DATE: December 15, 2015
TO: Board of Supervisors
SUBMITTED BY: Vicki Crow, CPA
Auditor-Controller/Treasurer-Tax Collector
SUBJECT: Cash Advance Agreement between County of Fresno, County of Tulare and San Joaquin Valley Insurance Authority for its cash flow needs
RECOMMENDED ACTION(S):
TITLE
1. Adopt a Resolution authorizing (a) the advance of cash up to the amount of $2,000,000 from the County of Fresno General Fund to the San Joaquin Valley Insurance Authority (SJVIA) until June 30, 2016, as needed, and the request to be repaid by the SJVIA not later than December 30, 2017, to assist the SJVIA in managing its cash flow, and (b) the Auditor-Controller/Treasurer-Tax Collector, the Director of Personnel Services, and County Counsel, including their designees, to negotiate for the terms and conditions of a proposed Cash Advance and Repayment Agreement with the appropriate party or parties, which proposed agreement would be presented to the Fresno County Board of Supervisors for its requested approval at a future date;
2. Adopt a Resolution authorizing the decrease in the FY 2015-16 General Fund unassigned fund balance in the amount of $2,000,000, and a corresponding increase in FY 2015-16 General Fund, SJVIA Cash Advance Receivable, to fund the County of Fresno’s cash advance to the SJVIA (4/5 vote); and
3. Approve and authorize the Chairman to execute the revised Amended and Restated Joint Exercise of Powers Agreement Creating the San Joaquin Valley Insurance Authority, including any additional revisions thereto that may be approved by the Director of Personnel Services which are, in his or her determination, consistent with the Resolution in Recommended Action #1 and in the best interest of Fresno, subject to the approval of the Auditor-Controller/Treasurer-Tax Collector as to accounting form, of County Counsel as to legal form.
REPORT
This Agenda Item recommends that the County of Fresno (Fresno) would make available and may advance up to $2,000,000 to the SJVIA until June 30, 2016, as needed, and would request to be repaid by the SJVIA not later than December 30, 2017, to assist the SJVIA in managing its cash flow.
The first recommended action is a temporary mechanism that would authorize Fresno to advance up to $2,000,000 to the SJVIA until June 30, 2016, as needed by the SJVIA, and request the SJVIA’s repayment plus accrued interest at Fresno’s then-current treasury pool rate by the earlier of (a) when there is a sufficient cash balance in SJVIA’s Chase bank accounts to cover regular SJVIA cash flow needs, as determined by the SJVIA Manager or SJVIA Assistant Manager (or both of them) and SJVIA Auditor-Treasurer, or (b) December 30, 2017. The first recommended action also would authorize certain Fresno officers to negotiate for a proposed Cash Advance and Repayment Agreement with the appropriate party or parties so that Fresno can obtain a contractually enforceable right to such repayment from the SJVIA.
The second recommended action would make available Fresno’s FY 2015-16 funds for this Agenda Item.
The third recommended action, which is recommended by the SJVIA, would authorize Fresno’s approval of the revised SJVIA joint powers agreement that would provide the general, express framework to enable the SJVIA’s repayment of the advance, and would provide administrative revisions to the current SJVIA joint powers agreement. If the other parties request modifications to the revised SJVIA joint powers agreement after your Board’s action on this Agenda Item, it is recommended that the Director of Personnel Services (references in this item to the Director include the Interim Director) would be authorized to accommodate such requests that are, in his or her determination, consistent with the proposed Resolution (Recommended Action #1) and in the best interest of Fresno, to avoid delay in the consummation of that agreement.
It is anticipated that the County of Tulare (Tulare) also would make available and may advance up to $2,000,000 to the SJVIA until June 30, 2016, as needed by the SJVIA, to assist the SJVIA in managing its cash flow; we are informed that the soonest that Tulare County staff will go to the Tulare County Board of Supervisors for consideration of any proposal to make any advance to the SJVIA would be January 2016.
ALTERNATIVE ACTION(S):
Not authorizing the recommended actions could result in the SJVIA becoming insolvent and unable to pay medical claims and fixed costs during the months of December 2015 through February 2016.
FISCAL IMPACT:
There is no net County cost associated with the recommended actions. The SJVIA’s requested advance is expected to be paid back, with interest, to the County of Fresno (Fresno) over the course of calendar year 2016 and possibly calendar year 2017.
