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GLWA, Capital Planning Committee
john zech
Is your person Brown? I'm here to recording in progress. Directors act here and director Miller is excused from today's meeting.
Gary Brown
Okay. All right. Let me see if I can pull up the agenda unless you can pull it up for me. You haven't Rashanna
Gary Brown
was trying to run. Okay. All right. Yeah. All right. Yeah. All right. We've had roll call, can I get approval of the agenda?
john zech
So move the agenda for today's meeting. Okay,
Gary Brown
I'll second it. Here. No objections. As approved approval of the minutes October 17 to 20.
john zech
We're moving approve the minutes so about the last meeting apple 17.
Gary Brown
I also seconded No objections is through public comment. Although we're not required. We offer the opportunity for anyone that might want to raise their hand and have public comment. Yes, but this time I see no hands up. So a second call would be in order. Okay, I'll make a second call anyone that might be on the line that would like to make public comment. Please raise your hand.
Unknown Speaker
Mr. Chairman, no hands up.
Gary Brown
Hearing and seeing none. We'll close that portion of the meeting and move into communications which I see a page one but I don't see anything there.
Speaker 4
No, Mr. Chairman. There are no communications for this committee. This committee. Okay.
Gary Brown
No business. We'll move directly into new business capital improvement plan discussion draft number two. I'm sure that's going to be Dima
Speaker 0
or Jody. You know, kick us off, maybe well, Dima pulls up the presentation here. gonna stop sharing
Speaker 0
Well, good morning. I'm Jody Caldwell, Chief Planning Officer for the Great Lakes Water Authority. The CIP delivery team, we're excited to present to you the discussion graph number two of the fiscal year 25 to 29 capital improvement plan. Recall, draft number one was presented to this Committee in October. And since then, we've presented two member partners that are charged as rollout meeting number one we've requested stakeholder feedback and input held multiple review meetings with those interested directors. We've updated actual expenses through October 31 and have included project manager updates through November 20. So this plan is getting the most accurate most up to date information within it. The good news is there's no significant modifications from draft number one to draft number two. We have the financial chapter included in it now and Miss Bateson will talk to talk to you about that. After we're finished. It's mostly minor adjustments in dollars from year to year. Due to the updated actuals and updates from the project manager. I want to personally thank our CIP delivery team, including our CIP group, which would be my as the supporting leadership team member, our water and wastewater engineering teams have put significant effort into making this as accurate and and aligned with the 10 year CIP plan as well and then our partners in finance. I think we've created a robust CIP once again this year, and it does meet Jill who has 10 year financial plan. So I'm gonna turn it over to Dima our God raise capital improvement planning director for the rest of the presentation.
Speaker 1
Thank you, Jody. Good morning. This is Dima alguem. Our capital improvement planning director GL WA. Appreciate the opportunity to present you today. A draft two discussion draft two of FY 25 to 29. It's a it's been a meticulous update from draft one. But like Jodie mentioned it's not on it's not similar to for instance, last year where we ended up going through a major realignment. So numbers have not significantly changed in relate in relation to draft one but I'll go over, I'll go over the presentation and we will start with I'm hoping that you can see 
my screen of course, right? Yes. So we'll go over discussion draft one we'll talk about feedback. And we'll cover major changes since I mean draft two I'm sorry. We'll cover major changes from draft one and then we'll recap with next steps. But before we move forward, what are the takeaways that we would like anyone who is listening to this presentation to kind of maintain with them as I'm presenting. The draft one was presented to the Capital Planning Committee as you know, on October 17, there was a public comment period that extended from October 18 to November 15th. As a result, discussion draft two is is probably is presented to you today and it will be published tomorrow on our website as well as VNS delivery. Draft two is complete and it includes like Jodie mentioned actuals as of October 31 And the project managers update as of November 20. The CIP draft two is in alignment with our financial plan and we are ready to move forward to the next approval step in this process so we really appreciate your support. It's been a long, a long growth. I think you've seen this roadmap multiple times this year, but it just attest to the the meticulousness of the process. It attests to the major milestones that we've gone through, along with, you know, community partners, along with CIP partners, as well as core CIP team members. We are we are closer to the approval process and we're here today we're at