HomeMy WebLinkAbout04-29-20 Board Packet1
OTAY WATER DISTRICT
SPECIAL MEETING OF THE BOARD OF DIRECTORS BY TELECONFERENCE
2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA
WEDNESDAY
April 29, 2020
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 TOSPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S
JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
In lieu of in-person attendance, members of the public may submit their commentson agendized and non-agendized items via email at boardsecre-tary@otaywater.gov.
Public comments submitted will be read into the record at the Board Meeting andthe public may continue to listen to meetings. The information on how to listen tothe District’s live streaming can be found at this link: https://otaywater.gov/board-of-directors/agenda-and-minutes/board-agenda/
5.DISCUSS OTAY WATER DISTRICT’S CORONAVIRUS (COVID-19) RESPONSE(MARTINEZ)
WORKSHOP
6.DISCUSSION OF THE FISCAL YEAR 2021 BUDGET KEY FIGURES AND AS-SUMPTIONS (KOEPPEN)
RECESS TO CLOSED SESSION
7.CLOSED SESSION
a)DISCUSSION RELATING TO CORONAVIRUS (COVID-19) AND PUBLIC
SERVICES [GOVERNMENT CODE §54957]
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RETURN TO OPEN SESSION
8.REPORT ON ANY ACTIONS TAKEN IN CLOSED SESSION. THE BOARD MAYALSO TAKE ACTION ON ANY ITEMS POSTED IN CLOSED SESSION
9.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 through the District Secretary by
contacting her at (619) 670-2280.
If you have any disability which would require accommodation in order to enable you to
participate in this meeting, please call the District Secretary at 670-2280 at least 24 hours
prior to the meeting.
Certification of Posting
I certify that on April 24, 2020, 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 24, 2020.
/s/ Susan Cruz, District Secretary
STAFF REPORT
TYPE MEETING:Budget Workshop MEETING DATE: April 29, 2020
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 2021 Budget Key Figures and
Assumptions Impacting the Upcoming Budget Proposal
GENERAL MANAGER’S RECOMMENDATION:
This is an informational item presenting the FY 2021 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 2021 budget.
BACKGROUND:
Each year the District goes through a rate setting process with new
challenges. The process began 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 third of four presentations related to the FY 2021
budget covering the budget assumptions and inputs. The first two
(2)presentations concerning the Economic Study and COVID-19 impacts
were provided to the Board on April 1, 2020. A final presentation
of the consolidated budget is scheduled for the June 3rd Board
meeting. At the June 3rd Board meeting, staff will be presenting
the consolidated FY 2021 budget and requesting that the Board
approve the following items: the FY 2021 Operating and Capital
Improvement Program (CIP) Budget, Interfund Transfers, actions
associated with recommended rate changes, and the Salary Schedule.
As impactful as COVID-19 has been since its arrival, it is still
very early in its duration to gain a thorough understanding of the
impacts. For this reason, staff is proposing to have a two-step
budget process with an initial budget being presented on June 3rd and
an updated budget presentation would be presented after the close of
the first quarter. This two-step approach would allow the Board to
pass a budget, which is essential to maintain effective operations
AGENDA ITEM 6
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in FY 2021, and allow more time to pass to gain a better
understanding on the impacts of the pandemic.
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
economic indicators affecting taxes and revenues, such as inflation
and interest rates, to prepare the budget.
COVID-19
Due to the dynamic environment of the COVID-19 pandemic staff is
continually evaluating impacts to the budget as the event unfolds.
While the full duration remains unknown at this time, the budget is
currently prepared on the assumption that the pandemic will not
begin to subside until the close of the first quarter of FY 2021.
The fiscal impacts related to COVID-19 are expected to adversely
impact the District for the entire fiscal year and in some cases
beyond FY 2021. The adverse economic impacts and durations of
impacts related to COVID-19 are discussed throughout this report.
Areas that are expected to be adversely impacted include: water
sales volumes, property tax income, growth revenues, collections/bad
debt, and penalty revenue. Due to the adversity facing the
District, staff has identified savings initiatives that are being
acted upon immediately. Additional savings initiatives have been
identified that may be acted upon if the pandemic were to extend
beyond the assumed three-month duration or the actual financial
impacts exceed staff’s estimates.
As new data becomes available staff is continuing to evaluate the
potential impacts to sales volumes and adjust the budget accordingly
during the upcoming months.
Legislative Issues
There are several legislative issues that are impacting the
District. First and foremost is COVID-19, which consists of several
unknowns regarding the state budget, funding sources, and duration
of executive orders. Also, due to the Governor’s stay-at-home
order, many of the water-related legislative bills and issues for
the 2020 legislative session that Otay and/or CWA would normally
monitor or take a position on have been delayed. More than 2,200
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new bills were introduced by the February 21st deadline, but the
extended COVID-19 related legislative recess until May 4th has
altered the customary structure of the legislative session, limiting
the number of allowed bills from the assembly and senate. Based on
public health data and the Governor’s six-indicator framework,
announced on April 14th, for modifying the stay-at-home order, it
remains uncertain if the legislative recess will conclude on May
4th. Other legislative issues that are new to this year’s budget
potentially include the Resiliency Bond Package, protecting fire
hydrant system funding through SB 1386, and clarifying the State
Water Resources Control Board (SWRCB) process and educating the
public due to the recent passage of AB 1588.