At the SJVIA’s special meeting on October 15, 2015, the SJVIA’s consultant provided its updated budget projection for the SJVIA that the anticipated calendar year 2016 premium rates for the SJVIA’s participating agencies would be sufficient to pay all SJVIA budgeted claims and costs in calendar year 2016. Because the timing of that projection was prepared prior to the SJVIA’s October 15, 2015 meeting at which it first considered the need for Fresno’s and Tulare’s cash advances, the added potential costs of these cash advances were not included in that previously-prepared budgetary projection.
But as of the date that this Agenda Item was completed (i.e., December 4, 2015), the SJVIA Auditor-Treasurer’s cash flow projections indicate that the SJVIA, after its periodic payments of such claims and costs, should have sufficient cash flow in calendar year 2016 to repay all advanced funds from Fresno and Tulare plus interest at each County’s respective treasury pool rate. The SJVIA Auditor-Treasurer’s cash flow projections are based on known SJVIA historical trends, SJVIA budgeted premiums for 2016, and SJVIA budgeted claims and fixed costs for 2016.
Even so, the SJVIA Auditor-Treasurer’s cash flow projections look into the future based on a limited period of a little over one year’s (2016) cash flows, and in light of the SJVIA’s brief operating history since October 6, 2009. These cash flow projections are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in such projections. Inevitably, some assumptions used to develop the cash flow projections will not be realized and unanticipated events and circumstances may occur. Specifically, deviations in the SJVIA’s actual cash flows from the SJVIA Auditor-Treasurer’s cash flow projections will result in different cash balances than those assumed in the SJVIA Auditor-Treasurer’s cash flow projections, which could result in the SJVIA’s delay in the timing of the repaying the cash advances.
Despite the SJVIA Auditor-Treasurer’s best efforts in making the cash flow projections which are believed to be accurate as of the time that they are made, they are inherently limited. To mitigate the uncertainty of that limited information, the SJVIA Auditor-Treasurer will return to the SJVIA on a quarterly basis to give updates on its SJVIA cash flow projections and actual results.
Also, starting with calendar year 2017, the SJVIA will have the opportunity to take into account actual reported results of 2016 cash flows when setting SJVIA participating entities’ rates.
Therefore, in light of these conditions, we propose a repayment period that enables the SJVIA, Fresno, Tulare, with input from SJVIA participating agencies, to work collaboratively over an extended period of time-i.e., through calendar years 2016 and 2017, as proposed below. This would allow all affected parties to be periodically informed of SJVIA cash flow projections compared to actual results, and if SJVIA cash flows are not realized as currently projected, this would give the SJVIA the opportunity to take timely corrective action, if necessary, in increasing SJVIA participating entities’ 2017 rates. This longer-term approach enables the SJVIA in the regular course of its operations to plan for and implement SJVIA rate increases, if needed, and affords all SJVIA participating entities additional time in which to adjust to such conditions as they develop.
DISCUSSION:
A. Background:
The County of Fresno (Fresno), the County of Tulare (Tulare), and the Central San Joaquin Valley Risk Management Authority, a joint powers authority (the RMA), are the members of the San Joaquin Valley Insurance Authority (SJVIA), a joint powers agency separate and apart from such members under the Amended and Restated Joint Exercise Of Powers Agreement Creating The San Joaquin Valley Insurance Authority (“SJVIA”), effective as of July 1, 2013 (the Current Joint Powers Agreement).
The SJVIA governing board (SJVIA Board) is composed of four members of the Fresno County Board of Supervisors and three members of the Tulare County Board of Supervisors.
The Fresno County’s Auditor-Controller/Treasurer-Tax Collector serves as the Auditor-Treasurer for the SJVIA.
Also, for the current SJVIA Staff and legal counsel positions, since July 2014, the SJVIA has received the following services from each of the Counties:
• Tulare’s Staff has served as the SJVIA Manager (currently, the Human Resources and Development Director);
• Fresno’s Staff has served as the SJVIA Assistant Manager (currently, the Interim Director of Personnel Services); and
• Deputy County Counsels from the Offices of the Fresno County Counsel and the Tulare County Counsel have served as legal co-counsel to the SJVIA.
Every two years, these County officers switch these SJVIA management and legal counsel positions; the next switch will take place July 1, 2016, unless the SJVIA Board directs differently or the SJVIA hires its own management and legal counsel.
