1. CONSIDER AMENDMENTS TO FISCAL YEAR 2000-2001 MPWMD ANNUAL BUDGET

SUMMARY: This item was pulled from the Consent Calendar at the Board meeting on January 25, 2001 for discussion. It was not addressed due to meeting adjournment at approximately 11 PM. Annually, the District considers its financial position near the end of the second fiscal quarter. Staff has reviewed revenue and expense patterns since July 2000 and determined that a adjustment of the budget framed last spring and adopted in June 2000, is warramted. The proposed amendment increases annual revenues by $178,400 and decreases annual expense by about $117,200. The tables below summarizes the proposed budget amendments.

Revenue

Expense

RECOMMENDATION: Following staff presentation and public hearing, adopt the proposed amended budget for Fiscal Year 2000-2001 as contained in Exhibit 1. On January 16, 2001, the Administrative Committee discussed the proposed changes and recommended that the Board adopt the amended budget for FY 2000-2001.

IMPACT OF STAFF AND RESOURCES: An amended budget document will facilitate staff 's execution of the current strategic plan including tasks identified for completion in the remaining two fiscal quarters. Changes in District revenues and expenses are discussed in the background section of this staff note.

PRIOR BOARD ACTION: The Board adopted this budget on June 29, 2000. The Board reconsidered the budget on July 17, 2000, but did not modify the budget. On January 25, 2001 the Board agenda contained this item as part of the consent calendar. The item was removed from the consent calendar at the request of Director Edwards, but was not addressed due to the closure of the meeting at approximately 11 PM.

BACKGROUND: The paragraphs below summarize significant changes in the annual budget and fund balances.

Revenue

The District Board adopted the annual budget for Fiscal Year 2000-2001 on June 29, 2000. Revenues were expected to total $3.9 million in Fiscal Year 2000-2001. In addition, $ 2.2 million were to be utilized from prior-year fund balances to pay the $6.1 million in planned annual expenses. As reported in the Second Quarter Financial Report, connection charge revenues for the first six months exceeded the annual projection. By December 1, the District had collected connection charges five percent more than the total annual budget of $329,100. The original estimate based on a budget assumption that 30 acre feet of water would be permitted this Fiscal Year. Of this total, an estimated 15 acre feet were to be produced from outside the Monterey Peninsula Water Resource System (MPWRS) and therefore generate connection charges lower than the remaining 15 acre feet extracted from within the MPWRS. As of December 1, approximately 24.35 acre feet had been permitted (40 permits) from outside the MPWRS and 8.65 acre feet (67 permits) from within the MPWRS. Two commercial permits issued for projects whose source of supply is from outside the system accounted for almost one-third of the total revenue. Staff has revised the estimate for the remainder of FY 2000-2001 to add another 20 acre feet to the annual quantity expected to be permitted. It is assumed that about 5.24 acre feet of this new water will be permitted from within the MPWRS and the remaining 14.76 acre feet will be permitted outside the system. This will produce third and fourth quarter connection charge receipts of approximately $178,400. Thus, the year-end total should be about $507,500. As of January 1, 2001, the District has received more than $440,000 in property taxes, this represents 65 percent of the annual budget. No changes in current estimates of property tax or other revenue sources, excepting connection charges, are proposed.

Expense

Expenses after six months were reported in the Second Quarter Financial Report included as part of the January 2001 Board packet. The original budget envisioned expenditures of $6.1 million in the Fiscal Year ending June 30, 2001. As of November 1, 2000, the District had expended approximately $1,200,000 or 19 percent of the annual budget.

Net changes in personnel costs result in an increase totaling approximately $12,400. PERSCare rates for FY 2000-2001 were budgeted to include a 15.9% increase, effective January 2001. At the end of December 2000, PERSCare notified subscribers that there would be an additional increase, effective February 1, 2001, which brought health rates up a total of 22% from calendar year 2000. However, total health insurance costs for the fiscal year are reduced from the amount originally budgeted due to position vacancies. Adjustments were made in salaries and benefit costs to reflect a new general manager for four months of the fiscal year, funding for the Senior Hydrologist for the same period, change in classification for the Information Systems Manager for nine months and full staffing in the Water Demand Division for the last two quarters. A premium increase in workers compensation insurance for the entire year was also added. Based upon rates for FY 2000-2001 quoted by State Compensation Insurance Fund in May 2000, Worker's Compensation Insurance was budgeted at a level of $25,069. The actual rates imposed July 1, 2000 were 33% higher for field personnel, 36% higher for conservation representatives, and 34% higher for office staff. These increases led to a total increase of $34,592. In addition, personnel recruitment expenses, already incurred but unfunded in the adopted budget, were funded as well as the costs associated with recruitment for the general manager's position which were not envisioned when the budget was framed last spring. An amount for unforseen recruitment during the final two quarters of the year was added. Recruitment costs are funded at approximately $46,000 for the year.

Changes in supplies and services costs show a net increase of almost $13,000. Higher utility and postage expense accounts for most of the increase. Insurance, travel and legal notice costs all decreased. Fixed asset expenditures have been lowered by $33,577 to reflect the deferred replacement cost of one truck (Unit 1, 91 ½ Ton, 4WD, 85,000 current milage) and reallocation of computer hardware and software funds to the data processing portion of the supplies and services budget. The "other" expense category includes annual accrual for the Flood and Drought Reserve, Capital Equipment Reserve, election expense, annual reimbursement of the capital cost of the office building and the contingency. The decrease shown in the table above in the "other" category, reflects adjustment to the contingency based on the decrease in total expenditures.

Program expenses show a net decreased of about $104,000. Actual year-end expense will be considerably less if past patterns prevail.

Changes in Fund Balances

Year-end fund balances, as reported in the annual audit report, on June 30, 2000 were about $54,951 or 1 percent less than budget estimates. The lower values have been incorporated into this adjustment.

Refunds of connection charges have been negligible for the past 12 months. However, on December 31, 2000, a number of conditional water permits expired in accordance with provisions of District Rule 23. Due to these expirations, staff refunded about $559,000 during January from previously collected connection charges. Refunds are not budgeted but have lowered the fund balance in the Capital Projects Fund about 14 percent lower than the balance at the beginning of the fiscal year.

Other changes

The "adopted" budget values contained in this amendment incorporate several technical changes which correct errors in the version of the budget published last June in the board packet. The effect of those errors is to increase total expenditures by $10,000. These changes are included in the figures reported in the tables above.

Exhibit 1 consists of amended pages in the adopted budget that will be distributed to Monterey County and other holders of the original budget following Board approval.