BOARD OF WATER SUPPLY
COUNTY OF MAUI
JOINT CAPITAL PROGRAMS/FINANCE COMMITTEE MEETING

 
Taken at the David K. Trask, Jr., Building, 2145 Kaohu
Street, Room 205, Wailuku, Maui, Hawaii, commencing at
11:00 a.m. on May 16, 2001.
 
Reported By:  Rachelle Primeaux, CSR #370

ATTENDANCE:
Members Present:
Howard Nakamura, Chair
Peter Rice
Mike Nobriga
 
Others Present:
Jonathan Starr
Kent Hiranaga
Orlando Tagorda

Staff Present:
David Craddick, Director
Fran Nago, Secretary
Howard Fukushima, Corporation Counsel
Ellen Kraftsow, Planning
Mike Quinn, Fiscal Officer
George Tengan, Engineering
Herb Kogasaka, Engineering
 
IWADO COURT REPORTERS, INC.

CHAIR RICE:  The Joint Committee Meeting between
the Finance and Capital Program Committees is now
called to order Wednesday May 16th, 11:00 a.m.
Present Committee Members Howard Nakamura, Mike
Nobriga, Peter Rice.  Also present Board Member
Jonathan Starr, Howard Fukushima, esteemed Corp
Counsel, director David Craddick, Kent Hiranaga.  I
keep forgetting Kent.  And member of the public, Sally
Raisbeck, and staff whose names will be recorded by
the recording secretary.
 The draft budget, I'm sorry, approval of the
minutes, the minutes of the last Joint Capital
Programs/Finance Committee Meeting on March the 5th
were distributed.  Are there any questions, comments,
deletions, changes?  Well, can I have a motion for the
approval of those minutes then?
 
MR. NOBRIGA:  So move.
 
MR. NAKAMURA:  Second.
 
CHAIR RICE:  Moved and seconded.  Any other
comments?  All in favor, say "aye."
 
VOICES:  Aye.
 
CHAIR RICE:  Opposed, say "nay."
 
(No response.)
 
CHAIR NOBRIGA:  Away we go.  Is there any
testimony from the public?
 
MS. NAGO:  Sally, if you could come up here, it
makes it a lot easier for her.
 
CHAIR RICE:  All right.  Sally.
 
MS. RAISBECK:  I decided you needed the benefit
of my wisdom.  I merely wanted to suggest to the Board
that when I was at the previous Capital Improvements
Committee Meeting back, the previous one before today,
I thought how wonderful it would be if in order to
present projects to the Board, you had access or the
Department had access to some project management
software, which I know existed 25 years ago when I
worked for MIT.  And I'm sure it's much, much more
sophisticated now, but it makes it such a clear visual
presentation for any project as to what stage you're
at, what the plan is in terms of months and years, you
know.  It just makes it so much more visually
understandable.  So my suggestion was merely that when
you have, you know, 40 projects, to be able to look at
one page for each and see where it's at is really
helpful.
 
MR. CRADDICK:  That's what this is.
 
MS. RAISBECK:  No, not that.  It shows the
points what has to come before what, the pathway.  I
think there's --
 
MS. KRAFTSOW:  Critical path.
 
MS. RAISBECK:  Critical path.  And that would
help you guys I think a lot.
 
CHAIR RICE:  Very good suggestion, Sally.  Thank
you.  And I think it's appropriate as we review the
budget to look for some little niche where we can have
that.  Okay.  Any other public testimony?  Good. Okay.
 The budget has been distributed in its draft
form.  And we recently received copies of the CIP
budget and some descriptors here.  Let's start with
the operating budget.  Mike, are you ready?
 
MR. QUINN:  Ready.
 
CHAIR RICE:  Okay.  You want to give us a quick overview?
 
MR. QUINN:  I would like to focus on the draft
operating budget that was faxed to everybody on May
10th.  I'm assuming all the Board Members have that.
Okay.  And I'll focus on fiscal year 2002, our
proposed -- the proposed column, which is the far
right-hand column on Page 1.
 Our operating revenue, water sales account for
the line share of our operating revenue, about 98
percent.  Interest income is a separate item.  And
I've projected water sales for fiscal year 2002 to
increase by a little over $2 million or 7.7 percent
over the fiscal year 2001 estimate.  And basically,
how I arrived at that was I've taken the water sales
through April of this year and I estimated sales for
May and June.
 Also, incorporated in that operating revenue in
the water sales figure is a projected increase of
about 2 percent in new services or somewhere in the
area of 576 to 600 new services next year.  So as far
aspirating revenue goes, water sales are about 98
percent of that 29,136,500 figure.  In terms of
interest income, there is a schedule attached to your
package here, and it's Schedule D, and that will show
you how I arrived at projecting the interest income.
One of the concerns I have is that treasury bill
rates, three-month treasury bill rates hit their
lowest point in seven years the other day so we do not
expect -- I think it's reasonable not to expect the
kind of return on our cash balances that we got this
current fiscal year in the last fiscal year.  I
projected 4.5 percent.  I discussed these projections
with the County Treasurer.  It's a guess.  I can't
predict exactly what our return is going to be, but
that's -- that's basically the assumption I made on
Schedule D.
 And I'm projecting $1.1 million in interest
revenue.  Other receipts, the $265,000 is primarily
for sewer billing that we charge for our services that
we -- for the County Wastewater Department Division.
 
CHAIR RICE:  Let's stay with revenue then and
income.  Any questions for Mike on the income section?
 
MR. QUINN:  No, I feel fairly secure with that
projection as far as water sales.
 
MR. CRADDICK:  Mike, this is assuming no change
in the water development fee, right?
 
MR. QUINN:  Yeah, well, we'll get into that more
in the CIP portion.
 
