Loading...
Agenda Packets - Board - 2003-06-12MP03 -094 COSTA MESA SANITARY DISTRICT DEPARTMENT OF FINANCE MARL R. PUCKETT INTEROFFICE MEMORANDUM DIRECTOR OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DIRECTOR OF FINANCE DATE: MAY 29, 2003 SUBJECT: REVIEW OF 2003 -2004 STATEMENT OF INVESTMENT POLICY FOR BOARD MEETING JUNE 12, 2003 RECOMMENDED ACTION •Adopt Resolution approving the Investment Policy for the 2003 -04 fiscal year, and delegating the investment activities to the District Treasurer. BACKGROUND The California Government Code Section 53646 requires the District Treasurer to submit a "Statement of Investment Policy" to the legislative body each fiscal year. Effective January 1, 1996, this Code Section was reinstated and requires annual adoption of the policy statement. This Investment Policy has been designed according to the specific needs of the Costa Mesa Sanitary District and complies with both the California Government Code and the guidelines recommended by the California Municipal Treasurer's Association. The District Treasurer has the responsibility to submit a monthly Treasurer's Report to the Board regarding status of receipts, disbursements, cash balances by fund and investment of cash balances. The Finance Department updates revenue and investment activity on a daily basis. The Treasury Management Division of the Finance Department analyzes the cash requirements of the District each morning in conjunction with the Director of Finance. Idle funds are invested daily to effectively maximize the District's investment earnings. The single most important statutory duty of the District Treasurer is set forth in California Government •Code Section 41001 which provides that the "District Treasurer shall receive and safely keep all money coming into the Treasury." In light of this responsibility, the California Municipal Treasurer's Association has established the following as a guideline to prudent investment strategy: 1 • • Legal Investment Authority: Temporary idle monies are to be invested in accordance with state and local statutes. and in compliance with California Government Code Sections 53600 et. seq. • Safety: It is the primary duty and responsibility of the District Treasurer to protect, preserve, and maintain intact cash and investments places in trust with the District Treasurer on behalf of the Costa Mesa Sanitary District. • Liquidity: An adequate percentage of the portfolio should be maintained in liquid short-term securities, which can be converted to cash if necessary to meet disbursement requirements. • Yield: The District Treasurer may obtain the highest possible within the parameters of the District's authorized investments, provided the criteria for safety and liquidity have been met. ANALYSIS The 2002 -2003 Investment Policy adopted on June 13, 2002, has been revised to reflect only miscellaneous or other "housekeeping" changes such as "date" changes made to various sections of the Investment Policy. Whenever revisions to the Investment Policy are considered, the proposed revisions are reviewed and discussed with the Investment Oversight Committee at their meetings throughout the fiscal year. During • the course of the current fiscal year there were no significant legislative changes to the investment process nor any needed wording changes that I would recommend. CONCLUSION It is recommended that the Board adopt the attached Resolution Number 2003 -672 approving the Investment Policy for the 2003 -04 fiscal year. MA R. PUCKETT District Treasurer Attachments: (1) Resolution (2) 2003 -2004 Statement of Investment Policy • 2 I • RESOLUTION NO. 2003-672 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT, ADOPTING THE 2003 -2004 STATEMENT OF INVESTMENT POLICY, AND AUTHORIZING THE TREASURER TO INVEST AND REINVEST IDLE MONIES OF THE COSTA MESA SANITARY DISTRICT IN ACCORDANCE WITH THE 2003-2004 STATEMENT OF INVESTMENT POLICY, AND AUTHORIZING THE SAID TREASURER TO DELEGATE TO HIS DEPUTY THE CARRYING OUT OF ANY SUCH TASKS. THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT DOES HEREBY RESOLVE AS FOLLOWS: WHEREAS, Government Code Section 53601 sets forth the investments that the District may lawfully make; and WHEREAS, Government Code Section 53646 sets forth that the District's Treasurer shall annually render to the Board of Directors a Statement of Investment Policy at a public meeting for the Board to consider; and WHEREAS, The Board has reviewed the Statement of Investment Policy; and WHEREAS, Government Code Section 53607 authorizes the Board to delegate the authority to make investments and to sell or exchange securities for a one year period to the Treasurer provided that monthly reports are thereafter made of the status of said transactions; NOW THEREFORE, the Board of Directors of the Costa Mesa Sanitary District does hereby resolve as follows= 1. That the Statement of Investment Policy is approved. 2. That the Treasurer is authorized to make investments consistent with said Policy and is required to report to the Investment Oversight Committee and Board on a monthly basis on the status of those transactions. The Treasurer is hereby given all of the authority provided by Government Code Section 53607, including the power to invest and reinvest and the power to sell or exchange securities, consistent with the District's policy. C] 3. That the Treasurer may delegate some part of these duties to his deputy provided that the Treasurer remains responsible for such decisions and provides oversight. The Clerk of the District shall certify to the passage and adoption of this resolution, and it shall thereupon be in full force and effect. PASSED AND ADOPTED this 12th day of June 2003. ATTEST: Secretary, Costa Mesa Sanitary District Board of Directors STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss COSTA MESA SANITARY DISTRICT) r� President, Costa Mesa Sanitary District Board of Directors I, JOAN REVAK, Clerk of the Costa Mesa Sanitary District, hereby certify that the above and foregoing Resolution No. 2002-660 was duly and regularly passed and adopted by said Board of Directors at a regular meeting thereof held on the 13th day of June 2002. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Costa Mesa Sanitary District this 13th day of June 2002. Clerk of the Costa Mesa Sanitary District .11 COSTA MESA SANITARY DISTRICT • STATEMENT OF INVESTMENT POLICY 1802- 032003 -04 I. GENERAL INTRODUCTION Under the laws of the State of California, it is the responsibility of the District Treasurer, at the direction of the Board, to secure and protect the public funds of the District, and to establish proper safeguards, controls, and procedures to maintain these funds in a lawful, rational and auspicious manner. Said maintenance shall include the prudent and secure investment of those funds that are deemed temporarily excess, in a manner anticipated to provide additional benefit to the people of the Costa Mesa Sanitary District. This Statement of Investment Policy will be provided annually for the review of the Oversight Committee and the approval of the Board in an open public meeting. It will also be provided to securities dealers, banks, and brokers currently approved for conducting investment transactions with the District Treasurer's office in the ongoing effort to manage the excess cash portfolio; to other affected persons or entities; and to any member of the electorate wishing to review this document upon request. The Treasurer reserves the right to provide these documents on a cost basis. is H. SCOPE This Statement of Investment Policy pertains to those temporarily surplus funds under the control of the Treasurer, designated for the daily ongoing operations of the District; and concerns the deposit, maintenance, safekeeping, and preservation of all such funds, and the investments made with these funds. This Policy does not apply to pension trust funds, deferred compensation funds, and certain other trust or non - operating funds. Ill. PURPOSE The purpose of this Statement of Investment Policy is to provide the District, the Investment Oversight Committee, those involved in servicing the investment requirements of the District, and any other interested party, a clear understanding of the regulations and internal guidelines that will be observed in maintaining and investing those pooled funds deemed temporarily excess. This statement is intended to provide guidelines for the prudent investment of the Costa Mesa Sanitary District's (District's) temporary idle cash, and outline the procedures for maximizing the efficiency of the District's cash management system. The ultimate goal is to enhance the economic status of the District while safeguarding its assets. IV. OBJECTIVE The District's cash management system is designed to accurately monitor and forecast revenues and expenditures, thus enabling the District to invest funds to the fullest extent possible. The District attempts • to obtain the highest yield possible only after the criteria established for safety and liquidity have been met. The Costa Mesa Sanitary District operates its pooled idle cash investments with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. This affords the District a broad spectrum of investment opportunities as long as the investment is deemed prudent and is allowable under current legislation of the State of California Government Code Section 53600 et seq. and the general laws of the Costa Mesa Sanitary District. The Costa Mesa Sanitary District strives to maintain the level of investment of all idle funds as near 100% as possible, through daily and projected cash flow determinations. Idle cash management and investment transactions are the responsibility of the Treasurer. Criteria for selecting investments and the order of priority are: 1. Safety: The safety and risk associated with an investment refers to the potential loss of principal, interest, or a combination of these amounts. The District only operates in those investments that are considered very safe. 2. Liquidity: This refers to the ability to "cash in" at any moment in time with a minimal chance of losing some portion of principal or interest. 3. Yield: Yield is the potential dollar earnings an investment can provide, and sometimes is referred to as the rate of return. 4. Safekeeping: Securities purchased shall be held in third party safekeeping in the Trust Department of a financial institution, in the District's name and control. The account established shall be protected from seizure by creditors should the financial institution holding the District's securities file for bankruptcy protection. The basic premise underlying the District's investment philosophy is and continues to be, to insure that surplus funds are always safe and available when needed. V. DELEGATION OF INVESTMENT AUTHORITY Authority to manage the Costa Mesa Sanitary District's investment program is derived from Costa Mesa Sanitary District Board Resolution No. 002-6502003 -672 . Management responsibility for the investment program is hereby delegated for fiscal year 2002 032_003 -04 to the Treasurer who shall establish written procedures for the operation of the investment program consistent with this Investment Policy. Procedures should include references to: safekeeping, repurchase agreements, wire transfer agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. `A • VI. STANDARD OF PRUDENCE The Treasurer shall perform the investment function in conjunction with the "Prudent Man Rule ". This rule states, in principle that whenever investing property for the benefit of others, a trustee shall exercise the judgment and care, under circumstances then prevailing that persons of prudence, discretion, and intelligence, would exercise in the management of their own affairs not in regards to speculation, but in regard to the permanent disposition of their funds, considering the probability of safety of, as well as the probable income from their capital. The Treasurer and his designees are considered to have a fiduciary, trustee, relationship with the public for the public funds and all investment decisions will be made in a manner sustaining this responsibility." VII. AUTHORIZED INVESTMENTS The California Government Code allows the District to invest in the following media: • Securities of the U.S. Government, or its government sponsored agencies • Small Business Administration loans • Certificates of deposit, placed with commercial banks and savings and loan companies • Negotiable certificates of deposit • Bankers acceptances • Commercial paper • Corporate notes and bonds, including medium term notes • Local Agency Investment Fund • Repurchase agreements • Reverse repurchase agreements • Passbook savings account demand deposits • County Treasurer demand deposits • Asset - backed and mortgage- backed securities • Money market mutual funds As a matter of practice, however, the District generally limits its investments to the following vehicles: U.S. Treasury Bills - Issued weekly with maturity dates up to one year. They are issued and traded on a discount basis with interest figured on a 360 -day basis, actual number of days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid security. U.S. Treasury Notes - Initially issued with two- to ten -year maturities. They are actively traded in a large secondary market and are very liquid. The Treasury may issue Note issues with a minimum of $1,000, however, the average minimum is $5,000. Federal Government Sponsored Agency Issues - Guaranteed directly or indirectly by the United States Government. All agency obligations qualify as legal investments and are acceptable as security for public deposits. They usually provide higher yields than regular Treasury issues with all of the same advantages. Examples include: 91 • FICBs (Federal Intermediate Credit Bank Debentures) - Loans to lending institutions used to finance • the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine -month maturity. Interest is payable at maturity and is calculated on a 360 -day, 30 -day month basis. • FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three - and six -month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. • FLBs (Federal Land Bank Bonds) - Long -term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is $1,000. They carry semi - annual coupons. Interest is calculated on a 360 -day, 30 -day month basis. • FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage - lending institutions. They are issued irregularly for various maturities. The minimum denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity. The bonds are issued with various maturities and carry isemi - annual coupons. Interest is calculated on a 360 -day, 30 -day month basis. • FNMAs (Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veterans Administration. They are issued about four times a year for maturities ranging from a few months to eight years. They are issued in minimum denominations of $10,000. They carry semi - annual coupons. Interest is computed on a 360 -day, 30 -day month basis. • FHLMCs (Federal Home Loan Mortgage Corporation) - A government- sponsored corporation established to develop the secondary market for conventional home mortgages. Mortgages are purchased solely from the Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of the United States Government. They are issued for various maturities and in minimum denominations of $10,000. Interest is paid semi - annually and is calculated on a 360 -day, 30 -day month basis. • Other federal agency issues are Small Business Administration notes (SBAs), Government National Mortgage Association notes (GNMAs), Tennessee Valley Authority notes (TVAs), and Student Loan Marketing Association notes (SALLIE- MAEs). As a matter of practice, the District does not invest in these issues, as they do not suit our purposes as well as other investment opportunities available. The District limits its investments to no more than 25% of its surplus funds in an one Federal Agency. mP Y 0 Bankers Acceptances - Short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at its maturity. An acceptance is a high -grade negotiable instrument. Bankers Acceptances can be purchased in various denominations for 30, 60, or 90 days, but no longer than -180 days. The interest is calculated on a 360 -day discount basis similar to Treasury Bills. Local agencies may not invest more than 40% of their surplus funds in bankers acceptances or more than 10% of the agency's surplus funds in bankers acceptances of any one commercial bank. Certificates of Deposit - Time deposits of a bank or savings and loan. They are purchased in various denominations with maturities ranging from 30 to 360 days. The interest is calculated on a 360 -day, actual -day month basis and is payable monthly. Negotiable Certificates of Deposit - Unsecured obligations of the financial institution, bank or savings and loan, bought at par value with the promise to pay face value plus accrued interest at maturity. They are high -grade negotiable instruments, paying a higher interest rate than regular certificates of deposit. The primary market issuance is in multiples of $1,000,000, the secondary market usually trades in denominations of $500,000, although smaller lots are occasionally available. As a matter of practice, only the ten largest U.S. banks where there is a secondary market established for continued liquidity are considered for investment. The District's total investment in negotiable certificates of deposit may not exceed 30% of surplus funds. Commercial Paper - Short-term unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Local agencies are permitted by State law to invest in commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by Moody's Investor's Service, Inc., and/or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt other than commercial paper. Commercial Paper issued by an Issuer that has a rating of "A" on their debt other than commercial paper but are on credit watch for a possible downgrade by a nationally recognized rating agency shall not be considered for investment purposes. Purchases of eligible commercial paper may not exceed -270 days maturity nor exceed represent more than 10% of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the portfolio. An additional 15 %, for a total of 30 percent of the portfolio, may be invested only if the dollar- weighted average of the entire investment in commercial paper does not exceed 31 days. "Dollar- weighted average maturity" is defined as the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. Medium Term Corporate Notes - Unsecured promissory notes issued by a corporation organized and operating in the United States. These are negotiable instruments and are traded in the secondary market. Medium term corporate notes can be defined as extended maturity commercial paper. 