Conservation and the Bay-Delta watershed also continue to be areas
of focus for the State. Conservation laws requiring water agencies
to establish an arbitrary residential indoor GPCD goal of 55,
effective in 2023, and the SWRCB adopting an outdoor water-use
standard by June 2022. As directed by the Governor and building on
work already conducted, the Department of Water Resources is
pursuing a new environmental review and planning process for a
single tunnel solution to modernize Delta conveyance. This approach
is consistent with the Governor’s recent executive order directing
state agencies to develop a portfolio of statewide water actions and
investments that improve water recycling, recharge depleted
groundwater reserves, strengthen existing levee protections, and
improve Delta water quality.
In addition, increased water, sewer, reclamation plant, and
laboratory regulatory fees and regulatory creep through natural
attrition 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.
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:
o Recommend rates that are compliant with the requirements of
Proposition 218,
o Maintain minimum reserve levels for the next three (3)
years, and bring reserve levels back to target over the last
three (3) years of the six-year rate model based on the
District’s Reserve Policy,
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o Result in debt coverage levels being above the target level
of 150% excluding growth revenues by FY 2026 and maintain a
debt covenant requirement of 125% including growth revenue
for all six years,
o Support the Strategic Plan initiatives.
When compared to prior years objectives, the above list includes
some proposed modifications to deal with the challenges our
communities are facing at this time. The modifications being
proposed provide some short-term rate relief to the District’s
customers while allowing more time for the ultimate impact of this
event to unfold.
o Allow reserves to decline to minimum levels. Historically
the objective has been to maintain targeted reserve levels,
which are higher than the minimum. Minimum reserve levels,
on average, are approximately $8.0 million below target
levels. Staff is proposing utilizing reserves to fund a
greater level of CIP projects, reducing overall reserve
levels below target, but above minimum levels for a period
of time. In future years, the District would utilize a
combination of savings initiatives, rates, and debt to bring
reserves back to target levels by FY 2026, which is the
final year of the six-year rate model.
o Allow debt coverage levels, excluding growth, to fall below
the 150% target level in the short-term and return to the
150% target level by FY 2026. Water and sewer have a 125%
and 115% respective debt service coverage covenants,
including growth, that are fixed and may not be modified;
therefore, the District must budget to maintain these
coverage ratios, including growth.
As part of the analysis staff evaluates the ability to smooth the
financial impacts on customers over a period of time. This might
result in rate increases being shifted back or forward by a year to
avoid a spike in rate increases.
In recent years sewer rates have experienced some instability due to
significant shifts in winter water usage being offset by significant
changes in rates. The combination of shifting usage and rates
results in total monthly bills remaining consistent; however, it is
important to alleviate these rate swings. Staff is proposing a
modification to the sewer rate structure for residential and multi-
residential customers. The change staff will be recommending is to
shift from a one-year winter average to a three-year winter average.
Doing so reduces the rate impact of changes in usage patterns which
will reduce sewer rate volatility, while not having a significant
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impact on customer fees compared to current fees. Staff has
completed a cost of service study needed to implement this change.
The study was presented at the April Finance Committee and is
scheduled to be presented at the May Board meeting.
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. A water cost of service study was
completed and presented to the Board on April 17, 2017. The last
sewer cost of service study was completed and presented to the Board
on March 7, 2018.
Subsequent to the completion of the cost of service studies,
Proposition 218 hearings were held on October 4, 2017 for water and
October 3, 2018 for sewer. At the conclusion of the 218 hearings
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 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.
The five-year period for sewer expires in FY 2023. However, the
implementation of a new sewer rate structure will require a 218
hearing in FY 2021, and if passed will establish a new five-year
period expiring in FY 2025. Staff will evaluate the cost benefit of
bringing the water and sewer cost of service studies into alignment
in 2022.
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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FY 2020 Challenges
COVID-19
The unknown duration and economic impact of COVID-19 is a
significant challenge to the budget. It is currently impacting the
District’s finances to a minor degree, but its impact is expected to
increase as the full scope of the pandemic evolves. At this time
staff is assuming the pandemic will continue into the first quarter
of FY 2021 with adverse financial impacts continuing to a degree for
the full fiscal year. Certain categories are anticipated to be
adversely impacted in future years as well. Adverse impacts
extending beyond the current fiscal year were based on a sudden
recession recovering over multiple years. Categories which are
anticipated to be impacted by COVID-19 are projected for water
sales, property taxes, bad debt, capacity fees, CIP, and pension
costs.
CIP Inflationary Pressures
Due to market conditions the costs of CIP projects are increasing
significantly compared to prior year expectations. For projects
continuing from the FY 2019 budget to the FY 2020 budget, the
respective six-year CIP budgets have increased by $29.6 million,
with individual projects increasing up to 30% or more. Further
discussion regarding these increases is included in the CIP section
of this staff report. Due to the ongoing pandemic, Engineering has
reviewed the CIP projects, and has deferred projects that may be
deferred without placing undo risk on the District. In addition,
projects that may qualify for stimulus funds have been identified
and planned to meet potential timelines and deliverables provided by
stimulus programs.
Water Costs
The District is estimating that the overall water rate charged by
CWA will increase 9.9% from $1,761 per acre-foot to $1,937 per acre-
foot. The increase is being driven by an 8.8% increase in CWA’s
variable rate and an increase in the fixed fees. Overall fixed fees
are increasing in dollar amount and price per acre-foot due to
volume declines. On a volume consistent basis, the overall water
rate is increasing 7.9%.
For FY 2021, staff is projecting CWA’s melded variable potable rate
will increase 8.8% from $1,337 per acre-foot in FY 2020 to $1,454
per acre-foot in FY 2021 resulting in an annualized increase in
purchase costs of $2.9 million. The increase in this variable rate
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charge is driven by increases in MWD rates charged to CWA, and a 15%
shortfall in CWA sales volumes to member agencies. MWD is
increasing their rates and charges to CWA putting pressure on CWA to
increase rates by an estimated 5%. When melded with potential
increases in CWA’s treatment and transportation rates, District
staff is projecting CWA’s projected melded variable rate will
increase 8.8%.
