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11-01-17 Board Packet
1 OTAY WATER DISTRICT BOARD OF DIRECTORS MEETING DISTRICT BOARDROOM 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA WEDNESDAY November 1, 2017 3:30 P.M. AGENDA 1. ROLL CALL 2. PLEDGE OF ALLEGIANCE 3. APPROVAL OF AGENDA 4. APPROVE THE MINUTES OF THE REGULAR BOARD MEETING ON AUGUST 2, 2017 5. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURIS- DICTION BUT NOT AN ITEM ON TODAY'S AGENDA CONSENT CALENDAR 6. ITEMS TO BE ACTED UPON WITHOUT DISCUSSION, UNLESS A REQUEST IS MADE BY A MEMBER OF THE BOARD OR THE PUBLIC TO DISCUSS A PARTICU- LAR ITEM: a) APPROVE A TWO-YEAR AGREEMENT WITH SUNLIFE TO PROVIDE LIFE, AC- CIDENTAL DEATH AND DISMEMBERMENT, AND VOLUNTARY LIFE INSUR- ANCE COVERAGE FROM JANUARY 1, 2018 THROUGH DECEMBER 31, 2019 b) ADOPT RESOLUTION NO. 4340, AMENDING POLICY NO. 21 FOR THE SE- LECTION OF PROFESSIONAL CONSULTANTS OF THE DISTRICT’S CODE OF ORDINANCES, TO ALLOW THE PROJECT MANAGER TO PARTICIPATE AS A PANEL MEMBER DURING THE SELECTION PROCESS AND TO MODIFY THE METHOD OF SELECTION OF PROFESSIONAL CONSULTANTS FOR MINOR ENGINEERING PROJECTS WITH FEES UP TO $50,000 2 c) APPROVE THE CREATION OF A CAPITAL IMPROVEMENT PROGRAM PRO- JECT (CIP P2625) FOR THE DESIGN AND CONSTRUCTION OF A 12-INCH, 978 ZONE PIPELINE IN HIDDEN MESA ROAD IN THE AMOUNT OF $1.5 MIL- LION OF WHICH $90,000 IS IN THE CURRENT FISCAL YEAR CIP BUDGET ACTION ITEMS 7. FINANCE AND ADMINISTRATION a) APPROVE THE AUDITED FINANCIAL STATEMENTS, INCLUDING THE INDE- PENDENT AUDITORS’ UNQUALIFIED OPINION, FOR FISCAL YEAR ENDED JUNE 30, 2017 (DYCHITAN) 8. BOARD a) ADOPT RESOLUTION NO. 4341 OF THE OTAY WATER DISTRICT BOARD OF DIRECTORS SUPPORTING MUNICIPAL WATER SYSTEMS THROUGH THE ELIMINATION OF THE PURCHASE AND USE OF BOTTLED WATER EXCEPT IN TIMES OF EMERGENCY WHEN MUNICIPAL WATER IS NOT AVAILABLE (PRESIDENT ROBAK) b) DISCUSSION OF THE 2017 AND 2018 BOARD MEETING CALENDAR INFORMATIONAL ITEM 9. THE FOLLOWING ITEMS ARE PROVIDED TO THE BOARD FOR INFORMATIONAL PURPOSES ONLY. NO ACTION IS REQUIRED ON THE FOLLOWING AGENDA ITEMS: a) REVIEW OF THE ACTUARIAL REPORT AND NET COST OF THE ENHANCE- MENT OF THE RETIREE HEALTHCARE BENEFITS (BELL) REPORTS 10. GENERAL MANAGER’S REPORT 11. SAN DIEGO COUNTY WATER AUTHORITY UPDATE 12. DIRECTORS' REPORTS/REQUESTS 13. PRESIDENT’S REPORT/REQUESTS 3 RECESS TO CLOSED SESSION 14. CLOSED SESSION a) CONFERENCE WITH LABOR NEGOTIATORS [GOVERNMENT CODE §54957.6] AGENCY DESIGNATED REPRESENTATIVES: MARK ROBAK AND TIM SMITH EMPLOYEE ORGANIZATION: OTAY WATER DISTRICT EMPLOYEES’ ASSOCI- ATION AND ALL REPRESENTED AND UNREPRESENTED PERSONNEL INCLUDING MAN- AGEMENT AND CONFIDENTIAL EMPLOYEES b) CONFERENCE WITH REAL PROPERTY NEGOTIATORS [GOVERNMENT CODE §54956.8] PROPERTY: SALT CREEK GOLF COURSE 525 HUNTE PARKWAY CHULA VISTA, CA 91914 AGENCY NEGOTIATOR: MARK WATTON, GENERAL MANAGER NEGOTIATING PARTIES: BILL McWETHY, PACIFIC HOSPITALITY GROUP UNDER NEGOTIATIONS: INSTRUCT NEGOTIATOR CONCERNING PRICE, TERMS OF PAYMENT, OR BOTH, FOR THE PURCHASE, SALE AND/OR LEASE OF THE PROP- ERTY. c) CONFERENCE WITH LEGAL COUNSEL – EXISTING LITIGATION [GOVERN- MENT CODE §54956.9] OTAY WATER DISTRICT v. CITY OF SAN DIEGO; CASE NO. 37-2017- 00019348-CU-WM-CTL RETURN TO OPEN SESSION 15. REPORT ON ANY ACTIONS TAKEN IN CLOSED SESSION. THE BOARD MAY ALSO TAKE ACTION ON ANY ITEMS POSTED IN CLOSED SESSION 16. ADJOURNMENT 4 All items appearing on this agenda, whether or not expressly listed for action, may be deliberated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the District’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to partici- pate in this meeting, please call the District Secretary at (619) 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on October 27, 2017, I posted a copy of the foregoing agenda near the regu- lar meeting place of the Board of Directors of Otay Water District, said time being at least 72 hours in advance of the regular meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on October 27, 2017. /s/ Susan Cruz, District Secretary 1 MINUTES OF THE BOARD OF DIRECTORS MEETING OF THE OTAY WATER DISTRICT August 2, 2017 1. The meeting was called to order by President Robak at 3:32 p.m. 2. ROLL CALL Directors Present: Croucher, Gastelum, Robak and Thompson Directors Absent: Director Smith (out-of-town on prescheduled vacation) Staff Present: General Manager Mark Watton, General Counsel Daniel Shinoff, Chief of Engineering Rod Posada, Chief Financial Officer Joe Beachem, Chief of Administration Adolfo Segura, Chief of Operations Pedro Porras, Asst. Chief of Operations Jose Martinez, District Secretary Susan Cruz and others per attached list. 3. PLEDGE OF ALLEGIANCE 4. APPROVAL OF AGENDA A motion was made by Director Thompson, and seconded by Director Croucher and carried with the following vote: Ayes: Directors Croucher, Gastelum, Robak and Thompson Noes: None Abstain: None Absent: Director Smith to approve the agenda. 5. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA Ms. Delia Cervantes of Chula Vista indicated that she is building a granny flat for her mother on her home’s property. She stated that her issue is that in adding the granny flat to her property, it requires that her property’s meter be increased in size from a ¾” to a 1” meter due to increased capacity. The increase in the meter size would cost her $16,000. She indicated that this is very costly and asked if there is a possibility that the District could provide some type of payment plan. 2 General Manager Mark Watton indicated that the District’s ordinances may accommodate a payment plan. He stated that staff would work with her on some type of payment plan. Director Thompson indicated that this is part of a larger issue that came out of the rate study on capacity fees. He stated the need to move to a 1” meter from ¾” meter is based on fixture count. He stated he realizes that the District’s hands are somewhat tied because it has just completed a rate study, but he would like staff to review this issue to see if there is any relief the District could provide. CONSENT CALENDAR 6. ITEMS TO BE ACTED UPON WITHOUT DISCUSSION, UNLESS A REQUEST IS MADE BY A MEMBER OF THE BOARD OR THE PUBLIC TO DISCUSS A PARTICULAR ITEM: A motion was made by Director Thompson, seconded by Director Croucher and carried with the following vote: Ayes: Directors Croucher, Gastelum, Robak and Thompson Noes: None Abstain: None Absent: Director Smith to approve the following consent calendar items: a) APPROVE THE DISTRICT’S ANTENNA SITE FACILITY SUBLEASE ADDENDUM NO. 5 WITH IWG TOWERS ASSETS IN THE AMOUNT OF $110,964.00 FOR FIVE (5) YEARS b) APPROVE A ONE-YEAR AGREEMENT, PLUS FIVE (5) ONE-YEAR OPTIONS, WITH CONCORD UTILITY SERVICES, INC. FOR MASTER METER REGISTER AND METER CHANGE OUTS IN AN AMOUNT NOT- TO-EXCEED $1,303,116.84 c) APPROVE AN AMENDMENT TO THE DISTRICT’S PURCHASING MANUAL SECTION 2, “ORGANIZATION”; SECTION 7.2.8, “BOARD AUTHORIZED PURCHASES EXCEEDING THE GENERAL MANAGER’S AUTHORITY”; AND, SECTION 9, “AUTHORIZATION TO PURCHASE – SIGNATORY AUTHORITY” TO RECOGNIZE THE DISTRICT’S CURRENT ORGANIZATIONAL STRUCTURE AND TO ADD ITEMS TO THE BOARD AUTHORIZED PURCHASES EXCEEDING THE GENERAL MANAGER’S AUTHORITY 3 d) CONSIDER CASTING THE DISTRICT’S VOTE TO ELECT A REPRESENTATIVE TO THE CALIFORNIA SPECIAL DISTRICTS ASSOCIATION BOARD OF DIRECTORS, REGION 6, SEAT C e) CONSIDER THE CANDIDATES FOR THE SPECIAL DISTRICT RISK MANAGEMENT AUTHORITY’S BOARD OF DIRECTORS ELECTION AND CAST THE DISTRICT’S VOTE BY ELECTING UP TO FOUR (4) CANDIDATES AND ADOPTING RESOLUTION NO. 4339 ACTION ITEMS 7. BOARD a) DISCUSSION OF 2017 BOARD MEETING CALENDAR There were no changes to the board meeting calendar. REPORTS 8. GENERAL MANAGER’S REPORT General Manager Watton presented information from his report which included an update on the ESRI International Conference, a meeting with the Department of Homeland Security, the proposition 218 and rate increase notices, FEMA’s approval of the District’s request for public assistance, the power outage in Rancho Jamul on June 29, and potable and recycled water sales and purchases. The board had comments and questions concerning a few items in the General Manager’s report and staff responded to the questions and comments. 