ITEM:

PUBLIC HEARING

16.

Meeting Date:

From:

David A. Berger,

Program/

N/A

General Manager

Line Item No.:

Prepared By:

Rick Dickhaut

Cost Estimate:

N/A

## Committee Recommendation:N/A

CEQA Compliance:  N/A

SUMMARY:  Annually, the District considers its financial position after the end of the second quarter of the fiscal year.  District staff has reviewed income and spending patterns since July 1, 2006 and determined that adjustment of the 2006-07 budget developed last spring and adopted June 22, 2006 is required.  Included in the process was a review of staffing levels, supplies, outside services, current work assignments and other factors affecting the budget.  The tables below summarize the proposed budget changes:

As the table indicates, net revenue increases total $172,000 while net expenditure increases are$278,600.  The difference decreases the amount available to replenish general operating reserves by $106,600 during fiscal year 2006-07, but still results in an amount of$38,700 going back in to the reserve.  Also, as discussed in the revenue section below, additional user fees resulting from recent rate increases granted to California American Water (CAW) by the California Public Utilities Commission (CPUC) will almost certainly increase the amount available to replenish this reserve.  Detailed information regarding the proposed changes and general operating reserves is detailed in the background section of this staff note.

RECOMMENDATION:  Following a presentation by District staff and a public hearing, staff recommends adoption of the proposed mid-year budget adjustment for Fiscal Year 2006-07.

BACKGROUND:  The Board of Directors adopted the original 2006-07 budget on June 22, 2006.  The paragraphs below summarize proposed mid-year adjustments to the budget and operating reserves.

Revenue

The 2006-07 adopted budget anticipated revenue sources in the amount of $8,288,900, including$2,550,000 in bond proceeds and $39,000 from the capital equipment reserve. It was projected that these revenues would exceed budgeted expenditures by$145,300.  This amount would replenish a portion of the funds used from the general operating reserve in recent years.   As of December 31, 2006, actual revenue collections totaled $1,537,055 or about 19% of the budgeted amount. Revenues for the first half of each fiscal year are historically low because larger portions of the District’s two major revenue sources, user fees and property taxes, are collected during the second half of each fiscal year. Also pending is actual receipt of approximately$450,000 in grant funds for the Integrated Regional Groundwater Management Plan.  As mentioned above, the CPUC has recently granted additional rate increases and various surcharges.  It is anticipated that the actual user fees collected will be even more than the budgeted amount of $2,635,000, however, sufficient information to refine this amount is not available from CAW at this time. Any additional unbudgeted user fees generated by the changes will increase the amount available to replenish the general operating reserve. District staff has analyzed the revenue activity for the first six months of the fiscal year, as well as activities scheduled for the second half of the fiscal year and recommends various adjustments to the revenue portion of the budget as discussed below. Grant revenues have been increased by$152,000 for grant funds that were budgeted, but not expended, in fiscal year 2005-06 for the Integrated Regional Groundwater Management Plan.  It is now anticipated these funds will be received and expended this fiscal year.  A like amount has been added to the expenditure portion of the budget for District expenditures and payments to be made to sub-grantees.  Interest revenues have also been increased by $20,000 due to increasing interest rates. The cumulative effect of these two revenue adjustments is an increase of$172,000 in projected revenues for Fiscal Year 2006-07.

Expenditures

The original budget envisioned expenditures of $8,422,200 in the fiscal year ending June 30, 2007. As of December 31, 2006, actual expenditures totaled$2,212,118, or approximately 27%, of the budgeted amount.  This percentage is not unusual because project expenditures for the first half of each fiscal year are historically low.

The personnel portion of the budget has been increase by $129,300 as shown on Exhibit 16-A. When the 2006-07 budget was adopted, it was noted that negotiation of new Memorandums of Understanding (MOUs) with the District’s three bargaining units were in progress, and that any compensation increases approved by the Board would be added to the budget during the mid-year adjustment process. Adjustments to personnel portion of the 2006-07 budget reflect increases there were approved in the new MOUs, increases due to the recent reclassifications in the Water Resources Division, a reduction in workers’ compensation insurance rates and other miscellaneous minor adjustments. The supplies and services portion of the budget was increased by$65,400 as shown on Exhibit 16-B. The majority of the increase is $50,000 carried forward from the 2005-06 budget for upgrade of the District’s conference room. It was originally anticipated that work would be done in fiscal year 2005-06; however, the project was not accomplished until this fiscal year. This section of the budget was also increased by$9,100 for data processing costs and $5,600 to fund a second strategic planning session. As shown on Exhibit 16-C, project expenditures increased by a net amount of$83,900.  As mentioned in the revenue section of this report, grant funded expenditures in the amount of $152,000 for the Integrated Regional Groundwater Management Plan have been carried forward from fiscal year 2005-06. Project expenditures were also increased by$30,000 to cover the cost for a consultant to complete an evaluation of major desalination projects.  The amount of $16,000 was also added for the preparation and distribution of the District’s 2006 annual report. While the budget already included$15,000 for this purpose, those funds were used for the 2005 annual report which was not printed and distributed until after the start of this fiscal year.  Funds for the Water Demand Division’s water permit database project and policy and procedures manual were reduced by $100,000 and$45,000, respectively, in anticipation that the funds will not be expended until fiscal year 2007-08.

The cumulative effect of the adjustments to the expenditure side of the budget is an increase of $278,600 in projected expenditures for Fiscal Year 2006-07. General Operating Reserves The net effect of the proposed mid-year budget adjustments decreases the amount available to replenish general operating reserves to$38,700.  However, while the budget for fiscal year 2005-06 anticipated the use of $1,340,000 of general operating reserves, the audited financial statements just completed for that fiscal year shows that actual use was only$822,311.  The difference of $517,689 represents additional general operating reserves to be carried forward fiscal year 2006-07, and that amount will also be adjusted accordingly in the amended budget document. The revised general operating reserve carryover to fiscal year 2007-08 is projected to be approximately$1,435,000, or about 17%, of the new operating budget total of \$8,422,200.  This is well above the 5% to 10% minimum established by the Board during the 2005-06 budget process.

### EXHIBITS

16-A    Mid-Year Budget Adjustment – Personnel Costs

16-B    Mid-Year Budget Adjustment – Services and Supplies

16-C    Mid-Year Budget Adjustment – Project Expenditures

U:\staff\word\boardpacket\2007\2007boardpackets\20070222\PublicHrgs\16\item16.doc