MWD is also increasing their Readiness-to-Serve and Capacity
Reservation fixed fees by 5.9% and 11.6%, respectively. These fees
are passed through directly to CWA member agencies and will increase
the District’s fixed fees by $116,000 annually.
Overall, CWA sales volumes to member agencies are falling 15% under
the budgeted volumes. This shortfall is putting significant
pressure on CWA rates as well. When combined with MWD increases,
District staff estimates the unadjusted rate increase would be well
over 10%. CWA is currently evaluating strategic measures to
alleviate or manage this rate pressure including savings
initiatives, deferrals, and utilization of their rate stabilization
fund. CWA is planning to present rate proposals to their Board on
May 28th. If strategic alternatives are not implemented, the 8.8%
melded rate increase projected by District staff would increase
proportionately.
For the six-year rate model, staff is projecting CWA annual average
rate increases of 8.3% in future years; however, this may be
modified upward if CWA is unable to mitigate the impacts of MWD
increases and shortfalls in sales volumes. CWA also provides a
projection of expected high and low future rates through 2023. Over
the six-year period the District’s projected annual increase of 8.3%
results in a projected cost in the 98th percentile of CWA’s forecast
by 2023 and remains at the 98th percentile for the duration of the
forecast. As part of the budget process any savings associated with
future year’s actual costs would result in a budget savings and
benefit the rates proposed in that year.
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The recycled water rate from the City for FY 2019 is expected to
remain at $1.73/HCF in FY 2021. A $150 thousand increase is
anticipated in recycled purchase cost due to the take-or-pay
contractual minimum volume increasing. In addition, it is estimated
that the CWA and the Metropolitan Water Authority credits of $1.2
million per year will expire at the end of FY 2023, which will also
impact the projected rate increases over the next six (6) years.
Insurance Costs
Overall SDRMA insurance costs are expected to increase $510
thousand, with general/liability insurance increasing $560 thousand
and workers compensation decreasing slightly. Staff is in the
process of evaluating insurance alternatives to identify potential
opportunities for savings. Staff will be modifying the final budget
to incorporate savings from any alternative deemed feasible and cost
beneficial.
The increase in general/liability insurance is primarily due to re-
insurer rate increases and the elimination of volume discounts. The
global, national, and state re-insurers have incurred recent
catastrophic losses including widespread wildfires, storms, public
safety claims, and other liability events. As indicated by SDRMA,
the re-insurers that provide coverage for these large losses, for
example the California State Association of Counties Excess
Insurance Authority CSAC-EIA, are passing along rate increases to
SDRMA that are resulting in member rates going up between 30% and
90%. The District’s contribution rates are estimated to be
increasing by $247,000.
Additionally, SDRMA has lost a substantial portion of volume
discounts with the re-insurers which translates into a $313,000 loss
of discounts for the District. The combination of the rate increase
of $247,000 and the loss of the volume discount of $313,000 is
$560,000.
Another factor impacting the increase is the District’s loss
history. Based on the District’s recent claim history, between 2013
and 2020 the District paid $6 million in premiums and deductibles,
while SDRMA has paid out $5.7 million in liability claims against
the District. The claims were largely 3rd party damages related to
main breaks. Staff is working with SDRMA to evaluate options to
reduce the premium including reducing limits and increasing
deductibles. Staff is also pursuing insurance quotes from other
insurance pools and is anticipating positive changes that will be
brought to the Board in June.
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Sewer Challenges
The primary challenges for sewer are rate stability, discussed
previously in this staff report, and the City of San Diego not
providing a long-term forecast from the City of San Diego’s Pure
Water Program on the District.
From FY 2019 to FY 2020 the District’s Metro JPA allocation from the
City increased substantially and was projected to continue to
increase substantially over the six-year period. Due to delays in
the pure water project, the anticipated increases from the City have
been deferred, which is reducing pressure on rates for FY 2021. In
addition, the FY 2021 allocation reflects the District’s reduced
capacity under the terms of the new Metro agreement. This deferral
is lengthening the time for sewer to smooth the impact of Pure Water
Program into rates. Staff is assuming the pure water project
spending will return to planned amounts in FY 2022.
The ultimate cost of the City of San Diego’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
rates over the next 15 years. The modification in capacity from
1.287 MGD to 0.38 MGD under the new Metro agreement has reduced the
District’s ultimate pure water burden, but as the agreement is not
yet fully executed there is still some risk regarding the ultimate
outcome to the District.
The City has applied for grant funding and low-cost State Revolving
Fund (SRF) financing. If obtained these may be a direct reduction
in the overall Pure Water cost or reduce the District’s pay-go
funding requirement, smoothing out the cashflow impact to the
District’s customers. Failure to obtain the projected SRF loan or
grant funding could impact the projected Metro JPA fees.
For the CIP component of Pure Water, staff is assuming a $50
thousand increase in the District’s Metro fees based on the City
communicating that CIP spending will increase $5.0 million per year.
The District currently represents approximately 1.0% of the Metro
capacity, which equates to the $50 thousand annual increase. In
addition to the capital cost funding requirements staff has assumed,
based on input from the City, 5.0% annual increases in operating
costs for FY 2021 to FY 2024 and a one-time 10.0% increase in FY
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2025 as Phase I becomes operational and Phase II advances. Based on
these assumptions, total annual Metro fees are expected to increase
from $631 thousand in FY 2021 to $844 thousand by 2026.
