BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT:
Title
Receive an Overview of the Annual Capital Improvement Program Development Process, the Capital Improvement Program Fiscal Years 2025-29 Five-Year Plan Capital Projects by Fund and Funding Categories, and the Integrated Financial Planning Schedule.
End
RECOMMENDATION:
Recommendation
A. Receive an overview of the annual Capital Improvement Program development process;
B. Review the Capital Improvement Program Fiscal Years 2025-29 Five-Year Plan capital projects by Fund and Funding Categories;
C. Review the integrated financial planning schedule; and
D. Provide feedback as necessary.
Body
SUMMARY:
The annual update of the Capital Improvement Program (CIP) Five-Year Plan includes project plan updates for all existing capital projects and a Validation Process to review and evaluate potential new capital projects for inclusion in the CIP, along with review points for the CIP Committee and decision points for the Board. A presentation that shows the steps in detail, along with an overview of the CIP Fiscal Years (FY) 2025-29 Five-Year Plan capital projects by Fund and Funding Categories and the integrated financial planning schedule, is included in the PowerPoint Presentation (Attachment 1).
CIP Development Process Overview
Each year, Santa Clara Valley Water District (Valley Water) staff can submit new projects to be considered for inclusion in Valley Water’s CIP. For each potential new project, staff develops a business case to compare capital, non-capital, and non-asset alternative solutions; evaluates the lifecycle costs of these solutions; and identifies a recommended solution that minimizes lifecycle cost while balancing service levels and risk.
From May through September, staff submits the business case for review by their respective Deputy Operating Officer (DOO) or Deputy Administrative Officer (DAO). If staff’s respective DOO/DAO approves the project, it is submitted to the CIP coordinator. Simultaneously, project managers update their existing capital projects to reflect changes to scope, schedule, and project cost/planned expenditures, which are also subject to approval by the respective DOO/DAO.
Between October and November each year, these newly proposed, initially validated projects will be presented to the CIP Committee and Board, along with a list of currently unfunded projects that have been validated during prior years, for review and comment. Committee and Board feedback will be considered when preparing the funding scenarios for the CIP Preliminary Five-Year Plan.
Newly Implemented Funding Categories
As funding constraints due to rising capital costs continue to be addressed, and in response to recent recommendations from the CIP Performance Audit, staff has developed Funding Categories to enhance the Funding Filters tool.
Categories 1 and 2 focus on further prioritizing existing infrastructure projects based on their Business Risk Exposure (BRE) scores as assigned in the Asset Management Plan (AMP). Category 3 applies to existing infrastructure projects with a lower risk of failure and new infrastructure projects.
Further details of the three Categories are as follows:
1. Category 1: ≥ 19 points
Category 1 Projects meet Valley Water’s objectives to repair/replace its existing infrastructure within certain timeframes, targeting the inclusion of projects with an AMP BRE score that is ≥ 88 and have public health and safety benefits. In addition, projects currently in the construction phase or externally mandated (required by law, regulation, federal order, lawsuit, etc.) are automatically included in Category 1.
2. Category 2: 13-18.5 points
Category 2 Projects meet Valley Water’s objectives to repair/replace its existing infrastructure within certain timeframes, targeting the inclusion of projects with an AMP BRE score between 76-87 and have public health and safety benefits.
3. Category 3: ≤ 12.5
Category 3 Projects have a lower risk of failure and an AMP BRE score of ≤ 75, which includes existing infrastructure projects and new infrastructure projects, as identified/prioritized in Valley Water’s Master Plans and Program Plans. In addition, small capital improvement projects and placeholder projects are automatically included in Category 3.
Valley Water’s CIP Five-Year Plan includes projects that meet the criteria for all three Categories, all of which are critical to meeting Valley Water’s mission. In alignment with Ends Policies, the Board may approve the funding of projects in any category.
Each of the Initially Validated/Unfunded existing infrastructure projects have been ranked based on points received according to the funding filters and BRE scores. New infrastructure projects are automatically placed in Category 3, as referenced above.
Annual Process for Development of the CIP Preliminary Five-Year Plan
Project Plans updated annually. Every year, capital project managers update their project plans to reflect changes to project scope, schedule, and cost. In the fall of each year, CIP and Finance staff compile the data from existing CIP project plans, collect the operational forecast information, and run the financial models.
Board consideration for removal or inclusion of projects in the CIP. As each of Valley Water’s Funds faces constraints due to rising capital costs, staff is introducing a new step in the CIP Development Process. The current CIP FY 2025-29 Five-Year Plan capital projects will be discussed with the Board by Fund and Funding Categories on October 8, 2024. Staff will return on November 12, 2024, to receive input on whether the Board wants to remove any currently funded projects or include any initially validated/unfunded capital projects in the next CIP Five-Year Plan (FY2026-2030). Feedback from the Board will assist staff in developing scenarios for financial analysis and preliminary CIP recommendations.
Staff analysis and recommendations. The CIP Evaluation Team (Chief Executive Officer (CEO), Assistant CEO, Chiefs and Deputies of the divisions initiating, delivering, implementing, and operating capital projects) will then meet in November to consider the Board’s feedback and review the financial models. The Team will determine which, if any, unfunded projects should be recommended for inclusion and whether any of the currently funded capital projects should be recommended for removal or placement on the unfunded list, for the next CIP Five-Year Plan being developed.
To ensure Valley Water’s high-priority business needs are met in adherence to Board policy, the CIP Evaluation team reviews the projects based upon:
• Board Priorities
• Asset’s remaining lifespan
• Available funding
• Urgency of investment
CIP Committee review and feedback. Based upon the outcome of its review, the CIP Evaluation Team will provide recommendations regarding whether any projects should be recommended for inclusion, removal, or placement on the unfunded list, for the next CIP Five-Year Plan being developed. Funding scenarios that include these recommendations will be presented to the CIP Committee for review and feedback in December, along with the CIP Preliminary FY 2026-2030 Five-Year Plan. In addition, the CIP Committee will receive an overview of the significant project plan updates from prior year’s Board-adopted CIP FY 2025-2029 Five-Year Plan.
Board direction. Each January, CIP and Finance staff update the funding scenarios to include staff and CIP Committee recommendations, which will be presented to the full Board during a Funding Scenario Workshop, as part of the CIP Preliminary Five-Year Plan and Groundwater Charges item. Each year, direction regarding capital project funding is provided by the Board through its approval of CIP Preliminary Five-Year Plan.
The Integrated Financial Planning Schedule presented in Attachment 1 (slide 18), provides an overview of all the steps in the CIP Development Process, along with the Water Rate Setting Process, and Annual Budget Cycle.
ENVIRONMENTAL JUSTICE AND EQUITY IMPACT:
There are no environmental justice and equity impacts associated with receiving an overview of the annual Capital Improvement Program Development Process, the CIP FY 2025-29 Five-Year Plan capital projects by Fund and Funding Categories, and the Integrated Financial Planning Schedule.
FINANCIAL IMPACT:
There is no financial impact associated with this item.
CEQA:
The recommended action does not constitute a project under CEQA because it does not have a potential for resulting in direct or reasonably foreseeable indirect physical change in the environment.
ATTACHMENTS:
Attachment 1: PowerPoint
Attachment 2: Initially Validated/Unfunded Projects
UNCLASSIFIED MANAGER:
Manager
Luz Penilla, 408-630-2228