9. CWA REPORT Director Croucher shared that the San Diego County Water Authority (CWA) will be hosting a Legislative Round Table with Assemblymember Lorena Gonzalez- Fletcher on Monday, August 7, 2017. He indicated that meetings will be held in August and September at Metropolitan Water District (MWD) to discuss the “California Water Fix” and CSDA’s Conference will be held on September 25 to 28, 2017. He noted that CWA filed on July 31, 2017 its petition for the California Supreme Court to review it lawsuit with MWD. The court has until September 29, 2017 to decide if they will hear the case. If the Supreme Court decides to hear the case, it will likely take an additional 18 to 24 months for the court to issue its findings. Director Croucher also stated that CWA has issued a Request for Proposal (RFP) for solar energy for the San Vicente Reservoir. He lastly shared that CWA issued a contract for the relining of Pipeline 3 from Lake Murray to the Sweetwater Reservoir. He stated that the project will cause significant disruption as the pipe runs through Spring Street which is in the center of the City of La Mesa. 4 10. DIRECTORS' REPORTS/REQUESTS Director Gastelum indicated he attended CWA’s Citizen’s Water Academy and has graduated from the academy. He also attend the Special District Leadership Academy and has been learning about the water industry. He stated that he is trying to learn and gain as much knowledge about the industry so he can become a better board member. Director Thompson reported that he had attended with staff a meeting with the Building Industry Association to discuss capacity fees. 11. PRESIDENT’S REPORT President Robak reported on the meetings he attended during the month of July 2017 (his report is attached). He shared that the Water Conservation Garden (WCG) JPA Board has been discussing governance issues. He noted that the WCG was created to educate the public on water conservation which is a very different mission from other public gardens like the San Diego Botanical Garden. He stated that he advocates that the District continue to support the WCG and, along with Helix WD, continue to inform the member agencies on the importance of the WCG to educate the public. 12. CLOSED SESSION The board recessed to closed session at 4:17 p.m. to discuss the following matter: a) CONFERENCE WITH REAL PROPERTY NEGOTIATORS [GOVERNMENT CODE §54956.8] PROPERTY: SALT CREEK GOLF COURSE 525 HUNTE PARKWAY CHULA VISTA, CA 91914 AGENCY NEGOTIATOR: MARK WATTON, GENERAL MANAGER NEGOTIATING PARTIES: BILL McWETHY, PACIFIC HOSPITALITY GROUP UNDER NEGOTIATIONS: INSTRUCT NEGOTIATOR CONCERNING PRICE, TERMS OF PAYMENT, OR BOTH, FOR THE PURCHASE, SALE AND/OR LEASE OF THE PROPERTY 5 The board reconvened from closed session at 5:24 p.m. and General Counsel Shinoff reported that the board met in closed session and took no reportable actions. 13. ADJOURNMENT With no further business to come before the Board, President Robak adjourned the meeting at 5:24 p.m. ___________________________________ President ATTEST: District Secretary 6 President’s Report Mark Robak August 2, 2017 Board Meeting # Date Meeting Purpose 1 5-Jul OWD Regular Board Meeting Monthly board meeting 2 14-Jul Committee Agenda Briefing Met with General Manager Watton to review items that will be presented at the July committee meetings. 3 31-Jul Board Agenda Briefing Met with General Manager Watton and General Counsel Shinoff to review items that will be presented at the August Board Meeting. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 1, 2017 SUBMITTED BY: Kelli Williamson Human Resources Manager PROJECT: Various DIV. NO. ALL APPROVED BY: Adolfo Segura, Chief of Administrative Services Mark Watton, General Manager SUBJECT: TO REQUEST BOARD APPROVAL TO CHANGE LIFE INSURANCE CARRIERS GENERAL MANAGER’S RECOMMENDATION: To authorize the General Manager to enter into up to a two-year agreement with SunLife to provide life, accidental death and dismemberment (AD&D), and voluntary life insurance coverage from January 1, 2018 through December 31, 2019. COMMITTEE ACTION: See Attachment A. PURPOSE: To provide information to the Board regarding proposed change in carrier for our life, AD&D and voluntary life insurance coverage. ANALYSIS: The District reviews insurance plans on a continuous basis to ensure that the District is receiving the highest level of service with the most cost-effective premiums. This year, staff reviewed our life, AD&D, voluntary life, and short and long-term disability benefit plans. 