MR. CRADDICK:  This is assuming no rate ranges,
no change in the water development fee, which I highly
recommend the Board deal with that water development
fee because we've lost over a million dollars now in
the last couple of years, and development is picking
up.  That rate is going to pick up.
 
CHAIR RICE:  Mr. Starr.
 
MR. STARR:  Yeah, I was surprised to hear the
500 to 600 new services.  It seems like there's a lot
of construction going on.  Is that a realistic number,
or is it more like a thousand?
 
MR. QUINN:  It has picked up, you're right, in
the past few months, and that could be a conservative
estimate.  It will impact the sales assuming that
those new services are single-family residents that,
and I've assumed that those kind of homes services
consume 36,000 gallons of water every two months.
That's what's built into that summary, but, you're
right, it could be somewhat conservative.
 
CHAIR RICE:  Mike, is the discrepancy between
your projected year end interest income of 1.9 and
your budget, is it all interest rate?
 
MR. QUINN:  No.  Basically, what I do is I take
the projected balances, beginning of fiscal year 2002,
and I take the projected ending balances as a result
of the CIP related funds projection that we're going
to spend down a certain amount of those funds, then
come up with an average balance for the year.
 Now, it could be understated to the extent that
we don't spend down those CIP funds.  That would be
the only area that -- and that's what happened this
year.  We understated our interest, revenue projection
primarily because we did not spend the CIP related
funds, which are the CIP reserve, water system
development, storage and source funding, the funds you
see on your CIP schedules.
 
CHAIR RICE:  Okay.  Any other questions on income?
 
MR. TAGORDA:  May I, Mr. Chairman.
 
CHAIR RICE:  Yes.  Let the record reflect Board
Member Orlando Tagorda.

MR. TAGORDA:  This interest income you've been
stating here and proposing, this interest income comes
from some encumbered funds or money that's in the bank
or money that's supposed to be for capital improvement
projects.  How about those bonds that we have, are
they also included in this interest income?
 
MR. QUINN:  Yes, for instance, the '98 bond that
the Board, the receipts that we got in '98, August of
'98.
 
MR. TAGORDA:  How long do we have to hold that
G.O. bond, '98, to be in compliance with law?  I
believe there are some limitations that when you
borrow G.O. bonds --
 
MR. QUINN:  That's correct.
 
MR. TAGORDA:  -- you have to use it for a
certain job and use it at a certain specific date.
 
MR. QUINN:  That's correct, and in this
particular case, for instance, the '98 bond issue,
after five years, we would be subject to arbitrage.
 
MR. TAGORDA:  That's correct.
 
CHAIR RICE:  So Orlando, Schedule D in your
packet is the list of the his calculation of the
interest income, so it shows you all the income and
the assumption that he's making in terms of interest
earned and how we get to that.
 
MR. TAGORDA:  Thank you.
 
CHAIR RICE:  Any other income questions of
Mike?  Okay.  Mike.
 
MR. QUINN:  Payroll is probably, not probably,
payroll is the primary thrust behind the increase in
the estimating expense versus the projected fiscal
year 2002 proposal expense.  You can see under payroll
we're estimated that we'll come in at $5,922,000
versus a proposal of 7,285,000.
 There is a schedule, I believe it's Schedule B,
which addresses overall variances, and then Schedule
C, which specifically addresses the payroll
variances.  And what we've done is broken down each
division within the Department so that the Board can
see specifically which jobs are vacant, how we funded
those jobs in the proposed fiscal year 2002 budget.
And what I mean by that is you'll see, for instance,
under water plant, we didn't fully fund those jobs.
Some were funded for half a year.  Some were funded
for a quarter, et cetera, so those are the jobs that
are currently vacant.
 I believe the division head, some of the
division heads are here to respond to any of the Board
Member's questions regarding those vacancies.  I can
speak to fiscal.  In my particular case, fiscal
vacancies, I anticipate filling every one of those
vacancies by the end of this fiscal year.  We've tried
to give you comments in terms of the status.
 For instance, in fiscal, the customer relations
assistant job, the first one, a test is being prepared
right now.  We have a list of applicants.  So let me
back up and let the Board know about this process.
It's a little cumbersome and time-consuming.
Basically, we have a vacancy.  So we decide we want to
fill that vacancy.  We have to post that vacancy, I
believe it's posted for ten days; is that correct?
Ten days.  We get a list of applicants.  Personnel has
to look at the applicants to see if they meet what
they call the minimum qualifications.
 If they meet the minimum qualifications, then
they're entitled to take a test in most cases.  In
that personal customer relations assistant job, there
is a test.  They take the test, and then we finally
get the list of the people that qualify based on
whether they passed the test, and then we can
interview.  That process can take easily six months.
That's one of the issues that we have in terms of
filling these jobs.
 
MR. CRADDICK:  If I could make a suggestion to
the Board here.  I know these vacancies were a concern
last year.  I know things are going on in the various
divisions where the number of vacancies that exist
right now, a lot of them may be gone by the end of the
year.  But if the Board would like to, we could move
all the vacancies out to a separate line item, and
when we finally approve the budget, any that aren't
filled by the end of the year, leave them in that line
item.  And if they do get filled by the end of the
year, they go back into the regular portion of the
budget.  And out of those vacancies that are put in a
separate line item, maybe take, and I'm just picking
this number out of the sky, 75 percent of that, leave
it there, put 25 percent in the operating budget,
leave that 75 percent there.  And then when we
actually fill them, just come back to the Board and
let them know that they are filled at that time when
we're able to do it.
 Or if we're going to do it, I don't even know if
you want to go that far.  If you want some approval
process before we fill it, that's possible, too.
 