CalPERS and OPEB Update
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 of June 30, 2019, the OPEB plan was fully funded and the plan
will reimburse the District for retiree medical costs in FY 2020.
This will be the first reimbursement of retiree medical costs since
the plan was expanded in 2010. Staff is proposing that the
estimated annual $1.2 million reimbursement be utilized to further
reduce the District’s unfunded pension costs, which staff estimates
will save an additional $5.0 million over the next 12 years. 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 to the District.
Major Assumptions
Potable Sales Volumes
Through March 31, 2020, actual potable water sales were 8.7 million
units, which was 1.3% above budget of 8.6 million units. Rainfall
for the fiscal year has been average; however, rainfall in March and
April is expected to increase rainfall levels above the annual
average resulting in unit sales dropping compared to budget.
Historically during March and April, sales volumes increase from
winter levels. Due to the recent rainfall, staff is anticipating
sales volumes will not increase and total water volumes for the year
will finish 1.0% below budget. For the FY 2021 budget staff is
planning to use the projected 2020 volume as the base and reduce it
by 12% to reflect reduced volume due to the economic impacts of
COVID-19. Due to FY 2020 rainfall being substantially close to
average rainfall, the FY 2020 volumes provide a reasonable base for
projecting FY 2021 volume.
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The 12% estimated decline for COVID-19 was based on the decline in
volumes during the last recession. From 2007 to 2010 water sales
volumes declined 24% over a period of three (3) years. Due to the
accelerated levels of unemployment in this circumstance, staff is
assuming an immediate significant drop in volume, with a three-year
recovery. The reduction in the projected drop in sales volumes from
the 24% experienced during the last recession to 12% is based on
demand hardening. Current levels remain well below the peak levels
of 2007. Between 2007 and 2010 sales volumes declined from 16.1
million units to 12.4 million units. The FY 2020 projected volume
of 11.6 million units indicates current levels have recovered to
approximately 75% of the peak 16.1 million units. This permanent
reduction is attributed to conservation efforts reducing
discretionary water usage. As a result, staff is assuming the
ability to reduce water usage at the levels experienced during the
last recession have been reduced.
The methodology used to arrive at 12% is based on the mid-point of a
simple minimum and simple peak percentage declines. A simple
minimum decline of 6% is based on a three-month impact equating to a
quarter of the year COVID-19 impact or 25% of the decline during the
last recession. The simple peak is based on current sales volume
levels being 75% of peak volumes from the last recession, which
equals 18%. The midpoint between the 6% minimum and 18% peak, is
12%.
Following are the projected unit sales assumptions proposed for the
FY 2021 six-year rate model. Staff is assuming the volume
reductions related to COVID-19 will recover and return to FY 2020
levels by FY 2026. A faster recovery would benefit future years,
while a slower recovery would adversely impact future years.
The below analysis shows historic and projected volumes compared to
last year’s projections and ranges. The 12% decline in FY 2021 is
projected to recover over a three-year period. The long-term
Projected Budget Budget
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2020 3-Year 5-Year FY 2021
13,189 13,720 12,744 10,475 11,250 12,227 11,576 11,622 11,739 11,808 11,430 10,229
Actual Averages
Historical Unit Sales (in 000's HCF)
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 6-year Ave Growth %
10,229 10,945 11,331 11,699 11,728 11,758 11,282 0.25%
Projected Unit Sales (in 000's HCF)
6-Year Rate Model Projection
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projection is projected to be 1% less than prior year’s long-term
projection based on a projected 1% shortfall in FY 2020. The dashed
line below represents FY 2020 budget projections.
Recycled Sales Volumes
Through March 31, 2020, actual recycled water sales were 1.1 million
units, which was 3% below budget. Due to recent rainfall exceeding
historical averages, staff is projecting FY 2020 actual recycled
water volumes will be 5% below budget. Due to COVID-19 staff is
budgeting FY 2021 units will decrease 15% from FY 2020 actual
levels. The decline was based on declines experienced during the
last recession. At that time volumes declined approximately 25%
over a period of three (3) years, which is consistent with potable
water declines during that period. Also, like potable water sales,
current recycled volumes remain 25% below peak levels prior to the
last recession. When compared to the anticipated potable decline,
recycled volumes are budgeted to have a larger decline due to
recycled water usage being more discretionary than potable.
Potable Sales Projection Analysis
Otay Water District
FY 2021 Budget
11,576
11,622
10.,229
10,945 11,331
11,699 11,728 11,758
12,227 12,376
11,250 11,399
2,000
4,000
6,000
8,000
10,000
12,000
2019 2020 2021 2022 2023 2024 2025 2026
FY 2021 Base Volumes Cumulative Growth Ceiling Floor FY 2020 Projected Volumes
Projected Budget Budget
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2020 3-Year 5-Year FY 2021
1,294 1,945 1,734 1,492 1,530 1,740 1,463 1,513 1,593 1,572 1,548 1,286
Actual Averages
Historical Unit Sales (in 000's HCF)
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Below are the projected unit sales assumptions used in the FY 2021
six-year rate model.
To evaluate the sensitivity of the projected volumes staff prepared
the table below comparing the FY 2021 projections to volumes projected
in the FY 2020 budget. The table below shows volumes declining 12%
from 2020 actuals and remaining at levels below the floor for a period
of three (3) years. The long-term projection shows sales volumes in
2026 declining 1% compared to last year’s projection.
Growth Revenues
The District uses estimates obtained from an economist to develop
the growth revenue projections. Due to the pandemic, original
estimates have been reduced based on the assumption that the
pandemic will delay projects for a period of time. The below table
compares the original capacity fee revenue projections to the
revised projections.