draft two and we're looking forward to the next steps. When we talk about what is in draft two, I want to start with that with the you know, with with a little bit about the document, you would you would find in the document that that no major comments have come from our community partners. So we did receive overall positive updates and positive feedback. We did have some internal comments. They are related to kind of quality assurance quality, quality control, but as far as formal comments, we did not receive any on draft one but at the same time. Like Jodie mentioned, this plan was shared at multiple events, with with with our community partners either through the Chargers rollout or through the CIP the CPC meetings, as well as one on one meetings with directors. So what's in draft two? We've added the chapter, the finance chapter that that Nikki will be talking about in a few minutes. The document now has a cover and the cover has a story. We we've been implementing a photo contest that you would look at that we that we have done for three years now. This is our third year and project managers submits photos from their projects. And basically we add, we take those photos we vote on them and then they make it to the cover two photos make it to the cover. So this year, we have a wastewater project cover that was submitted by Kashmira Patel from our wastewater team and and the project was related to structural improvements. I encourage you to look at the Acknowledgement Page. You will you will learn a little bit more about this project. The achievements and challenges and opportunities related to the project keeping the CSOs in operation while conducting structural improvements is a challenge but the team has successfully completed all their tasks and they're about to to finish the project ahead of time which is a great you know great achievement by our wastewater team on the water side. The if you look at our at that photo and the Acknowledgement Page as well you would see the 96 projects submitted by Corey Pydev and this is this is also a project that is extremely important but because we are reallocating the 96 inch water main and taking it out of the landfill influence and one of the challenges that Cory spoke about when he reflected on that project is the fact that we are crossing a river while maintaining a close distance to a historical site. So really, really encouraging CIP delivery projects that are being completed by our teams and they are highlighted within this CIP draft too. I know that Jody mentioned it's a real time document. We have incorporated actuals as of October 31, project cost and schedule and updates as of November 20. Does that mean that this document is now you know this these are the actual numbers while the numbers are dynamic, and they continue to move as we move forward? But as an improvement from the past when we used to submit the document based on end of year, fiscal year numbers. We are improving our reporting and we're getting to a point where we come to renew the the plan in March with a little bit less variance that we need to deal with Unreal alignment rather than larger variance example, when we used to report end of year our variance was about 400 million pre alignment. Last year our variance was around 100 million so great improvement but our projects continue to be dynamic. The numbers continue to change based on monthly actuals and project updates. Construction is dynamic and and there are change orders. But we will continue to keep an eye on them. There were some quality review 
updates related to the documents so we continue and strive for improvement to the process as well as to our documents. So you will find minimum differences on those and I would want to go over the numbers really quickly. But I just want to remind everyone that our prioritization is a multi facet prioritization, when we choose projects that make it to the discussion draft to or discussion draft, one to our CIP. We've talked about needs not once and at the same time, it's not a cookie cutter, which we have a multifold prioritization process, where our engineering teams get involved, where our, you know, operational teams get involved. We look at scores, we look at status of a project and we decide we make we make a collective decision on how the you know how can we align the projects while maintaining our mission and values. So with that being said, in draft two, you will see updated numbers related to our five year total and 10. Year totals. Water is now one 1.7 1,071,000,000 and wastewater is 982 million number of projects is still the same nothing changed from a perspective of an average we're still looking with on a 10 year average investment in water and wastewater of about $410 million on annual basis. So, just to give you an idea of this actuals incorporation and project updates, draft one numbers on water versus draft two, they only changed by less than 1%. Draft one on wastewater versus draft two change by 2.36%. This is what we talk about when we say you know we're incorporating actual is what what are we actually seeing as far as invoices against the project. And we're also incorporating costs and schedule updates change orders as the document moves forward.