CHAIR RICE:  For my fellow Board Members.  Last
year, this was an issue because there was a large
number of unfilled positions and partly because of the
process that Mike explained where it takes a long time
to actually get somebody hired and partly because we
didn't have a lot of applicants for jobs.  We agreed
to leave it in the budget for review again this year.
But one of things we did last year, and you'll see on
that Schedule C that there is a notation in
parentheses there, half pay, quarter pay, because
we're anticipating filling the job, but we know it
won't -- it will take a while, so the budget only
reflects that portion of the year where the person
would be hired.  I think not so much that we approve.
 I mean these jobs are necessary for the
operation of these departments, but I would like to
see us pull those, all those unfilled positions out,
put them in a separate line item, and at least as
they're filled, we're notified so we get a better feel
for the process.
 So we're not reducing the budget.  We're taking
that section out and, in effect, monitoring it more
carefully.  There are -- there's a couple of jobs I
believe that where the offer is being made right now
where we could put those into the regular payroll line
item, but at least in this case as these jobs are
filled, we'll be notified, and then they'll be moved
into a regular payroll line item.  I think that's a
good suggestion.  Yes, Mr. Nakamura.
 
MR. NAKAMURA:  So on Schedule C, other than
those that you've identified as quarter pay or half
pay, this amount for payroll assumes that all of the
other positions would be funded for the whole year?
 
MR. QUINN:  That's correct.
 
MR. NAKAMURA:  And the second question is is
there any expansion provided for in the payroll?
 
MR. QUINN:  No, no expansion jobs.  I should
make my previous answer, under engineering, and the
Board already discussed this open engineering
position, Program Management, that's not noted, but
that's half pay.  But no there are no expansions.
 
MR. NAKAMURA:  Full year's pay, no wonder we
can't recruit an engineering program manager.
 
CHAIR RICE:  That's what I thought.  Now, I
assume the issues of -- I'm sorry, the other issue was
that, Mike, the payroll increase, wage increases are
per contract in here?
 
MR. QUINN:  That's correct.
 
CHAIR RICE:  And as well as the benefit
increases are all per contract, and that's calculated
based on the existing staff?
 
MR. QUINN:  Yeah.
 
CHAIR RICE:  Bargaining unit staff, right?
 
MR. QUINN:  Actually, it's based on the payroll
number, and what we did is we projected a 7 percent
increase, which amounts to approximately a 4 percent
increase that's related to contractual obligations and
3 percent for what we call step increases where people
move up and get an increase because, primarily because
of time in their job.
 
CHAIR RICE:  But that's not 3 percent across the
board because everybody is not stepping, right?
 
MR. QUINN:  What we do is we're using the
overall 7 percent number, which is the number the
County is using, and it is across the board.
 
CHAIR RICE:  Well, that --
 
MR. QUINN:  So it would be, it would be inflated
to the extent that not everyone is going to get it,
but we did a, when Holly ran a line item schedule for
each employee, it came very close to overall 7
percent, so we went along with the County's number.
 
CHAIR RICE:  Well, we don't have to do something
because someone else does it.
 
MR. QUINN:  It's reasonable.
 
CHAIR RICE:  Okay.  But it's reasonable, okay.
 
MR. QUINN:  Now, I will, also, your employee
benefit numbers are inflated to the extent that we
don't -- if we don't fill all those jobs, then we
won't incur some of those expenses, employee benefit
related expenses such as health benefits, things like
that, because the way those items you see on that
variance sheet, we apply a percentage to the overall
payroll, which is consistent again with the way the
County does it, and that's what we will get charged
from -- by the County for those employee benefit
expenses.
 
CHAIR RICE:  The County will charge us employee
benefit expenses for the employees that are currently
in place, not for this list of employees?
 
MR. CRADDICK:  And retirees.
 
CHAIR RICE:  And retirees, right.  But not for
this list of to be hired?
 
MR. QUINN:  No, we will get charged for that.
 
CHAIR RICE:  Once we hire, right.
 
MR. QUINN:  Because they take our payroll, and
that's how they charge us whatever our payroll is.
 
CHAIR RICE:  Questions on payroll or staffing?
Yes, Orlando.
 
MR. TAGORDA:  Mr. Chair, again, Mike, would
there be any other way for these Departments not to
budget money for these future employees, and as they
are filled in -- as you fill in the vacancies, you
come in to the Board for complete salary and employee
benefits?  Because actually, we don't, we're not sure
whether these vacancies is going to be filled in this
fiscal year or next fiscal year, so avoiding too many
numbers for those vacancies to be filled in, you know,
why don't we just not put money on those vacancies.
And when you fill it up, we come -- you guys come to
the Board and we put budget on it.  We put money on
those vacancies.
 
MR. QUINN:  You could do that, but I --
 
MR. TAGORDA:  That's one way of trying to make
your -- the Department, you know, budgetary thing.
 
CHAIR RICE:  Well, I hear what you're saying I guess.
 
MR. CRADDICK:  I don't think you want to amend
your budget month by month.
 
CHAIR RICE:  That's why I asked for it to be
pulled out into a separate category so that we would
know about it.  But we're supposing now, what
Orlando's question brings up is a question of need.
We're assuming that we need all these positions, and
if that's the assumption we're making, even by moving
them into a separate category, his question then
really is do we need all those positions.
 
MR. TAGORDA:  Can you fill up those positions at
one time, the same time, this fiscal year?
 
MR. QUINN:  In my case, I intend to have them
filled by July 1, so those first four or five, you can
see we just hired somebody, first of all.  We're
interviewing waiting for the personnel.  So those jobs
are imminent, and I don't know about -- the other
division heads aren't here to speak in terms of how
quickly they can -- they all have different issues in
terms of hiring.
 I know the water treatment plant has trouble
getting qualified people.  That's a constant problem
they have.
 