5 Local agencies are restricted by the Government Code to investments in corporations rated in the top three note categories by Moody's Investors Service, Inc., and/or Standard and Poor's Corporation. For medium - term notes, eligible purchases consist of instruments that have a rating of "A" or better by both Moody's Investors Service, Inc., and Standard and Poor's Corporation. Corporate Notes issued by an Issuer that has a rating of "A" but are on credit watch for a possible downgrade by a nationally recognized rating agency shall not be considered for investment purposes. If the security's credit rating falls below "A" by one of these agencies, then awareness is heightened and the security monitored closely to determine if credit risk has been significantly increased. If a security falls below "A" by both rating agencies, then the Treasurer will evaluate the need to sell the security prior to maturity. Further restrictions are a maximum term of five years to maturity and total investments in medium term corporate notes may not exceed 30% of the local agency's surplus funds. Repurchase Agreements - A repurchase agreement is a short-term investment transaction. Banks buy temporarily idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal funds and the maturity of the repurchase agreement. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. The term of a repurchase agreement may not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Repurchase •Agreements can only be executed with financial institutions or broker /dealers that have signed a Master Repurchase Agreement with the District. Reverse Repurchase Agreements - A reverse repurchase agreement is the opposite of a repurchase agreement. The District loans a security to a bank in exchange for cash. The District agrees to pay off the loan with interest on a future date. As this type of investment actually involves a loan arrangement, the District may not invest more than 10% of its surplus funds in reverse repurchase agreements, and must always match its maturities to the reinvestment. Reverse repurchase agreements may be utilized only when either of the following conditions are met: 1. The security was owned or specifically committed to purchase, by the local agency, prior to December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. 2. The security: a) to be sold has been owned and fully paid for a minimum of 30 days prior to sale; and b) total of all reverse repurchase agreements owned does not exceed 10 percent of the base value of the portfolio; and c) agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum balance of $40,000,000 for any agency. The District is restricted to a maximum of fifteen transactions per month. It offers high liquidity no because deposits can be converted to cash in 24 hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one - quarter of one percent of the earnings. California Government Code § 16429.3 states, in part: "money placed with the State Treasurer for deposit in the Local Agency Investment Fund by cities, counties, or special districts shall not be subject to impoundment or seizure by any state official or state agency." Orange County Treasurer's Pool - A special fund in the County Treasury which local agencies may use to deposit funds for investment. The District may not invest more than 35% of its surplus money with the Orange County Treasurer's Pool. However, any investment held by the Orange County Treasurer's Pool will be apportioned and overlaid with the District's portfolio to determine compliance with other self - imposed restrictions as specified in this Investment Policy. The County Treasurer charges 12.5 basis points (.125 %) to all pool participants for its direct costs. Direct Costs include proper staffing, bank and custodial fees, software maintenance fees, and other indirect costs relating to the investment. Investment earnings are distributed to the pool participants on a monthly basis, net of the above charges. The earnings are credited to the participants accounts on either the last day of each month or the first day of the subsequent month. Money Market Mutual Funds - Shares of beneficial interest issued by diversified management companies. To be eligible for investment, shares must: 1. attain the highest rating provided by Moody's Investors Service, Inc., which is currently "Aaa," and/or Standard and Poor's Corporation, which is currently "AAA;" and 2. the investment adviser managing the shares must be registered with the Securities and Exchange Commission with not less than five year's experience investing in instruments authorized under California Government Code §53601 subdivisions (a) to (m) inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000); and 3. the purchase price of shares shall not include any commission that these companies may charge; and 4. investment in shares shall not exceed 20 percent of surplus funds. However, no more than 10 percent of the District's surplus funds may be invested in shares of beneficial interest of any one mutual fund. Furthermore, any investment in a money market mutual fund must comply with other self - imposed restrictions as specified in this Investment Policy. Asset - Backed and Mortgage- Backed Securi ty - Bonds backed by payments from receivables /mortgages having a maximum of five years maturity. These securities must have an "AA" or better rating by Moody's Investors Service, Inc., and/or Standard and Poor's Corporation. No more than 20% of the District's surplus money may be invested in these securities. VA 0 VIII. INVESTMENT OF BOND PROCEEDS When investing proceeds from the issuance of bonds, the Costa Mesa Sanitary District will follow this Investment Policy when determining allowable investments. Should the trust agreement of a particular bond issue be more restrictive than the District's policy on permitted investments, then the trust agreement will take precedence. IX. DISTRICT CONSTRAINTS The Treasurer will evaluate local banks and savings institutions and may invest idle cash funds with such institutions when the criteria for prudent investment previously stated are met. The District operates its investment pool according to State and self - imposed constraints. It does not buy stocks; it does not speculate; it does not deal in futures or options. Any investment extending beyond a five -year period requires prior District Board approval. Additionally, a minimum of 25% of the outstanding investments must mature within a one -year time period. X. SAFEKEEPING AND COLLATERALIZA All security transactions, including collateral for repurchase agreements, entered into by the District shall be conducted on a delivery- versus - payment (DVP) basis. Securities will be held by a third party custodian designated by the Treasurer. Collateralization will be required on two types of investments: certificates of deposit and repurchase (and reverse repurchase) agreements. In order to anticipate market changes and provide a level of security for all funds, a minimum collateralization level is required. Surplus funds must be deposited in State or national banks, State or Federal savings associations, or State or Federal credit unions within the State of California. The deposits cannot exceed the amount of the bank's or savings and loan's paid -up capital and surplus. The bank or savings and loan must secure public funds deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is 105% in the form of a letter of credit drawn on the Federal Home Loan Bank. The Treasurer may waive security for that portion of a deposit, which is insured pursuant to Federal law. Currently, the first $100,000 of a deposit is federally insured. Deposits in excess of $100,000 are collateralized as previously indicated. XI. DERIVATIVE INVESTMENTS A derivative is a generic term often used to categorize a wide variety of financial instruments whose value "depends on" or is "derived from" the value of an underlying asset, reference rate, or index. �3 Investments in derivative instruments are limited to debt securities that have periodic increases, or step -up • interest rate adjustments that provide upward mobility in yield return. Investments in debt securities, which contain a callable feature are also allowable, but must comply with other restrictions as specified in this Investment Policy. Investments in derivative instruments known as "inverse floaters," "dual index," or "stepped inverse" securities that produce higher than market yields at purchase date (when interest rates are low), but have the possibility of producing low or no coupon rates as market interest rates rise through the life of the instrument are not allowable. Furthermore, investments in range notes or interest -only strips that are derived from a pool of mortgages are not allowable. However, debt securities that have a floor or a built - in feature that prevents the instrument from potentially returning no yield are allowable. XII. POLICY COMPLIANCE REGULATIONS Should the portfolio, for any reason, fall out of compliance with this Investment Policy, immediate liquidation of securities in order to bring the portfolio back into compliance is not required. However, the Treasurer must take action to bring the portfolio into compliance within 12 months from the date the portfolio was determined to be in non - compliance with the provisions of this Investment Policy. Additionally, adequate disclosure as to all instances of noncompliance, and the efforts undertaken to bring the portfolio into compliance, must be made on the monthly Treasurer's Report. XIII. REPORTING eUnder provisions of Section 53646 of the California Government Code, the Treasurer shall render a quarterly investment report to the District Board and Manager of the District within 30 days following the end of the quarter covered by the report. However, as a matter of practice a monthly report shall be submitted listing the type of investments, institution, date of maturity, amount of deposit, rate of interest, current market value for all securities, and such other data as may be required by the District Board on a monthly basis. Furthermore, an Investment Oversight Committee comprised of the following individuals will meet quarterly to review the District's portfolio and investment strategy. • Director of Finance /District Treasurer • Assistant Director of Finance • Revenue Supervisor • District Manager • Assistant Manager • Two Board Members Additionally, an annual audit of the District's investment portfolio will be conducted by an independent Certified Public Accounting firm and a report of the results will be made available. XIV. QUALIFIED DEALERS The Costa Mesa Sanitary District shall transact business only with banks, savings and loans, and registered investment securities dealers. The District will utilize broker /dealers authorized to do business with the City of Costa Mesa. Each authorized broker /dealer shall be required to annually file a signed certification with the District Treasurer certifying that they have read and understand the District's most recently adopted investment policy. 0 ®The Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved broker /dealers who are authorized to provide investment services in the State of California. These may include "primary" and "regional" broker /dealers with offices located in the State of California. All financial institutions and broker /dealers who desire to become qualified bidders for investment transactions must be approved by and supply the Treasurer with a completed broker /dealer questionnaire. • • XV. POLICY REVIEW This Statement of Investment Policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of principal, liquidity and return, and its relevance to current law, financial and economic trends. Should conditions change or legislation become effective that behooves subsequent changes or a liberalization of terms within the policy during the next fiscal year, the revised policy will be submitted to both the Investment Oversight Committee and Board for adoption of the recommended action." 10 COSTA MESA SANITARY DISTRICT INVESTMENT GUIDELINES AND STRATEGY I. GUIDELINES - Guidelines are established to direct and control activities in such a manner that previously established goals are achieved. 1. Investment Transaction. Every investment transaction must be authorized and reviewed by the Treasurer. 2. Pooled Cash. Whenever practical, local agency cash is consolidated into one bank account and invested on a pooled concept basis. Interest earnings are allocated quarterly according to month -end cash and investment balances for each fund. 3.. Competitive Bids. Purchase and sales of securities are made on the basis of competitive offers and bids when practical. 4. Cash Forecast. The cash flow for the District is analyzed with the receipt of revenues and maturity of investments scheduled so that adequate cash will be available to meet disbursement requirements. 5. Investment Limitations. Security purchases and holdings are maintained within statutory limits imposed by the California Government Code. Current limits are: Bankers Acceptances Commercial Paper Negotiable Certificates of Deposit Reverse Repurchase Agreements Medium Term Notes Money Market Mutual Funds Asset- Backed/Mortgage- Backed Securities Local Agency Investment Fund Orange County Treasurer's Pool 40% Section 53601(f) 30% Section 53601(g) 30% Section 53601(h) 20% Section 53601(i) 30% Section 536010) 15% Section 53601(k) 20% Section 53601(n) $40,000,000 Section VII of Policy 35% Section VII of Policy 6. Liquidity. The marketability of a security is considered at the time of purchase, as the security may have to be sold at a later date to meet unanticipated cash demands. 7. Diversification. The portfolio should consist of a mix of various types of securities, issuers, and maturities. 8. Evaluate Certificates of Deposit (a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. For deposits in excess of the insured maximum of $100,000, approved collateral at full market value shall be required. (California Government Code Section 53652 and/or 53651(m) and 53651.2(a)(1). 11 COSTA MESA SANITARY DISTRICT • INVESTMENT GUIDELINES AND STRATEGY (continued) (b) Negotiable Certificates of Deposit shall be evaluated in terms of the credit worthiness of the issuer, as these deposits are uninsured and uncollateralized promissory notes. II. STRATEGY - Strategy refers to the ability to manage financial resources in the most advantageous manner. 1. Economic Forecasts. Economic Forecasts are obtained periodically from economists and financial experts through bankers and brokers to assist the Treasurer with the formulation of an investment strategy for the local agency. 2. Implementing Investment Strategy. Investment transactions are executed which conform with anticipated interest rate trends and the current investment strategy plan. 3. Rapport. A close working relationship is maintained with large vendors of the District. The objective is to pinpoint when large disbursements will clear the District's bank account. It is essential for good cash control that such large expenditures be anticipated, . estimated as to dollar amount, and communicated to the Treasurer for liquidity planning purposes. • 4. Preserve Portfolio Value. Field standards are developed in order to maintain earnings near the market and to preserve the value of the portfolio. III. AUDIT - At least annually, the District's external auditors will analyze the District's portfolio and report to the Board regarding the legal, credit, and market risks associated with each investment. Additionally, the auditors will review the District's investment policy and make recommendations for modifications, if appropriate. 12 COSTA MESA SANITARY DISTRICT INVESTMENT PROCEDURES INTERNAL CONTROL - GUIDELINES OBJECTIVES OF INTERNAL CONTROL Internal control is the plan of organization and all the related systems established by management's objective of ensuring, as far as practicable: • The orderly and efficient conduct of its business, including adherence to management policies. • The safeguarding of assets. • The prevention or detection of errors and fraud. • The accuracy and completeness of the accounting records. • The timely preparation of reliable financial information. • LIMITATIONS OF INTERNAL CONTROL No internal control system, however elaborate, can by itself guarantee the achievement of management's objectives. Internal control can provide only reasonable assurance that the objectives are met, because of its inherent limitations, including: • Management's usual requirement that a control be cost - effective. • The direction of most controls at recurring, rather than unusual, types of transactions. • Human error due to misunderstanding, carelessness, fatigue, or distraction. • Potential for collusion that circumvents controls dependent on the segregation of functions. ® Potential for a person responsible for exercising control abusing that responsibility; a responsible staff member could be in a position to override controls which management has set up. 13 COSTA MESA SANITARY DISTRICT • INVESTMENT PROCEDURES INTERNAL CONTROL - GUIDELINES (continued) C, ELEMENTS OF INTERNAL CONTROL Elements of a system of internal control are the means by which an organization can satisfy the objectives of internal control. These elements are: ORGANIZATION Specific responsibility for the performance of duties should be assigned and lines of authority and reporting clearly identified and understood. 