Finance Committee Minutes March 15, 2017

For your consideration, please review the minutes from the Finance Committee Meeting on March 15, 2017:

Finance Committee Minutes March 15, 2017 with Attachments

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Brunswick-Glynn County Joint Water & Sewer Commission

1703 Gloucester Street, Brunswick, GA 31520

Commission Meeting Room

Wednesday, March 15, 2017 at 2:00 PM 

FINANCE COMMITTEE MINUTES

PRESENT:                             

Donald M. Elliott, Chairman

Steve Copeland, Commissioner

Mike Browning, Commissioner

Jimmy Junkin, Executive Director

John Donaghy, Chief Financial Officer                                               

ALSO PRESENT:                 

Thomas Boland, Deputy Director

Charles Dorminy, Legal Counsel

Pam Crosby, Director of Procurement

Todd Kline, Senior Engineer                                                                                                                                          

Chairman Elliott called the meeting to order at 2:00 PM.

 PUBLIC COMMENT PERIOD

There being no citizens that wished to address the Committee, Chairman Elliott closed the Public Comment Period.

Chairman Elliott requested a motion to move Discussion item 6 “Rate Structures” up to item 2 on the agenda for the meeting.  Commissioner Browning made a motion, seconded by Commissioner Copeland to move item 6 Rate Structures to item 2 on the agenda, Motion carried 3-0-0.

ADOPT:

1. Minutes from February 15, 2017 Finance Committee Meeting

Commissioner Browning made a motion seconded by Commissioner Copeland to adopt the minutes from the February 15, 2017 Finance Committee Meeting.  Motion carried 3-0-0.

2. Intergovernmental Agreement – C. Dorminy

Charles Dorminy discussed the Draft of the Intergovernmental Agreement which he and Aaron Mumford have agreed to.  This agreement will facilitate the JWSC having project management over the two SPLOST projects.  It will include professional services, procurement and materials purchases, contractor selection and invoice approvals. This will allow JWSC to more efficiently execute the projects as compared to the process from SPLOST V.  Essentially, the agreement lays out everyone’s duties and responsibilities.  When the SPLOST proceeds first come in from the state, they will be distributed to the City, then the County will receive its portion from the City, and JWSC will then receive its portion of those proceeds in order for JWSC to manage the projects themselves.  Once one of the projects is finished, if it did not reach the total amount allocated for that project, the remaining balance can be allocated to the other project.  If at the end of both projects, there are additional funds left over, then those funds are to be returned to the County immediately.  The agreement also allows for annual reporting from the JWSC to the County.

Commissioner Browning made a motion seconded by Commissioner Copeland for the proposed Intergovernmental Agreement to be forwarded to the full Commission for Approval. Motion carried 3-0-0.

3. Surplus Equipment – P. Crosby

Pam Crosby presented to the Committee two Sewer Pumping trucks, a 2004 model and a 2008 model, identified as surplus equipment.  Staff has determined that these assets are no longer of use to the mission of the JWSC.  These Sewer pumping trucks have been replaced with newer models.  A fact sheet was provided to the Committee with details regarding these two trucks, such as mileage.  Marketing research done by staff indicated that one unit could possibly sell for an estimated $50,000 to $55,000, and the second unit is estimated at $80,000 to $85,000.  These two trucks were approved in the previous Facilities Committee meeting on March 9^th to move to the Finance Committee for approval to go before the full Commission to be approved and declared as surplus equipment.  Staff recommends declaring the surplus equipment, identified as SPMD-4022 and SPMD-403, as surplus and moving forward to the full Commission to authorize its disposal in a manner most beneficial to the JWSC.

Commissioner Copeland made a motion seconded by Commissioner Browning to move the approval as surplus of two vehicles, Sewer Pumping trucks, to the full Commission for consideration and approval. 