+2
my screen of course, right? Yes. So we'll go over discussion draft one we'll talk about feedback. And we'll cover major changes since I mean draft two I'm sorry. We'll cover major changes from draft one and then we'll recap with next steps. But before we move forward, what are the takeaways that we would like anyone who is listening to this presentation to kind of maintain with them as I'm presenting. The draft one was presented to the Capital Planning Committee as you know, on October 17, there was a public comment period that extended from October 18 to November 15th. As a result, discussion draft two is is probably is presented to you today and it will be published tomorrow on our website as well as VNS delivery. Draft two is complete and it includes like Jodie mentioned actuals as of October 31 And the project managers update as of November 20. The CIP draft two is in alignment with our financial plan and we are ready to move forward to the next approval step in this process so we really appreciate your support. It's been a long, a long growth. I think you've seen this roadmap multiple times this year, but it just attest to the the meticulousness of the process. It attests to the major milestones that we've gone through, along with, you know, community partners, along with CIP partners, as well as core CIP team members. We are we are closer to the approval process and we're here today we're at draft two and we're looking forward to the next steps. When we talk about what is in draft two, I want to start with that with the you know, with with a little bit about the document, you would you would find in the document that that no major comments have come from our community partners. So we did receive overall positive updates and positive feedback. We did have some internal comments. They are related to kind of quality assurance quality, quality control, but as far as formal comments, we did not receive any on draft one but at the same time. Like Jodie mentioned, this plan was shared at multiple events, with with with our community partners either through the Chargers rollout or through the CIP the CPC meetings, as well as one on one meetings with directors. So what's in draft two? We've added the chapter, the finance chapter that that Nikki will be talking about in a few minutes. The document now has a cover and the cover has a story. We we've been implementing a photo contest that you would look at that we that we have done for three years now. This is our third year and project managers submits photos from their projects. And basically we add, we take those photos we vote on them and then they make it to the cover two photos make it to the cover. So this year, we have a wastewater project cover that was submitted by Kashmira Patel from our wastewater team and and the project was related to structural improvements. I encourage you to look at the Acknowledgement Page. You will you will learn a little bit more about this project. The achievements and challenges and opportunities related to the project keeping the CSOs in operation while conducting structural improvements is a challenge but the team has successfully completed all their tasks and they're about to to finish the project ahead of time which is a great you know great achievement by our wastewater team on the water side. The if you look at our at that photo and the Acknowledgement Page as well you would see the 96 projects submitted by Corey Pydev and this is this is also a project that is extremely important but because we are reallocating the 96 inch water main and taking it out of the landfill influence and one of the challenges that Cory spoke about when he reflected on that project is the fact that we are crossing a river while maintaining a close distance to a historical site. So really, really encouraging CIP delivery projects that are being completed by our teams and they are highlighted within this CIP draft too. I know that Jody mentioned it's a real time document. We have incorporated actuals as of October 31, project cost and schedule and updates as of November 20. Does that mean that this document is now you know this these are the actual numbers while the numbers are dynamic, and they continue to move as we move forward? But as an improvement from the past when we used to submit the document based on end of year, fiscal year numbers. We are improving our reporting and we're getting to a point where we come to renew the the plan in March with a little bit less variance that we need to deal with Unreal alignment rather than larger variance example, when we used to report end of year our variance was about 400 million pre alignment. Last year our variance was around 100 million so great improvement but our projects continue to be dynamic. The numbers continue to change based on monthly actuals and project updates. Construction is dynamic and and there are change orders. But we will continue to keep an eye on them. There were some quality review +1
updates related to the documents so we continue and strive for improvement to the process as well as to our documents. So you will find minimum differences on those and I would want to go over the numbers really quickly. But I just want to remind everyone that our prioritization is a multi facet prioritization, when we choose projects that make it to the discussion draft to or discussion draft, one to our CIP. We've talked about needs not once and at the same time, it's not a cookie cutter, which we have a multifold prioritization process, where our engineering teams get involved, where our, you know, operational teams get involved. We look at scores, we look at status of a project and we decide we make we make a collective decision on how the you know how can we align the projects while maintaining our mission and values. So with that being said, in draft two, you will see updated numbers related to our five year total and 10. Year totals. Water is now one 1.7 1,071,000,000 and wastewater is 982 million number of projects is still the same nothing changed from a perspective of an average we're still looking with on a 10 year average investment in water and wastewater of about $410 million on annual basis. So, just to give you an idea of this actuals incorporation and project updates, draft one numbers on water versus draft two, they only changed by less than 1%. Draft one on wastewater versus draft two change by 2.36%. This is what we talk about when we say you know we're incorporating actual is what what are we actually seeing as far as invoices against the project. And we're also incorporating costs and schedule updates change orders as the document moves forward. Speaker 1
When 
