BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT:
Title
Receive and approve the Mid-Year Operating and Capital Budget Adjustments to the Fiscal Year 2022-23 Rolling Biennial Adopted Budget.
End
RECOMMENDATION:
Recommendation
Approve the Mid-Year Operating and Capital Budget Adjustments to the Fiscal Year 2022-23 Rolling Biennial Adopted Budget.
Body
SUMMARY:
In adhering to Governance Policies of the Board and specifically Executive Limitations EL-4, staff respectfully submits the mid-year budget adjustments to the FY 2022-23 Rolling Biennial Adopted Budget, which are necessary to better align limited allocated resources with the Board’s Ends, meet Board priorities, and to continue to provide for a balanced budget.
The FY 2022-23 mid-year budget adjustments are presented in Attachments 1 & 2 and summarized as follows:
1. Capital Project: 95084002 10-Year Pipeline Rehabilitation Project ($2,128,000 increase)
The 10-Year Pipeline Inspection and Rehabilitation Project (Project) develops Santa Clara Valley Water District's (Valley Water) large diameter Pipeline Management Strategy and a 10-year program for implementation tasks associated with the strategy. This program involves the inspection, planning, and design activities required for renewal of Valley Water's large pipelines and tunnels. The construction contracts and material procurement costs for the projects under the Project have increased due to inflation and supply chain issues which have impacted delivery schedules, material costs, and construction costs. This budget adjustment increases the Project FY23 budget by $2,128,000 from $20,112,674 to $22,240,674 and is consistent with the preliminary Capital Improvement Program (CIP) FY 24-28 Five-Year Plan. If not approved, three projects including the Santa Clara Conduit Rehabilitation and Pacheco Sectionalizing Valve Replacement Project, Santa Clara Conduit Inspection and Rehabilitation Project - Phase 2, and Snell Pipeline Inspection and Rehabilitation Project will not have adequate funding, causing planned repairs, rehabilitation or replacement work on these projects to be deferred.
2. Capital Project: 93284013 STWTP Filter Media Replacement Project ($5,871,000 increase)
The Santa Teresa Water Treatment Plant (STWTP) Media Replacement Project (Project) plans, designs and constructs improvements to the STWTP filter basins to ensure that it maintains its operational capacity and continues to effectively serve customers, retailers, and the public with safe and high-quality drinking water. This budget adjustment increases the Project FY23 budget by $5,871,000 from $6,672,574 to $12,543,574 and is consistent with the preliminary Capital Improvement Program (CIP) FY 24-28 Five-Year Plan. Project cost increases are due to added design elements and inflation. Design phase increases include filter surface cleaning, coating of the existing steel flanges, replacement of steel deflectors, concrete crack repair, valve pedestals and design of siphons. The construction phase cost increase is due to a lower engineer’s cost estimate than actual construction contract award cost. If the additional funds requested are not approved, the construction project as awarded will not be fully completed.
3. Capital Project: 26174052 Upper Llagas Creek Flood Protection ($38,664,000 decrease)
The Llagas Creek-Upper, Buena Vista Avenue to Llagas Road project continues a Clean, Safe Creeks project in partnership with the U.S. Army Corps of Engineers (USACE) and the state to plan, design, and construct improvements along 13.9 miles of channel. The Project extends from Buena Vista Avenue to Llagas Road, including West Little Llagas Creek in downtown Morgan Hill. Staff recommends removing the Phase 2B scope and remaining budget of $38,664,000 from the total Project cost reflected in project number 26174052. The $38,664,000 funding will return to Safe Clean Water Fund Operating and Capital Reserve for FY23. The original scope for Project 26174052 included the construction of the Project, Phase 1, Phase 2A, and Phase 2B. Phase 2B is now anticipated to receive grant funding from the Natural Resources Conservation Service (NRCS) for an estimated $80M and a new project Upper Llagas Creek Flood Protection Project-Phase 2B, project 26174055, will help facilitate tracking and accounting of eligible NRCS grant funding costs consistent with the preliminary Capital Improvement Program (CIP) FY 24-28 Five-Year Plan.