The SJVIA negotiates, purchases or otherwise funds health, pharmacy, vision, dental, and life insurance, and provides wellness and preventative programs, for participating employees of Fresno, participating employees of Tulare, and employees of certain approved public agencies, known as participating entities, under certain conditions.
B. SJVIA’s Cash Flow Needs and Bank Accounts:
The SJVIA has three bank accounts at Chase Bank. These bank accounts receive SJVIA participating agency premium payments and pay medical claims and fixed costs for the SJVIA. The accounting and cash management services are provided to the SJVIA by the Fresno County Auditor-Controller/Treasurer-Tax Collector as the SJVIA Auditor-Treasurer. The Chase Bank claims reserve account for Anthem Blue Cross claims has required a transfer from the SJVIA “reserve” held in Fresno County treasury portfolio on four different occasions, as follows:
Date Amount
2/29/15 $1,000,000
5/21/15 $1,000,000
9/24/15 $1,000,000
9/29/15 $1,000,000
11/19/15 $1,000,000
As stated above, on October 15, 2015, the SJVIA Board held a special meeting. At that meeting, the SJVIA Auditor-Treasurer presented to the SJVIA Board cash flow projections for the SJVIA, and proposals to resolve the temporary cash flow deficits. The SJVIA Auditor-Treasurer prepared the SJVIA’s cash flow projections to the end of the calendar year 2016, and projected potential for cash flow deficits, occurring in December 2015 and January 2016.
As of the date that this Agenda Item was completed (i.e., December 4, 2015), it is anticipated that the SJVIA may need assistance to ensure that it has an adequate cash flow starting sometime during the remainder of December 2015.
As noted above, at the same SJVIA Board meeting on October 15, 2015, the SJVIA consultant provided its updated budget comparing anticipated calendar year 2016 premium rates for the SJVIA’s participating agencies against all SJVIA budgeted claims and costs in calendar year 2016. That budgetary projection is a different undertaking than the SJVIA Auditor-Treasurer’s cash flow projections. That is, the consultant’s budgetary projection considers whether the SJVIA’s projected premium rates are sufficient to sustain the viability of the SJVIA’s system, while the SJVIA Auditor’s cash flow projections consider amounts of cash that may be available to the SJVIA at given points in time to pay anticipated claims and costs.
C. SJVIA’s request to Fresno and Tulare:
At its special meeting on October 15, 2015, and regularly scheduled meeting a few weeks later on November 6, 2015, the SJVIA Board directed its staff to pursue and return with a proposed temporary line of credit from both Fresno and Tulare.
The SJVIA requests that Fresno and Tulare each make available for advance up to $2,000,000 to the SJVIA until June 30, 2016, as needed by the SJVIA, to assist the SJVIA in managing its cash flow. The SJVIA determined that such temporary assistance by Fresno and Tulare, to be repaid at each County’s treasury pool rate would be the most efficient and quickest way of assuring that the SJVIA would have timely access to cash at a low interest rate, while making each County whole for the SJVIA’s use of its funds.
Fresno’s treasury pool rate was 1.412% for the last quarter ending September 2015.
D. Structure and Approach for Fresno’s Advance and Requested Repayment:
1. Current Actions - recommended actions to adopt Resolutions and Agreement:
The recommended actions in this Agenda Item authorize Fresno to provide a temporary mechanism and the ability to pursue future action to provide a line of credit within the framework of the joint powers laws (Gov. Code secs. 6500 and following).
Under the first recommended action, your Board would adopt a resolution to authorize Fresno to make available and advance up to $2,000,000 to the SJVIA until June 30, 2016, as needed by the SJVIA, and request the SJVIA’s repayment plus accrued interest at Fresno’s then-current treasury pool rate by the earlier of (a) when there is a sufficient cash balance in SJVIA’s Chase bank accounts to cover regular SJVIA cash flow needs, as determined by the SJVIA Manager or SJVIA Assistant Manager (or both of them) and SJVIA Auditor-Treasurer, or (b) December 30, 2017.
Although December 30, 2017 would be the latest date for the SJVIA’s repayment to Fresno, the repayment may be made in 2016 and/or 2017 depending upon whether there is a sufficient cash balance in SJVIA’s Chase bank accounts to cover regular SJVIA cash flow needs.
The first recommended action documents your Board’s formal authorization that serves as a temporary bridge between Fresno’s release of funds to the SJVIA, and the mechanism for contractually enforceable terms and conditions of repayment; those terms and conditions would be authorized by:
(a) the proposed, revised Amended and Restated SJVIA Joint Powers Agreement, discussed below; and
(b) a forthcoming Cash Advance and Repayment Agreement, discussed below.