4. Facilities Landscaping Services – P. Crosby

Pam Crosby presented to the Committee a recommendation for Facilities Landscaping Services.  She noted that JWSC currently outsources all of its facilities landscaping services.  The current contract provides coverage that includes 181 water and wastewater pumping and/or storage facilities and one administrative location.  Coastal Landscape and Design is the current contract holder.  With the contract term nearing its end, an Invitation For Bid was issued on January 13, 2017.  A pre-bid meeting was held on January 30, 2017 with six firms in attendance.  Bids were due and received on Tuesday, February 14, 2017 with the following four firms submitting a bid:  A to Z Landscaping, Coastal Greenery LLC, Coastal Landscape and Design, and Urban Environmental Services LLC.  A four person team of JWSC staff performed a bid evaluation on March 6, 2017.  The submittals were evaluated using weighted evaluation criteria that included quality of services offering, staff experience and equipment resources to perform the service, as well as a cost component.  The bid evaluation matrix was provided for the Committee to review, showing the combined evaluation score for each bidder in each category.  A price bid sheet was also provided to the Committee along with an explanation of the early pay discount requested, and that Coastal Greenery came in at the lowest price even without a discount being offered.  Based on staff’s evaluation of the services proposed, experience, capabilities, price and overall value score a recommendation of award to Coastal Greenery is proposed.  Commissioner Elliott requested that the memo to include a note on the memo for full Commission indicating the annual cost savings that will be possible by moving from the current contracted cost to the proposed one with Coastal Greenery.  Commissioner Browning asked if all of the locations (182 total) are visited every month by the landscaping services.  Pam responded yes, no matter how many times it is required each month to maintain the properties.  She also added that as per the contract administration, the Facilities Manager, Mark Hopkins will be given a schedule each month of when each location is serviced. If it is found that a location is being serviced once per month and it is determined that the location requires twice per month, then it will be maintained at our request.

Commissioner Browning made a motion seconded by Commissioner Copeland to move the Facilities Landscaping Services contract award forward to the full Commission for approval.

DISCUSSION:

 1. Georgia Environmental Finance Authority (GEFA) Overview – P. Crosby / Chad Griffin – Stillwater Engineering

Pam Crosby gave a brief overview to the Committee regarding GEFA and financing available through GEFA for various programs and infrastructure projects such as water, sewer, solid waste management, energy efficiency, and land conservation purchases and easements in Georgia.  Pam presented to the Committee a package of information prepared for their review and better understanding of some facts about GEFA and its loan and grant programs. She explained the package and the information it contained such as types of loans offered, loan interest rates, frequently asked questions and answers, etc. Pam further explained that Water First Designated communities receive a one percent lower rate on the interest for GEFA loans, and that the JWSC is not Water First Designated due to the Consent Order currently in place.  GEFA does match funds up to75% or $25,000 on Feasibility studies. It was also mentioned that the JWSC is currently doing a Biogas Feasibility Study for one of the waste treatment plants, and that GEFA will match part of the funding for that study. JWSC has also participated in the GEFA Water Loss Technical Assistance Program and has just sent in the application for the next round of that program. JWSC has also worked on a couple of other grant programs, such as the Okefenokee Rural Electric Program which is a U.S.D.A. Program and a Resiliency Grant to help JWSC with its storm assessments through Coastal D.N.R.  It was noted that this is not free money, and that there are costs associated such as application fees and preparation fees, interest on the loans, as well as a large amount of paperwork required for applying and processing, as well as reporting. Pam then introduced Chad Griffin with Stillwater Engineering which is working on two water projects through GEFA with JWSC at this time in the application process. Stillwater Engineering is a Civil Engineering firm and grant administration is one area they work in to help their clients fit the right programs with the right projects.  He mentioned that through U.S.D.A. their firm assisted clients in 2016 with $3.5 Million in grants, as well as through the Department of Community Affairs Program they assisted clients with over $3 Million. Through the One Georgia Program Stillwater Engineering helped clients receive $500 Thousand, and through GEFA they helped receive $1.2 Million, of which the JWSC received $174 Thousand of grant funds as part of the application process.  There were two projects applied for. One was for raising an elevated tank and the other was for water main repairs. While the elevated tank project did not receive principal forgiveness, the water main repair project did, and since it was a water conservation project it received options for a low interest rate. Chad has spoken with GEFA regarding the elevated tank project and which of our projects was a higher priority.  He indicated that GEFA is willing to allow JWSC to put in the elevated tank project along with the water main repairs project and give both projects together in one loan a blended interest rate along with the principal forgiveness on the water main repair project. He expressed to the Committee that the interest rates are constantly changing.  Chad also noted that Stillwater had done the upfront work at no extra cost to the JWSC, and that their administration costs are a part of their engineering fees. He then mentioned that if the JWSC does want to move forth on part two of the application, which gets into more of the financial part of the JWSC and its ability to repay the loan, it is important to do so as quickly as possible in order to lock in the interest rate.  He expressed concern to get the loan application in process and have it in front of the GEFA board by August. Chad presented a video to the Committee of an elevated tank project that Stillwater Engineering did in Leesburg, Georgia.  Chairman Elliott then asked Billy Simmons to explain to the Committee the reason why JWSC is interested in elevating a tank.  Billy gave an explanation that on St. Simons Island, the JWSC has a tank that is sitting too low.  It is joined with another tank on the island, but is 18.5 feet lower than the older tank.  At this time, there is no water running into it. If the repairs were made and the tank raised, the water system on that part of the island would improve and the water pressure would be greater as well.