2. PERSONNEL Personnel should have capabilities commensurate with their responsibilities. Personnel selection and training policies together with the quality and quantity of supervision are thus important. 3. SEGREGATION OF FUNCTIONS Segregation of incompatible functions reduces the risk that a person is in a position both to perpetrate and conceal errors or fraud in the normal course of duty. If two parts of a transaction are handled by different people, collusion is necessary to conceal errors or fraud. In particular, the functions that should be considered when evaluating segregation of functions are authorization, execution, recording, custody of assets, and performing reconciliations. 4. AUTHORIZATION All transactions should be authorized by an appropriate responsible individual. The responsibilities and limits of authorization should be clearly delineated. The individual or group authorizing a specific transaction or granting general authority for transactions should be in a position commensurate with the nature and significance of the transactions. Delegation of authority to authorize transactions should be handled very carefully. 5. CONTROLS OVER AN ACCOUNTING SYSTEM Controls over an accounting system include the procedures, both manual and computerized, carried out independently to ascertain that transactions are complete, valid, authorized, and properly recorded. 14 COSTA MESA SANITARY DISTRICT • CASH CONTROLS PROCEDURES PERFORMED BY EXTERNAL AUDITORS WITH RESPECT TO CASH RECEIPTS A. District procedures and controls are reviewed. Some of the system strengths are: 1. Receipts are controlled upon receipt by proper registration devices. 2. Receipts are reconciled on a daily basis. 3. Amounts are deposited intact. 4. All bank accounts are authorized by the District Board. 5. Cash counts are done by two or more individuals. 6. Bank reconciliations are reviewed. • 7. Prompt posting of cash receipt entries in books. 8. Receipt forms are prenumbered, accounted for, and physically secured. 9. Proper approval required for write -offs of customer accounts. 10. Checks are restrictively endorsed upon receipt. 11. Adequate physical security over cash. 12. Individuals that handle cash do not post to customer account records or process billing statements. 13. Adequate supervision of Finance Department operations. B. Significant revenues are confirmed directly with payor and compared with District books to make sure amounts are recorded properly. C. Cash balances are substantiated by confirming all account balances recorded in books. Bank reconciliations are reviewed for propriety and recalculated by the auditor. All significant reconciling items on bank reconciliations are verified as valid reconciling items by proving to subsequent bank statements. 15 COSTA MESA SANITARY DISTRICT • SEGREGATION OF RESPONSIBILITIES OF THE TREASURY FUNCTIONS 1167 Function Responsibility 1. Authorization of Investment Transactions: Formal Investment Policy should be: Prepared By: Treasurer Submitted To: District Board Investment Transactions Treasurer should be approved by 2. Execution of investment Assistant Director of Finance transactions 3. Timely recording of investment transactions: Recording of investment Revenue Supervisor transactions in the Treasurer's records Recording of investment Accountant transactions in the accounting records 4. Verification of investment, Assistant Director of Finance i.e., match broker confirma- tion to Treasurer's records 5. Safeguarding of Assets and Records: Reconciliation of Treasurer's Revenue Supervisor records to the accounting records Reconciliation of Treasurer's Accountant records to bank statements and • safekeeping records 1167 r • c: COSTA MESA SANITARY DISTRICT SEGREGATION OF RESPONSIBILITIES OF THE TREASURY FUNCTIONS (Continued) Function 5. Safeguarding of Assets and Records (continued): Annual review of (a) financial institution's financial condition, (b) safety, liquidity, and potential yields of investment instruments. 6. Periodic review of investment portfolio as prepared by Treasurer including: • Investment types • Purchase Price • Market values • Maturity dates • Par values • Investment yields • Conformance to stated investment policy • Safekeeping reports 7. Periodic review of investment portfolio and strategies. Responsibility Assistant Director of Finance with Treasurer's approval Independent Auditors Investment Oversight Committee 17 • COSTA MESA SANITARY DISTRICT STATEMENT OF INVESTMENT POLICY 2003 -04 I. GENERAL INTRODUCTION Under the laws of the State of California, it is the responsibility of the District Treasurer, at the direction of the Board, to secure and protect the public funds of the District, and to establish proper safeguards, controls, and procedures to maintain these funds in a lawful, rational and auspicious manner. Said maintenance shall include the prudent and secure investment of those funds that are deemed temporarily excess, in a manner anticipated to provide additional benefit to the people of the Costa Mesa Sanitary District. This Statement of Investment Policy will be provided annually for the review of the Oversight Committee and the approval of the Board in an open public meeting. It will also be provided to securities dealers, banks, and brokers currently approved for conducting investment transactions with the District Treasurer's office in the ongoing effort to manage the excess cash portfolio; to other affected persons or entities; and to any member of the electorate wishing to review this document upon request. The Treasurer reserves the right to provide these documents on a cost basis. • H. SCOPE This Statement of Investment Policy pertains to those temporarily surplus funds under the control of the Treasurer, designated for the daily ongoing operations of the District; and concerns the deposit, maintenance, safekeeping, and preservation of all such funds, and the investments made with these funds. This Policy does not apply to pension trust funds, deferred compensation funds, and certain other trust or non - operating funds. III. PURPOSE The purpose of this Statement of Investment Policy is to provide the District, the Investment Oversight Committee, those involved in servicing the investment requirements of the District, and any other interested party, a clear understanding of the regulations and internal guidelines that will be observed in maintaining and investing those pooled funds deemed temporarily excess. This statement is intended to provide guidelines for the prudent investment of the Costa Mesa Sanitary District's (District's) temporary idle cash, and outline the procedures for maximizing the efficiency of the District's cash management system. The ultimate goal is to enhance the economic status of the District while safeguarding its assets. . OBJECTIVE The District's cash management system is designed to accurately monitor and forecast revenues and expenditures, thus enabling the District to invest funds to the fullest extent possible. The District attempts to obtain the highest yield possible only after the criteria established for safety and liquidity have been met. The Costa Mesa Sanitary District operates its pooled idle cash investments with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. This affords the District a broad spectrum of investment opportunities as long as the investment is deemed prudent and is allowable under current legislation of the State of California Government Code Section 53600 et seq. and the general laws of the Costa Mesa Sanitary District. The Costa Mesa Sanitary District strives to maintain the level of investment of all idle funds as near 100% as possible, through daily and projected cash flow determinations. Idle cash management and investment transactions are the responsibility of the Treasurer. Criteria for selecting investments and the order of priority are: 1. Safety: The safety and risk associated with an investment refers to the potential loss of principal, interest, or a combination of these amounts. The District only operates in those investments that are considered very safe. 2. Li uidi : This refers to the ability to "cash in" at any moment in time with a minimal chance of losing some portion of principal or interest. 3. Yield: Yield is the potential dollar earnings an investment can provide, and sometimes is referred to as the rate of return. 4. Safekeeping: Securities purchased shall be held in third party safekeeping in the Trust Department of a financial institution, in the District's name and control. The account established shall be protected from seizure by creditors should the financial institution holding the District's securities file for bankruptcy protection. The basic premise underlying the District's investment philosophy is and continues to be, to insure that surplus funds are always safe and available when needed. V. DELEGATION OF INVESTMENT AUTHORITY Authority to manage the Costa Mesa Sanitary District's investment program is derived from Costa Mesa Sanitary District Board Resolution No. 2003 -672. Management responsibility for the investment program is hereby delegated for fiscal year 2003 -04 to the Treasurer who shall establish written procedures for the operation of the investment program consistent with this Investment Policy. Procedures should include references to: safekeeping, repurchase agreements, wire transfer agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. • VI. STANDARD OF PRUDENCE The Treasurer shall perform the investment function in conjunction with the "Prudent Man Rule ". This rule states, in principle that whenever investing property for the benefit of others, a trustee shall exercise the judgment and care, under circumstances then prevailing that persons of prudence, discretion, and intelligence, would exercise in the management of their own affairs not in regards to speculation, but in regard to the permanent disposition of their funds, considering the probability of safety of, as well as the probable income from their capital. The Treasurer and his designees are considered to have a fiduciary, trustee, relationship with the public for the public funds and all investment decisions will be made in a manner sustaining this responsibility." VII. AUTHORIZED INVESTMENTS The California Government Code allows the District to invest in the following media: • Securities of the U.S. Government, or its government sponsored agencies • Small Business Administration loans • Certificates of deposit, placed with commercial banks and savings and loan companies • Negotiable certificates of deposit • Bankers acceptances • Commercial paper • Corporate notes and bonds, including medium term notes • Local Agency Investment Fund • Repurchase agreements • Reverse repurchase agreements • Passbook savings account demand deposits • County Treasurer demand deposits • Asset - backed and mortgage- backed securities • Money market mutual funds As a matter of practice, however, the District generally limits its investments to the following vehicles: U.S. Treasury Bills - Issued weekly with maturity dates up to one year. They are issued and traded on a discount basis with interest figured on a 360 -day basis, actual number of days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid security. U.S. Treasury Notes - Initially issued with two- to ten -year maturities. They are actively traded in a large secondary market and are very liquid. The Treasury may issue Note issues with a minimum of $1,000, however, the average minimum is $5,000. Federal Government Sponsored Agency Issues - Guaranteed directly or indirectly by the United States Government. All agency obligations qualify as legal investments and are acceptable as security for public deposits. They usually provide higher yields than regular Treasury issues with all of the same advantages. Examples include: 3 • • FICBs (Federal Intermediate Credit Bank Debentures) - Loans to lending institutions used to finance the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine -month maturity. Interest is payable at maturity and is calculated on a 360 -day, 30 -day month basis. • FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three - and six -month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. • FLBs (Federal Land Bank Bonds) - Long -term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is $1,000. They carry semi - annual coupons. Interest is calculated on a 360 -day, 30 -day month basis. • FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage - lending institutions. They are issued irregularly for various maturities. The minimum denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity. The bonds are issued with various maturities and carry semi - annual coupons. Interest is calculated on a 360 -day, 30 -day month basis. • FNMAs (Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veterans Administration. They are issued about four times a year for maturities ranging from a few months to eight years. They are issued in minimum denominations of $10,000. They carry semi - annual coupons. Interest is computed on a 360 -day, 30 -day month basis. • FHLMCs (Federal Home Loan Mortgage Corporation) - A government- sponsored corporation established to develop the secondary market for conventional home mortgages. Mortgages are purchased solely from the Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of the United States Government. They are issued for various maturities and in minimum denominations of $10,000. Interest is paid semi - annually and is calculated on a 360 -day, 30 -day month basis. • Other federal agency issues are Small Business Administration notes (SBAs), Government National Mortgage Association notes (GNMAs), Tennessee Valley Authority notes (TVAs), and Student Loan Marketing Association notes (SALLIE- MAEs). As a matter of practice, the District does not invest in these issues, as they do not suit our purposes as well as other investment opportunities available. The District limits its investments to no more than 25% of its surplus funds in any one Federal . A enc g Y n . Bankers Acceptances - Short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at its maturity. An acceptance is a high -grade negotiable instrument. Bankers Acceptances can be purchased in various denominations for 30, 60, or 90 days, but no longer than -180 days. The interest is calculated on a 360 -day discount basis similar to Treasury Bills. Local agencies may not invest more than 40% of their surplus funds in bankers acceptances or more than 10% of the agency's surplus funds in bankers acceptances of any one commercial bank. Certificates of Deposit - Time deposits of a bank or savings and loan. They are purchased in various denominations with maturities ranging from 30 to 360 days. The interest is calculated on a 360 -day, actual -day month basis and is payable monthly. Negotiable Certificates of Deposit - Unsecured obligations of the financial institution, bank or savings and loan, bought at par value with the promise to pay face value plus accrued interest at maturity. They are high -grade negotiable instruments, paying a higher interest rate than regular certificates of deposit. The primary market issuance is in multiples of $1,000,000, the secondary market usually trades in denominations of $500,000, although smaller lots are occasionally available. As a matter of practice, only the ten largest U.S. banks where there is a secondary market established for continued liquidity are considered for investment. The District's total investment in negotiable certificates of deposit may not exceed 30% of surplus funds. Commercial Paper - Short-term unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Local agencies are permitted by State law to invest in commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by Moody's Investor's Service, Inc., and/or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt other than commercial paper. Commercial Paper issued by an Issuer that has a rating of "A" on their debt other than commercial paper but are on credit watch for a possible downgrade by a nationally recognized rating agency shall not be considered for investment purposes. Purchases of eligible commercial paper may not exceed -270 days maturity nor exceed represent more than 10% of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the portfolio. An additional 15 %, for a total of 30 percent of the portfolio, may be invested only if the dollar- weighted average of the entire investment in commercial paper does not exceed 31 days. "Dollar- weighted average maturity" is defined as the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. Medium Term Corporate Notes - Unsecured promissory notes issued by a corporation organized and operating in the United States. These are negotiable instruments and are traded in the secondary market. Medium term corporate notes can be defined as extended maturity commercial paper. 