1. Call to Order.
Directors Amoroso, Comstock, Siedman and Smith present; director Godino absent. Director Siedman presiding.
3. BCPUD’s Audited Financial Statements for the Fiscal Year Ended June 30, 2015: Presentation by Lisa Doran, CPA, Doran & Associates.
Lisa Doran of Doran & Associates, the district’s outside auditor, presented the district’s draft financial statements for FY 2014-15. First and foremost, she emphasized the “tremendous impact” of Governmental Accounting Standards Board (“GASB”) Statement No. 68, known as “GASB 68” on the district’s financial statement. Indeed, because of this impact, the district’s financial statements this year will not be presented in a “side-by-side” format with last year’s statements as the comparison would be confusing and not particularly meaningful.
Doran & Associates has issued a “clean” draft opinion about the district’s financial statements, which means they “present fairly, in all materials respects, the financial position of the business-type activities of the [BCPUD] as of June 30, 2015”. The district prepared a “Management Discussion and Analysis” was reviewed and is included in the financial statements. Lisa Doran then mentioned a few highlights of the statements. First, the Statement of Net Position on page 8 reveals that the districts cash declined by approximately $200,000 as compared to last year due to the district’s repayment of an outstanding loan – overall, the district’s debt declined by $431,000 during the fiscal year.
Second, the Statement of Net Position also depicts the district’s net pension liability as of June 30, 2014 (which was $474,834) as required by GASB 68. Lisa Doran explained that this is the amount needed, if all of CalPERS’ actuarial and other assumptions are correct, as of June 30, 2014 to fulfill the district’s obligations to retirees. Director Amoroso asked if the district can pay off this obligation. Lisa Doran advised against it, noting that the net pension liability is a moving target and will fluctuate up and down from year to year based on the pension fund performance and other factors. She noted that footnote 4 to the financial statements, which is four and one-half pages long, explains a great deal about the district’s pension plan and its reporting requirements.
Next, the Board reviewed the district’s Statement of Revenues, Expenses and Net Position, which Lisa compared to an income statement. This page 9 shows the district’s operating revenue declined as compared to the prior fiscal year, due in large part to a reduction in water sales as a result of the drought (and also because of accounting adjustments for water sales accounts receivables at year-end). This Statement includes a new “Prior Period Adjustment” of $572,861, which was necessitated by the implementation of GASB 68. Director Comstock asked whether CalPERS is likely to start dramatically increasing the district’s employer contribution of payroll in order to “pay down” its net pension liability. Lisa said that this is THE question that all participants are asking. Director Smith noted that in footnote 4 on page 18, it appears that CalPERS is assuming a rate of return on investment of 7.5%, yet none of its actual investments are achieving that rate.
Discussion ensued among the Board members, including whether or not the district needs to reconsider its pension plan. Director Comstock noted that the private sector essentially has abandoned defined benefits plans in favor of defined contribution plans to eliminate the risk of unfunded liabilities such as this. Lisa Doran pointed out that CalPERS has been through tough times in the recent past, including the Great Recession of 2008, and it did not drastically hike employer contributions to cover actual plan losses. If GASB 68 was in effect at that time, the amount of the BCPUD’s net pension liability disclosure on its financial statements would have been significantly more than it is in 2015 due to the heavy losses in the market. Also, it is important to keep in mind that because it is the largest pension plan in the world, CalPERS is able to spread risk across a huge pool – Lisa noted that the district’s proportion of CalPERS net pension liability is 0.00763% . Lisa cautioned against reacting too quickly as this is the first year GASB 68 is in effect.
4. Community Expression.