we look at the 10 year on the other hand, water only, you know also changed over 10 years on average by less than 1%. So we are looking at an investment of 280 million versus 216 in draft one on an annual basis. When we look at wastewater it's the increase over 10 years is even less that you know it's close to half a percent. We are looking at an annual fee of 182 versus 281 million that was presented in draft one. I want to remind you of off the balance CIP that we have and how we are giving attention to our our facilities the minor changes do not really impact of our attention to facilities within water wastewater. As you can see, within the first five years, we're investing in all all our facilities. We're investing in treatment storage pumps and transmission on this, within the same categories were investing in Wastewater Conveyance and CSOs as well as treatment. And you can see that there is there's attention to all components of the system. If we are looking at statuses you can see that the majority of our project statuses are related to you know, 
project execution active in water. You know, active means in procurement, so we have 11% in procurement we have about 17% future future on the water side and about 72% actually in execution projects or they're in design in construction or in close out. On the wastewater side. Our our active projects meaning projects that are future that are in procurement or procurement there's about 13% We have 3% in the plan that are future planned and the rest are in a status of active project execution. What is the status that how much money have we have invested in construction design professional services, this also gives you an idea of the fact that almost 88 to 90% between water and wastewater. The money is in construction. We're looking at 8% to 11% residing in design and the rest is salary. So I think this is this is typical of any CIP your you want to spend the majority of the money on the construction component of it. And with that, I will recap really quickly I know we are short on time today. water wastewater were at 52% investment on water versus 48% on wastewater from our entire CIP budget. Again, a balanced budget when we're looking at a 10 year we're looking at 454 to 5246 54% Water 50 46% wastewater. We are you know, again, it's we're creating a balance between our investments on water and wastewater. And we are here today and we're ready to move to the next step. And I'm gonna turn it over to God to talk about next steps for a minute you're on your god
+3
we look at the 10 year on the other hand, water only, you know also changed over 10 years on average by less than 1%. So we are looking at an investment of 280 million versus 216 in draft one on an annual basis. When we look at wastewater it's the increase over 10 years is even less that you know it's close to half a percent. We are looking at an annual fee of 182 versus 281 million that was presented in draft one. I want to remind you of off the balance CIP that we have and how we are giving attention to our our facilities the minor changes do not really impact of our attention to facilities within water wastewater. As you can see, within the first five years, we're investing in all all our facilities. We're investing in treatment storage pumps and transmission on this, within the same categories were investing in Wastewater Conveyance and CSOs as well as treatment. And you can see that there is there's attention to all components of the system. If we are looking at statuses you can see that the majority of our project statuses are related to you know, 
+1
project execution active in water. You know, active means in procurement, so we have 11% in procurement we have about 17% future future on the water side and about 72% actually in execution projects or they're in design in construction or in close out. On the wastewater side. Our our active projects meaning projects that are future that are in procurement or procurement there's about 13% We have 3% in the plan that are future planned and the rest are in a status of active project execution. What is the status that how much money have we have invested in construction design professional services, this also gives you an idea of the fact that almost 88 to 90% between water and wastewater. The money is in construction. We're looking at 8% to 11% residing in design and the rest is salary. So I think this is this is typical of any CIP your you want to spend the majority of the money on the construction component of it. And with that, I will recap really quickly I know we are short on time today. water wastewater were at 52% investment on water versus 48% on wastewater from our entire CIP budget. Again, a balanced budget when we're looking at a 10 year we're looking at 454 to 5246 54% Water 50 46% wastewater. We are you know, again, it's we're creating a balance between our investments on water and wastewater. And we are here today and we're ready to move to the next step. And I'm gonna turn it over to God to talk about next steps for a minute you're on your god Speaker 0
there we go. Yeah, from this slide, you can see where we're where we're at Dima went over this previously. We plan to publish this document tomorrow. And really we have we have two options going forward. We don't we can have this discussion. When we open it up for questions and comments, but we have two options. And just to give you some history, prior to last year, this committee at this meeting in December, would receive and file the CIP draft and presentation. Then in January, we would present the draft to the full board. The board would then refer it back to this committee, the CIP committee for your recommendation. This committee would then meet again in January and make a recommendation to the full board last year at the meeting in December. The CIP committee recommended approval of the CIP to the full board while we still follow that same historical process to present to the board in January, and hold held another planning committee meeting in January to once again recommend approval to the full board that may not have been necessary. So if this committee is so inclined, based on your review and comments on this draft, if your approval is recommended to the full board, we would present the board in January and pending their determination it may eliminate the need to refer back to this committee in January. So that decision is entirely up to you and how to move forward or just being mindful of your time given the CIP draft appears to be well received with no or limited comments to date, and it's aligned with the 10 year financial plan. So we can have that discussion. Following the presentations here.
Gary Brown
We're gonna have a now Jody if, John, I'm comfortable with what Jodi just outlined. Based on the fact that there were little are actually none comments coming out of the other meetings. And again, they can always the full Board can always send it back to us if in fact something comes up between now and then so I'm for how do you feel about it?
john zech
I agree. I agree. I if they, like you said, if there is somebody that comes late to the party that has a comment, they can always send it back to us but if there was, little or none, people trying to alter the plan, then I'm ready to go today. Okay.
Unknown Speaker
Thank you.