2 The District provides District-paid life and AD&D, and employee-paid voluntary life insurance to employees. These benefits are currently being offered through CIGNA. Last year, the District obtained a three- year rate guarantee with CIGNA at a competitive rate. The District continued with CIGNA last year with the intent to review these products again, along with short and long-term disability benefits since our three-year rate guarantee for short and long term disability was going to be up for renewal at the end of 2017. The District’s goal was to ascertain if bundling these benefit services under one provider would create a cost savings. The District, through our benefit consultant, Alliant, solicited and received bids from insurance carriers for these programs, each separately and combined. Alliant obtained competitive quotes from SunLife, CIGNA, and Mutual of Omaha (Attachment B). Alliant also solicited quotes from Guardian, Principal, and Prudential, however, none were able to provide competitive quotes. Staff and Alliant compared each of the programs and it was determined that the most cost-effective option was to bundle the services and move our life, AD&D, and voluntary life insurance program to SunLife (the current provider for our short and long-term disability provider). FISCAL IMPACT: Joe Beachem, Chief Financial Officer If the District maintained its current providers for each of the benefits, the estimated annual premiums would be $90,366. With the proposed change, the estimated annual premiums will be $74,906. This is an overall 17% savings and results in an approximate savings of $30,920 over the two-year period. Funding for these expenditures is budgeted in the FY18 Operating Budget and is sufficient to cover costs. LEGAL IMPACT: None. Attachments: Attachment A – Committee Action Report Attachment B – Life and Disability Program Options ATTACHMENT A SUBJECT/PROJECT: TO REQUEST BOARD APPROVAL TO CHANGE LIFE INSURANCE CARRIERS COMMITTEE ACTION: The Finance, Administration, and Communications Committee reviewed this item at a meeting held on October 17, 2017, and the following comments were made: It was indicated that staff meets annually with the District’s benefits consultant, Alliant, to review the insurance plans. Staff reviewed information in the staff report. The District’s short and long term disability insurance is currently with SunLife and life insurance, accidental death and dismemberment (AD&D), and voluntary life insurance is with CIGNA (for the past three to four years). It was found, through a solicitation for bids that it would be more cost efficient for the District to bundle the life insurance, AD&D, and voluntary life with the short and long term disability insurance with SunLife. Staff is requesting that the board authorize an up to two-year agreement with SunLife to provide life, AD&D, and voluntary life insurance coverage from January 1, 2018 through December 31, 2019. It was noted that the change would be seamless to District employees. The Committee inquired if there was a difference in the credit rating between Mutual of Omaha and SunLife as the bids were so close. The Committee felt that if Mutual of Omaha is financially stronger there may be an argument to go with Mutual of Omaha. Staff indicated that they have that information and would advise on the credit rating. Staff confirmed that the AM Best credit rating for both carriers is “A+”. Staff noted that if the District changed to Mutual of Omaha, the District would be changing to two providers versus one and, thus, would lose some of the savings as it would take additional staff time to make the changes. In response to an inquiry from the Committee, staff indicated that the the current participants for the voluntary life insurance benefit would not need to provide evidence of insurability/health assessment. This change does not affect any other portable life insurance plans the District offers. In response to another inquiry from the Committee, staff indicated that the District does have a wellness program, a smoking cessation program and the District will be providing, through SDRMA, an online app for a life coach which assists the employee in accomplishing goals related to wellness. Following the presentation, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. Renewal: CIGNA Life / AD&D SunLife Disability Proposed SunLife Package Proposed Mutual of Omaha Package Proposed CIGNA Package Packaging: Basic Life / AD&D and Disability Plans: Basic Life / AD&D $25,268 $20,215 $20,912 $25,268 Short-Term Disability $5,134 $5,134 $5,134 $3,422 Long-Term Disability $59,964 $49,557 $49,557 $59,964 Annual Premium:$90,366 $74,906 $75,603 $88,654 CIGNA SunLife Mutual of Omaha CIGNA Annual Premium for Basic Life / AD&D Only: Basic Life / AD&D $25,268 $20,215 $20,912 $25,268 $25,268 $20,215 $20,912 $25,268 SunLife SunLife Mutual of Omaha CIGNA Annual Premium for Disability Plans Only: Short-Term Disability $5,134 $5,134 $5,134 $3,422 Long-Term Disability $59,964 $59,964 $49,557 $59,964 $65,098 $65,098 $54,691 $63,386 2017 Alliant Insurance Services, Inc., All rights reserved. Alliant Employee Benefits, a division of Alliant Insurance Services, Inc. CA License No. OC36861 Life and Disability Program Options This document is intended as a quick reference, not a comprehensive description. Limitations and exclusions can be found in the official plan documents. In case of any discrepancies, the official plan documents will govern. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 1, 2017 SUBMITTED BY: Bob Kennedy Engineering Manager PROJECT: Various DIV. NO. ALL APPROVED BY: Rod Posada, Chief of Engineering Mark Watton, General Manager SUBJECT: Adopt Resolution No. 4340 Amending Policy No. 21 for the Selection of Professional Consultants of the District’s Code of Ordinances GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) adopt Resolution No. 4340 (see Attachment B) amending Policy No. 21 (see Attachment B, Exhibit 1) for the Selection of Professional Consultants of the District’s Code of Ordinances for Engineering projects. COMMITTEE ACTION: Please see Attachment A. PURPOSE: The purpose of the proposed amendment outlined in this staff report is to update Policy No. 21 of the District’s Code of Ordinances to allow the Project Manager to participate as a panel member during the selection process and to modify the method of selection of Professional Consultants for Minor Projects with fees up to $50,000 (see Attachment B and Exhibit 1). ANALYSIS: Policy No. 21 of the District’s Code of Ordinances establishes the guidelines for the District’s selection of Professional Consultants. 2 The current Policy No. 21, dated September 7, 2016, established the guidelines for the selection of Professional Consultants. The proposed amendment is intended to simplify the selection process of Professional Consultants. The amendment states, the Project Manager may be part of the review panel, if the General Manager or his/her designee (other than the Project Manager) opens and scores the cost proposal. The review panel will not be provided any information about the cost proposal scores during the selection process. The process for selection of Professional Consultants for Minor Projects with fees up to $50,000 will no longer require an advertisement in a paper of major circulation. The five (5) member panel review will be reduced to a panel of three (3). The Project Manager and two (2) other staff selected from the District will review the proposals and select the consultant based on qualifications and fee (see Attachment B and Exhibit 2). FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. STRATEGIC GOAL: Adoption of Resolution No. 4340 supports the District’s Mission statement, “To provide high value water and wastewater services to the customers of the Otay Water District in a professional, effective, and efficient manner” and the General Manager’s Vision, “A District that is at the forefront in innovations to provide water services at affordable rates, with a reputation for outstanding customer service.” LEGAL IMPACT: None. BK/RP:jf P:\Public-s\STAFF REPORTS\2017\11-01-17\BD 11-01-17 Staff Report Policy 21 Proposed Changes Report (BK- RP).docx Attachments: Attachment A – Committee Action Attachment B - Resolution No. 4340 Exhibit 1 – Strike-through Policy No. 21 Exhibit 2 – Final Revised Policy No. 21 ATTACHMENT A SUBJECT/PROJECT: VARIOUS Adopt Resolution No. 4340 Amending Policy No. 21 for the Selection of Professional Consultants of the District’s Code of Ordinances COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a Committee Meeting held on October 18, 2017, and the following comments were made: Staff stated that the purpose of the proposed amendment is to update Policy No. 21 of the District’s Code of Ordinances to allow the Project Manager to participate as a panel member during the selection process and to modify the method of selection of Professional Consultants for Minor Projects with fees up to $50,000. It was indicated that Policy No. 21 of the District’s Code of Ordinances establishes the guidelines for the District’s selection of Professional Consultants. Staff indicated that the amendment is intended to simplify the selection process of Professional Consultants. It states that the Project Manager may be part of the review panel, if the General Manager or his/her designee (other than the Project Manager) opens and scores the cost proposal. The review panel will not be provided any information about the cost proposal scores during the selection process. The process for selection of Professional Consultants for Minor Projects with fees up to $50,000 will no longer require an advertisement in a paper of major circulation. The five (5) member panel review will be reduced to a panel of three (3). The Project Manager and two (2) other staff selected from the District will review the proposals and select the consultant based on qualifications and fee (See Attachment B and Exhibit 2). 