MR. TAGORDA:  Sometimes it takes six months or
more to get all these employees to fill in those
vacancies.
 
MR. QUINN:  But I think it doesn't accomplish
exactly what you want, but the recommendation that we
have a separate line item for these vacancies allows
the Board to track it and see the effect of it.
Certainly, there's no -- I don't think we've had any
expansion positions for a long time, so we continue to
operate with a, quote, authorized amount of jobs than
we've had for years.  It's just a question of filling
these vacancies.  I know it's been a problem with the
Board before.  That's why we tried to itemize each one
of these jobs to let you know precisely where those
vacancies are, and if you have a question as to
whether the vacancy is needed, the division heads can
respond to that if you want.
 
CHAIR RICE:  Well, this is a committee meeting
and we're having a workshop tomorrow, which I hope
you're going to attend on the budget, so the committee
heads might be prepared if that question comes up
tomorrow during the budget workshop as to the need for
the positions that are hired because you have gone a
while without them.  That doesn't mean you don't need
them.  You just might think about that in case it
comes up.
 
MR. QUINN:  And I might -- I might add that
we're projecting overtime to be lower than this year's
budget and we are on budget for overtime because that
was an issue also last year.
 
CHAIR RICE:  Okay.  Thank you.  Okay.  Materials
and supplies.  And understanding that we're going to
have a budget workshop tomorrow, let's go over these,
you know.
 
MR. QUINN:  My only comment with materials and
supplies is that the primary increase is for
chemicals, and that's due to the upcountry corrosion
control regime that we anticipate buying the chemicals
for that, for that item.  And then the other items,
which are of lesser importance are listed under that
Schedule B.  And I'm not sure it would -- the increase
is not material once you exclude chemicals, and I'm
not sure it warrants going into a detailed explanation
of every dollar unless the Board wants us to under
materials and supplies.
 
MR. NAKAMURA:  Mike, I don't understand that
Schedule B, so under materials and supplies, there's a
total that comes out to 358,000.  What is that
358,000?
 
MR. QUINN:  That should be the variance between
what we're estimating we're going to spend this year
and what we're proposing to spend next year.
 
MR. NAKAMURA:  So these are the additions?
 
MR. QUINN:  Yeah, and that's the explanation,
chemicals, the $1,000.  The majority of that is that
upcountry program.  And the division heads will be
prepared tomorrow to respond to any other variance
explanations if the Board so wishes.
 
CHAIR RICE:  I would just make a comment for
tomorrow, the $22,000 in postage is a lot of postage
for something, difference.  We're not talking about an
annual cost.  We're talking about additional cost of postage.
 
MR. HIRANAGA:  May I ask a question.
 
CHAIR RICE:  Yes.
 
MR. HIRANAGA:  How would this current meeting
differ from tomorrow's meeting?
 
CHAIR RICE:  Not much.  I didn't know -- in our
past meetings, we didn't have the attendance of all of
our esteemed other members, and I don't want to resist
them or hold them back from asking questions at all.
Some of the same questions will probably be asked
tomorrow.
 
MR. HIRANAGA:  I guess I'll excuse myself.
 
CHAIR RICE:  Okay.  How do you rate us?  He's
proctoring this committee.
 
MR. TAGORDA:  Show up tomorrow.
 
MR. NOBRIGA:  Tomorrow will be more lively.
 
MR. STARR:  What I see here is I see a budget
projecting us to lose about a million seven.
 
MR. QUINN:  I'm sorry, Jonathan, where are you?
 
MR. STARR:  I see a projected loss of a million
seven here unless there's an emergency which would add
to that, you know, unless I'm reading it wrong.  We
would go into 2002 with $4 million in capital,
$3,953,000 in cash.  I'm a cash guy.  And, you know,
we would project to end the year with $2,370,000 in
cash.
 
MR. QUINN:  Yeah, I was going to address that.
 
MR. STARR:  So we're projecting a loss of a
million seven in actual cash.
 
MR. QUINN:  Assuming we transfer 4 million to
CIP, which is an option the Board does not have to do,
since we don't need $4 million in the CIP budget,
which we're going to discuss later.  I was going to
leave that as a possible option for the Board if they
wanted to increase that working capital emergency fund
because we're going to end up with over $2 million in
excess cash balances in the CIP reserve account, which
is where that $4 million will get transferred to.  If
the Board sees fit to just transfer $2 million, then
you would end up improving.
 
MR. STARR:  Three-hundred ahead.
 
MR. QUINN:  Yeah, we would be ahead.
 
CHAIR RICE:  But I don't think you do, because I
think the problem we get with this system of
accounting that I dislike intensely is that we're
playing with the numbers.  We're not looking at our
actual operating costs versus capital.  And the fact,
what Jonathan's observation is true overall, our cash
position is down, but it has to do with assumptions
we're making down here about emergency and capital
improvements.
 
MR. QUINN:  That's right.
 
CHAIR RICE:  Right.  And what we ought to be
looking at is our operating.
 
MR. STARR:  What we really need.
 
CHAIR RICE:  How the operating performs year to
year, and if the operating is a loss, then we need to
look at operating budget and not capital improvements
or our emergency fund necessarily.  I think that's an
absolute wrong way to look at it, and so I know this
is the system.  And maybe this is why Government
sometimes has problems, but we have to -- we are
responsible for managing this thing correctly.
 
MR. STARR:  You're right.
 
CHAIR RICE:  And I had struggled with that last
year as the Finance Chairman.  Didn't we kind of
juggle the numbers around?
 