2. Rate Structures – J. Donaghy

John Donaghy presented the Rate Structure to the Committee.  He began by advising the Committee that the JWSC is in the process of working on budgeting and rate structuring.  Staff is currently looking at how costs are recovered. Through the past year in a process assisted by Stantec Consultants, it has been discovered that there are a large number of customers who have no consumption or very little consumption at times during the year, and the average household usage is about 4,000 gallons.  The current rate structure as set forth in the original Operating Agreement states rate calculation as being pooled from the following 4 areas:  administrative costs, debt services, operations and maintenance, and reserve funding based on long-term capital planning requirements, with the last two being funded from the variable charge based on consumption of water & sewer.  A sample of a current water bill was provided to show how the fixed and variable charges billed. The current rate structure does not adequately reflect JWSC cost structure.  The operations and maintenance budget indicates fixed costs to JWSC of $15.8M and variable costs of about $2.7M, with the O & M portion of the customer’s bill based on water consumption.  The current rate structure was provided.  In the review of methodologies, it was found that the number of customers that do not receive a bill for consumption each month is approximately 1,750.  If they are not billed for any consumption, then they are not contributing sufficiently to the operations and maintenance of the water system (fixed costs). It was noted that even though customers may not have consumption during months of the year, they should still help pay for the required continuous operations and maintenance of the system that does provide their services. Currently there is more of the burden on the full time residents to cover these fixed costs of O & M, while the rate payers who are part time in the area are not carrying or sharing that burden. One methodology would be to structure a base rate that all customers pay to more adequately cover fixed costs, and that base rate may include a number of usage gallons at no additional charge. There is a benchmark for consideration that the total water bill would not exceed the median water usage of 4,000 gallons.  Based on the current 2017 water and sewer rates, this would equate to a water bill of about $50.00 per month. Based on the current analysis, about 15% of JWSC’s residential customers have zero consumption in any given month. Given these calculations, applying a base rate to the full customer population may generate as much as $1.5M in additional revenue to cover O & M costs and add to reserves.  Additional rate structure changes staff is considering is removal form the rate structure for services provided to special classes of customers, and removing about $1M from the administrative portion of the rates for planning and construction services. These services would be paid for through fees paid by developers and builders for plan reviews and construction inspections.  John also noted that this action would ensure existing customers are not subsidizing development.  Staff will continue working with Stantec to develop options and additional methodologies for the Commission to consider for rate structuring.

 3. Davenport Financial Advisors – Courtney Rogers

Courtney Rogers from Davenport Financial Advisors Presented to the Committee “Borrowing at the Lowest Cost Possible.”  It is one role of Davenport to help put the JWSC in the position of borrowing at lowest costs and looking at all of the types of financings available. For any financing that JWSC has to go to public market for, the Bond Rating of the JWSC is important to be in as good of a status as possible in order to be able to borrow at lower costs.  Davenport will be working with JWSC staff and Stantec over the next weeks on the ratings and methodologies. Courtney also spoke about JWSC’s rate structure and methodologies of rate structure.  There is a fixed amount of operations in place to keep the system working, referred to as “Readiness to Serve.” He also spoke of volumetrics and fixed expenditures which help to project revenues and budgeting, along with the national trend of water conservation.  The newer washing machines and low-flow commodes for example are water conserving units providing less usage over time and water usage efficiency for our customers.  The fixed costs of the collection system is an issue with lower consumption and less revenues coming in.  According to Moody’s it is common for water utilities to split the rates into a base charge (flat rate charge) plus a volumetric charge. Utilities basing rates more on volumetrics face a greater risk.  It is more favorable to be able to project revenues.  Courtney Rogers and Davenport Financial Advisors will be working more with the JWSC. 