Speaker 1
Thank you. Thank you Jodie. So I just I will just conclude with the key takeaways. Our draft two is complete, it is ready for the next step. For for Jodi's comments, but before I leave you all, I would like to extend my sincere appreciation to the positive engagement from everyone on this from from the capital planning committee members. Really appreciate your feedback, your comments, your willingness to meet and go over the plan individually and I want to extend the recognition to all the efforts of the team members at LW a leadership as well as all our partners. This plan does not come together by by a certain group. This is a collective effort, from finance from it from, you know, from from procurement, everyone contributes, in a way to this to the to the bigger to the bigger picture, including of course CIP team engineering and our consultant AECOM. So we really appreciate everyone's everyone's contributions to this and we are committed to continuous improvement. So if you were to find any way or or any opportunity for us to improve, we are, we are more than happy to look at and evaluate these opportunities. And with that, I would thank you and turn it over to questions. Yeah,
Gary Brown
no questions for me. Again, Dima, you and Jody, the whole team make it easy for us in what you present it and also the clarity that you present yourself. Thank you and the whole team. Greek is this. Can I can I get a motion from John to move it to the full board with a recommendation recommendation yet? for approval.
john zech
So move to move this on to the full board. Okay.
Gary Brown
There are no objections and that shall be approved. I think that moves us to be in the agenda which is the capital improvement plan discussion. To finance finance. Oh, I see Nikki.
Speaker 4
Good hour. Good morning. Let's see Dr. Jodi. If you could drive I would greatly appreciate it.
Unknown Speaker
Second, I got it. I got it. Give me a second. Let me see. Can you see it? Okay, thank you, Jody. Yep.
Speaker 4
And 
in the finance world in terms of presentations, no surprises is our mantra. So you're really not going to hear anything new from me related to this chapter because we've covered so much already in our planning process leading up to this point. So in the finance chapter, much of it is consistent with the previous years. Our certainly the objectives remain consistent from year to year transparency, and the financial plan, which happens hand in hand with the development of the capital improvement plan. Dave And Jody have spoke very well of the collaboration as well as our objectives of sustainability for the organization. still managing the level of capital spending realizing we are an organization that has a relatively high debt burden. And so balancing the budget between debt commitments and new commitments, is always a challenge. And our commitment to stability and charges, again to smooth it out, so that there oops, if you can say I'm just in the very first paragraph, thank you. And of course, ultimately improving the organization's financial position. An organization is only gonna have a solid financial position, if it's proactively addressing its capital programs and not being reactive. And again, 
our teams have worked very hard to put together a capital program that maintains advances improves the system for new and evolving conditions. It seems like every year a funding sources you're well familiar with our construction fund our improvement an extension fund is where we do the accounting for the capital improvement activities. Our funding sources are typically bond proceeds what's called revenue finance, capital or are also known as Pay As You Go capital. We're very active participants in the State Revolving Fund loan programs. We're continuing to pursue new grants, which is very important to relieve burden on charges to solely fund the CIP. We've had some instances with contribution and aid of construction were generally that surrounds an inter governmental agreement in partnering. We've had some great examples of that. And the CIP is a plan. It's not necessarily a budget. There's a series of approvals that still before I'm a major project and all of our projects by any standards are major projects. There is an approval process and a secondary level of vetting before projects proceed. On the far right column, I talk about financial management, the CIP and we have seen significant cost increases in many of the categories that are required, such as steel and other raw materials. And as you'll recall, it was a year ago in November, that we had a presentation to the board of the Phase One report of the economic outlook Task Force and the question was, how much more of increases were we going to experience and really developing a baseline scenario an optimistic and a pessimistic, pessimistic scenario for financial plan, which translates to the capital improvement plan? What would we do if we saw continued escalation? If things leveled off what would that look like? And if things improved, what would that look like? Largely we've seen many of the cost increases in commodity categories related to the construction process have stabilized. But there's a whole new baseline of costs of what it costs today is very different from what it cost five years ago. In September, the Board of Directors indulged us with a special workshop to review the budget and financial plan. We talked about the updates at that point from the economic outlook Task Force. And we continue to monitor that quarterly with quarterly reports to the audit committee. Largely the assumptions have flattened but because we go to market because we go to bid out the projects every so often, there's a lifecycle of a project before it even gets to bidding really in terms of design and evolution and reevaluation of the costs. So that's something that we're ever mindful of that with each year that passes it the reality of what the actual costs might be, is something that we address. JL w is very fortunate. We typically have three, four or five six bids, even on very large projects. Not all of our peers have that. And we're very fortunate that we have a strong construction community in the state of Michigan. vendor relations is very important to us. The vendor community is a very important stakeholder of the CIP because they're making business decisions