4. Operating Project: 91151014 GP5 Reimbursement Program ($4,998,937 increase)
On September 24, 2019, the Board adopted Guiding Principles to reflect transitioning from participation in California WaterFix to the Delta Conveyance Project, one of which is Guiding Principal 5 (GP5), a water conservation grant program specifically for retailers which receive at least 85% of their water from non-Valley Water managed supplies. The Board authorized the Chief Executive Officer to implement the program beginning July 1, 2021, and to enter into cost-sharing agreements with eligible retailers. In April 2022, Valley Water released guidelines to the program participants that described the criteria and process to implement the GP5 program. This budget adjustment is to ensure that funds received through June 30, 2022, are appropriated in the GP5 Reimbursement Program (Project 91151014). This budget adjustment increases the Project FY23 budget by $4,998,937 from $10,964,637 to $15,963,574. Estimated revenues for FY23 are budgeted in the GP5 Reserve because it will not be fully received until year-end.
5. Technical Budget Adjustment - update FY 2022-23 budget reserves to align with FY 2021-22 audited actual reserve balances
The FY 2022-23 Adopted budget reserves are based on FY 2021-22 projected year-end reserves because the budget is adopted before the end of the fiscal year. After the FY 2021-22 Annual Comprehensive Financial Report (ACFR) is finalized and approved by the Board, Staff conducts a fund balance reconciliation of FY 2021-22 projected year-end reserves with the final FY 2021-22 actual reserve balances. The purpose of this reconciliation is to implement the budget adjustments to align the FY 2022-23 Beginning Budget Reserves with prior year actual reserve balances. Net impact of this technical budget adjustments is a reduction of $14.6 million to FY 2022-23 budget reserves. Attachment 2 shows the detailed budget reserve adjustments.
ENVIRONMENTAL JUSTICE IMPACT:
There are no Environmental Justice impacts associated with this item. However, environmental justice impacts of associated projects, will be assessed and reported with individual project actions and updates.
FINANCIAL IMPACT:
Approval of the FY 2022-23 mid-year budget adjustments amends the FY 2022-23 Operating and Capital Budget, which was adopted by the Board per Resolution No. 22-31 on May 10, 2022.
The recommended budget adjustments will increase Water Utility capital project budgets by appropriating funds of $5.9 million to the STWTP Media Replacement Project and $2.1 million to the 10-Year Pipeline Rehabilitation Project budget and correspondingly decreasing the Water Enterprise Fund Operating and Capital Reserve by $8.0 million.
The Upper Llagas Creek Flood Protection Project budget adjustment will move funding of $38.7 million from Upper Llagas Creek Flood Protection Project to the Safe Clean Water Fund Operating and Capital Reserve for FY23. These funds will be requested during the FY24 budget process and will be appropriated to the Upper Llagas Creek Flood Protection Phase 2B Construction Project.
The GP5 Reimbursement Project budget adjustment will appropriate $5.0 million from the GP5 Reserve to the GP5 Reimbursement Project.
The technical budget adjustment will align the Fiscal Year 2022-23 budget reserves with prior year audited actual reserve balances, decreasing the FY23 beginning budget reserves by $14.6 million.
CEQA:
The recommended action does not constitute a project under CEQA because it does not have the potential for resulting in direct or reasonably foreseeable indirect physical change in the environment. To the extent any funds included in the proposed budget adjustment would be used to pay for projects or activities that are subject to CEQA, those funds will not be expended unless and until the appropriate CEQA review has been completed.
ATTACHMENTS:
Attachment 1: FY 2022-23 Mid-Year Budget Adjustments (items 1 to 4)
Attachment 2: FY 2022-23 Mid-Year Budget Adjustments (item 5)
Attachment 3: Resolution No. 22-31
UNCLASSIFIED MANAGER:
Manager
Darin Taylor, 408-630-3068