8.a. CONTRA COSTA WATER DISTRICT FINANCE COMMITTEE POST-MEETING REPORT JANUARY 29, 2021

Attendees: Directors: Vice President Avila, Chair; Director Holdaway

Staff: Steve Welch, Jeff Quimby, Marguerite Patil, Maggie Dutton, James Yeom, Lizz Cook, Nicole Snegosky, Dominic DeBellis, Celia Cheung, Shelly Wise, Rosemary Dorman

Public: None

1. Grant Funding Status Update – The Committee received an update on the District’s Grants Program and Funding Status. In calendar year 2020, the District administered $76.7 million under six active grant agreements and one public assistance program, which included $47.1 million in grant funds and $29.6 million in funding match. The District invoiced $5.7 million and received $5.6 million in payments from granting agencies (difference is withheld retention on implementation-type projects), and applied for new grants, including $9.3 million for Phase 2 LVE Early Funding, $0.3 million for consolidation projects on , $0.5 million for FEMA Storm Damage Public Assistance, and $0.6 million for Rock Slough Fish Screen Improvements.

The District continues to be involved in the Integrated Regional Water Management (IRWM) Program through the Department of Water Resources (DWR). This program has provided access to funding for the District and other regional water agencies. Additionally, District staff continued to administer East Contra Costa County IRWM group; accepted a Proposition 1 Implementation Round 1 award; continued to administer Funding Area Disadvantaged Community (DAC) Involvement Grant Agreement; and participated in an IRWM advocacy group called the Roundtable of Regions, which promotes the success and importance of the IRWM program state-wide.

Committee members were complimentary of the District’s continued success in acquiring and managing grants. Committee members asked how much had been reimbursed through the FEMA Storm Damage reimbursement program and the specific grant program that funded the Canal Replacement Project Segment 3 & 4. The District has been obligated $2.6 million from FEMA for the storm damage projects and has received approximately $0.7 million to date. Actual payment amounts and timing are subject to Cal OES and FEMA’s review of project costs. Canal Replacement Project Segment 3 & 4 was funded by a Proposition 84 Bay Delta grant program under DWR, supporting water quality improvements in the Sacramento-San Joaquin Delta. Finance Committee Post-Meeting Report January 29, 2021 Page 2

2. Cybersecurity – The Committee received an update of the District’s cybersecurity systems. Cybersecurity continues to be an increasing threat throughout the world, causing loss of revenue, staff time and data, causing significant damage. The District takes this threat seriously and has worked diligently to bolster its cybersecurity defenses. The District has taken a layered approach to its Information Technology (IT) cybersecurity model, comprised of cloud services, network perimeter, wide area network, local area network, endpoints, and user education. The District mandates cybersecurity training to its staff to mitigate phishing attempts and other nefarious technology vehicles. Scrutinizing and examining network traffic results in significant number of logs and records of events. The District utilizes a third-party cybersecurity service to report any valid findings as well as any anomalous network behavior. The IT Division spends roughly 10 percent of its operating budge on cybersecurity measures and the District’s IT Division remains vigilant against potential threats.

3. Administrative Efficiencies Update – The District continues to evaluate its administrative practices to identify opportunities for improved efficiencies and reduce time spent on administrative tasks to achieve cost savings over time. An update was provided to the Committee on five initiatives: the financial information system (FIS) upgrade, the customer billing information system (CBIS) replacement, the permit management system (PMS), environmental clearinghouse (Clearinghouse), and U.S. Bureau of Reclamation (USBR) Land Acquisition Records and Out Grants Project.

The upgrade of the core FIS financial components was completed in September 2020 and focus has shifted to extracting the data out of the current Human Resources Management System and into the FIS in order to remove data redundancy and increase accuracy. The CBIS replacement is to improve support and increase staff efficiency. Request for Proposal responses are due the end of January 2021 and solicited vendors will then participate in a product demonstration and evaluation with the CBIS workgroup. The PMS will centralize the tracking of over 200 regulatory reporting and renewal permit requirements for various projects and programs throughout the District and will increase efficiency while reducing the risk of fines, citations, and notices of violations related to missed reporting and/or permit related deadlines. The Clearinghouse process provides District Staff with an efficient means of reviewing proposals for land-use change within the District’s service area and replaces the former labor and paper intensive process. The USBR Acquisition and Out Grants project supports the system title transfer by utilizing current digital tools already available such as Excel, email, and SharePoint. The two phased project of scanning grant deeds, easements, acquisitions documents, licenses, and other land rights provides District staff with an efficient means of electronically locating and forwarding documents while concurrently providing an electronic copy of original documents that may be unrecorded with the Contra Costa County (County) or stored offsite.