based on what we present in the CIP in terms of our priorities and projects. It takes a lot for firms to put together bid proposals, and they look at this document to help them to forecast their own business plans as to what projects they can bid and participate on not just from GL wa or from DWSD um, that other large capital in front of infrastructure intensive entities of the state as well as in other states. So moving on to the next page, thank you Dima. Really, I want to the second column from the left in the bottom, just again as a reminder that we have continued to invest in the system and while we have issued debt overall, if you look back, since our inception, our debt level has stayed relatively stable, and that's because of this balanced use of Pay As You Go capital along with our bond proceeds. And that helps us balance this equation of the bond that we talked about in the bottom of the second column, which is staying well within the 4% promise, with average annual system charges adjustments of 2.2% for water, and slightly less than 1% for sewer. We know from our 10 year forecast and financial plans that we've been presenting to you. FY 2025 is the last year the five of the 4% promise being where assumptions are written now there's going to be some years we're potentially coming to you with requests for a higher than a 4% budget increase. how that translates to charges. It depends on how things are offset by grants, loan forgiveness, investment returns. So the charges impact is typically less than what we have as a total budget increase. On page 135, just as a reminder, we apply what's called the capital program spend rate assumption. So the so every year we have presented a capital improvement program to you for various reasons. If the CIP was $100 and you'll see in the table on the next page, what we've actually spent has varied in our early years from 38% to last year 93% of that $100 If we brought a financial plan to you that anticipated spending all $100 Every year we would have over borrowed which is very costly. And we would have put much greater pressure on charges than would have been necessary. So we use the capital spend rate to take all other intangible factors into place. So you can always have a plan but you know, there's things that are going to deviate from the plan. Things like interdependencies where we have large projects that span multiple jurisdictions and require input permitting other actions by the states counties. other municipalities. So that's something that our engineers as an example, don't necessarily control. And particularly in this era, where we've seen cost increases, it's taking longer to bring those to the board for approval because our teams are going back and renegotiating with the vendor. reevaluating scope, apply applying other engineering and project management skill sets to making sure that we're getting word spent, we're getting what we need at the right amount. And and so the when we do the financial plan, we might say, Okay, well the CIP says $100, but based on the Intel that we have on the project mix in our CIP, it's more likely we'll spend 90% Of that amount because of the interdependencies and things beyond our control. And so in the financial planning, press put $90 and base it off of that. So going on to the next page. On the far left, we talked about that the capital spending ratios generally ranged from 75 to 80%. In previous years, for this year and the 10 year forecast because of the
+3
in the finance world in terms of presentations, no surprises is our mantra. So you're really not going to hear anything new from me related to this chapter because we've covered so much already in our planning process leading up to this point. So in the finance chapter, much of it is consistent with the previous years. Our certainly the objectives remain consistent from year to year transparency, and the financial plan, which happens hand in hand with the development of the capital improvement plan. Dave And Jody have spoke very well of the collaboration as well as our objectives of sustainability for the organization. still managing the level of capital spending realizing we are an organization that has a relatively high debt burden. And so balancing the budget between debt commitments and new commitments, is always a challenge. And our commitment to stability and charges, again to smooth it out, so that there oops, if you can say I'm just in the very first paragraph, thank you. And of course, ultimately improving the organization's financial position. An organization is only gonna have a solid financial position, if it's proactively addressing its capital programs and not being reactive. And again, 
+1
our teams have worked very hard to put together a capital program that maintains advances improves the system for new and evolving conditions. It seems like every year a funding sources you're well familiar with our construction fund our improvement an extension fund is where we do the accounting for the capital improvement activities. Our funding sources are typically bond proceeds what's called revenue finance, capital or are also known as Pay As You Go capital. We're very active participants in the State Revolving Fund loan programs. We're continuing to pursue new grants, which is very important to relieve burden on charges to solely fund the CIP. We've had some instances with contribution and aid of construction were generally that surrounds an inter governmental agreement in partnering. We've had some great examples of that. And the CIP is a plan. It's not necessarily a budget. There's a series of approvals that still before I'm a major project and all of our projects by any standards are major projects. There is an approval process and a secondary level of vetting before projects proceed. On the far right column, I talk about financial management, the CIP and we have seen significant cost increases in many of the categories that are required, such as steel and other raw materials. And as you'll recall, it was a year ago in November, that we had a presentation to the board of the Phase One report of the economic outlook Task Force and the question was, how much more of increases were we going to experience and really developing a baseline scenario an optimistic and a pessimistic, pessimistic scenario for financial plan, which translates to the