West Basin Municipal Water District – Asset Management System

West Basin appreciates the recognition of the CSMFO Innovation Award and know we are not alone to manage a fast growing capital campaign with no formal procedures in place to record hundreds of assets placed into service, and then dispose them when they are no longer in use.  We successfully leveraged the Operations team efforts to refocus efforts on their CMMS to identify the critical level and condition assessment of each asset.  This level of detail provided the finance staff a roadmap to better identify the useful lives and replacement costs of the individual components, improve financial records and develop a more realistic capital replacement budget. ” – Margaret Moggia, Chief Financial Officer, West Basin Municipal Water District

The District went through a comprehensive process of identifying and separating the individual components of its water infrastructure and equipment so that it can better track the estimated useful lives and replacement cost of individual components.  The value of individual components that had been disposed were removed from the accounting records.  In 2015, the implementation year, the District disposed 236 individual components with a disposal value of $27.1 million.

The District’s change in accounting methodology for recording capital assets created many benefits.  From an accounting perspective, the District’s new methodology has resulted in more accurate financial statements.  When the District’s recycled water facilities were placed in service, the infrastructure was recorded with a 40-year useful life based on industry standards.  Based on actual operating experience, most of the individual components of this infrastructure have experienced a much shorter life.

From a budgeting perspective, the District’s new methodology has provided more accurate data regarding the cost of replacing capital assets.  The District has used this information in the development of its capital budget.  In addition, better understanding of capital replacement costs has also improved the understanding of recycled water costs.  More accurate capital replacement costs have also been incorporated into the calculation of water rates.

The District contributed both financial and human resources in implementing its innovation.  The District spent $250,000 for the system upgrade to separate and record the individual components of its water infrastructure.  In addition, in the implementation year, the District assigned one engineer and one senior accountant for asset assessment and asset management system upgrade projects.  The engineer was dedicated 100% to the project for the implementation year while the senior accountant spent 16 hours per month.

For more information, please contact Wendy Nakamura by phone at (310) 660-6290 or by e-mail at wendyn@westbasin.org.

City of Newport Beach – Excel-Based Pension Funding Amortization Model

“Long-term cash flow modeling is an essential element in making wise financial decisions. For decades, local agencies have focused solely on annual CalPERS rates and have not had the tools to analyze long-term expected cash flows.  This obstacle has severely hampered their ability to evaluate more cost effective payment strategies.” – Dan Matusiewicz, Finance Director, City of Newport Beach

The City developed a model that allows local governments in CalPERS to understand how the default amortization period for CalPERS amortization bases affects local governments’ unfunded pension liabilities.  The model displays the advantages of accelerating payment of the CalPERS amortization bases as soon as they are known.

The City has adopted a pension funding policy that is consistent with many of the core principles espoused by the GFOA Best Practice, “Core Elements of a Pension Funding Policy”.  The model has helped the City to effectively analyze the schedule of amortization bases provided by CalPERS each year and to take action to avoid negative amortization.  The City amortizes all gains or losses over no longer than a 20-year closed period.

The City has used this model to maintain its unfunded pension liability within an acceptable range.  The model was first implemented in 2013.  The City opted to accelerate payment of its unfunded liability by amortizing payments on a fixed declining schedule, rather than the rolling 30-year amortization schedule.  Paying over a fixed and shorter time period helped the City to potentially avoid $113 million of interest expense over 30 years.  Similar actions have been taken in subsequent years as new experience gains and losses are identified by CalPERS.

The City’s model has been set up so that any local government who is a member of CalPERS and a non-pooled entity can use the model to replicate its expected payment on its unfunded liability and select payment terms that best suit the local government.  By using the model in conjunction with consultation with the local government’s actuary, local governments can analyze their payment options with no out-of-pocket costs.  By applying the GFOA best practices that the City implemented, other local governments could experience similar levels of savings.

For more information, please contact Dan Matusiewicz by phone at (949) 644-3123 or e-mail at DMatusiewicz@newportbeachca.gov or Steve Montano by phone at (949) 644-3240 or e-mail at SMontano@newportbeachca.gov .