Fresno’s ability to enforce repayment from the SJVIA would depend on the SJVIA Board’s own decision to repay such amounts, as requested by Fresno. Once the revised Amended and Restated SJVIA Joint Powers Agreement and the Cash Advance and Repayment Agreement are approved and executed by the appropriate parties, that Cash Advance and Repayment Agreement would give Fresno a legally enforceable contractual mechanism for such repayment by the SJVIA.
Under the second recommended action, your Board would make available $2,000,000 from the FY 2015-16 General Fund by a corresponding decrease in FY 2015-16 General Fund unassigned fund balance to fund Fresno’s advances of cash to the SJVIA.
The Current SJVIA Joint Powers Agreement authorizes the SJVIA members to advance funds to the SJVIA. Under the third recommended action, your Board’s approval of the revised Amended and Restated Joint Exercise of Powers Agreement Creating the San Joaquin Valley Insurance Authority (the Amended and Restated SJVIA Joint Powers Agreement) would provide the general, express framework to enable the SJVIA’s repayment of the advance. But that agreement does not, by itself, serve as the agreement for the cash advance and repayment; the Cash Advance and Repayment Agreement is needed for those specific terms and conditions.
The legal authority for the member counties’ advances and the SJVIA’s repayment of funds is Government Code section 6504, subdivision (c), which authorizes the members to provide advances of public funds to the joint powers agency, here the SJVIA, for the purposes set forth in a joint powers agreement. Execution by the parties of the Amended and Restated Joint Powers Agreement would provide the general, express framework to enable the SJVIA’s repayment of advances made on or after December 15, 2015, for which repayment would be requested by the advancing parties. That proposed agreement also would need to be approved by the Tulare County Board of Supervisors and the RMA’s governing board.
The third recommended action also would approve administrative revisions to the SJVIA’s Current Joint Powers Agreement. The most notable of those other revisions are the following: (1) authorizes the SJVIA Board to hire the SJVIA’s own dedicated employees; (2) clarifies that while either of the two member counties may terminate the SJVIA, the RMA may only withdraw; (3) requires the SJVIA Auditor-Treasurer to bring the SJVIA Investment Policy to the SJVIA Board at least biennially for its review and approval; (4) clarifies that the SJVIA Board is appointed by and from each member County’s respective Board of Supervisors; and (5) confirms that meetings of the SJVIA Board are held in accordance with the Brown Act.
Lastly, we understand that the Tulare Board of Supervisors, the SVJIA’s, and RMA’s governing boards will not meet until January 2016 (Tulare and SJVIA) and February 2016 (RMA), respectively. If those other parties request modifications to the proposed Amended and Restated Joint Powers Agreement after your Board’s action on this Agenda Item, it is recommended that the Director of Personnel Services would be authorized to accommodate such requests that are, in his or her determination, consistent with the proposed Resolution (Recommended Action #1) and in the best interest of Fresno, to avoid delay in the consummation of that agreement.
As discussed below, Staff would need to return to your Board in the future with a proposed Cash Advance and Repayment Agreement.
2. Future Action - Need for a Cash Advance and Repayment Agreement:
Due to the timing of the events leading up to this Agenda Item, a complete financing package could not be obtained for today’s meeting of your Board.
There are two possible approaches that the parties could take in pursuing the terms and conditions of a cash advance and repayment agreement: one agreement among the SJVIA, Fresno and Tulare, or (b) one agreement only between the SJVIA and Fresno, and another separate agreement only between the SJVIA and Tulare (i.e., the SJVIA and Tulare would negotiate their own separate arrangement).
Fresno has been in contact with Tulare both through Staff and legal counsel. Fresno County Counsel’s Office provided to Tulare County Counsel’s Office an initial summary of the proposed terms of a single Cash Advance Agreement among the SJVIA, Fresno and Tulare, and a later proposed draft of such an agreement; the initial summary specified June 30, 2016, and the later draft agreement specified December 30, 2016 as the latest date for the SJVIA’s repayment. We have been informed that the Tulare County’s legal representatives stated that Tulare County stands ready to make its own cash advance up to $2,000,000, but that Tulare County may pursue its own agreement with the SJVIA. At the time that discussion took place, only the repayment period of December 30, 2016 was proposed in that draft agreement.