capital improvement plan? What would we do if we saw continued escalation? If things leveled off what would that look like? And if things improved, what would that look like? Largely we've seen many of the cost increases in commodity categories related to the construction process have stabilized. But there's a whole new baseline of costs of what it costs today is very different from what it cost five years ago. In September, the Board of Directors indulged us with a special workshop to review the budget and financial plan. We talked about the updates at that point from the economic outlook Task Force. And we continue to monitor that quarterly with quarterly reports to the audit committee. Largely the assumptions have flattened but because we go to market because we go to bid out the projects every so often, there's a lifecycle of a project before it even gets to bidding really in terms of design and evolution and reevaluation of the costs. So that's something that we're ever mindful of that with each year that passes it the reality of what the actual costs might be, is something that we address. JL w is very fortunate. We typically have three, four or five six bids, even on very large projects. Not all of our peers have that. And we're very fortunate that we have a strong construction community in the state of Michigan. vendor relations is very important to us. The vendor community is a very important stakeholder of the CIP because they're making business decisions based on what we present in the CIP in terms of our priorities and projects. It takes a lot for firms to put together bid proposals, and they look at this document to help them to forecast their own business plans as to what projects they can bid and participate on not just from GL wa or from DWSD um, that other large capital in front of infrastructure intensive entities of the state as well as in other states. So moving on to the next page, thank you Dima. Really, I want to the second column from the left in the bottom, just again as a reminder that we have continued to invest in the system and while we have issued debt overall, if you look back, since our inception, our debt level has stayed relatively stable, and that's because of this balanced use of Pay As You Go capital along with our bond proceeds. And that helps us balance this equation of the bond that we talked about in the bottom of the second column, which is staying well within the 4% promise, with average annual system charges adjustments of 2.2% for water, and slightly less than 1% for sewer. We know from our 10 year forecast and financial plans that we've been presenting to you. FY 2025 is the last year the five of the 4% promise being where assumptions are written now there's going to be some years we're potentially coming to you with requests for a higher than a 4% budget increase. how that translates to charges. It depends on how things are offset by grants, loan forgiveness, investment returns. So the charges impact is typically less than what we have as a total budget increase. On page 135, just as a reminder, we apply what's called the capital program spend rate assumption. So the so every year we have presented a capital improvement program to you for various reasons. If the CIP was $100 and you'll see in the table on the next page, what we've actually spent has varied in our early years from 38% to last year 93% of that $100 If we brought a financial plan to you that anticipated spending all $100 Every year we would have over borrowed which is very costly. And we would have put much greater pressure on charges than would have been necessary. So we use the capital spend rate to take all other intangible factors into place. So you can always have a plan but you know, there's things that are going to deviate from the plan. Things like interdependencies where we have large projects that span multiple jurisdictions and require input permitting other actions by the states counties. other municipalities. So that's something that our engineers as an example, don't necessarily control. And particularly in this era, where we've seen cost increases, it's taking longer to bring those to the board for approval because our teams are going back and renegotiating with the vendor. reevaluating scope, apply applying other engineering and project management skill sets to making sure that we're getting word spent, we're getting what we need at the right amount. And and so the when we do the financial plan, we might say, Okay, well the CIP says $100, but based on the Intel that we have on the project mix in our CIP, it's more likely we'll spend 90% Of that amount because of the interdependencies and things beyond our control. And so in the financial planning, press put $90 and base it off of that. So going on to the next page. On the far left, we talked about that the capital spending ratios generally ranged from 75 to 80%. In previous years, for this year and the 10 year forecast because of the Speaker 4
recognition in our bid documents of this new cost reality we have started this fiscal year, and in our 10 year plan, presumed 100% that is largely also helping us to put it build in a hedge against inflation. We would rather under promise and over deliver to you on the financial plan. And the same thing with the capital plan. And we will achieve that by making sure that we have a reasonable factor, which at this point is 100% Until we see more of these projects come in. We've included that in the 10 year financial plan, but it's something that we're going to continue to evaluate you're going to see we were brought to the audit committee this past Friday, first quarter budget amendments were we're tweaking that amount based on what we see in current spend. There also be a slide in this tomorrow's Board of Directors packets, that refers to the KPI on the CIP for this year. There's reasons for that, which will be reported out to you at a future date. In all cases, it's not necessarily that there's going to be underspending but more impacts of timing, decisions and priorities. So, page 137 on the right hand side of the screen shows the progress of capital delivery. At GL WA. I would say again, when we look at our pure utilities, the general expectation is most large utilities wind up in about 80%. So we we hovered around that and 21 and 22, advanced to 93% and 23. Largely because the water systems CIP is in construction phase, and that is a more rapid spend. So a couple more tables, just some things in terms of how we evaluate our CIP and communicate to remember partners. There's a functional summary. And there's a 