FY 2021 Budget
Otay Water District
Recycled Sales Volume Analysis
1,463
1,513
1,283 1,386 1,441
1,499 1,499 1,499
1,811 1,836
1,463 1,463
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2019 2020 2021 2022 2023 2024 2025 2026
Based Volume Cumulative Growth Ceiling Floor FY 2020 Projection
FY21 FY22 FY23 FY24 FY25 FY26 Total
2021 Unadjusted Economic Report 3,489,900$ 3,907,000$ 6,998,700$ 9,156,100$ 9,443,800$ 8,011,500$ 41,007,000$
2021 Adjusted Economic Report 2,554,100$ 3,132,200$ 6,279,700$ 9,156,100$ 9,443,800$ 8,011,500$ 38,577,400$
Net Cashflow Impact (935,800)$ (774,800)$ (719,000)$ -$ -$ -$ (2,429,600)$
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Property Tax Revenues
The District has received communication from the County Tax Assessor
that property tax receipts may be impacted by the pandemic, but it
is not clear regarding the timing or amount of the impact. During
the last recession property tax revenues declined 10% over a three-
year period. For the FY 2021 budget staff has incorporated a 10%
reduction in FY 2021, based on the last recession, and returning to
current levels over a two-year period.
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:
•Safety and existing facility conditions
•Operating system conditions and energy improvements
•Water and sewer system deficiencies
•Regulatory and permitting requirements
•Developer driven requirements
•Economic outlook
•Growth projections
FY21 FY22 FY23 FY24 FY25 FY26 Total
FY 2020 Property Tax Projection 3,901,300$ 3,901,300$ 3,901,300$ 3,901,300$ 3,901,300$ 3,901,300$
COVID Multiplier 10%5%0%0%0%0%
Net Cashflow Impact (390,130)$ (195,065)$ -$ -$ -$ -$ (585,195)$
15
•Water supply diversification goals
•Board and management directives
This year, the total six-year CIP budget of $92.3 million is
increasing by $4.0 million versus last year. The total water CIP
budget for the six-year period is $85.4 million, which is a $5.5
million increase compared to FY 2020, while the sewer CIP of $6.9
million is decreasing $1.5 million compared to FY 2020. Staff is
projecting the water fund will have adequate reserves to fund the
water projects, while the sewer fund will need to borrow funds in FY
2021. The following schedule contains a roll-forward of the six-
year CIP budget followed by explanations for the roll-forward
amounts.
The $5.8 million for 21 new CIP projects consists mainly of the
following:
o $1.5 million for improvement of the disinfection equipment and
contact basin at the District’s Ralph W. Chapman Water
Reclamation Facility (RWCWRF).
o $875 thousand for repairs and replacement of the District’s
roofing systems. A roofing contractor, retained by the
District, performed a condition assessment of the roofs and
provided a series of reports and budgets for the repairs,
maintenance, and replacement costs for each roofing system.
o $600 thousand total in four (4) CIP budgets for improvement of
the storm water collection system at the entrance and
reconfiguration and improvement of the storm water retention
pond at the RWCWRF. The funding source is split between
recycled and sewer.
o $500 thousand for the immediate replacement of the air/vacs on
the RWCWRF 14-inch force main. This CIP budget includes a re-
assessment of the condition of this force main scheduled for FY
2026. The last assessment was completed in December 2016.
FY20 6-Year CIP $88.3
New Projects $5.8
Completed Projects $(0.5)
Deferred Projects $(1.6)
Ongoing Project Changes
Budget Adjustments $29.6
Budget expenditures for ongoing projects in-progress $ (29.3)
FY21 6-Year CIP $ 92.3
16
o $450 thousand for the repair and repaving of the access road
around the 458-1 and 458-2 Reservoirs.
The $500 thousand for 16 CIP projects represents projects completed
and placed in service. The completed projects include:
o $160 thousand for the repair of the Recycled Pressure Reducing
Station on Otay Lakes Road that was completed under budget.
o $247 thousand for the upgrade of the Camino Elevado Drive
Interconnection with Sweetwater Authority that was found to
have a very small localized benefit, even if connected to a
District portable trailer pump.
The $1.6 million represents the deferral of projects included in the
FY 2020 budget. The projects were deferred after the Board rejected
bids that were higher than budgeted and are planned to be re-bid
during FY 2021. Below is a listing of the applicable projects.
o $374 thousand for RWCWRF Filtered Water Storage Tank
Improvements.
o $778 thousand for the Reservoir Recoating and Upgrades at the
850-1 Reservoir.
o $484 thousand related to the Pressure Reducing Station
Replacements between the 458 and 340 Pressure Zones at 1571
Melrose Avenue and 1505 Oleander Avenue in Chula Vista.
The $29.6 million increase for budget adjustments is related to
changing market conditions, as noted in staff reports presented to
the Board this fiscal year.
On several recent staff reports, staff has noted that in the current
bidding climate, the number of bidding contractors has been reduced.
During calendar year 2017, the District’s average number of bidders
was 5.7 across seven (7) projects advertised for construction. The
average number of bidders across ten (10) projects advertised for
construction during calendar year 2018 was reduced to 2.6. During
FY 2020, the District’s average number of bidders across six (6)
projects advertised for construction remained unchanged at 2.6.
When the number of construction projects available for bid grows
regionally, the contractors can be selective on the projects they
choose to bid. The overall number of projects under construction
within the District boundary is very high, including Village 8 West,
Village 3, Village 2, Millenia, Otay Crossings, and the SR-11
freeway extension to the border. Other local agencies are reporting
increases to their construction costs as well.