5 Local agencies are restricted by the Government Code to investments in corporations rated in the top three note categories by Moody's Investors Service, Inc., and/or Standard and Poor's Corporation. For medium - term notes, eligible purchases consist of instruments that have a rating of "A" or better by both Moody's Investors Service, Inc., and Standard and Poor's Corporation. Corporate Notes issued by an Issuer that has a rating of "A" but are on credit watch for a possible downgrade by a nationally recognized rating agency shall not be considered for investment purposes. If the security's credit rating falls below "A" by one of these agencies, then awareness is heightened and the security monitored closely to determine if credit risk has been significantly increased. If a security falls below "A" by both rating agencies, then the Treasurer will evaluate the need to sell the security prior to maturity. Further restrictions are a maximum term of five years to maturity and total investments in medium term corporate notes may not exceed 30% of the local agency's surplus fiends. Repurchase Agreements - A repurchase agreement is a short-term investment transaction. Banks buy temporarily idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal funds and the maturity of the repurchase agreement. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. The tenn of a repurchase agreement may not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Repurchase Agreements can only be executed with financial institutions or broker /dealers that have signed a Master iRepurchase Agreement with the District. Reverse Repurchase Agreements - A reverse repurchase agreement is the opposite of a repurchase agreement. The District loans a security to a bank in exchange for cash. The District agrees to pay off the loan with interest on a firture date. As this type of investment actually involves a loan arrangement, the District may not invest more than 10% of its surplus funds in reverse repurchase agreements, and must always match its maturities to the reinvestment. Reverse repurchase agreements may be utilized only when either of the following conditions are met: 1. The security was owned or specifically committed to purchase, by the local agency, prior to December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. 2. The security: a) to be sold has been owned and fully paid for a minimum of 30 days prior to sale; and b) total of all reverse repurchase agreements owned does not exceed 10 percent of the base value of the portfolio; and c) agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum balance of $40,000,000 for any agency. The District is restricted to a maximum of fifteen transactions per month. It offers high liquidity R because deposits can be converted to cash in 24 hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one - quarter of one percent of the earnings. California Government Code § 16429.3 states, in part: "money placed with the State Treasurer for deposit in the Local Agency Investment Fund by cities, counties, or special districts shall not be subject to impoundment or seizure by any state official or state agency." Orange County Treasurer's Pool - A special fund in the County Treasury which local agencies may use to deposit funds for investment. The District may not invest more than 35% of its surplus money with the Orange County Treasurer's Pool. However, any investment held by the Orange County Treasurer's Pool will be apportioned and overlaid with the District's portfolio to determine compliance with other self - imposed restrictions as specified in this Investment Policy. The County Treasurer charges 12.5 basis points ( 125 %) to all pool participants for its direct costs. Direct Costs include proper staffing, bank and custodial fees, software maintenance fees, and other indirect costs relating to the investment. Investment earnings are distributed to the pool participants on a monthly basis, net of the above charges. The earnings are credited to the participants accounts on either the last day of each month or the first day of the subsequent month. Money Market Mutual Funds - Shares of beneficial interest issued by diversified management companies. • To be eligible for investment, shares must: 1. attain the highest rating provided by Moody's Investors Service, Inc., which is currently "Aaa," and/or Standard and Poor's Corporation, which is currently "AAA;" and 2. the investment adviser managing the shares must be registered with the Securities and Exchange Commission with not less than five year's experience investing in instruments authorized under California Government Code §53601 subdivisions (a) to (m) inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000); and 3. the purchase price of shares shall not include any commission that these companies may charge; and 4. investment in shares shall not exceed 20 percent of surplus funds. However, no more than 10 percent of the District's surplus funds may be invested in shares of beneficial interest of any one mutual fund. Furthermore, any investment in a money market mutual fund must comply with other self - imposed restrictions as specified in this Investment Policy. Asset - Backed and Mortgage- Backed Securi ty - Bonds backed by payments from receivables /mortgages having a maximum of five years maturity. These securities must have an "AA" or better rating by Moody's Investors Service, Inc., and/or Standard and Poor's Corporation. No more than 20% of the District's surplus money may be invested in these securities. • 7 0 VIII. INVESTMENT OF BOND PROCEEDS When investing proceeds from the issuance of bonds, the Costa Mesa Sanitary District will follow this Investment Policy when determining allowable investments. Should the trust agreement of a particular bond issue be more restrictive than the District's policy on permitted investments, then the trust agreement will take precedence. IX. DISTRICT CONSTRAINTS The Treasurer will evaluate local banks and savings institutions and may invest idle cash funds with such institutions when the criteria for prudent investment previously stated are met. The District operates its investment pool according to State and self - imposed constraints. It does not buy stocks; it does not speculate; it does not deal in futures or options. Any investment extending beyond a five -year period requires prior District Board approval. Additionally, a minimum of 25% of the outstanding investments must mature within a one -year time period. X. SAFEKEEPING AND COLLATERALIZATION All security transactions, including collateral for repurchase agreements, entered into by the District shall be conducted on a delivery- versus - payment (DVP) basis. Securities will be held by a third party custodian designated by the Treasurer. Collateralization will be required on two types of investments: certificates of deposit and repurchase (and reverse repurchase) agreements. In order to anticipate market changes and provide a level of security for all funds, a minimum collateralization level is required. Surplus funds must be deposited in State or national banks, State or Federal savings associations, or State or Federal credit unions within the State of California. The deposits cannot exceed the amount of the bank's or savings and loan's paid -up capital and surplus. The bank or savings and loan must secure public funds deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is 105% in the form of a letter of credit drawn on the Federal Home Loan Bank. The Treasurer may waive security for that portion of a deposit, which is insured pursuant to Federal law. Currently, the first $100,000 of a deposit is federally insured. Deposits in excess of $100,000 are collateralized as previously indicated. XI. DERIVATIVE INVESTMENTS A derivative is a generic term often used to categorize a wide variety of financial instruments whose value "depends on" or is "derived from" the value of an underlying asset, reference rate, or index. •Investments in derivative instruments are limited to debt securities that have periodic increases, or step -up interest rate adjustments that provide upward mobility in yield return. Investments in debt securities, which contain a callable feature are also allowable, but must comply with other restrictions as specified in this Investment Policy. Investments in derivative instruments known as "inverse floaters," "dual index," or "stepped inverse" securities that produce higher than market yields at purchase date (when interest rates are low), but have the possibility of producing low or no coupon rates as market interest rates rise through the life of the instrument are not allowable. Furthermore, investments in range notes or interest -only strips that are derived from a pool of mortgages are not allowable. However, debt securities that have a floor or a built - in feature that prevents the instrument from potentially returning no yield are allowable. XII. POLICY COMPLIANCE REGULATIONS Should the portfolio, for any reason, fall out of compliance with this Investment Policy, immediate liquidation of securities in order to bring the portfolio back into compliance is not required. However, the Treasurer must take action to bring the portfolio into compliance within 12 months from the date the portfolio was determined to be in non - compliance with the provisions of this Investment Policy. Additionally, adequate disclosure as to all instances of noncompliance, and the efforts undertaken to bring the portfolio into compliance, must be made on the monthly Treasurer's Report. XIII. REPORTING • Under provisions of Section 53646 of the California Government Code, the Treasurer shall render a quarterly investment report to the District Board and Manager of the District within 30 days following the end of the quarter covered by the report. However, as a matter of practice a monthly report shall be submitted listing the type of investments, institution, date of maturity, amount of deposit, rate of interest, current market value for all securities, and such other data as may be required by the District Board on a monthly basis. Furthermore, an Investment Oversight Committee comprised of the following individuals will meet quarterly to review the District's portfolio and investment strategy. • Director of Finance /District Treasurer • Assistant Director of Finance • Revenue Supervisor • District Manager • Assistant Manager • Two Board Members Additionally, an annual audit of the District's investment portfolio will be conducted by an independent Certified Public Accounting firm and a report of the results will be made available. XIV. QUALIFIED DEALERS The Costa Mesa Sanitary District shall transact business only with banks, savings and loans, and •registered investment securities dealers. The District will utilize broker /dealers authorized to do business with the City of Costa Mesa. Each authorized broker /dealer shall be required to annually file a signed certification with the District Treasurer certifying that they have read and understand the District's most recently adopted investment policy. 9 9 + , • The Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved broker /dealers who are authorized to provide investment services in the State of California. These may include "primary" and "regional' broker /dealers with offices located in the State of California. All financial institutions and broker /dealers who desire to become qualified bidders for investment transactions must be approved by and supply the Treasurer with a completed broker /dealer questionnaire. C _I • XV. POLICY REVIEW This Statement of Investment Policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of principal, liquidity and return, and its relevance to current law, financial and economic trends. Should conditions change or legislation become effective that behooves subsequent changes or a liberalization of terms within the policy during the next fiscal year, the revised policy will be submitted to both the Investment Oversight Committee and Board for adoption of the recommended action." 10 • COSTA MESA SANITARY DISTRICT INVESTMENT GUIDELINES AND STRATEGY I. GUIDELINES - Guidelines are established to direct and control activities in such a manner that previously established goals are achieved. 1. Investment Transaction. Every investment transaction must be authorized and reviewed by the Treasurer. , 2. Pooled Cash. Whenever practical, local agency cash is consolidated into one bank account and invested on a pooled concept basis. Interest earnings are allocated quarterly according to month -end cash and investment balances for each fund. 3. Competitive Bids. Purchase and sales of securities are made on the basis of competitive offers and bids when practical. 4. Cash Forecast. The cash flow for the District is analyzed with the receipt of revenues and maturity of investments scheduled so that adequate cash will be available to meet disbursement requirements. 5. Investment Limitations. Security purchases and holdings are maintained within statutory • limits imposed by the California Government Code. Current limits are: Bankers Acceptances Commercial Paper Negotiable Certificates of Deposit Reverse Repurchase Agreements Medium Term Notes Money Market Mutual Funds Asset- Backed/Mortgage- Backed Securities Local Agency Investment Fund Orange County Treasurer's Pool 40% Section 53601(f) 30% Section 53601(g) 30% Section 53601(h) 20% Section 53601(i) 30% Section 536010) 15% Section 53601(k) 20% Section 53601(n) $40,000,000 Section VII of Policy 35% Section VII of Policy 6. Liquidity. The marketability of a security is considered at the time of purchase, as the security may have to be sold at a later date to meet unanticipated cash demands. 7. Diversification. The portfolio should consist of a mix of various types of securities, issuers, and maturities. 8. Evaluate Certificates of Deposit (a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. For deposits in excess of the insured maximum of $100,000, approved collateral at full market value shall be required. (California Government Code Section 53652 and/or 53651(m) and 53651.2(a)(1). 11 COSTA MESA SANITARY DISTRICT INVESTMENT GUIDELINES AND STRATEGY (continued) (b) Negotiable Certificates of Deposit shall be evaluated in terms of the credit worthiness of the issuer, as these deposits are uninsured and uncollateralized promissory notes. II. STRATEGY - Strategy refers to the ability to manage financial resources in the most advantageous manner. 1. Economic Forecasts. Economic Forecasts are obtained periodically from economists and financial experts through bankers and brokers to assist the Treasurer with the formulation of an investment strategy for the local agency. 2. Implementing Investment Strategy. Investment transactions are executed which conform with anticipated interest rate trends and the current investment strategy plan. 3. Rapport. A close working relationship is maintained with large vendors of the District. The objective is to pinpoint when large disbursements will clear the District's bank account. It is essential for good cash control that such large expenditures be anticipated, estimated as to dollar amount, and communicated to the Treasurer for liquidity planning • purposes. • 4. Preserve Portfolio Value. Field standards are developed in order to maintain earnings near the market and to preserve the value of the portfolio. III. AUDIT - At least annually, the District's external auditors will analyze the District's portfolio and report to the Board regarding the legal, credit, and market risks associated with each investment. Additionally, the auditors will review the District's investment policy and make recommendations for modifications, if appropriate. 12 4 f K i • COSTA MESA SANITARY DISTRICT INVESTMENT PROCEDURES INTERNAL CONTROL - GUIDELINES OBJECTIVES OF INTERNAL CONTROL Internal control is the plan of organization and all the related systems established by management's objective of ensuring, as far as practicable: • The orderly and efficient conduct of its business, including adherence to management policies. • The safeguarding of assets. • The prevention or detection of errors and fraud. • The accuracy and completeness of the accounting records. • The timely preparation of reliable financial information. 0 LIMITATIONS OF INTERNAL CONTROL is No internal control system, however elaborate, can by itself guarantee the achievement of management's objectives. Internal control can provide only reasonable assurance that the objectives are met, because of its inherent limitations, including: • Management's usual requirement that a control be cost - effective. • The direction of most controls at recurring, rather than unusual, types of transactions. • Human error due to misunderstanding, carelessness, fatigue, or distraction. • Potential for collusion that circumvents controls dependent on the segregation of functions. • Potential for a person responsible for exercising control abusing that responsibility; a responsible staff member could be in a position to override controls which management has set up. 13 W y K i • COSTA MESA SANITARY DISTRICT INVESTMENT PROCEDURES INTERNAL CONTROL - GUIDELINES (continued) ELEMENTS OF INTERNAL CONTROL Elements of a system of internal control are the means by which an organization can satisfy the objectives of internal control. These elements are: 1. ORGANIZATION Specific responsibility for the performance of duties should be assigned and lines of authority and reporting clearly identified and understood. 2. PERSONNEL Personnel should have capabilities commensurate with their responsibilities. Personnel selection and training policies together with the quality and quantity of supervision are thus important. 3. SEGREGATION OF FUNCTIONS Segregation of incompatible functions reduces the risk that a person is in a position both to • perpetrate and conceal errors or fraud in the normal course of duty. If two parts of a transaction are handled by different people, collusion is necessary to conceal errors or fraud. In particular, the functions that should be considered when evaluating segregation of functions are authorization, execution, recording, custody of assets, and performing reconciliations. 4. AUTHORIZATION All transactions should be authorized by an appropriate responsible individual. The responsibilities and limits of authorization should be clearly delineated. The individual or group authorizing a specific transaction or granting general authority for transactions should be in a position commensurate with the nature and significance of the transactions. Delegation of authority to authorize transactions should be handled very carefully. 