Finance Committee Post-Meeting Report January 29, 2021 Page 3

In response to a question by Vice President Avila regarding participation in Bay Area best practices work groups, Mr. Welch explained that each responsible group, i.e. Finance and IT participate in multi-agency groups such as Urban Water Association and the Bay Area Water Agencies Coalition twice a year to share information and improvements with each other. Vice President Avila also mentioned that it will be interesting to see what efficiencies come up at Prop 218 time and that he appreciates the District making the business case prior to investing in efficiency measures.

4. FY21 Mid-Year Budget Review and Financial Report – The Committee received an update of the District’s FY21 mid-year financial status. Based on the mid-year review, a net $3.9 million negative financial impact is projected due to reduced water sales and higher expenditures. Water sales are impacted by Marathon Petroleum’s idling of their Martinez plant resulting in reduced demands. Vice-President Avila inquired about Marathon’s future plans and whether their demands are anticipated to increase. Assistant General Manager Quimby responded that Marathon is evaluating the potential to produce renewable fuels at the Martinez facility which will increase demands to approximately 70 percent of their historical demands. Staff reviewed COVID-19 related financial impacts including delinquency rates, additional operating expenses, and office space modifications. The Directors expressed concerns on the rising delinquency rates of outstanding water bills. Staff also provided a financial status update of the Phase 2 Los Vaqueros Reservoir Expansion Project (Project). As of December 31, 2020, the Project’s cash reserve balance was $2.0 million. Vice-President Avila inquired about the funding plan for the Project and whether funds will be available prior to beginning construction. Assistant General Manager Patil explained that funding agreements with partners and agencies will be in place prior to beginning each phase of the Project.

5. Financial Plan Review – Future Impacts - The Committee received an update of the long- term financial impacts of Marathon Petroleum’s demand reduction and the Central Valley Project (CVP) water rate increases. Marathon Petroleum’s demand reduction is estimated to have a $19.0 million negative financial impact over the next ten years. The CVP water rate increase is estimated to add $15.0 million in costs over the next ten years. Tools to address these financial impacts include cost reductions, modest revenue increases and reserve use. Staff does not recommend the cost reductions approach as that would entail cutting programs or deferring maintenance work. Cutting programs may result in service reductions to our customers. Deferral of maintenance work may result in more costly repairs in the future. Therefore, staff recommends continuing with planned investments in infrastructure and programs to ensure that the District provide safe and reliable water service now and for the future generations. Staff’s recommendation is for the Board to consider modest future revenue increases and reserve use to address these financial impacts. Staff provided updated revenue increase projections for 2022-2028: up to six percent annual increases for untreated water service and four percent annual increases for treated water service. Vice-President Avila and Director Holdaway concurred with the importance of keeping up with infrastructure renewal and replacement needs. Finance Committee Post-Meeting Report January 29, 2021 Page 4

6. Affordability Review – The Committee received an update of the low-income senior citizen and permanently disabled Lifeline Program (Program). Comparisons to other agencies highlight that removing District’s age or disability requirement could increase Program costs by approximately $0.2 million and changes made to align with County programs such as CalFresh or Medi-Cal could drive increases over $2.0 million. Lower cost options include working with identified communities and providing education on existing local programs.

Overall participation in the Program is spread throughout the service area. The American Water Works Association published a report measuring household affordability and financial capability regarding water and sewer rates. Based on the suggested guidelines the District is currently in the “moderate-low burden” range, which did include sewer rates that the District cannot control.

The State Water Resources Control Board recently requested data from several water agencies for delinquencies by zip code to help understand the distribution and magnitude of unpaid water bills across the state as arrearages are on the rise due to the ongoing pandemic.

In response to the Directors’ comments, data will be brought to the full Board for consideration of future Program changes once the impacts of COVID are stabilized.

7. Capital Projects Financing Program – Staff noted the total principal outstanding is $343.3 million, a reduction of $27.1 million from the prior year. The largest change since the November committee meeting was the refinancing of $17.5 million in Extendable Municipal Commercial on December 16, the next refinancing will take place in February.

8. Investment Portfolio Status Report – Staff noted that the portfolio yield was 1.8 percent, slightly lower than the previous period and average maturity was 1.9 years.

9. Future Finance Committee Items – The Committee reviewed the proposed agenda items through November 2021.

10. Public Comment – None

11. Next Meeting – The next meeting of the Finance Committee has been scheduled for Friday, May 28, 2021 at 10:00 AM.

12. Adjournment

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