17
In total, there were 46 projects with budget increases totaling
$29.6 million offset by nine (9) projects that decreased a total of
$3.2 million including:
o $5.7 million (219%) increase for San Diego Metro Wastewater
Capital Improvements for San Diego’s Pure Water Program.
o $3.0 million (23%) increase for 711-2 Reservoir Replacement and
Expansion (P2578) as a result of bids the District received for
the Temporary Lower Otay Pump Station Redundancy project.
o $2.3 million (177%) increase for the Quarry Road Bridge
Replacement and Utility Relocation project (P2553) as a result
of recent bids Caltrans received on the SR-11 pipeline
replacement project and the recent bids the District received
for pipeline replacement projects on Coronado Avenue.
o $1.7 million budget increase for the Valve Replacement Program
-Phase 1 as the number of valves needing repairs and
replacement with this phase was increased and the scope was
better defined.
o $1.45 million (116%) increase for the 870-1 Cover/Liner
Replacement project (P2563) and $600 thousand (33%) increase
for the 944-1 Reservoir Cover/Liner Replacement project (R2121)
as a result of recent bids the District received for the 711-3
Reservoir project.
o $1.3 million (163%) increase for the 8-inch Pipeline
Replacement project in the 1004 Pressure Zone (Phase II) on
Eucalyptus Street, Coronado Avenue, Date Street, and La Mesa
Avenue. The budget was updated to reflect recent bids for
Phase I of this project.
o $1.25 million (28%) increase for the 1655-1 Reservoir project
(P2040) as a result of design refinements of the access road to
the future Reservoir and results of a contractor’s preliminary
quote on the project and from recent construction bids the
District has received.
o $1.0 million (122%) increase for the eight-inch pipeline
replacement project in the 850 Pressure Zone on Coronado
Avenue, Chestnut Street, and Apple Street (P2608) as a result
of recent construction bids the District has received.
o $900 thousand (28%) increase in the 12-inch Pipeline
Replacement project in the 978 Pressure Zone on Pence Drive and
Vista Sierra Drive (P2616) as a result of recent bids the
District received for pipeline replacement projects on
Dictionary Hill.
o $750 thousand (150%) increase in the 12-inch pipeline
replacement in the 711 Pressure Zone on Paso de Luz at
Telegraph Canyon Road (P2612) as a result of recent bids the
District received for the Dictionary Hill Pipeline Replacement
study.
18
o $700 thousand (39%) increase for the Cottonwood Sewer Pump
Station Renovation and a $700 thousand (70%) increase for the
Steele Canyon Pump Station Replacement as a result of recent
bids the District received for the Temporary Lower Otay Pump
Station project.
The $29.3 million represents the net change in the six-year forecast
due to FY 2020 expenditures rolling off the six-year budget and FY
2026 budget being added to the six-year plan. The FY 2020 actual
CIP spending rolling off for the FY 2021 budget is primarily
comprised of the following items, which were included in the FY 2020
budget:
o $4.7 million for the 870-2 Pump Station Replacement (P2083).
o $1.5 million for the Campo Road Sewer Main Replacement (S2024).
o $1.1 million for the 870-1 Reservoir Cover/Liner Replacement
(P2563).
o $1.7 million for Temporary Lower Otay Pump Station Redundancy
(P2619).
o $1.3 million for the current AMR Change-Out Program (P2604).
The budgeted amounts for FY 2020 ongoing projects continuing into FY
2026 primarily consist of the following:
o $2.1 million for the 803-4 Reservoir coating and upgrades
(P2673).
o $1.25 million for the 1485-2 Reservoir coating and upgrades
(P2631).
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.
Water Financing Plan
For Water, the Board has requested staff examine three (3)
scenarios:
1.No Rate Increase
2.Half Rate Increase
3.Full Rate Increase
19
For the first two options, reserves will decline below target levels
for a period of time. To maintain reserves above minimum levels and
return them to target by year six (6), staff is utilizing a
combination of rate increases and debt in future years.
Sewer Financing Plan
For Sewer, staff is examining similar scenarios being examined for
water; however, it is important to note that sewer is also proposing
rates based on the results of a recent cost of service study (COSS)
and the structure for sewer billing is different than water. Sewer
bills are different from water in that they are fixed bills in the
calendar year based on past water use. For sewer, staff is
examining three (3) scenarios:
1.No Rate Increase with COSS Implemented
2.Half Rate Increase with COSS Implemented
3.Full Rate Increase with COSS Implemented
For the first two options, reserves will decline below target levels
for a period of time. To maintain reserves above minimum levels and
return them to target by year six (6), staff is utilizing a
combination of rate increases and debt in future years.
Open Items
Following is a list of items that are in process and will be
presented at the final Budget Workshop on June 5th:
o Overall budget summary
o Rates and rate increases
o Debt service coverage
o Sewer annual and winter average updates
o CWA Rates and Fixed Charges
o Labor and benefits
o Materials and maintenance expense
o Administrative and legal expense
o Salary Schedule
o Rate comparison
o Budget approval
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 competing
objectives, with the District maintaining reserves at minimum to
20
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
by the end of the six-year period.
STRATEGIC OUTLOOK:
The District ensures its continued financial health through long-
term financial planning and debt planning.
LEGAL IMPACT:
None.