5. CONTROLS OVER AN ACCOUNTING SYSTEM Controls over an accounting system include the procedures, both manual and computerized, carried out independently to ascertain that transactions are complete, valid, authorized, and properly recorded. 14 a jj Id n • COSTA MESA SANITARY DISTRICT CASH CONTROLS PROCEDURES PERFORMED BY EXTERNAL AUDITORS WITH RESPECT TO CASH RECEIPTS A. District procedures and controls are reviewed. Some of the system strengths are: 1. Receipts are controlled upon receipt by proper registration devices. 2. Receipts are reconciled on a daily basis. 3. Amounts are deposited intact. 4. All bank accounts are authorized by the District Board. 5. Cash counts are done by two or more individuals. 6. Bank reconciliations are reviewed. 7. Prompt posting of cash receipt entries in books. • 8. Receipt forms are prenumbered, accounted for, and physically secured. • 9. Proper approval required for write -offs of customer accounts. 10. Checks are restrictively endorsed upon receipt. 11. Adequate physical security over cash. 12. Individuals that handle cash do not post to customer account records or process billing statements. 13. Adequate supervision of Finance Department operations. B. Significant revenues are confirmed directly with payor and compared with District books to make sure amounts are recorded properly. C. Cash balances are substantiated by confirming all account balances recorded in books. Bank reconciliations are reviewed for propriety and recalculated by the auditor. All significant reconciling items on bank reconciliations are verified as valid reconciling items by proving to subsequent bank statements. 15 r. W . . COSTA MESA SANITARY DISTRICT SEGREGATION OF RESPONSIBILITIES OF THE TREASURY FUNCTIONS 16 Function Responsibility 1. Authorization of Investment Transactions: Formal Investment Policy should be: Prepared By: Treasurer Submitted To: District Board Investment Transactions Treasurer should be approved by 2. Execution of investment Assistant Director of Finance transactions • 3. Timely recording of investment transactions: Recording of investment Revenue Supervisor transactions in the Treasurer's records Recording of investment Accountant transactions in the accounting records 4. Verification of investment, Assistant Director of Finance i.e., match broker confirma- tion to Treasurer's records 5. Safeguarding of Assets and Records: Reconciliation of Treasurer's Revenue Supervisor records to the accounting records Reconciliation of Treasurer's Accountant records to bank statements and safekeeping records 16 • • r. to Al COSTA MESA SANITARY DISTRICT SEGREGATION OF RESPONSIBILITIES OF THE TREASURY FUNCTIONS (Continued) Function 5. Safeguarding of Assets and Records (continued): Annual review of (a) financial institution's financial condition, (b) safety, liquidity, and potential yields of investment instruments. 6. Periodic review of investment portfolio as prepared by Treasurer including: • Investment types • Purchase Price • Market values • Maturity dates • Par values • Investment yields • Conformance to stated investment policy • Safekeeping reports 7. Periodic review of investment portfolio and strategies. Responsibility Assistant Director of Finance with Treasurer's approval Independent Auditors Investment Oversight Committee 17 ' MP03 -100 COSTA MESA SANITARY DISTRICT • DEPARTMENT OF FINANCE -� MARC R. PUCKET'T INTEROFFICE MEMORANDUM DIRECTOR OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DISTRICT TREASURER COPY TO: ROB HAMERS, DISTRICT MANAGER DISTRICT STAFF DATE: JUNE 11, 2003 SUBJECT: REVISED PROPOSED BUDGETFOR FISCAL YEAR 2003 -04 Attached for your information and recommended adoption is a copy of the revised proposed Operating and Capital Improvement Budget for the 2003 -04 fiscal year. The attached documents are for your consideration and review at your June 12 Regular Board meeting. The proposed fiscal year 2003 -04 • budget will become the basis for calculating the fiscal year 2003 -04 Solid and Liquid Waste Assessments. Preliminary calculations of the Solid and Liquid Waste Assessments are included in the budget for your information and review. However, please note that these calculations are based upon CPI data for the trailing twelve month period ending April, 2003. The CPI data for May, 20039 is not yet available. Included in this Budget package are: • Revised 2003 -04 CMSD proposed Operating and Capital Improvement Budget. • Program and Line item budget detail which supports the $1,174,040.00 District/City contract. • Preliminary draft rate calculations for the fiscal year 2003 -04 estimated solid and liquid waste assessments based upon the most recent CPI data available. • Schedule of Debt Service payments pursuant to the standardized container lease financing. The lease agreement calls for semi - annual payments to fund debt service payments on the purchase of the standardized trash containers. Significant budgetary highlights are identified below: • Sanitary sewer project funding in the amount of $648,000. • An anticipated increase in investment earnings due to an expected upturn in the economy • over the next twelve -month period. Liquid Waste and Solid Waste Fund investment earnings are projected to average between 3.75% and 4.00% over the fiscal year. The actual investment earnings will vary based upon actual cash flows (thus the projected range). • Continued allocation of all Property Tax Revenues to the Solid Waste Fund. • A proposed allocation of $25,000 has been included in the Solid Waste Fund for the purchase of standardized trash containers. • Debt Service payments in the amount of $281,182 on the annual lease installment • payments paid semi - annually at 4.92% for the purchase of standardized trash containers. • Includes continued appropriation of $11,240.82 to fund annual LAFCO fees based upon LAFCO's proposed cost allocations. Invoices to participating agencies have not yet been disseminated by LAFCO. • No increases in rates have been included for any of the following: ➢ District Manager's Retainer ➢ District Attorney's Retainer ➢ Transcription Services ➢ Board Member meeting fees ➢ Employee compensation bonus • Deletion of election expense of $20,000. Elections are held in alternate years and there is 'no election scheduled for FY2003 -2004. • Increased SDRMA General Liability Expense based upon 19.49% increase per the renewal invoice. • Revised reserve amount allocating funds in excess of minimum operating reserves to capital replacement reserves. • Proposed rate increases of 2.97% in CMD (addtl. $81,719) and CR &R (addtl. $177,118 reflects increase of 2,000 tons /yr.) contract costs based upon most recent CPI estimate. Currently, only Apri1,2003 data is available for CPI. The contract costs for CMD and CR &R are based upon year- over -year CPI comparisons for the trailing twelve -month period ending each May. Prior year information has been included for reference purposes and will be updated and distributed to the Board as soon as additional data becomes • available. • Included increase of 8.0% in solid waste rates pursuant to year 1 of the proposed revised strategic plan for the Solid Waste Fund. • Included increase of 5.0% in liquid waste rates for normal operating cost increases, additional CIP funding and an inflationary adjustment factor. Proposed rates have been recalculated to reflect the proposed 5.0% increase. • Assumed 6% increase in property tax revenues due to corresponding increase in property assessments and estimated supplemental assessments throughout the fiscal year. • Continued shifting of the burden for administrative overhead charges from a "50/50" split between the Solid and Liquid funds to a "25/75" split with the 25% split of the administrative charges being absorbed within the Solid Waste fund In addition to the highlights noted above, please note that adjustments will be made to the trash hauler and recycling contract charges based upon May, 2003, CPI data when it becomes available in approximately two to three weeks. The proposed rate calculation for the trash charges incorporates the changes noted above. Finally, the Board had requested information to be presented separately regarding Special Programs. This information is presented separately within the proposed Operating Budget to assist the Board in identifying the costs associated with the conduct of each program. If it is the Board's desire to reduce or modify the service levels proposed in the Fy04 Operating and Capital Improvement budget, it is • recommended that the Board revisit this program listing and determine if each of these programs warrant continuance. 2 Staff will be available to discuss the revised FY2003 -2004 proposed budget at the June 12 Board meeting and answer any further questions that you may have. Thank you for your attention to this matter and feel free to contact me directly if you have additional questions. • Mad R. Puckett Director of Finance/ District Treasurer Attachments • r1 LJ RESOLUTION NO. 2003 -671 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT, ADOPTING A BUDGET FOR THE FISCAL YEAR 2003 -04. THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT DOES HEREBY RESOLVE AS FOLLOWS: THAT, WHEREAS, the Proposed Budget for the 2003 -04 fiscal year has been prepared by order of the Board of Directors. NOW, THEREFORE, BE IT RESOLVED as follows: SECTION 1: The Annual Budget for the Costa Mesa Sanitary District for the fiscal year beginning July 1, 2003 and ending June 30, 2004, is hereby adopted as set forth in the Proposed 2003- 04 Budget. PASSED AND ADOPTED this 121 day of June 2003, by the following roll call vote. :••'� 1 H ' ATTEST: Secretary, Costa Mesa Sanitary District Board of Directors STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss COSTA MESA SANITARY DISTRICT ) President, Costa Mesa Sanitary District Board of Directors I, JOAN REVAK, Clerk of the District, hereby certify that the above and foregoing Resolution No. 2003 -671 was duly and regularly passed and adopted by the said Board of Directors at a regular meeting thereof held on the 121 day of June 2003. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Seal of the Costa Mesa Sanitary District this 131 day of June 2003. Clerk of the Costa Mesa Sanitary District CI i • L__] COSTA MESA SANITARY DISTRICT SOLID AND LIQUID FUNDS (COMBINED) PROPOSED BUDGET 2003 -2004 FISCAL YEAR REVENUES Secured Taxes Unsecured Taxes Other Taxes Delinquent Tax - Penalties Permits Excessive Effluent Discharge Investment Earnings Permits & Inspection Fees O.C.S.D. fees -CMSD share Other State Grants Sale of Maps and Publications New Trash Container Fees Other Charges for Services Special Assessments Trash Charges Sewer Charges Contributions Annexation Fees Other Reimbursement TOTAL REVENUES OPERATING EXPENSES Payroll Related Expenses Travel / Meals / Lodging / Registration / Mileage Dues - Professional organizations Supplies / Publications / Subscriptions / Promotional items Legal Notices(Election Expense) Public Education / Information / Community Info Board Members Wages (meeting attendance) Repair & Maintenance Strategic Plan Professional Services Attorney District Engineer- Retainer Engineering Services Auditing Services City Contract -Solid City Contract - Liquid Trash Hauler Contract Code Enforcement Recycling Contract Manager Transcription Services General Liability- Insurance Sharps Program Household Hazardous Waste Program Telephone Book Recycling Program Large Item Pick -Up Used Tire Roundup Christmas Tree Recycling Greeting Card Recycling FUND FUND 94,500.00 594 595 COMBINED SOLID LIQUID TOTAL 94,500.00 0.00 94,500.00 7,140.00 0.00 7,140.00 4,673.00 0.00 4,673.00 38,745.00 0.00 38,745.00 0.00 3,675.00 3,675.00 0.00 2,100.00 2,100.00 86,100.00 262,500.00 348,600.00 0.00 12,600.00 12,600.00 0.00 11,550.00 11,550.00 5,250.00 0.00 5,250.00 0.00 105.00 105.00 25,000.00 0.00 25,000.00 210.00 105.00 315.00 1,050.00 1,050.00 2,100.00 4,410,970.00 0.00 4,410,970.00 0.00 1,656,776.00 1,656,776.00 5,250.00 0.00 5,250.00 525.00 0.00 525.00 2,100.00 0.00 2,100.00 4,681,513.00 1,950,461.00 6,631,974.00 993.00 2,946.00 3,939.00 4,095.00 12,285.00 16,380.00 8,663.00 16,958.00 25,621.00 2,626.00 21,815.00 24,441.00 0.00 0.00 0.00 4,095.00 12,285.00 16,380.00 11,475.00 34,425.00 45,900.00 0.00 41,786.00 41,786.00 1,355.00 5,628.00 6,983.00 5,125.00 15,375.00 20,500.00 12,815.00 38,435.00 51,250:00 0.00 0.00 0.00 0.00 144,648.00 144,648.00 1,239.00 3,717.00 4,956.00 229,058.00 0.00 229,058.00 0.00 944,982.00 944,982.00 2,210,422.00 0.00 2,210,422.00 37,028.00 9,844.00 46,872.00 1,951,115.00 0.00 1,951,115.00 10,250.00 30,750.00 41,000.00 2,255.00 6,765.00 9,020.00 12,154.00 36,460.00 48,614.00 5,550.00 0.00 5,550.00 24,000.00 0.00 24,000.00 10,500.00 0.00 10,500.00 12,500.00 0.00 12,500.00 250.00 0.00 250.00 5,000.00 0.00 5,000.00 200.00 0.00 200.00 5 PROPOSED 03 -04 149 Sinking Fd /Future Sewer Repic 159 Televising Swr Lines 164 Misc. Swr. Work/Manhole Adj. 172 Waste Discharge Req. (WDR) Phase 1 173 SC Plaza Pump Station Force Main Replace. TOTAL PROPOSED CAPITAL PROJECTS TOTAL EXPENSES EXCESS ( DEFICIENCY OF REVENUES OVER REVENUES OVER EXPENDITURES) FUND EQUITY Solid (Trash) Reserve Solid (Trash) Cap. Rep. Reserve Liquid (Sewer) Reserve Facility Replacement Reserve Sewer Construction Reserve(Closeout -Sewer Constr Fd) Sinking Fund /Sewer Rehabilitation And Replacement Reserve Capital Replacement Reserve Total Fund Equity 0.00 COSTA MESA SANITARY DISTRICT 100, 000.00 0.00 18,000.00 SOLID AND LIQUID FUNDS (COMBINED) 0.00 90,000.00 10 PROPOSED BUDGET 2003 -2004 FISCAL YEAR 250,000.00 250,000.00 0.00 190, 000.00 190, 000.00 0.00 648,000.00 648,000.00 FUND FUND 594 595 COMBINED SOLID LIQUID TOTAL Non - operating Expense - Other 1,000.00 1,076.00 2,076.00 Capital Outlay 25,000.00 0.00 25,000.00 Debt Service- Principal Payment 188,310.00 0.00 188,310.00 Debt Service- Interest Payment 92,872.00 0.00 92,872.00 TOTAL OPERATING EXPENSES 4,869,945.00 1,380;180.00 6,250,125.00 CAPITAL PROJECTS PROPOSED 03 -04 149 Sinking Fd /Future Sewer Repic 159 Televising Swr Lines 164 Misc. Swr. Work/Manhole Adj. 172 Waste Discharge Req. (WDR) Phase 1 173 SC Plaza Pump Station Force Main Replace. TOTAL PROPOSED CAPITAL PROJECTS TOTAL EXPENSES EXCESS ( DEFICIENCY OF REVENUES OVER REVENUES OVER EXPENDITURES) FUND EQUITY Solid (Trash) Reserve Solid (Trash) Cap. Rep. Reserve Liquid (Sewer) Reserve Facility Replacement Reserve Sewer Construction Reserve(Closeout -Sewer Constr Fd) Sinking Fund /Sewer Rehabilitation And Replacement Reserve Capital Replacement Reserve Total Fund Equity 0.00 100, 000.00 100, 000.00 0.00 18,000.00 18,000.00 0.00 90,000.00 90,000.00 0.00 250,000.00 250,000.00 0.00 190, 000.00 190, 000.00 0.00 648,000.00 648,000.00 4,869,945.00 2,028,180.00 6,898,125.00 (188,432.00) (77,719.00) (266,151.00) Projected June 30, 2004 (188,432.00) (188,432.00) (77,719.00) (77,719.00) (266,151.00) 0 EXPENDITURES: Operating Costs - Sanitation Dept. Trash Hauler Contract Contract Code Enforcement Recycling Contract Sharps Program Household Hazardous Waste Program Telephone Book Recycling Program Large Item Pick -Up Used Tire Roundup Christmas Tree Recycling Greeting Card Recycling Capital Outlay Direct Costs Subtotal District Management Board Members Meetings Insurance Memberships Miscellaneous expense- Community Promotion Professional Svcs -Attny Professional Svcs Auditing Svcs Travel & Meetings Public Education Election Expenses Transcription Services Strategic Plan Other Operating Costs Non - Operating Exp - Other Payroll Related Expenses Debt Service- Principal Payment Debt Service - Interest Payment Indirect Costs Subtotal TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 218,150 COSTA MESA SANITARY DISTRICT 229,058 2,128,703 1,779,575 RATE CALCULATION 35,265 26,342 37,028 SOLID WASTE COLLECTION 1,429,982 1,951,115 13,000 FISCAL YEAR COMPARISON 5,550 21,525 15,774 ADOPTED BUDGET 10 MOS ACTUAL PROPOSED BUDGET 10,500 FY 02/03 FY 02/03 FY 03/04 REVENUES: 0 250 0 Solid Waste Charge 4,038,475 3,414,100 4,410,970 Taxes 138,150 111,310 145,058 Interest Earnings 82,000 40,188 86,100 Other Revenue 34,700 32,056 39,385 Loan Proceeds 945 1,203 993 TOTAL REVENUES 4,293,325 3,597,654 4,681,513 EXPENDITURES: Operating Costs - Sanitation Dept. Trash Hauler Contract Contract Code Enforcement Recycling Contract Sharps Program Household Hazardous Waste Program Telephone Book Recycling Program Large Item Pick -Up Used Tire Roundup Christmas Tree Recycling Greeting Card Recycling Capital Outlay Direct Costs Subtotal District Management Board Members Meetings Insurance Memberships Miscellaneous expense- Community Promotion Professional Svcs -Attny Professional Svcs Auditing Svcs Travel & Meetings Public Education Election Expenses Transcription Services Strategic Plan Other Operating Costs Non - Operating Exp - Other Payroll Related Expenses Debt Service- Principal Payment Debt Service - Interest Payment Indirect Costs Subtotal TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 218,150 115,812 229,058 2,128,703 1,779,575 2,210,422 35,265 26,342 37,028 1,773,997 1,429,982 1,951,115 13,000 4,571 5,550 21,525 15,774 24,000 18,000 10,399 10,500 9,500 9,090 12,500 0 0 250 0 0 5,000 0 0 200 15,000 0 25,000 4,233,140 3,391,545 4,510,623 12,750 19,320 10,250 11,475 15,755 11,475 10,250 0 12,154 8,250 7,025 8,663 1,200 27 2,626 12,815 16,211 12,815 5,125 4,500 5,125 1,180 948 1,239 3,900 4,555 4,095 2,700 1,837 4,095 5,000 12,403 0 2,255 2,196 2,255 1,290 2,640 1,355 0 0 0 2,050 41,916 1,000 945 1,203 993 179,376 179,376 188,310 101,806 101,806 92,872 362,367 411,718 359,322 4,595,507 3,803,263 4,869,945 (302,182) (205,609) (188,432) Funds Required Occupancy Rate 2003 -2004 PROPOSED PROJECTED SOLID WASTE CHARGES: 4,410,970 21,092 209.13 8.0% Increase 2002 -03 Solid Waste CHARGES: 4,079,220 21,066 193.64 (1) Fully Burdened Rate 4,598,021 21,092 218.00 12.58% Increase (1) COSTA