Under a Cash Advance and Repayment Agreement, the key condition for SJVIA to make a request is that that the SJVIA Auditor-Treasurer, with the approval of the SJVIA Manager, informs the County (or Counties), and provides documentary proof, that the SJVIA has become aware of a condition that the SJVIA’s claims reserve account for Anthem Blue Cross claims has reached or will reach a certain low cash point in light of paid or pending claims.
Fresno can act more quickly than Tulare in making a cash advance, so, Fresno can take the lead until Tulare can make its advance. Specifically, if the Cash Advance and Repayment Agreement were among the SJVIA, Fresno and Tulare, Fresno proposed:
(a) Fresno would, make 100% of the requested advance to the SJVIA, up to the maximum amount of Fresno’s available funds (Fresno would make a wire transfer);
(b) Tulare would soon thereafter make available to the SJVIA 50 % of the requested advance to the SJVIA, up to the maximum amount of Tulare’s available funds, and the SJVIA would repay the equivalent amount of that advance to Fresno, plus accrued interest at Fresno’s then-current treasury pool rate for that period of Fresno’s advance of such funds to the SJVIA; and
(c) Fresno and Tulare would be simultaneously repaid.
The main advantages of a single agreement among SJVIA, Fresno and Tulare is that the Counties are able to coordinate their cash advances so that they are approximately close in time with each other, and so that the SJVIA simultaneous repays both Counties.
The main advantage of separate agreements, on the other hand, is that each County may fashion its own arrangement on its own terms and conditions with the SJVIA, such as the repayment period.
Regardless of when a County makes any advance to the SJVIA, a single Cash Advance Agreement among the SJVIA, Fresno, and Tulare would be preferable, if it can be obtained, since it would at least establish their agreement that the Counties are to be paid back simultaneously. But that assumes both Counties intend the same repayment period.
Staff seeks your Board’s authorization for the County Auditor-Controller/Treasurer-Tax Collector, the Director of Personnel Services, and County Counsel including their designees to negotiate the terms and conditions of the specific financing terms and conditions with the appropriate party or parties. Staff will return to your Board in the future with such proposed agreement.
3. Immediate Next Steps - Timing of Release of Fresno’s Funds:
As of the date that this Agenda Item was completed (i.e., December 4, 2015), it is anticipated that the SJVIA may need assistance to ensure that it has an adequate cash flow starting sometime during the remainder of December 2015.
We are informed that the soonest that Tulare County Staff will go to the Tulare County Board of Supervisors for consideration of any proposal to make any advance to the SJVIA would be January 2016.
Therefore, if your Board approves the recommended actions, the County Auditor-Controller/Treasurer Tax Collector anticipates that Fresno will need to make all advances of Fresno’s funds to the SJVIA, potentially up to Fresno’s available $2,000,000, until the Tulare County Board of Supervisors approves the release of Tulare’s funds by the SJVIA.
Debt Advisory Committee:
On November 20, 2015, the Debt Advisory Committee (DAC) considered the proposed cash advance and repayment; the agenda item to the DAC initially proposed that the repayment time frame would be not later than June 30, 2016, but, the DAC was advised during its meeting that a later time frame may be more appropriate than that. At that time, the DAC was presented with proposed initial summary terms for a single Cash Advance Agreement among the SJVIA, Fresno and Tulare, discussed above.
The DAC recommends to your Board that your Board adopt a Resolution authorizing the advance of cash up to the amount of $2,000,000 from the County General fund to the SJVIA until June 30, 2016, as needed by the SJVIA, to temporarily assist the SJVIA in managing its cash flow, and approval of the Cash Agreement among the SJVIA, Fresno and Tulare.
However, since the date of the DAC’s recommended action, on November 20, 2015, the arrangement regarding the parties to the Cash Advance and Repayment Agreement might change, as stated above, as result of the timing difference between the date the County of Fresno its taking its board action (i.e., December 15, 2015) and County of Tulare’s January 2016 targeted board action date. In addition, after further consideration of the SJVIA’s repayment period, we now recommend a repayment period not later than December 30, 2017 for the reasons stated above.
ATTACHMENTS INCLUDED AND/OR ON FILE:
On file with the Clerk-Resolution Authorizing Advance
On file with the Clerk- Budget Resolution
Amended and Restated JPA Agreement (Clean)
Amended and Restated JPA Agreement (Redline)
CAO ANALYST:
Charlotte Tilkes