4. Banking Services / Additional Services Presentation / BB&T – Lance Turpin

John Donaghy introduced Lance Turpin from BB&T Banking Services to the Committee and explained that the JWSC has been using the banking services of BB&T for the past 3 years.  He added that there may be some additional services that the JWSC may be interested in obtaining from BB&T.  Lance Turpin, Market President, from BB&T presented the various banking services offered to the JWSC by BB&T.  First he gave the introduction to BB&T and the “Relationship Team” and gave an overview of the relationship between JWSC and BB&T Banking Services. He referred to BB&T as a consultative lender and payment specialist for the JWSC in the discussion regarding the products and services utilized by JWSC.  They provide risk management, employee benefits, and in recent months implemented “Positive Pay” due to some fraud issues incurred by the JWSC.  Lance provided a “Cash Manager Online” video to the Committee to show how his managers and staff help their clients and some services they provide, and the real time services offered by the “Cash Manager Online.”  This system offers control, more efficiency, security, and information on demand, as well as more control of assets with the online components of Account Transfer, ACH, Wire Transfers, Positive Pay, Reverse Positive Pay, and Stop Payments.  He also introduced a few proposed services and benefits such as Lockbox, AR Box, and Remote Deposit Capture.  Currently the JWSC is using a third party lockbox service which is an additional delay in getting cash into the bank.  Lance then shared a video on the lockbox services offered by BB&T.  This can be considered to be an extension of the Accounts Receivable Department, by maximizing efficiency and reducing the actual handling of checks in addition to faster processing and access to funds. He estimated that there could be a possible $19-22K annual savings if JWSC converted from the current third party lockbox services to their services of lockbox.  An example of how to incur those savings would be the ability to scan checks at our offices and have a third party to only handle the transfer of actual cash to the bank from JWSC.  There were three main proposed cash management solutions and changes: (1) Moving third party lockbox to BB&T, (2) Utilizing electronic deposits, and (3) Electronic scanning of checks.

5. Draft Budget Fiscal Year 2017-2018 – J. Donaghy

John Donaghy presented to the Committee that staff has been working on budgeting for the upcoming fiscal year of 2017-2018. Meetings have been held with the various superintendents to discuss their departmental budgets and making amendments to their budget drafts.  A preliminary draft budget of expenditures has been prepared and will be forwarded to Stantec for modeling.  The next step will be to prepare the draft budgeting of revenues other than the usual revenues from customer fees and interest earnings.  This information will then be plugged into the rate model with the statistical and demographical information of the customer base. They will then be able to come up with a proposed rate for the next year. At this time it is indicated that there is a significant increase in this year’s budget over the adopted budget of last year of $4.4M. This budget draft is still being worked on. John did note that last year’s budget included no capital purchases and there are some capital needs for this year of which are contributing to the increase in the budget.  Last year $1.5M of the operating reserve was allocated to purchase vehicles and new equipment to ease the burden on rates. This is a one-time event, but there is a need to budget for some capital items for this year. The proposed budget does include staff additions of about 10 new positions. A first complete draft budget is expected to be ready by early April. In order to meet deadlines, it will be necessary to have a special called workshop for the Commission to work on the budget.  The final budget for the upcoming fiscal year will be adopted at the last Commission in the month of June 2017.  Public hearings will be held on the rates and the draft budget must be sent to the City and the County for review and comment prior to the adoption of the final budget.

6. Five Year Capital Improvement Plan – J. Junkin

Mr. Junkin advised that the Five Year Capital/Master Plan has been reviewed.  Staff has considered some possible changes due to variables that have occurred during the last several months, as well as needs for development. In the attempt to expedite projects, there has been a necessity to start small portions of those projects quickly. Staff is working though details of the Plan to make it more definitive of the immediate needs of Rehab and Repair, as well as expansion needs for the next five years. Staff will also be working with the rate consultants to determine and refine the calculated tap fee that the JWSC should be charging as opposed to the flat fee that is currently being charged at this time. Mr. Junkin indicated that it is foreseen that there will be a greater need than what the rate structure will provide. He expressed concern of the JWSC being able to do the necessary projects in a revenue constrained situation. In their inspections and assessments of the system, staff has found that there are very costly needs that were not included in the original Master Plan. Particularly in the sewer system, they have discovered more critical needs than previously expected. These pressures are requiring clarification and review of the Plan to meet the challenges ahead for the JWSC.

7. February End of Month Financial Comparative – J. Donaghy

John Donaghy presented the financial end of month report for February 2017 to the Committee. He noted that the Balance Sheet has been relatively constant from month to month during this year. The Bond Sinking Fund has increased from $300K to $1.9 M due to the accumulation of the funds from the bond trustee for the next principal and interest payment that will be due June 1^st of 2017, with the annual bond payments being about $3.8M in total.  While the Accounts Receivable have increased some, the Restricted Cash Accounts have dropped by just over $4M, with the offset to that being the Construction in Progress where Reserve funds have been used to complete projects. John continued on to review the Revenue and Expenditure Statement. This year revenues are just short of $19M with the Pro Rata Budget being $18.8M, indicating being ahead by about $140K. With Net Revenues over Cash Requirements at $2.4M and Encumbrances of $1.6M, the final balance of Net Revenues over Expenditures at February 2017 end of month was just over $800K.  The Project Report was not reviewed at this time.

DIRECTOR’S UPDATE

There was no additional update at this time.

Meeting was adjourned at 4:42 p.m.