MESA SANITARY DISTRICT RATE CALCULATION LIQUID WASTE COLLECTION FISCAL YEAR COMPARISON • EXPENDITURES: Operating Costs - Sanitation Dept. City Budget Contract Code Enforcement Repair & Maintenance District Engineer - Retainer District Engineer - Engineering Services Capital Outlay Capital Improvement Projects Direct Costs Subtotal District Management Board Members Meetings Insurance Dues - Memberships Miscellaneous expense- Community Promotion Professional Svcs -Attny Professional Svcs Auditing Services Travel & Meetings Public Education Election Expenses (Legal Notices) Strategic Plan Transcription Services Payroll Related Expenses Other Operating Exp Non - Operating Exp - Other(Contributions) Indirect Costs Subtotal TOTAL EXPENDITURES EXCESS(DEFICIENCY) OF REVENUE OVER EXPENDITURES FROM OPERATONS 899,983 ADOPTED BUDGET 10 MOS ACTUAL PROPOSED BUDGET 0 FY 02/03 FY 02/03 FY 02103 REVENUES: 30,750 18,795 0 Liquid Charge 1,577,882 1,324,121 1,656,776 Interest Earnings 250,000 161,778 262,500 Taxes 0 15,072 0 Other Revenue 29,700 50,986 31,185 TOTAL REVENUES 1,857,582 1,551,957 1,950,461 • EXPENDITURES: Operating Costs - Sanitation Dept. City Budget Contract Code Enforcement Repair & Maintenance District Engineer - Retainer District Engineer - Engineering Services Capital Outlay Capital Improvement Projects Direct Costs Subtotal District Management Board Members Meetings Insurance Dues - Memberships Miscellaneous expense- Community Promotion Professional Svcs -Attny Professional Svcs Auditing Services Travel & Meetings Public Education Election Expenses (Legal Notices) Strategic Plan Transcription Services Payroll Related Expenses Other Operating Exp Non - Operating Exp - Other(Contributions) Indirect Costs Subtotal TOTAL EXPENDITURES EXCESS(DEFICIENCY) OF REVENUE OVER EXPENDITURES FROM OPERATONS 899,983 580,459 944,982 9,375 0 9,844 39,796 0 41,786 30,750 18,795 0 137,760 128,340 144,648 0 0 0 999,600 5,697 648,000 2,117,264 733,291 1,789,260 20,775 4,288 30,750 34,425 15,755 34,425 30,750 0 36,460 16,150 8,425 16,958 3,600 27 21,815 38,435 16,211 38,435 15,375 4,500 15,375 3,540 2,846 3,717 11,700 5,756 12,285 8,100 3,113 12,285 15,000 12,403 0 5,360 2,640 5,628 6,765 2,450 6,765 2,805 1,202 2,946 0 0 0 1,025 180 1,076 213,805 79,796 238,920 2,331,069 813,087 2,028,180 (473,487) 738,870 (77,719) 2003 -2004 PROPOSED PROJECTED SEWER CHARGES: RATE ASSMT UNIT Single Family 26.65 Dwelling Multi /Mobile Homes 20.52 Dwelling Commercial 15.50 /1,000 sq. ft. Industrial 45.65 /1,000 sq. ft. Other 13.73 /1,000 sq. ft. `Projected 5% Increase 2002 -03 SEWER CHARGES: Single Family Multi /Mobile Homes Commercial Industrial Other 25.38 19.54 14.76 43.48 13.08 Dwelling Dwelling /1,000 sq. ft. /1,000 sq. ft. /1,000 sq. ft. F-7 L---A 2002 -03 Year Base Rate $38.06 2002 -03 Diversion % 50.00% 2003 -04 Diversion % 50.00% 2002 -03 Landfill Fee(per Ton) $22.00 2003 -04 Landfill Fee(per Ton) $22.00 CPI as of April, 2002 182.2 CPI as of May, 2002 182.6 CPI as of April, 2003 187.6 - April 2003 / April 2002 = 2.97% CPI ( 187.6 - 182.2) / 182.2 = 2.97% 2002 -03 $38.06 CPI 2.97% 1.13 Per Ton Increase 1.13 Not to exceed 3% Contractual Requirements $18.92 COSTA MESA SANITARY DISTRICT Rate Calculation for CR Transfer, Inc. Fiscal Year 2003 -2004 Base Rate Landfill Rate Transfer Rate 2003 -2004 2002 -2003 Landfill Fee @ $22.00 x 50.00% = 11.00 Landfill Fee @ $22.00 x 50.00% = 11.00 Fiscal Year Increase Base Compensation per ton of waste 2003 -2004 2002 -2003 (Decrease) % 39.19 38.06 1.13 2.97% 11.00 11.00 0.00 0.00 50.19 49.06 1.13 2.30% Landfill Fee @ $22.00 x 50.00% = 11.00 Landfill Fee @ $22.00 x 50.00% = 11.00 4 Fiscal Year Required Base Compensation per ton of waste Beginning Diversion delivered to CRT (excluding landfill fees) JULY 01 CPI Not to exceed 3% $18.92 1995 25.00% $18.92 + 3% (18.92)= ('0.03000 x 18.92) + 18.92 = 19.49 1996 30.00% Previous Base + CPI (0.01547 x 19.49) + 19.49 = 19.79 1997 30.00% Previous Base + CPI (0.01270 x 19.79) + 19.79 = 20.04 1998 37.50% Previous Base + CPI + $6.92 per ton (0.01442 x 20.04) + 20.04 = 27.31 1999 50.00% Previous Base + CPI + $6.92 per ton (0.02402 x 27.31) + 27.31 = 34.89 2000 50.00% Previous Base + CPI (0.02948 x 34.89) + 34.89 = 35.92 2001 50.00% Previous Base + CPI (0.03000 x 35.92) + 35.92 =. 37.00 2002 50.00% Previous Base + Renegotiated CPI (0.0287 x 37.00) + 37.00 = 38.06 2003 50.00% Previous Base + Renegotiated CPI (0.0297 x 38.06) + 38.06 = 39.19 2002 -2003 FISCAL YEAR TONNAGE Total City of Costa Mesa Santa Ana Heights Tonage July 3,396.73 263.17 3,659.90 August 3,142.52 207.20 3,349.72 September 2,959.78 190.33 3,150.11 October 2,969.98 230.36 3,200.34 November 2,862.22 199.97 3,062.19 December January 3,075.73 3,289.23 213.56 255.77 3,289.29 3,545.00 February 2,603.85 190.90 2,794.75 4 * - Amounts from previous years used, current year are unavailable. • • 10 COSTA MESA SANITARY DISTRICT Rate Calculation for CR Transfer, Inc. Fiscal Year 2003 -2004 March 2,898.59 199.77 3,098.36 April, 2002* 3,011.33 234.09 3,245.42 May, 2002* 3,098.32 237.69 3,336.01 June, 2002* 2,946.47 197.01 3,143.48 TOTAL 38,874.57 Total x Base Rate = 38,874.57x39.19 = 1,523,494 Total x Landfill Fee = 38,874.57x11.00 = 427,620 Total Tonnage 38,874.57 Total $ 1,951,115 Avg. Per Month 3,239.55 Total Budget = $ 1,951,115 Budget Variance Fav /(Unfav) $ 0 * - Amounts from previous years used, current year are unavailable. • • 10 COSTA MESA DISPOSAL Trashrate Rate Calculation CONSUMER PRICE INDEX(LOS ANGELES /RIVERSIDE, ORANGE AREA) INCREASE Index as of April, 2002 Index as of May, 2002 Index as of April, 2003 Occupancy as of June, 2003 (occupancy total per Tom) Percentage increase Maximum increase 3% Basic Rate Calculation : Last Year's Basic Rate (Sec. IV)= New Basic Rate = 8.4545 x 2.97% 182.2 182.6 187.6 21,092 (187.6- 182.2)/182.2 = 2.97 % - 8.4545 peroccupancy 0.2511 Effective July 1, 2002, the rate shall be: 8.7056 0 8.7056 X 21,092 X 12= 2,203,422 Large Item Pickup Landfill Charges + 7,000 $ 2,210,422 Budget Amount $ 2,210,422 Budget Variance Fav /(Unfav) $ (0) 11 COSTA MESA SANITARY DISTRICT TRASH RATE BREAKDOWN Fiscal Year 2003 -2004 is $209.13 /YEAR $17.43 /MONTH 112.34 Hauler 9.36 70.75 Recycler 5.90 21.10 Landfill 1.76 4.94 Administrative 0.41 Formulas: Hauler- Divide the new Trash Hauler Contract rate by total occupancy =Year amount Divide the year total 12 =Month amount Recycler- two ways to get this total A. Divide the base rate from the CR Transfer rate by total occupancy. B. Divide the total budget(CR Transfer) by the total occupancy. Divide the transfer rate into the base rate and multiply that % by the outcome of the first action. The other half of the % multiply by the outcome of the first ----- action.This will provide the answer to the Recycler and the Landfill. Landfill -CR Transfer and take the outcome from multiplying the landfill fee by 11 (landfill fee X 50 %= and this total divide by the total occupancy. Administrative= is what's leftover. • 12 CITY OF COSTA MESA SANITATION BUDGET FY 03 -04 (REVISED) Adopted Proposed FY 02 -03 FY 03 -04 101 19600 501200 Regular Salaries - Non -Sworn 406,518 443,064 101 19600 501400 Overtime 37,755 8,261 101 19600 501500 Accrual Payoff - Excess Max. 3,700 2,738 101 19600 501600 Vacation /Comp. Time Cash Out 2,016 1,492 101 19600 501700 Holiday Allowance 0 1,060 101 19600 501900 Other Compensation 0 4,171 101 19600 505100 Cafeteria Plan 66,852 66,852 101 19600 505200 Medicare 2,417 2,677 101 19600 505300 Retirement 30,589 33,498 101 19600 505500 Professional Development 5,048 6,896 101 19600 505800 Unemployment 406 426 101 19600 505900 Workers' Compensation 14,813 15,554 Sub -total personnel 570,114 586,689 101 19600 510100 Stationery and Office 2,700 2,835 101 19600 510300 Small Tools and Equipment 14,400 15,120 101 19600 510400 Uniforms and Clothing 1,400 1,470 101 19600 510500 Safety and Health 1,430 1,502 101 19600 510600 Maintenance and Construction 66,251 69,564 101 19600 515200 Electricity - Power 74,400 78,120 101 19600 515500 Water - Domestic 200 210 101 19600 520100 Postage 19,716 20,702 101 19600 520300 Advertising and Public Info. 3,900 4,095 101 19600 520400 Telephone /Radio /Communications 14,583 15,312 101 19600 520500 Meetings and Conferences 4,000 4,200 101 19600 520600 Mileage Reimbursement 400 420 101 19600 520800 Board Member Fees 4,375 4,594 101 19600 525300 Underground Lines 1,000 1,050 101 19600 525600 Office Furniture 1,400 1,470 101 19600 525700 Office Equipment 1,059 1,112 101 19600 530100 Employment 3,000 3,150 101 19600 530200 Consulting 5,000 5,250 101 19600 535300 Internal Rent 110,986 116,535 101 19600 535400 External Rent 100 105 101 19600 535700 Indirect Costs 150,000 150,000 101 19600 535800 Central Services 4,951 5,199 101 19600 540100 General Liability 13,327 13,993 101 19600 599300 Professional Services - Other 6,000 6,300 Sub -total M &O 504,578 522,307 101 19600 590600 Office Furniture 6,000 0 101 19600 590700 Office Equipment 8,620 0 101 19600 590800 Other Equipment 28,000 25,000 Sub -total Fixed Assets 42,620 25,000 TOTAL 1,117,312 1,133,996 .Per Marc's directions, keep personnel as proposed; increase M &O by 5%; keep indirect cost @ $150K; budget $25K for fixed assets. 06/10/2003 13 7 CITY OF COSTA MESA, CALIFORNIA SANITARY DISTRICT EXPENDITURE SUMMARY BY CATEGORY /FUNDING SOURCE FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Actual Expenditure by Category: Actual Adopted Proposed of Total Salaries & Benefits $ 475,652 $ 526,885 $ 554,895 $ 570,709 51% Maintenance & Operations 285,272 285,120 491,251 515,814 46% Fixed Assets 1,212 27,634 42,620 31,456 3% Total Expenditure $ 762,136 $ 839,639 $ 1,088,766 $ 1,117,979 100% Salaries & Benefit 51.0 ° /a Fixed Assets 2.8% FY 03 -04 Sanitary District Expenditure by Category Maint & _ perations 46.1% 14 CITY OF COSTA MESA, CALIFORNIA SANITARY DISTRICT EXPENDITURE SUMMARY BY ACCOUNT 520100 egal Advertising /Filing Fees 520200 Advertising and Public Info. 520300 Telephone /Radio /Communications 520400 Meetings & Conferences 520500 Mileage Reimbursement Account FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Account Description Number Actual Actual Adopted Proposed Change Regular Salaries - Non Sworn 501200 $ 351,755 $ 387,034 $ 406,518 $ 443,064 9% Regular Salaries - Part time 501300 - - - - 0% Overtime 501400 33,014 34,010 37,755 8,261 -78% Accrual Payoff - Excess Maximum 501500 5,219 10,151 3,700 2,738 -26% Vacation /Comp. Time Cash Out 501600 - 194 2,016 1,492 -26% Holiday Allowance 501700 527 1,164 - 1,060 0% Other Compensation 501900 - - - 4,171 0% Cafeteria Plan 505100 56,259 61,994 66,852 66,852 0% Medicare 505200 1,566 2,155 2,417 2,677 11% Retirement 505300 26,379 28,904 30,589 33,498 10% Professional Development 505500 933 1,279 5,048 6,896 37% Subtotal Salaries & Benefits 110,986 $ 475,652 $ 526,885 $ 554,895 $ 570,709 3% Stationery and Office 510100 Multi- Media, Promotions and Subs 510200 Small Tools and Equipment 510300 Uniform & Clothing 510400 Safety and Health 510500 Maintenance & Construction 510600 Electricity - Power 515200 Water - Domestic 515500 ostage 520100 egal Advertising /Filing Fees 520200 Advertising and Public Info. 520300 Telephone /Radio /Communications 520400 Meetings & Conferences 520500 Mileage Reimbursement 520600 Board Member Fees 520800 Underground Lines 525300 Office Furniture 525600 Office Equipment 525700 Employment 530100 Consulting 530200 Internal Rent 535300 External Rent 535400 Indirect Costs 535700 Central Services 535800 Other Costs 540900 Subtotal Maintenance & Operations $ 1,924 $ 3,195 $ 2,700 $ 2,835 5% 417 454 - - 0% 2,731 11,345 14,400 15,120 5% 1,050 792 1,400 1,470 5% 739 102 1,430 1,502 5% 44,448 17,770 66,251 69,564 5% 69,587 77,723 74,400 78,120 5% 198 199 200 210 5% 8,694 24,537 19,716 20,702 5% - - - - 0% 76 - 3,900 4,095 5% 13,257 12,095 14,583 15,312 5% 125 188 4,000 4,200 5% 20 183 400 420 5% - - 4,375 4,594 5% 6,415 4,643 1,000 1,050 5% - - 1,400 1,470 5% 127 20 1,059 1,112 5% 12,358 24,588 3,000 3,150 5% - - 11,000 11,550 5% 119,240 99,500 110,986 116,535 5% - - 100 105 5% - - 150,000 157,500 5% 3,702 7,406 4,951 5,199 5% 164 380 - - 0% $ 285,272 $ 285,120 $ 491,251 $ 515,814 5% Buildings and Structures 590400 $ - $ 850 $ 6,000 $ - -100% Automotive Equipment 590500 - 6,298 8,620 3,456 -60% Office Furniture 590600 1,212 20,486 28,000 28,000 0% Office Equipment 590700 - - - - 0% Subtotal Fixed Assets $ 1,212 $ 27,634 $ 42,620 $ 31,456 -26% E ... Total Expenditures $ 762,136 $ 839,639 $ 1,088,766 $ 1,117,979 3% 15 CITY OF COSTA MESA, CALIFORNIA Total Sanitary District Expenditures $ 762,136 $ 839,639 $ 1,088,766 $ 1,117,979 3% 16 SANITARY DISTRICT EXPENDITURE SUMMARY BY PROGRAM FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Actual Actual Adopted Proposed Change Refuse Management - Program 20210 Salaries & Benefits $ 83,341 $ 96,342 $ 105,526 $ 59,153 -44% Maintenance & Operations 14,245 51,300 79,202 83,162 5% Fixed Assets - 1,840 8,098 - -100% Subtotal Refuse Management $ 97,586 $ 149,482 $ 192,826 $ 142,315 -26% Sewers - Program 20220 Salaries & Benefits $ 392,311 $ 430,543 $ 449,369 $ 511,557 14% Maintenance & Operations 271,027 233,820 412,049 432,651 5% Fixed Assets 1,212 25,794 34,522 31,456 -9% Subtotal Sewers $ 664,550 $ 690,157 $ 895,940 $ 975,664 9% Total Sanitary District Expenditures $ 762,136 $ 839,639 $ 1,088,766 $ 1,117,979 3% 16 CITY OF COSTA MESA, CALIFORNIA SANITARY DISTRICT EXPENDITURE SUMMARY BY CATEGORY /FUNDING SOURCE FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Actual Actual Adopted Proposed of Total Salaries & Benefits $ 83,341 $ 96,342 $ 105,526 $ 59,153 -44% Maintenance & Operations 14,245 51,300 79,202 83,162 5% Fixed Assets - 1,840 8,098 - -100% Total Expenditure $ 97,586 $ 149,482 $ 192,826 $ 142,315 26% Salaries & Benefits 41.6% Fixed Asse 0.0% FY 03 -04 Sanitary. District Program 20210 Expenditure by Category Maint & Operations 58.4% 17 CITY OF COSTA MESA, CALIFORNIA SANITARY DISTRICT EXPENDITURE SUMMARY BY ACCOUNT Refuse Management - Program 20210 Stationery and Office 510100 Multi- Media, Promotions and Subs 510200 Small Tools and Equipment 510300 Uniform & Clothing Account FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Account Description Number Actual Actual Adopted Proposed Change Regular Salaries - Non Sworn 501200 $ 64,313 $ 72,970 $ 77,239 $ 45,873 41% Regular Salaries - Part time 501300 - - - - 0% Overtime 501400 2,220 2,855 7,173 - -100% Accrual Payoff- Excess Maximum 501500 658 1,306 703 - -100% Vacation /Comp. Time Cash Out 501600 - 97 383 - -100% Holiday Allowance 501700 71 - - - 0% Other Compensation 501900 - - - 291 0% Cafeteria Plan 505100 10,465 12,428 12,702 7,428 -42% Medicare 505200 783 1,078 459 669 46% Retirement 505300 4,799 5,459 5,812 3,458 -41% Professional Development 505500 32 149 1,055 1,434 36% Unemployment 505800 - - - - 0% Workers' Compensation 505900 - - - - 0% Subtotal Salaries & Benerits 798 $ 83,341 $ 96,342 $ 105,526 $ 59,153 -44% Stationery and Office 510100 Multi- Media, Promotions and Subs 510200 Small Tools and Equipment 510300 Uniform & Clothing 510400 afety and Health 510500 Maintenance & Construction 510600 Water - Domestic 515500 Postage 520100 Legal Advertising /Filing Fees 520200 Advertising and Public Info. 520300 Telephone /Radio /Communications 520400 Meetings & Conferences 520500 Mileage Reimbursement 520600 Board Member Fees 520800 Underground Lines 525300 Office Furniture 525600 Office Equipment 525700 Employment 530100 Consulting 530200 Internal Rent 535300 External Rent 535400 Indirect Costs 535700 Central Services 535800 General Liability 540100 Subtotal Maintenance & Operations Office Furniture 590600 Office Equipment 590700 Other Equipment 590800 y Subtotal Fixed Assets Total Expenditures $ 903 $ 1,469 $ 513 $ 539 5% 311 45 - - 0% 548 32 2,736 2,873 5% - 17 266 279 5% _ - 272 286 5% _ - 12,588 13,217 5% - - 38 40 5% 2,261 12,272 3,746 3,933 5% _ _ - - 0% 58 - 741 778 5% 2,556 4,661 2,771 2,910 5% _ - 760 798 5% 13 183 76 80 5% _ - 831 873 5% _ - 190 200 5% _ - 266 279 5% 127 20 201 211 5% 6,179 12,294 570 599 5% _ _ 2,090 2,195 5% - 18,900 21,087 22,141 5% _ _ 19 20 5% _ - 28,500 29,925 5% 1,289 1,407 941 988 5% - - - - 0% $ 14,245 $ 51,300 $ 79,202 $ 83,162 5% $ _ $ - $ 1,140 $ - - 100% - 1,840 1,638 - -100% - - 5,320 - -100% $ $ 1,840 $ 8,098 $ - -100% $ 97,586 $ 149,482 $ 192,826 $ 142,315 -26% r] CITY OF COSTA MESA, CALIFORNIA SANITARY DISTRICT EXPENDITURE SUMMARY BY CATEGORY /FUNDING SOURCE Salaries & Benefi *° 52.40) Fixed Assets 3.2% FY 0304 Sanitary. District Prnaram 20220 K Category Maint & ..rerations 44.3% 19 FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Expenditure by Category: Actual Actual Adopted Proposed of Total Sewers - Program 20220 Salaries & Benefits $ 392,311 $ 430,543 $ 449,369 $ 511,557 14% Maintenance & Operations 271,027 233,820 412,049 432,651 5% Fixed Assets 1,212 25,794 34,522 31,456 -9% Total Expenditure $ 664,550 $ 690,157 $ 895,940 $ 975,664 -9% Salaries & Benefi *° 52.40) Fixed Assets 3.2% FY 0304 Sanitary. District Prnaram 20220 K Category Maint & ..rerations 44.3% 19 CITY OF COSTA MESA, CALIFORNIA SANITARY DISTRICT EXPENDITURE SUMMARY BY ACCOUNT 510300 niform & Clothing Wafety 6 and Health 510500 Maintenance & Construction 510600 Electricity - Power 515200 Sewers - Program 20220 515500 Postage 520100 Advertising and Public Info. 520300 Telephone /Radio /Communications 520400 Account FY 00 -01 FY 01 -02 FY 02 -03 FY 03 -04 Percent Account Description Number Actual Actual Adopted Proposed Change Regular Salaries - Non Sworn 501200 $ 287,442 , $ 314,064 $ 329,279 $ 397,191 21% Regular Salaries - Part time 501300 - - - - 0% Overtime 501400 30,794 31,155 30,582 8,261 -73% Accrual Payoff - Excess Maximum 501500 4,561 8,845 2,997 2,738 -9% Vacation /Comp. Time Cash Out 501600 - 97 1,633 1,492 -9% Holiday Allowance 501700 456 1,164 - 1,060 0% Other Compensation 501900 - - - 3,880 0% Cafeteria Plan 505100 45,794 49,566 54,150 59,424 10% Medicare 505200 783 1,077 1,958 2,008 3% Retirement 505300 21,580 