MR. QUINN:  That's why you -- at your
suggestion, we segregated the below the line expenses,
which I think was helpful.  Because you do get a true
picture of your expenses, you know, current operating
expenditures.
 
CHAIR RICE:  Yeah, so our operating, our net
before other expenses, our true operating profit is
6.9.
 
MR. NAKAMURA:  More like 3 million.
 
MR. CRADDICK:  No, no.
 
MR. STARR:  No, a lot of those items are we have
to pay like refunds on lines and equipment and so on.
 
MR. CRADDICK:  The one big thing you're missing
off there is the appreciation on your operating cost.
You put that in, and that number goes real negative.
 
MR. STARR:  But that's what the transfer is
supposed to be is to equalize the depreciation.
 
CHAIR RICE:  And that's why I'm getting to that
is because as we talked about this last year, and we
now have the study which says what the capital reserve
should be, which is almost the equivalent of
depreciation now.  This number is too small.
 
MR. STARR:  It should be eight, right?
 
CHAIR RICE:  I think we saw that presentation,
seven or eight, something in that range.
 
MR. CRADDICK:  Keep in mind, that's depreciation
of old dollars, not replacement cost.
 
CHAIR RICE:  Right.
 
MR. CRADDICK:  Yeah, that's a very good
observation.
 
MR. STARR:  So maybe we should plug eight in there.
 
CHAIR RICE:  Well, no, I hear what you're
saying, but it brings into another question is if we
actually have the correct number in there, and let's
say we have the money, we can't do that many projects
in a year.
 
MR. STARR:  Well, the thing is unless we can
show need, we can't get it.  That's been our problem
in the past.
 
CHAIR RICE:  And I'm thinking about the end of
our five-year rate increase and our need to go back
for -- that's a good point.  The $100,000 chemical
cost that's the big number in the supplies is
required?
 
MR. QUINN:  Yes.

MR. CRADDICK:  A good portion of that is lead
and copper, too, that we're not doing this year.

MR. QUINN:  Paul is here from the treatment
plant.  He can address the corrosion control issue.
 
MR. SEITZ:  We were mandated by the State to on
or about June 1st start the addition of a corrosion
control inhibitor into all three of the upcountry
systems.  This is in compliance with the lead and
copper rule.  We're using a zinc orthophosphate.
That's going to cost approximately $76,000 in material
on an annual basis, plus there's some equipment and
some testing and monitoring charges that go along with
that also.
 Additionally, we just bid out the aluminum
chlorohydrate for next year also, and that has had a
significant increase as well, so that's basically what
makes up the 100,000.
 
CHAIR RICE:  So essentially it's required, so
it's not really an option.
 
MR. SEITZ:  That's the short answer, yeah.
 
CHAIR RICE:  But as we look at the -- you know,
there's $358,000 of variance in the materials and
supply category, which is 15 percent.  And in
business, you know, you don't cut 15 percent in
revenue and you don't come in with 15 percent of
increased expenses.  That would be the message in the
departments.
 A mandate from EPA or something relates to
corrosion control.  Well, we have to figure that out.
But to the extent that people have wish lists in the
budget and we're looking at $1.7 million differential,
I think we have to look at it very carefully.
 And I don't know, it's kind of hard, Mike, I
assume that if we had the estimated year end next to
your total budget and the materials and supplies, we
would come up with these variances that you're talking
about in your Schedule B?
 
MR. QUINN:  That's correct, that's right.
 
CHAIR RICE:  That seems to me to be a lot of
explaining to be done, huh?  Office, in the Schedule B
under office where it says $27,000 variance, is that
in office supplies?
 
MR. QUINN:  That's correct, yeah.
 
CHAIR RICE:  So that means that's -- my math is
not that good, but that's 20-some percent.  That's a
lot for office supplies.  What's in there?
 
MR. QUINN:  We're doing more copying and I think
it's in-house as opposed to --
 
CHAIR RICE:  Well, if we're doing them in-house
and it's causing our costs to go up by 20-something,
30 percent, then maybe we shouldn't be doing them
in-house.  I mean I'm just making general comments,
but I'm feeling that where we have such large
percentage increases, there needs to be a good
explanation, and the answer needs to be known.
 
MR. QUINN:  Okay.
 
CHAIR RICE:  Right?
 
MR. QUINN:  We can do that.
 
CHAIR RICE:  It's not wish list.  It's real
stuff.  I'm not picking on you, Mike.  I'm making the
comment for the benefit of everyone sitting here.
 
MR. QUINN:  Essentially, what we do is we sit
down with the division heads after we have December's
numbers, half a year's expenses.  And we show them
where they are for a half a year, and we ask them to
project the balance of the year and then project what
their needs are for the upcoming fiscal year, and that
process goes on for about three months or so before we
come up with this budget.
 Obviously, the closer we get to the end of this
fiscal year, the better we can do in terms of
estimating our expenses.  But I can be -- we can be
prepared to explain each one of those items, which
division is going to incur those expenses and for what
particular purpose if the Board asks those questions
tomorrow.
 And I agree, they -- we have all those schedules
here.  I didn't hand them out to the Board, but it's
quite a -- and then we have several books, about two
or three feet of books that outline all those
expenses, but if the Board questions any one of them,
we can tell you exactly where the expenses have been
incurred and which division is projecting and a
division head will be there to respond to exactly why
they projected an increase in that particular
expense.
 
CHAIR RICE:  Well, I think if we just said,
okay, we take the variances on Schedule B, I think we
need to be prepared to explain them.
 
MR. QUINN:  I agree.  I'm prepared to do that
today if you want.  It's just going to take quite some
time.
 
CHAIR RICE:  What's the pleasure of this group?
 