Attachments:
A)Presentation – FY 2021 Budget Workshop #1
OTAY WATER DISTRICTFY 2021 BUDGETWORKSHOP #1
APRIL 29, 2020
1
Attachment A
WORKSHOP AGENDA
2
➢Introduction and Objectives (Joe Beachem)
➢Political Initiatives, Challenges and Strengths (Jose Martinez)
➢Strategic Plan Initiatives (Adolfo Segura)
➢Capital Improvement Budget (Dan Martin)
➢Key Assumptions (Kevin Koeppen)
➢Financing Plan (Kevin Koeppen)
➢Conclusion (Kevin Koeppen)
BUDGET PROCESS –COVID-19 IMPACT
3
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
BUDGET PROCESS –COVID-19 IMPACT
4
➢Two-Step Budget Process
➢Budget Reassessment
▪Multiple rate evaluations
▪Sales monitoring
▪Collections monitoring
➢Savings Initiatives
▪Two-Step Savings Approach
BUDGET OBJECTIVES
5
➢Appropriate response to COVID challenges
➢Support Strategic Plan objectives
➢Support essential operations of the District
➢Reserves at or above minimum and return to target in the 6th
year
➢Debt coverage target, excluding growth, of 150% for both water
& sewer in the 6th year
➢Fund the six-year CIP budget
➢Establish rates that are compliant with Proposition 218
PROPOSITION 218
6
➢Water
▪Water Cost of Service Study Performed -2017
▪Prop 218 Hearing -October 4, 2017
➢Sewer
▪Sewer Cost of Service Study Performed -2020
▪Prop 218 Hearing –Planned for October 2020
➢Board Approved Terms:
▪5-years (Water to 2022 and Sewer to 2025)
▪100% pass-through of supplier-related costs
▪Up to 10% rate increases for internal costs
7
COVID-19 IMPACTS
➢Six-Year Rate Model Period
▪$8.8 million adverse impact
▪$8.9 million savings plan
➢FY 2021 Only
▪$4.6 million adverse impact
▪$5.3 million saving plan
RATE STRATEGY
8
➢Strategic Plan objectives
➢Smoothing impacts
➢Monthly bill impact
➢Reserve levels
➢Rate ranking
POLITICAL INITIATIVES, CHALLENGES & STRENGTHS
(JOSE MARTINEZ)
9
POLITICAL INITIATIVES
➢COVID-19
▪Stimulus bond or funding
▪Executive Order –shutoffs
▪Legislative bills & issues on hold or delayed
▪State budget –baseline budget (June 15, 2020)
➢Resiliency Bond Package
➢Conservation Mandates (SB 606, SB 1668)
▪Legislation with arbitrary residential indoor GPCD goal of 55 vs. Otay at 57 (March 2020) & 147
(July 2019)
▪Outdoor standard to be adopted by State Board by June 2022
➢SB 1386 (Moorlach) –Protecting Fire Hydrant System Funding
➢AB 1588 –State Water Board Process and Education
➢Water Resilience Portfolio and Environmental Review for One-Tunnel Approach (Delta
Conveyance)
➢Regulatory Fee Increases Across All Agencies
➢Regulatory Agencies Modified Interpretation of Regulations (regulatory creep)
➢Water Authority projects
10
CHALLENGES
11
➢COVID-19
▪Reduced water sales and cap fee revenues
▪Increased bad debt
▪Reduced property tax revenues
▪Reduced penalty revenue
➢CIP Inflation
➢Water Costs
➢Insurance Costs
➢Sewer –City of San Diego Pure Water
➢Sewer –Stabilizing Rates
STRENGTHS
12
➢Strategic Planning Process
➢CWA diversification of regional supply (drought-proofing San Diego)
➢Fully-funded OPEB
➢Efficiency Gains (Since 2007)
▪23% headcount reduction
▪36% increase in customers per FTE
➢Bond Rating
▪S&P ‘AA’ rating
➢Sound Financial Management
▪Reserve, debt and investment policies
COVID-19 EMERGENCY RESPONSE INITIATIVES
13
➢Reducted Capital Improvement Projects
➢Identify actionable savings initiatives
▪Strategic hiring freeze
▪Freezing the support of the CWA Intern Program
▪Reduction in travel and training
▪Reduced professional services
▪Fastrack sourcing alternative insurance provider
➢Phased approach to budget and will be coming back in the fall with an
update to the board
BOARD’S PROACTIVE APPROACH TO FINANCIAL AND OPERATIONAL STABILITY
14
➢Financial strength through establishing debt coverage targets and Reserve
Policy
➢Investment in disaster preparation from policies to disaster kits
➢Invested in 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)
15
OVERVIEW
16
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 KPI’s
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.
17
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
18
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.
19
20
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.
21
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.