23,445 24,777 30,040 21% Longevity 505400 - - - - 0% Professional Development 505500 901 1,130 3,993 5,462 37% Unemployment 505800 - - - - 0% Workers' Compensation 505900 - - - - 0% Subtotal Salaries & Benefits $ 392,311 $ 430,543 $ 449,369 $ 511,55714% Stationery and Office 510100 Multi- Media, Promotions and Subs 510200 Small Tools and Equipment 510300 niform & Clothing Wafety 510400 and Health 510500 Maintenance & Construction 510600 Electricity - Power 515200 Water - Domestic 515500 Postage 520100 Advertising and Public Info. 520300 Telephone /Radio /Communications 520400 Meetings & Conferences 520500 Mileage Reimbursement 520600 Board Member Fees 520800 Underground Lines 525300 Office Furniture 525600 Office Equipment 525700 Employment 530100 Consulting 530200 Internal Rent 535300 External Rent 535400 Indirect Costs 535700 Central Services 535800 Other Costs 540900 Subtotal Maintenance & Operations $ 1,021 $ 1,726 $ 2,187 $ 2,296 5% 106 409 - - 0% 2,183 11,313 11,664 12,247 5% 1,050 775 1,134 1,191 5% 739 102 1,158 1,216 5% 44,448 17,770 53,663 56,346 5% 69,587 77,723 74,400 78,120 5% 198 199 162 170 5% 6,433 12,265 15,970 16,769 5% 18 - 3,159 3,317 5% 10,701 7,434 11,812 12,403 5% 125 188 3,240 3,402 5% 7 - 324 340 5% - - 3,544 3,721 5% 6,415 4,643 810 851 5% - - 1,134 1,191 5% - - 858 901 5% 6,179 12,294 2,430 2,552 5% - - 8,910 9,356 5% 119,240 80,600 89,899 94,394 5% - - 81 85 5% - - 121,500 127,575 5% 2,413 5,999 4,010 4,211 5% 164 380 - - 0% $ 271,027 $ 233,820 $ 412,049 $ 432,651 5% Office Furniture 590600 $ - $ 850 $ 4,860 $ - -100% Office Equipment 590700 - 4,458 6,982 3,456 -51% ther Equipment 590800 1,212 20,486 22,680 28,000 23% Subtotal Fixed Assets $ 1,212 $ 25,794 $ 34,522 $ 31,456 -9% Total Expenditures $ 664,550 $ 690,157 $ 895,940 $ 975,664 9% 20 • COSTA MESAWITARY DISTRICT SOLID FUND - PROPOSED 2003 -2004 FISCAL YEAR ACCOUNT FUND I ORG PROGRAM Taxes REVENUES Interest 410100 594 80000 20210 100% Secured Taxes 100% Unsecured Taxes 100% Supplemental Taxes 100% Homeowners Taxes 100% Delinquent Tax- Penalties TOTAL Intergovernmental 410110 594 80000 20210 TOTAL 410120 594 80000 20210 594 410130 594 80000 20210 410135 594 80000 20210 Interest 594 425100 594 80000 20210 T 100% Investments Earnings 100% TOTAL Intergovernmental 80000 430150 594 80000 20210 509/6 FEMA Disaster Reimbursement 440200 TOTAL State Government 20210 430299 594 80000 20210 100% Other State Grants 594 TOTAL Charges for Services 435196 594 80000 20210 100% 435999 594 80000 20210 100% 440200 594 80000 20210 100% 440300 594 80000 20210 100% New Trash Container Fees Other Charges for Services Special Assessments Solid Waste Charges TOTAL Contributions 450100 594 1 80000 20210 100% Contributions TOTAL Reimbursements 455230 594 80000 20210 50% 430285 594 80000 20210 100% 455999 594 1 80000 20210 100% Von Operating Revenue 465300 594 80000 20210 100% 465600 594 80000 20210 100% N h-+ OC Bankruptcy reimbursement Reimbursement Of Mandated Costs Other Reimbursements TOTAL Annexation Fees Non Operating -Other TOTAL TOTAL REVENUES 2003 -2004 PROPOSED BUDGET 94,500 7,140 3,675 998 38,745 86,100 25,000 210 1,050 4,410,970 5,250 5,250 2,100 525 • 145,058 86,100 0 n 4,437,230 5,250 7,350 525 4,681,513 4,681,513 N • COSTA MESANITARY DISTRICT SOLID FUND - PROPOSED 2003 -2004 FISCAL YEAR ACCOUNT FUND I ORG PROGRAM EXPENSES Pavroll Related Exoenses 505201 594 80000 20210 25% 505301 594 80000 20210 25% 505801 594 80000 20210 25% 505510 594 80000 20210 25% Medicare 594 80000 20210 25% 505512 Retirement 80000 20210 25% 505513 594 Unemployment 20210 25% 505514 594 TOTAL Professional Development 25% 505520 594 1 80000 505510 594 80000 20210 25% 505511 594 80000 20210 25% 505512 594 80000 20210 25% 505513 594 80000 20210 25% 505514 594 80000 20210 25% 505520 594 1 80000 20210 34% Travel Meals Lodging Registration Parking/Tips Dues - Professional organizations TOTAL Stationery & Office 510104 594 1 80000 20210 17% 1 Photocopy supplies TOTAL Multi -Media Promotions & Subscriptions 510201 594 80000 20210 50% 510202 594 80000 20210 25% 510204 594 80000 20210 0% 510206 594 80000 20210 25% 510207 594 80000 20210 50% Subscriptions Preprinted material Blueprint Promotional items Printing/Word Processing 2003 -2004 PROPOSED BUDGET 226 751 16 U 993 4,095 8,663 TOTAL Postage 12,758 263 263 520101 594 80000 20210 25% US Postage service 2,232 131 TOTAL Legal Notices 0 2,835 520201 594 80000 20210 25% Election Expense TOTAL Advertising & Public Information 520301 594 80000 20210 25% Public Information / Education 520303 594 80000 20210 25% Community Promotion TOTAL Board Members Fee 520802 594 80000 20210 25% Board Members Fees (meeting attendance) TOTAL 2003 -2004 PROPOSED BUDGET 226 751 16 U 11,475 11,475 Na 993 4,095 8,663 12,758 263 263 525 604 1,103 2,232 131 131 0 0 2,835 1,260 4,095 11,475 11,475 Na • COSTA MESAKITARY DISTRICT • SOLID FUND - PROPOSED 2003 -2004 FISCAL YEAR ACCOUNT FUND I ORG PROGRAM % EXPENSES (CONTINUED) Professional Services Employment 530100 594 1 80000 20210 25% Professional Svc -Bonus TOTAL General Consultina 530200 NEW 594 80000 20210 100% 530201 594 80000 20210 25% 530301 Consulting Strategic Planning TOTAL 80000 20210 25% 1 Attorney TOTAL Engineering & Architectural 530504 594 1 80000 20210 25% Auditing Services TOTAL Contract Services 530901 594 80000 20210 100% 530903 594 80000 20210 100% 530904 594 80000 20210 100% 530905 594 80000 20210 100% 530906 594 80000 20210 250% 530909 594 1 80000 20210 25% General Liability & Other Costs 540101 594 80000 20210 25% 540902 594 80000 20210 50% Special Programs 555101 594 80000 20210 100% 555102 594 80000 20210 100 %° 555103 594 80000 20210 100% 555104 594 80000 20210 100% 555105 594 80000 20210 100% 555107 -NEW 594 1 80000 20210 100% 555108 -NEW 594 80000 20210 100% City Contract -Solid Trash Hauler Contract Code Enforcement Recycling Contract District Manager Transcription services TOTAL General Liability- Insurance Operating Costs TOTAL Sharps Program Household Hazardous Waste Program Telephone Book Recycling Program Large Item Pick -up Used Tire Roundup Christmas Tree Recycling Greeting Card Recycling TOTAL Non -Operating -Other 599400 594 80000 20210 50% Non - operating Expense - Other TOTAL N W 2003 -2004 PROPOSED BUDGET 5,125 5,125 1,355 1,355 12,815 12,815 1,239 1,239 229,058 2,210,422 37,028 1,951,115 10,250 2,255 4,440,128 12,154 12,154 5,550 24,000 10,500 12,500 250 5,000 200 58,000 1,000 1,000 • COSTA MESAWITARY DISTRICT • SOLID FUND - PROPOSED 2003 -2004 FISCAL YEAR 2003 -2004 PROPOSED ACCOUNT FUND ORG PROGRAM % BUDGET EXPENSES (CONTINUED) Capital Outlay 590801 New 594 80000 20210 100% Capital Outlay 25,000 TOTAL 25,000 Debt Service 535100 594 80000 20210 100% Debt Service- Principal Payment 188,310 535200 594 80000 20210 100% Debt Service- Interest Payment 92,872 TOTAL 281,182 TOTAL-EXPENSES 4,869,945 4,869,945 N -P COSTA MESA IVITARY DISTRICT LIQUID FIJ PROPOSED 2003 -2004 FISCAL YEAR ACCOUNT FUND I ORG PROGRAM Taxes 410100 595 80000 20220 100% 410110 595 80000 20220 100% 410120 595 80000 20220 100% 410130 595 80000 20220 100% 410135 595 80000 20220 100% Permits REVENUES Secured Taxes Unsecured Taxes Supplemental Taxes Homeowners Taxes Delinquent Tax - Penalties TOTAL 415180 595 80000 20220 100% Sewer Permit TOTAL Fines /Forfeitures 420190 595 80000 20220 100% Excessive Effluent Discharge TOTAL Interest 425100 1 595 1 80000 1 20220 100% 1 430150 1 595 1 80000 1 20220 1 50% 1 Charaes for Services 435190 595 1 80000 20220 100% 435195 595 80000 20220 100% 435630 595 80000 20220 100% 435999 595 80000 20220 100% 440200 595 80000 20220 100% 440400 595 80000 20220 100% Reimbursements 455230 595 80000 20220 50% 455999 595 80000 20220 100% Non Operatina Revenue 465300 595 80000 20220 100% 465600 595 80000 20220 100% Investments Earnings TOTAL FEMA Disaster Reimbursement TOTAL Permits & Inspection Fees O.C.S.D.. Fees -CMSD Share Sale of Maps and Publication Other Charges for Services Special Assessments Liquid Waste Charges TOTAL OC Bankruptcy reimbursement Other Reimbursements TOTAL Annexation Fees Non Operating -Other TOTAL L� 2003 -2004 PROPOSED BUDGET 0 3,675 3,675 2,100 2,100 262,500 262,500 12,600 11,550 105 105 1,050 1,656,776 WE 1,682,186 0 ,f TOTAL REVENUES 1,950,461 1,950,461 N Ln COSTA MESAITARY DISTRICT • LIQUID F PROPOSED 2003 -2004 FISCAL YEAR ACCOUNT I FUND I ORG PROGRAM Pavroll Related Exnenses 505201 595 80000 20220 75% 505301 595 80000 20220 75% 505801 595 80000 20220 75% EXPENSES 505510 595 80000 20220 75% Medicare 595 80000 20220 75% 505512 Retirement 80000 20220 75% 505513 595 Unemployment 20220 75% 505514 595 TOTAL Professional Development 75% 505520 595 1 80000 505510 595 80000 20220 75% 505511 595 80000 20220 75% 505512 595 80000 20220 75% 505513 595 80000 20220 75% 505514 595 80000 20220 75% 505520 595 1 80000 20220 66% Travel Meals Lodging Registration Parking/Tips Dues - Professional organizations TOTAL Stationery & Office 510104 595 1 80000 20220 83% Photocopy supplies TOTAL Multi -Media Promotions & Subscriptions 510201 595 1 80000 20220 50% 510202 595 80000 20220 75% 510204 595 80000 .20220 100% 510206 595 80000 20220 75% 510207 595 80000 20220 50% Subscriptions Preprinted material Blueprint Promotional items Printing/Word Processing 2003 -2004 PROPOSED BUDGET 667 2,242 37 TOTAL Postage 16,958 29,243 520101 595 80000 20220 75% US Postage service 1,811 998 3,308 TOTAL Legal Notices 20,108 394 394 520201 595 80000 20220 75% Election Expense 3,780 12,285 TOTAL Advertising & Public Information 520301 595 80000 20220 750!/ Public Information / Education 520303 595 80000 20220 75% Community Promotion TOTAL Board Members Fee 520802 595 80000 20220 75% Board Members Fees (meeting attendance) TOTAL N 0) 2003 -2004 PROPOSED BUDGET 667 2,242 37 2,946 12,285 16,958 29,243 1,313 1,313 13,991 1,811 998 3,308 20,108 394 394 0 0 8,505 3,780 12,285 34,425 34,425 COSTA MESA ITARY DISTRICT • LIQUID FU� PROPOSED • 2003 -2004 FISCAL YEAR ACCOUNT FUND ORG PROGRAM 20220 100 % 530201 595 80000 20220 EXPENSES (CONTINUED) Repairs and Maintenance 595 80000 20220 75% 525304 595 80000 20220 100% Sewer Repair & Maintenance 144,648 3,717 TOTAL Professional Services Employment 944,982 9,844 530100 595 80000 20220 75% Professional Svc -Bonus 992,341 36,460 TOTAL General Consulting 530200 595 Consulting Strategic Planning TOTAL Legal 530301 595 80000 20220 50% Attorney TOTAL Engineering & Architectural District Engineer- Retainer Engineering Services TOTAL Financial & Information Service 530504 595 8000 20220 75% Auditing Services TOTAL Contract Services 530401 595 80000 20220 100 % 530201 595 80000 20220 75% 530401 595 80000 20220 100 °!0 530401 595 80000 20220 100% 530902 595 80000 20220 100% 530904 595 80000 20220 100% 530906 595 80000 20220 75% 530909 595 80000 20220 75% City Contract - Liquid Contract Code Enforcement District Manager Transcription services Costs TOTAL 41,786 TOTAL General Liability &Other Costs 595 80000 20220 50% 540101 595 80000 20220 75% General Liability- Insurance 38,435 144,648 144,648 3,717 3,717 944,982 Non - Operating -Other 599400 595 80000 20220 50% Non - operating Expense -Other TOTAL N Total - Expenses V 2003 -2004 PROPOSED BUDGET 41,786 41,786 15,375 540902 595 80000 20220 50% Non - Operating -Other 599400 595 80000 20220 50% Non - operating Expense -Other TOTAL N Total - Expenses V 2003 -2004 PROPOSED BUDGET 41,786 41,786 15,375 15,375 1,575 4,053 5,628 38,435 38,435 144,648 144,648 3,717 3,717 944,982 9,844 30,750 6,765 992,341 36,460 36,460 1,076 1,076 1,380,180 1,380,180 COSTA MESAITARY DISTRICT LIQUID F PROPOSED 2003 -2004 FISCAL YEAR ACCOUNT FUND I ORG PROGRAM % Account Number: 500000 Proiect Number 990001 595 80000 20220 100% 990023 595 80000 20220 100% 990027 595 80000 20220 100% 990035 -NEW 595 80000 20220 100% 990036 -NEW 595 1 80000 20220 100% 0 2003 -2004 PROPOSED BUDGET CAPITAL PROJECTS 149 Sinking Fd /Future Sewer Replc 100,000 159 Televising Swr Lines 18,000 164 Misc. Swr. Work/Manhole Adj. 90,000 172 Waste Discharge Req. (WDR) Phase 1 250,000 173 SC Plaza Pump Station Force Main Replace. 190,000 Total Current Year Capital Projects 648,000 TOTAL EXPENSES AND CURRENT - YEAR CAPITAL PROJECTS 2,028,180 C] le MP03 -102 S COSTA MESA SANITARY DISTRICT DEPARTMENT OF FINANCE MARC R. PUCKETT INTEROFFICE MEMORANDUM DIRECTOR OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DISTRICT TREASURER COPY TO: ROB HAMERS, DISTRICT MANAGER DISTRICT STAFF DATE: JUNE 11, 2003 SUBJECT: SAFETY OF DISTRICT FUNDS ON DEPOSIT IN THE STATE'S LOCAL AGENCY INVESTMENT FUND (LAIF) 0 At the Board's June 6 Special Board Meeting to discuss the FY04 proposed Operating and Capital Improvement Budget, the Board requested information regarding the safety the District's funds on deposit in the State's Local Agency Investment Fund (LAIF). For your information, please find attached a letter from Phil Angelides, State Treasurer, to local units addressing this issue. In addition, attached to the letter is a flyer from the State Treasurer's office responding to frequently asked questions regarding funds on deposit in LAIF. Per the letter and the attached flyer, State Government Code Section 16429.3 specifically excludes all local agencies' deposits from being transferred, loaned, impounded, or seized by any State Agency or Official. Further, State Government Code Section 16429.4, which was added to the LAIF's enabling legislation during the 2002 session states that the right of any local agency to withdraw its funds on deposit in LAIF upon demand may not be altered, impaired, or denied in any way by any State Official or State Agency based upon the States failure to adopt a State Budget by July 1 of each new fiscal year. Although the State could conceivably write new legislation to allow State Officials to access local agency's funds on deposit in LAIF, this possibility is extremely remote. Such an action would create a "run on the bank" by local agencies similar to what occurred with the Orange County Investment Pool (OCIP) during the Orange County bankruptcy. In hindsight, most observers acknowledged that the ensuing panic increased the level of losses of participants in the OCIP. in fact, the State attempted to access LAIF, a similar panic would most likely ensue, creating losses to *If, participants, complete loss of confident in the State's ability to manage its budget malaise and a loss of confidence in the State in the financial markets. Losing Wall Street's confidence in the State's ability to manage its budget difficulties would most likely cause a downgrade in the State's bond rating to "junk bond" levels. Such a rating reduction would only serve to exacerbate the State's budget woes by increasing its borrowing costs. Further since the local agencies would most likely have "advance notice" of the State's intent to consider .a this notion since it would, in fact, require a legislative change of the current State Government Code, the panic and "run on the bank" would occur prior to the Legislature's ability to adopt the new legislation thus effectively thwarting the State's ability to consider this course of action as part of a solution to its budget crisis. If you have questions or need additional information, feel free to contact me directly. Director of Finance/ District Treasurer Attachments 2 • • 0 PHILIP ANGELIDES Trr,isurrr t,itc of (.aliforlci.i May 7, 2003 To: All Local Agency Investment Fund Participants I am aware of concerns expressed on behalf of Local Agency Investment Fund (LAIF) participants as to the relationship of this program to the State's current fiscal difficulties. In addressing concerns regarding the safety and liquidity of your deposits in the Local Agency Investment Fund, I would like to remind you that Government Code Section 16429.3 specifically excludes your LAIF deposits from being transferred, loaned, impounded or seized by any State Agency or Official. As y9 r trustee for LAIF funds, I would oppose any statutory change in regard to the pr9gr, m and I will support the intent of the statute that protects your funds. 