table that breaks down treatment transmission, storage and pumps for the water system for the wastewater system, conveyance pumps, CSL related projects. And treatments, and provide some intel on the table on page 139, that might be of particular interest to our member partners on the next page. CIP funding based on estimated useful life so generally your CIP is your longer lived assets. And this is just a litmus. Test in terms of us doing a check in on that topic. So, combined between water and wastewater, well over 90% of the investment is in assets that have a useful life of 20 or more years, which is in an acceptable range. The next table project status, Dima already referred to that table in the PowerPoint presentation. I will note DT there might be a change to this page before we do final publication. Dima, I'm wondering if you can have somebody double check the table because it didn't match the slide 15 in the presentation, so I'm thinking we may have had a timing issue there. But But the bottom line is we look at the project status analysis when we're evaluating the capital spend rate as to how many projects are future plans, meaning they're not put out yet and we don't have a commitment to the vendor community versus project execution. And again, for both the water and wastewater system, we're in a phase of execution, I believe more so than we have been in the past. And then on the last page, spend category analysis. This is really telling us of the cost and the CIP there's couple costs categories construction costs, design, internal salaries, some level of professional services. Again, this is just understanding the cost makeup of the CIP. And between water and wastewater 99% of the costs are construction related. So that again, is the vendor community supporting the CIP. So with that, again, Dima and Jody expressed their appreciation for the cross functional team that contributes to this. I certainly want to thank them for their diligence and expertise in putting this plan together, and understanding the engineering needs of the organization but also realizing that it is a challenge in the process to present a plan that stays within the financial plan, where we have, you know, four corners that we stay within, including the 4% promise i is very admirable. And I appreciate their efforts
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table that breaks down treatment transmission, storage and pumps for the water system for the wastewater system, conveyance pumps, CSL related projects. And treatments, and provide some intel on the table on page 139, that might be of particular interest to our member partners on the next page. CIP funding based on estimated useful life so generally your CIP is your longer lived assets. And this is just a litmus. Test in terms of us doing a check in on that topic. So, combined between water and wastewater, well over 90% of the investment is in assets that have a useful life of 20 or more years, which is in an acceptable range. The next table project status, Dima already referred to that table in the PowerPoint presentation. I will note DT there might be a change to this page before we do final publication. Dima, I'm wondering if you can have somebody double check the table because it didn't match the slide 15 in the presentation, so I'm thinking we may have had a timing issue there. But But the bottom line is we look at the project status analysis when we're evaluating the capital spend rate as to how many projects are future plans, meaning they're not put out yet and we don't have a commitment to the vendor community versus project execution. And again, for both the water and wastewater system, we're in a phase of execution, I believe more so than we have been in the past. And then on the last page, spend category analysis. This is really telling us of the cost and the CIP there's couple costs categories construction costs, design, internal salaries, some level of professional services. Again, this is just understanding the cost makeup of the CIP. And between water and wastewater 99% of the costs are construction related. So that again, is the vendor community supporting the CIP. So with that, again, Dima and Jody expressed their appreciation for the cross functional team that contributes to this. I certainly want to thank them for their diligence and expertise in putting this plan together, and understanding the engineering needs of the organization but also realizing that it is a challenge in the process to present a plan that stays within the financial plan, where we have, you know, four corners that we stay within, including the 4% promise i is very admirable. And I appreciate their efforts Unknown Speaker
was that questions?
john zech
Good for me, Gary.
Unknown Speaker
Oh, you're you're on mute.
Gary Brown
No, I'm good. I don't have any questions on the finance side.
Unknown Speaker
Thank you. Good report, both.
john zech
Both Seema and Nikki did a great job.
Speaker 1
A quick comment, if I may. What Nikki referred to as a difference in the tables. The tables are correct. The tables in the document actually are referring to the percentage based on the full water wastewater. Water wastewater percentages as a total CIP, we will update them so that they can be water on its own. So So Nikki, thank you for catching that. But they are correct. The point of reference is a little bit different. One is water on its own versus water and wastewater. Okay.
Gary Brown
All right, great. So do bill do we need to receive and file that portion of the report or yeah, that will be appropriately done. Okay.
john zech
So move we receive a file the finance section. Yeah,
Gary Brown
we plan a second approve it is though, that takes us to number nine. We reports none look ahead. Our next meeting is February 13 10am. Done could be an issue for me. Nothing information are the matters so I can get a motion to adjourn. Thanks guys for accommodating my, my my double booked schedule.
john zech
So move that we adjourn. All right.
Gary Brown
Thanks a lot.
Unknown Speaker
Thank you.
Unknown Speaker
Thank you. Okay, this
john zech
recording stopped