MR. NAKAMURA:  Mr. Chairman, question.  What
kind of a schedule are we going to generally have to
follow?  Is the intent to finally approve the budget
at the last meeting in June, or are we going to be on
some kind of, you know, what is our schedule?
 
CHAIR RICE:  Our schedule is to have the
workshop and then to have the budget approved subject
to public -- no, we have to send it to public hearing,
and then it comes back for final approval.
 
MR. NAKAMURA:  So presumably, does that work for
you, the regular meeting in June?
 
CHAIR RICE:  Presumably, after the workshop
tomorrow, at the Board meeting next week, we would
recommend that the budget as it is or as amended would
go to public hearing.  And we would schedule public
hearing, and then we come back and propose a final
budget for Board approval.  That's the schedule.
Mr. Starr.
 
MR. STARR:  Mr. Chair, I would like to recommend
that we look again at the Brown & Caldwell model and
to see what our real depreciation should be and that
we consider plugging that number into our budget even
if it might show a large loss.  I think that's, you
know, that's real.  If you're in business, you have to
take into account your replacement costs and
depreciation, otherwise, you'll be out of business.
 So I think if we can pull that out again and
decide on a number, plug it in here, then we'll end up
in a much more realistic view of what we have to
achieve, whether by cost cutting or by increasing our
revenues.
 
MR. QUINN:  Our financials show the
depreciation, all the financials that you get every
quarter in the annual report.
 
MR. STARR:  What's our annual depreciation?
 
MR. QUINN:  It's over $8 million.
 
MR. STARR:  Okay, there you go.
 
MR. QUINN:  So this is a cash budget.  So we're
dealing only here with predicting how much cash we
need to run our daily operations, but I understand
the --
 
CHAIR RICE:  Theoretically, that would be cash
that we would need if that schedule was right and we
believe that it's right.  And if we had the staff and
the resources to do the replacements on that basis,
that would be real cash that was needed.
 I agree with Mr. Starr, I think that's going to
be important as we get to the process of rate
increases.
 
MR. QUINN:  That Brown & Caldwell study, as I
recall, I don't have it in front of me, predicts
something near $4 million for next year.
 
CHAIR RICE:  Well, let's take it out, and we'll
look at it.
 
MR. STARR:  No, I think we plugged 4 million in
there to see what it looked like, but I think what the
model wanted to show us was somewhere around 8
million.  That's where it wanted to go.
 
MR. QUINN:  Eventually yes, but for next year,
his schedules predicted $4 million, but however, one
of his points was how much money do you need to be
putting in that thing to meet the higher requirements
that are upcoming?  And if we just contributed $4
million for the next two years, as he says, the tank
in 2004 or something like that.
 
MR. STARR:  Yeah, which I don't really think is
a responsible way of doing it, of going about it.
 
MS. KRAFTSOW:  Remember he was talking about the
Nessie Curve, Jonathan, where there's sort of phases
of development and your replacement costs can go up
and down with those phases, so there really are
periods where you don't need to.  And if we started
putting away like just the average, remember, he
showed that huge surplus that we would build that
would totally interfere with our ability to get the
rates and funds that we need, so it's kind of a tricky
balance.
 
MR. CRADDICK:  Can I put my two cents in.
 
CHAIR RICE:  Yes.
 
MR. CRADDICK:  Again, the Board has had the
water development fee for two years still not dealing
with that.  We know the big area where we're losing
money, and that's when we're pumping water upcountry
during drought to keep the reservoirs full.  I'll
leave that up to you guys whether you think that's
continued good policy if you're going to try to raise
the money to cover those electric costs, but those are
real expenses.  Something we can do and need to do,
we've got one more year on the rate increase, so we
really have I would say a year to talk about what
Jonathan is talking about.
 The likelihood that you're going to do a rate
increase during an election year is minimal, so to do
that right now in light of these other things, which
you probably can do, it would be my recommendation to
deal with issues, you know, that are before you rather
than one that doesn't hit until next year or three
years down the road.  And we're going to have to gear
up for that.  I mean we all know it's coming, but it's
not on us right now.
 And if you look at the strategic plan issue,
there's a lot of things on system expansion that we
are going to have to deal with, and we really need to
get that water development fee and review it.  Our
system has more than doubled in size since that fee
was implemented.
 
CHAIR RICE:  I understand.
 
MR. STARR:  First of all, I want to thank you
for letting me participate.  I think we have to be
very careful in keeping the water development fee and
capital improvement issues separate from operating and
rates.  I think that we have two very separate
functions, and I think by law we, you know, if we did
raise the water development fee, which I believe we
should do, that would be really in relation to water
development projects.
 But it won't help us and I can't see it as
helping us in terms of our operating structure.  We
have to keep our operating structure dependent
particularly on our operating revenues, and if we were
to commingle the two, then I believe that we would
be -- we would be getting ourselves in serious
trouble.
 
CHAIR RICE:  Yeah, I'm a firm believer in
looking at the operating side.  The other thing I
would like, Mike, we had talked about this working
capital emergency fund.  And because you're trying to
budget, I mean balance this budget as zero, you did,
you reduced that number, huh?
 
MR. QUINN:  Yeah.

CHAIR RICE:  Right?
 
MR. QUINN:  Yes, correct.
 
CHAIR RICE:  And the only thing that was changed
because you were trying to get the zero budget, right?
 
MR. QUINN:  Well, and also the assumption that
you're going to transfer $4 million into CIP.  As I
said, you don't need that next year if you approve the
CIP budget as it stands now, so that's a big
assumption, that $4 million.  If the Board wants to do
that, fine.  Because you would have the option of
keeping that in your emergency fund and transferring
that if and when you need it.
 