22
23
➢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
24
➢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
CAPITAL IMPROVEMENT
PROGRAM
FY 2021-2026
(DAN MARTIN)
25
GROWTH PROJECTIONS1
26
FISCAL YEARS
2021 2022 2023 2024 2025 2026
Single-Family Dwelling
Units 175 125 500 550 550 450
Condominium Units 250 225 450 642 760 700
Apartment Units 480 500 1,000 1,200 1,000 1,000
1Source: The Xpera Group’s March 2020 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)
27
FISCAL YEARS
2021 2022 2023 2024 2025 2026
Hotel Rooms 150 175 250 100
Industrial (SF.)700,000 500,000 400,000 400,000 400,000 400,000
Amazon (SF)3,400,000
Retail/Office (SF)15,000 /
10,000
20,000 /
10,000
20,000 /
150,000
20,000 /
150,000
90,000 /
10,000
15,000 /
150,000
1Source: The Xpera Group’s March 2020 report
-
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
ED
U
'
s
Fiscal Years
Equivalent Dwelling Units (EDU's) -Actual and Projected
Actual Projected 2021
Projected 2020
METER SALES AND GROWTH
28
FY 2020 Budgeted –732 EDU’s
FY 2020 Forecast –610 EDU’s
FY 2021 Projected –333 EDU’s
SAN DIEGO COUNTY WATER AUTHORITYCONSTRUCTION COST TREND
29
Source -SDCWA Engineering & Operations Committee Meeting on September 26, 2019; Presentation on As-Needed
Contracts for Cost Estimating and Constructability Review Services
CONSTRUCTION CLIMATE/MITIGATION
The recent economic slowdown 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 Federal tariffs
Mitigation Strategies
➢Value Engineering
➢Grouping Projects to attract Bidders 30
CIP BUDGET GUIDELINES
➢Growth is expected to slow in FY 2021
➢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 2020
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Totals $ 17.2 $ 13.3 $ 16.3 $ 14.6 $ 14.7 $ 12.2
Six-Year Total: $88.3
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 2021
$4.9 / 37%
Reduction
$3.6 / 22%
Reduction
SIX-YEAR BUDGET DIFFERENCES
FY 2020 vs. FY 2021 $ Millions (Negative Value)
FY 2020 six-year CIP Budget $ 88.3
New Projects 5.8
Completed Projects (0.5)
Deferred Projects (1.6)
Ongoing Project Changes
Budget Adjustment
Budget Expenditures for FY 2020
29.6
(29.3)
FY 2021 Six-Year CIP Budget $ 92.3 33
HIGH PROFILE CIP PROJECTS
Fiscal Year 2021 ($ Millions)
RWCWRF Projects (10 Total)
Temporary Lower Otay Pump Station Redundancy
Pipeline Replacement Projects (15 Total)
850-1 Reservoir Interior/Exterior Coating
Other Coating/Cover/Liner Projects (18 Total)
Equipment & Vehicles
AMR Changeout
$ 1.3
0.5
2.2
0.4
0.5
0.4
0.4
Total Expenditure Projection $ 5.7
% of Total FY 2021 Budget 67%
34
HIGH PROFILE CIP PROJECTS
Fiscal Year 2021 –2026 CIP ($ Millions)
711-2 PS Replacement
Various Waterline Replacements (18 Total)
Reservoir Improvements (12 Total)
Sewer Basin Improvements
$ 16.0
20.1
15.9
5.7
AMR and Meter Replacement 5.5
Total Expenditure Projection
% of Total FY 2021 -2026 Budget
$ 63.2
68%
35
CIP INFLATION
➢$29.6 million increase in projects primarily due to market conditions:
▪$5.7 million increase in Pure Water
▪$5.4 million increase in Pump Stations
▪$4.25 million increase in Reservoir construction/maintenance costs
▪$3.85 million increase in Bridge projects costs
▪Bidding climate
▪Labor shortages
36
KEY ASSUMPTIONS
(KEVIN KOEPPEN)
37
POTABLE WATER VOLUMES
38
Unit Sales (in thousands)
11,576
11,622
10.,229
10,945 11,331
11,699 11,728 11,758
12,227 12,376
11,250 11,399
2,000
4,000
6,000
8,000
10,000
12,000
2019 2020 2021 2022 2023 2024 2025 2026
FY 2021 Base Volumes Cumulative Growth Ceiling Floor FY 2020 Projected Volumes
RECYCLED WATER VOLUMES
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Unit Sales (in thousands)
1,463
1,513
1,283 1,386 1,441
1,499 1,499 1,499
1,811 1,836
1,463 1,463
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2019 2020 2021 2022 2023 2024 2025 2026
Based Volume Cumulative Growth Ceiling Floor FY 2020 Projection
POTABLE WATER COST PROJECTION
CWA ALL-IN TREATED WATER COST PER AF
40
▪72
(A) CWA provided a projection through 2023. For 2024 to 2026, the CWA high and low forecasts were estimated by Otay staff using a 10.0% inflation factor.
Actual Projected(A)
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COVID-19 IMPACT
FY21 Total
Operating Revenues/Expenses
Potable Water Volume (1,540,000)$ (2,700,000)$
Recycled Water Volume (1,190,000)$ (2,140,000)$
Collections/Bad Debt (380,000)$ (780,000)$
Property Tax (390,000)$ (580,000)$
Penalty Waiver (170,000)$ (170,000)$
Non-operating Revenues/Expenses
Capacity Fee Revenue (930,000)$ (2,430,000)$
Total Cashflow Impact (4,600,000)$ (8,800,000)$
Savings Initiatives 5,300,000$ 8,900,000$
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PENSION & OPEB STRATEGY
➢OPEB –Fully funded
▪District will reimburse the general fund for retiree medical
costs
➢Transfer retiree medical refunds to advance fund PERS
➢Cashflow neutral to the District
➢$5 million savings over 14 years
RATE DRIVERS
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➢Water
▪COVID-19 impacts
▪Debt coverage for future debt issuances and returning
debt coverage to target over 6 years
▪Reserves –Minimums to target over 6 years
➢Sewer
▪COVID-19 Impacts
▪Stable debt coverage for future debt issuances
▪Reserves –Minimums to target over 6 years
▪72
FINANCING PLAN
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Water
➢No Rate Increase
➢½ Rate Increase
➢Full Rate Increase
Sewer
➢Cost of Service Study
➢No Rate Increase
➢½ Rate Increase
➢Full Rate Increase
JUNE 3RD PRESENTATION & NEXT STEPS
45
➢Budget Summary
➢Rate Recommendation
➢Debt Coverage Projection
➢Winter Average Update
➢Labor and Benefit Costs
▪72
Next Steps
➢Step 2–Budget Update
➢Prop 218 Hearing and Notices
➢Admin & Material Costs
➢Salary Schedule
➢Rate Comparison
➢Budget Approval
June 3rd Presentation
QUESTIONS?
46