1 h�l Ange i es j State Treasurer 915 CAPITOL MALL, Room 110, SACRAMENTO, CA 95814 • (916) 653 -2995 • FAX (916) 653 -3125 STATE OF CALIFORNIA Philip Angelides, Treasurer *OFFICE OF THE TREASURER P. O. BOX 942809 SACRAMENTO, CA 94209 -0001 • • LAIF MONEYS PROTECTED BY STATUTE The State of California cannot borrow or withhold LAIF moneys. Recent discussions about the State's budget deficit have generated questions from LAIF agencies and their oversight boards about the safety and accessibility of moneys invested with LAIF. Can the State borrow LAIF dollars to resolve the budget deficit? No. California Government Code 16429.3 states that moneys placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi - governmental agencies shall not be subject to .either of the following: (a) Transfer or loan pursuant to Sections 16310, 16312, or 16313. (b) Impoundment or seizure by any state official or state agency. Can the State withhold LAIF moneys if the State fails to adopt a budget by the June 30" deadline? No. California Government Code 16429.4 which was added to the LAIF's enabling legislation during the 2002 session states that the right of a city, county, city and county, special district, nonprofit corporation, or qualified quasi - governmental agency, to withdraw its deposited money from the LAIF upon demand may not be altered, impaired, or denied in any way by any state official or state agency based upon the States failure to adopt a State Budget by July 1 of each new fiscal year. Questions regarding the LAIF program may be directed to LAIF Administrator Eileen Park at (916) 653 -3001 or by email at epark @treasurer.ca.gov. MP03 -101 • COSTA MESA SANITARY DISTRICT DEPARTMENT OF FINANCE MARC R. PUCKETT INTEROFFICE MEMORANDUM DIRECTOR OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DISTRICT TREASURER COPY TO: ROB HAMERS, DISTRICT MANAGER DISTRICT STAFF DATE: JUNE 11, 2003 SUBJECT: REVISED LONG RANGE SOLID WASTE FUND STRATEGIC FINANCIAL PLAN •At the Board's June 6 Special Board Meeting to discuss the FY04 proposed Operating and Capital Improvement Budget, the Board requested that the Long Range Solid Waste Strategic Financial Plan (the Plan) be revised to take into consideration proposed rate increases recommended to improve the fiscal condition of the Solid Waste Fund. The need for these revisions to the Plan are resulting from unanticipated increases over the last two years in the annual tonnage of solid waste that is landfilled. These unforeseen increases have had the effect of creating the need for larger rate increases in the remaining years of the current plan and therefore, creating the need to update this plan. The Board requested that the plan be developed utilizing the three - year scenario. Adoption of a three -year plan creates the need for larger increases over a shorter period to reach breakeven. Rate increases necessary to reach breakeven under the three -year scenario is outlined below. Scenario Yr.1 Yr.2 Yr.3 Three Years 8.0 4.9 4.8 This scenario anticipates an annual CPI adjustment of 3.0% in the base solid waste assessment rate, other revenues, and expenditures. This adjustment has a compounding effect on projected rate increases in the "out" years of the scenario. Thus, this adjustment effectively reduces the rate increase required in years two and three to achieve a breakeven point on a "smoothed" basis by the compounded effect of the • CPI increases on the solid waste assessments. The rate increase proposed in the FY04 Budget equals 8 %. The benefits of the higher rate increase in , "year 1" of the Plan will be diminished by unfavorable variances in the projected tonnage figures for May and June included in the proposed budget. The projected tonnage for May and June in the budget is based upon the actual tonnage for the same period in the prior year. Variances in the tonnage on a month - over -month basis have equaled approximately 200 tons per month when comparing the two years. The reasons for the increased tonnage have not yet been identified. Further increases in the tonnage will result in higher future rate increases. As demonstrated by the matrix above and the referenced schedules, a breakeven point can be achieved in the Solid Waste Fund's program activities without significant annual increases to ratepayers under the referenced three -year scenario. The projected rate increases and rates are based on the same set of assumptions used to develop the initial long range strategic financial plan. The base assumptions utilized in the initial plan document are still valid except for the substitution of a 3% CPI projection versus the 2.5% projection used in the initial plan. Further, the investment earnings rate of return assumption was modified to match the assumptions utilized in developing the budget of averaging between 3.75% and 4.0 %. Based upon the projected rate increases listed above, the annual trash collection rates are projected over the three -year term of the proposed scenario as outlined in the matrix below: Scenario Yr.I Yr.2 Yr.3 Three Years 209.13 219.38 229.91 The projected trash collection rates outlined above are based upon an assumed occupancy rate of 21,092. If the assumed occupancy rate were to change by plus or minus fifty (50) units, the trash collection rates would increase or decrease correspondingly by approximately one cent (.01) per unit of change. However, for each (50) ton change in the total tonnage landfilled by CR &R, a corresponding increase of approximately eleven and one -half cents (.115) in the trash collection rates would be required. A planning horizon should be adopted for rate development purposes. The Board has requested to review a planning horizon of three years. However, the planning horizon could be four years or any other period the Board desired to adopt. It is recommended that the Board adopt a planning horizon for rate development purposes. Projected rate increases will be revised to coincide with the adopted planning horizon. In addition, the Board should reaffirm its fiscal policies regarding its desire to maintain the fiscal health and stability of the Solid Waste Fund. It is also recommended that the Board adopt rate increases in the solid waste charges during the adoption of the operating budget and establishment of the rates consistent with the adopted planning horizon. Staff will be available to discuss the proposed rates and revision to the strategic plan at the June 12 Board meeting. Thank you for your attention to this matter and feel free to contact me directly if you have additional questions. M rc R. Puckett Director of Finance/ District Treasurer Attachments 2 EXPENDITURES: Operating Costs - Sanitation Dept. Trash Hauler Contract Contract Code Enforcement Recycling Contract Sharps Program Household Hazardous Waste Program Telephone Book Recycling Program Large Item Pick -Up Used Tire Roundup Christmas Tree Recycling Greeting Card Recycling Capital Outlay Direct Costs Subtotal District Management Board Members Meetings Insurance Memberships Miscellaneous expense- Community Promotion Professional Svcs -Attny Professional Svcs Auditing Svcs Travel & Meetings Public Education Election Expenses Transcription Services Strategic Plan Other Operating Costs Non - Operating Exp - Other Payroll Related Expenses Debt Service- Principal Payment Debt Service - Interest Payment Indirect Costs Subtotal TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 218,150 COSTA MESA&ARY DISTRICT 229,058 • 243,008 LONG RANGE STRATEGIC FINANCIAL PLAN (3 YEAR) 1,779,575 2,210,422 2,276,735 PROJECTION OF REVENUES AND EXPENSES 35,265 26,342 37,028 SOLID WASTE FUND (594) 39,283 1,773,997 1,429,982 JUNE 11, 2003 2,009,648 2,069,938 13,000 ADOPTED BUDGET 10 MOS ACTUAL PROPOSED BUDGET PROPOSED BUDGET PROPOSED BUDGET 5,888 FY 02/03 FY 02/03 FY 03/04 FY 04/05 FY 05/06 REVENUES: 25,462 18,000 10,399 Solid Waste Charge 4,038,475 3,414,100 4,410,970 4,628,799 4,853,163 Taxes 138,150 111,310 145,058 153,761 162,987 Interest Earnings 82,000 40,188 86,100 89,114 92,232 Other Revenue 34,700 32,056 39,385 40,567 41,784 Loan Proceeds 5,305 - 12,403 TOTAL REVENUES 4,293,325 3,597,654 4,681,513 4,912,241 5,150,166 EXPENDITURES: Operating Costs - Sanitation Dept. Trash Hauler Contract Contract Code Enforcement Recycling Contract Sharps Program Household Hazardous Waste Program Telephone Book Recycling Program Large Item Pick -Up Used Tire Roundup Christmas Tree Recycling Greeting Card Recycling Capital Outlay Direct Costs Subtotal District Management Board Members Meetings Insurance Memberships Miscellaneous expense- Community Promotion Professional Svcs -Attny Professional Svcs Auditing Svcs Travel & Meetings Public Education Election Expenses Transcription Services Strategic Plan Other Operating Costs Non - Operating Exp - Other Payroll Related Expenses Debt Service- Principal Payment Debt Service - Interest Payment Indirect Costs Subtotal TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 218,150 115,812 229,058 235,930 243,008 2,128,703 1,779,575 2,210,422 2,276,735 2,345,037 35,265 26,342 37,028 38,139 39,283 1,773,997 1,429,982 1,951,115 2,009,648 2,069,938 13,000 4,571 5,550 5,717 5,888 21,525 15,774 24,000 24,720 25,462 18,000 10,399 10,500 10,815 11,139 9,500 9,090 12,500 12,875 13,261 - - 250 258 265 2,700 1,837 5,000 5,150 5,305 - 12,403 200 206 212 15,000 - 25,000 25,750 26,523 4,233,140 3,391 545 4,510 623 4,645 942 4,785,320 12,750 19,320 10,250 10,558 10,874 11,475 15,755 11,475 11,819 12,174 10,250 - 12,154 12,519 12,894 8,250 7,025 8,663 8,923 9,191 1,200 27 2,626 2,705 2,786 12,815 16,211 12,815 13,199 13,595 5,125 4,500 5,125 5,279 5,437 1,180 948 1,239 1,276 1,314 3,900 4,555 4,095 4,218 4,344 2,700 1,837 4,095 4,218 4,344 5,000 12,403 - 2,255 2,196 2,255 2,323 2,392 1,290 2,640 1,355 1,396 1,438 2,050 41,916 1,000 1,030 1,061 945 1,203 993 1,023 1,053 179,376 179,376 188,310 188,310 188,310 101,806 101,806 92,872 92,872 92,872 362,367 411,718 359,322 361,666 364,081 4,595,507 3,803,263 4,869,945 5,007,608 5,149,401 (302,182) (205,609) (188,432) (95,367) 766 0 0 0 LONG RANGE STRATEGIC FINANCIAL PLAN (3 YEAR) 5,200,000.00 5,100,000.00 5,000,000.00 4,900,000.00 L c 4,800,000.00 4,700,000.00 4,600,000.00 4,500,000.00 4,400,000.00 Ro Fiscal Year —Total Operating Revenues Total Operating Expenses MP03 -095 COSTA MESA SANITARY DISTRICT • DEPARTMENT OF FINANCE MARC R. PUCKETT INTEROFFICE MEMORANDUM DIRECTOR OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DISTRICT TREASURER COPY TO: ROB HAMERS, DISTRICT MANAGER DISTRICT STAFF DATE: MAY 29, 2003 SUBJECT: STATUS OF STATE BUDGET DEFICIT DELIBERATIONS Please find attached a copy of highlights of the Governor's May revision to his proposed 2003 -2004 budget. In addition, a summary of impacts of the State's proposed budget reductions on the City is • included for informational purposes only. At this point, there are no impacts on Special Districts other than Redevelopment agencies included in the Governor's proposed State budget or in his "May revise" of his budget proposal issued on May 16. Discussions now appear to be proceeding in earnest to develop strategies to address the State's budget deficit. Further, it has been indicated that it is the desire of state officials (and key to making the proposed plan to address the deficit work) to adopt the State's budget prior to July 1. Further, it has been announced that the Vehicle License Fee will be triggered effective July 1 and that the VLF will return to 1998 fee levels at that time. If you have questions or need additional information feel free to contact me directly. ��a4-t�2 ��� are R. Puckett District Treasurer 41 • Governor's May Revision 2003 -04 HiPhliEhts Overview The Deficit. The Adjusted Budget Gap is $38.2 billion. Higher tax receipts in recent weeks prevented it from being a large gap. This is up from $34.6 billion in January. Revenue estimates in the January budget have tracked almost on target, but expenditures due to caseload and Proposition 98 along with the cancellation of the sale of the second installment of the tobacco securitization bond have increased the budget gap to the $38 billion figure. • The Multi -year Plan. The May Revision Budget incorporates the proposal to finance a portion of the state budget deficit over multiple years. • • The Taxes. The May Revision Budget requires /assumes the passage of $1.8 billion in cigarette and income taxes for local government to operate realigned programs (primarily county administered programs); and, a temporary one -half cent sales tax ($2.3 billion) to pay for the deficit financing plan. • Budget On -time. The 2003 -04 budget must be passed on time to ensure that the State can borrow the cash needed to pay obligations. This means some time reasonably close to July 1" The Economv • Housing Strong. Residential construction and housing markets remained strong • Employment OK. Overall employment rose in California in the first three months of 2003, while it fell on a nationwide basis. Good Signs. Personal income tax withholding and sales taxes were up from a year ago in the first four months of 2003. • 5.19.3 v2 4 • Modest Growth. Despite a pickup in consumer confidence in April, most of the evidence suggests that the California and national economies will grow only modestly during the rest of 2003 with better opportunities in store for 2004. Personal Income Tax Bottoms -Out? Most significant change in revenue estimates occurred with the personal income tax. Weaker final payments in April suggest that capital gains income was somewhat Iower than expected. However, market- related income such as capital gains and stock options appear to have bottomed -out and the May :Revision assumes a modest growth in these components in 2003 -04. Local Government Public Safety Protected. The May Revision continues a number of public safety programs for local governments at full funding, including $232.6 million (full funding) for the CUPS /Juvenile Justice programs; $18.5 million for grants to small and rural county sheriffs; and, $18.5 million in law enforcement technology grants. In addition, $25.5 million was restored (from the January budget) for POST Aid to Local Government reimbursements. Booking Fees Gone. The May Revision makes no changes in the .January proposal to eliminate $38 million in booking fee reimbursement to cities. In other words this latest version of the budget will eliminate the reimbursement. • Vehicle License Fees /Backfill. The printed version of the May Revision suspends the vehicle license fee backfill payments for 2003 -04. The vehicle license fee tax is assumed to be restored in .fuly, but, according to reports from the Department of Finance will require a 60 to 90 day start up period before collections are fully realized. According to our analysis this could leave a 2 to 3 month gap when no VLF payments are made to local government. VLF payments to cities and counties runs about $250 million a month. If totaled, this could result in a $500 million to 750 million loss to cities and counties. In response to this concern, the Department of Finance reports that it was their intent to make the transition from VLF backfill payments to the VLF tax without loss of revenue to local government. The exact mechanics of this transaction are not clear and have to be confirmed further with the Department of Finance before accurate estimates can be made. Redevelopment Agencies. No new proposals were made in the May .Revision Budget for cuts to redevelopment agencies. However, the January proposal for a $250 million cut in the 2003 -04 budget remains in place. Remember in that January proposal the $250 million cut was to continue and grow in future budget years. Also, remember that the proposal requires local government general fund revenues to backup this cut, if the redevelopment agency cannot produce the necessary revenue to execute the cut. • 5.19.3 v2 • Williamson Act. The May Revision restores the Williamson Act subvention to $40.15 million. This program is a fiscal incentive to maintain agricultural production land. Mandates Deferred, Suspended and Repealed. In his January budget, the Governor proposed to continue the deferral of reimbursement payments to cities, counties and special districts for state - mandated programs. The reimbursement of this obligation would have amounted to an estimated $900 million for the state by the end of 2003 -04. The May Revision instead proposes the suspension of 34 mandates, the repeal of one mandate and the deferral of all others. The repealed mandate relates the Open Meetings Act, requiring posting of agendas. This action in the May Revision reduces the annual obligation for these mandates by approximately $32.9 million. It is also the Administration's intent to drag statutory language necessary to repeal 27 of the 34 mandates proposed for suspension in this proposal during the development of the 2004 -05 Governor's Budget. • Transportation Money. The Governor's January budget proposed the suspension of revenues from the sales tax on gasoline and the use of those for the state general fund. This suspension and transfer amounted to approximately $1.145 billion. In the May Revision, the Governor modifies this proposal to provide sufficient funds to meet the cash requirements of projects that received allocations prior to December of 2002. The May Revision proposes this transfer at $207 • million. This would result in the suspension of sales tax on gasoline revenues at the level of $938 million, which can be used for general fund purposes. This $938 million is a loan to the general fund, to be paid back by in later years. The May Revision contains no proposal to take the sales tax on gasoline revenue that goes to repair local streets and roads. • Public Libraries. The Governor's January budget proposed $15.8 million for the public libraries fund, with approximately $9 million going to city libraries. The May Revision reduces the Public Library Foundation by $14.7 million to offset the restoration of Transaction Based Reimbursements and contribute to the overall budget solution. The Transaction Based Reimbursements ($12.1 million) had been earlier suggested to be paid for by local fees instead of state general fund monies, which this proposal reverses. 5.19.3 Q CITY OF COSTA MESA Impact of Governor's May Revised Budget Proposal Item Comments Public Safety Protected Funding continues Booking Fees Reimbursement eliminated Vehicle License Fees /Backfill 3 months delay (Est. FY '03 -'04 is $6.54 million) Redevelopment Agencies Projected to grow to $1,481,850 over next 15 years. Williamson Act n/a - City does not receive fiscal incentives to maintain agricultural production land. 4kandates Deferred, $100,651 includes $30,049 repealed and the balance Suspended and Repealed suspended. Transportation Money No direct dollar impact at this time. Local direct funding ($233,564) will continue. Public Libraries n/a - Costa Mesa has county funded libraries Total Impact with VLF delay Total Impact with out VLF delay • 05/29/2003 FY 2003 -2004 Amount 26,615 1,635,000 314,002 100,651 $ 2,076,268 $ 441,268 PUCKIETT, MARC R. From: Frances Medema [medemaf @cacities.org] Sent: Thursday, May 15, 2003 12:35 PM o: CSMFO Members ubject: [members] May Budget Revision - clarification a Frances Medema.vcf footer The May budget revise included language regarding the VLF trigger and backfill. This morning Director of Finance Steve LOCAL legislative action days and stated that the continue to be distributed even if the trigger is revenues do not come in until later in the 03 -04 that it would take legislative action to undo the mean that the backfill payments would need to be adjustment to the budget. Frances Medema Policy Analyst League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 Phone: 916- 658 -8218 Fax: 916- 658 -8240 Email: medemaf @cacities.org <<Frances Medema.vcf>> • is Peace addressed the backfill would pulled late and budget year. He stated backfill. THis does covered by some other