CHAIR RICE:  And I bring it up because I want
the Board Members to think about if we establish an
emergency fund and we fund it, then we ought to leave
it alone or we have to decide what's our priority.  We
say -- if we really think there's a need for an
emergency working capital fund, then we fund it, and
that's it.  It doesn't become, oh, well, that need
becomes less this year because we want to do something
else or because we've got a problem, right?
 So if we say the number is 3.5, then the number
is 3.5 and it's 3.5 forever and it's untouchable.  The
thought, think about that.
 
MR. STARR:  I think our problem is that, you
know, I see two lines I think should be stricken from
this, which is the beginning balance shouldn't be part
of our total.  We're looking at the total resources
but, you know, beginning balance is not -- is not a
revenue or it's not an income or an expense.  It's
just money sitting in the bank.  So to my mind, that
should be stricken, and then the working capital
should be stricken.  If there's an emergency fund,
that's another matter.  But really, you know, the
working capital is an attempt to replenish the balance
for the next year, but they shouldn't be in a cash --
on a cash sheet like this.
 
CHAIR RICE:  Yeah, that's the system.  We had
the same problem last year.
 
MR. QUINN:  But we do need working capital.  We
need our monthly cash flow, and we estimate that as
around $2 million we need and we keep in our revenue
fund, so that's absolutely essential.
 
CHAIR RICE:  It's a balance sheet.  I understand
what you're saying.  It is essential.  I don't think
he's saying it's not essential.
 
MR. STARR:  We need the money somewhere.
 
CHAIR RICE:  But it's the presentation we're
talking about.
 
MR. QUINN:  That's why we did that last year.
We put it in that category.
 
CHAIR RICE:  The other reason for the emergency
fund is if we were to have a hurricane, we calculated
how much money we would lose from water service for
not being able to provide water, so that was part of
that.  And then we would still have expenses, so we
had to have an emergency fund for that, so those two
numbers add up to something.
 
MR. QUINN:  That's right.
 
CHAIR RICE:  And typically, it would be on a
balance sheet.  It wouldn't be shown on an operating
statement.  I know what you're saying.  Okay.  Let's
-- maybe we're getting into a lot of this stuff we're
going to talk about tomorrow.
 Let's try and give some feedback from the
committee to Mike so that if there's anything else we
want him to be prepared for tomorrow when we have our
workshop.
 
MR. QUINN:  One thing I hear is the message that
we should be prepared to explain any of the variances,
and we are.
 
CHAIR RICE:  Big variances, not every variance.
If there's a 5 percent variance, I'm not so sure we
need to spend time on that.  But just, for example, I
used office supplies.  If I used the $74,000 budget,
and it's increased by 27, that's a big number for some
reason, right.
 
MR. QUINN:  And what we do is according to
schedules, my division as to what their expense will
be this year and why we're proposing for the proposal
for the upcoming year, so there are schedules that
we'll have available.
 Now, but I'm glad the Board brought that issue
up because I just wanted to point that out regarding
the transfer of the capital replacement fund.  I just
wanted you to know that you do not need the $4
million.  You need $2 million next year, not 4
million.  But it's your option again whether you want
to keep it in the working capital emergency fund or
transfer it later or whether you want to authorize us
to transfer it into the CIP reserve fund.
 
CHAIR RICE:  Mr. Nakamura.
 
MR. NAKAMURA:  Mr. Chairman, I agree with you
that we should set a number for the working capital
emergency fund, and that is the number that remains.
It's not, you know, what's left over for that
particular year or whatever.  And at the same time, I
agree with Jonathan that we need to also set aside a
fixed amount each year for replacement of our existing
facilities.  I think the real question that has come
up though is when we do that, can we actually
implement those projects on a timely basis during the
year because that seems to be at this point anyways,
difficult.
 
CHAIR RICE:  And I -- yes, but if we know, if we
believe that model is correct or if it's 95 percent
correct, we need that money to do those replacements,
right?  So it has to be part of our accumulation of
cash.  If we don't happen to get to all those projects
in a year, that doesn't mean that that replacement
doesn't need to happen.  Maybe, okay, maybe that
useful life is maybe one year better or maybe one year
less, and the next year we may get caught with a bunch
more.  But if we don't provide for that funding for
that amount of money, then we're going to get caught
somewhere.
 
MR. NAKAMURA:  Right.
 
CHAIR RICE:  And I think that's the point he's
trying to make.
 
MR. NAKAMURA:  And I agree with that.
 
CHAIR RICE:  And I agree with that, too.
 
MR. STARR:  Can we have that modeled tomorrow?
 
MR. QUINN:  Here it is.  The driving force is $4
million.  Fiscal 2000, 2001, 2002, a little bit over 4
million; 2003, a little over 6 million.  That's why
the $4 million is here.  It's in concert with what
they told us, but I just wanted to tell the Board they
don't have to do this this upcoming year if, in fact,
the priority is to increase or standardize the
capital, the working capital emergency fund.  That's
the decision that you make.
 
CHAIR RICE:  But the problem is we're going to
have to make up that money in the subsequent year, so
I think we understand it's our prerogative, but I
don't know that would be the wise prerogative.
 
MR. QUINN:  And you only have so much money to work with.
 
MR. STARR:  My recollection of the model was
that was the way it started, and after we looked at it
for a while, we found that if we increased it
initially, we would end up with the thing spiking in
five years, and that that was, you know, that that
was, maybe 4 million isn't really enough, that it
really should be 6 million or 7 million.
 
MR. QUINN:  That's right.  It isn't enough to
sustain you over a long period of time, that's correct.
 
MR. STARR:  I'm looking to try to create a
framework that will sustain us for a long period of time.
 
