties waived through April 20, 2021
➢Recent Events
▪COVID-19 cases declining
▪Unemployment rate declining
▪Other water agencies reinstatement of penalties
➢Ongoing Monitoring
➢Planned Budget Assumption
▪Reinstate penalties effective July 1, 2021
RATE DRIVERS
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➢Water
▪Water purchase costs
▪Increase in Six-Year CIP projection
▪Debt coverage at target for six years
▪Reserves at target over six years
➢Sewer
▪City of San Diego Pure Water Project
▪County shared facility projects
▪Reserves at target over six years
FINANCING PLAN
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Water
➢2024 debt issuance
Sewer
➢2024 debt issuance*
➢2026 debt issuance*
*An evaluation will be performed closer to the debt issuance to determine the cost benefit of combining issuances into a single debt issuance.
JUNE 2ND PRESENTATION & NEXT STEPS
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➢Budget Summary
➢Rate Recommendation
➢Debt Coverage Projection
➢Winter Average Update
➢Labor and Benefit Costs
▪72
Next Steps
➢Rate Increase Notices
➢Admin & Material Costs
➢Salary Schedule
➢Rate Comparison
➢Budget Approval
➢Penalty Reinstatement
June 2nd Presentation
QUESTIONS?
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