MR. QUINN:  And that's where rates come into effect.
 
CHAIR RICE:  You might have that computer with
the model here.  Do you have it on a laptop that we
could just bring?  We'll, I'm not sure we will have to
make a decision by tomorrow anyway.
 
MR. QUINN:  I could bring the relevant, like
Ellen here has the relevant copies of those screens,
so that could be made available.  It's in your package
I think somewhere.
 
MS. KRAFTSOW:  It's in your Finance Committee
Meeting packet.

MR. QUINN:  Finance Committee Meeting packet,
the whole replacement model.  It's in front of you, so
you can see.
 
CHAIR RICE:  Having reviewed, okay, let's try
and move along here.  Having reviewed the budget, is
there any other questions that anybody would have or
so that Mike can be prepared and staff for tomorrow's
meeting?
 
MR. NAKAMURA:  Just one comment, and I don't
know if you can necessarily do it for tomorrow's
meeting.  But we've had requests from Board Members to
be able to relate some of the major proposed capital
improvements to invoke the community plans and the
strategic plan.
 
CHAIR RICE:  I have a question.  In terms of
professional services under planning, all these
projects were schedule -- no, it's just the
professional services.
 
MR. QUINN:  Those are essentially Ellen's projects.
 
CHAIR RICE:  Well, were they in the budget last
year, and if they are new projects, I think we need to
know which ones are new.
 
MS. KRAFTSOW:  Do you want that right now?
 
CHAIR RICE:  Miconia removal for 100,000 was not
in the budget last year.  It was 20 I think.
 
MS. KRAFTSOW:  No, it was 100.
 
MR. QUINN:  Yeah.
 
MR. CRADDICK:  I'll tell you something else on
that, too.  The County put in 200, and they're
expecting we're going to do the same for matching
funds.
 
MS. KRAFTSOW:  Yeah, they called and asked if we
would increase it to 200 because they're finding that
miconia is getting out, and it's an emergency
situation.
 
MR. STARR:  The State.
 
CHAIR RICE:  That's because of the State cut, is
that why?
 
MR. STARR:  No, it's getting out.  What they're
doing isn't working.
 
CHAIR RICE:  If you know quickly, what's on here
that wasn't on here last year?
 
MS. KRAFTSOW:  Yeah, the matching funds for
protocol for invasive weed identification, and the
allowance I think was there, too, in case we needed
it.  The research facilitation of services for the
wellhead protection program, but that's EPA funded.
That's part of the grant, so we have to show it in our
budget, but actually, it's part of the $70,000 grant
that you guys already approved for us to get from EPA.
 So although it's showing in our budget, we have
to show it in our budget, it's money that's coming
from elsewhere.
 
CHAIR RICE:  Mike, then you would have a revenue
source for that?
 
MR. QUINN:  Which one?
 
CHAIR RICE:  You can't have an expense that's
not ours but without having the revenue source.
 
MS. KRAFTSOW:  It's one of those grants where we
spend it and we bill EPA.
 
CHAIR RICE:  Yeah, I understand.  I'm just
telling Mike you can't have the expense in there and
balance to zero budget if you're getting 70 grand on
the other side.
 
MR. QUINN:  Okay.  I'll look at that.
 
CHAIR RICE:  I'm just trying to -- all I'm
trying to do is give comments to Finance so we can be
more prepared for tomorrow.  So that's the question.
 The next question is Mike did a schedule for you
on damages and claims.  We're self-insured, and last
year when we were doing the budget, we thought it was
appropriate in terms of trying to figure out what the
budget figure ought to be is to go back five years and
do an average.  And that's how he arrived at the
100,000, and there's a schedule that shows you that.
 And I just, and it's 100,000 because of this
some claim and settlement in 1997 for 457,000.  So if
we're looking for dollars, at some point, that's
certainly something to think about.
 
MR. QUINN:  Also, the base yard rental, we
haven't paid that.
 
CHAIR RICE:  I know.  That base yard rental was
in last year and we didn't pay it, and it's back in
again.  Has anything happened with regard to that?
 
MR. QUINN:  Nothing.
 
CHAIR RICE:  Nothing.
 
MR. QUINN:  So we can take it out?
 
CHAIR RICE:  We'll talk about it tomorrow.
Yeah, but I saw it.  I understood that.  Is there
anything else that anybody wants to direct Mike and
his staff to before we -- no.
 
MR. NAKAMURA:  One thing on the capital, Mike,
I'm kind of curious, the projects that are, when we
discussed capital, the projects that are in the
budget, which are the ones that are carry-overs from
prior years?  It looks like an awful lot of them are
this year's projects that haven't been implemented.
 
MS. KRAFTSOW:  Can I ask you a question for the Board.
 
CHAIR RICE:  Yes.

MS. KRAFTSOW:  We have this field on the top
left corner here that says program that's like Board
Program.  It goes back to those old Bob's bullets
where the Board made a list of priority things like
safe drinking water.  At one point, we took the
strategic plan to try and figure out if we could come
up with a new set of bullets or Board priorities so
that there would be the match right there on the
sheet.  And we didn't come up with anything really
different than the current system, but if the Board
would want to see something on these print-outs on a
regular basis that comply with strategic plan, some
kind of formulated thing or if you just want --
 
CHAIR RICE:  You have to show it what was done
before.  It sounds like a good idea, but I need to
look at it.
 
MR. QUINN:  So on the capital projects, what are
carry-over, anything else?
 
CHAIR RICE:  Okay.  Anything else?  No, yes,
no?  Okay.  Then we'll see everybody tomorrow at the
workshop.  Joint Finance/Capital Programs Committee is
adjourned.
 
(The meeting adjourned at 12:00 p.m.)
 
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