4 Staff recommended that the Board adopt Resolution No. 4340 amending Policy No. 21 for the Selection of Professional Consultants of the District’s Code of Ordinances for Engineering projects. In response to a question from the Committee, staff stated that the proposed amendment indicates that Project Managers who participate on District selection panels must be a District employee. Following the discussion, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. Attachment B RESOLUTION NO. 4340 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AMENDING POLICY 21 SELECTION OF PROFESSIONAL CONSULTANTS OF THE DISTRICT’S CODE OF ORDINANCES WHEREAS, the Otay Water District Board of Directors has been presented with an amended Policy No. 21 of the District’s Code of Ordinances for the management of the Otay Water District; and WHEREAS, the amended Policy No. 21 has been reviewed and considered by the Board, and it is in the interest of the District to adopt the amended policy; and WHEREAS, the strike-through copy of the proposed policy is attached as Exhibit 1 to this resolution; and NOW, THEREFORE, BE IT RESOLVED, DETERMINED, AND ORDERED by the Board of Directors of the Otay Water District that the amended Policy No. 21, incorporated herein as Exhibit 2, is hereby adopted. PASSED, APPROVED, AND ADOPTED by the Board of Directors of Otay Water District at a board meeting held this 1st day of November 2017, by the following vote: Ayes: Noes: Abstain: Absent: ________________________ President ATTEST: ____________________________ District Secretary OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 9/07/161 10/014/1 7 Page 1 of 65 I. PURPOSE The purpose of this policy is to establish procedures governing the selection of professional consultants needed for District Engineering projects. II. SCOPE This policy is applicable to selection of Professional Consultants needed for Engineering projects. III. POLICY For the purpose of this polic y, ‘‘professional consultants’’ means any ‘‘Firm’’ qualified and authorized to provide ‘‘architectural, landscape architectural, engineering, environmental, and land surveying services,’’ or ‘‘construction project management,’’ or ‘‘environmental services,’’ as each of those terms or services is defined in the California Government Code, commencing with Section §4525, as hereinafter amended or renumbered (the ‘‘Professional Services Provisions’’). This Policy provides a method and procedure pursuant to which professional consultants in engineering, architectural, landscape architectural, environmental, land surveying, and construction management, including plan checking, inspection, and p rojects requiring a special expertise , may be retained from the private sector to augment the District's professional capabilities or for the performance of specialized services not available to the District from the existing District workforce. Services provided to the District by professional consultants may cover a wide range of profes sional activity, including, but not limited to, studies, special reports, design, and related activi - ties on such projects as pipelines, pump stations, reservoirs, planning studies, and other expert testimony capabilities. Pursuant to the Professional Services Provisions, and particularly the provisions of the California Government Code Section §4526, the Otay Water District may adopt procedures that assure that professional services are engaged on the basis of demonstrated competence and qualifications for the t ypes of services to be performed and at fair and reasonable prices. Furthermore, m aximum participation of small business firms, as defined in Government Code Section 14837, and disadvantaged business enterprises (DBEs) Exhibit 1 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 9/07/161 10/014/1 7 Page 2 of 65 shall be encouraged. Government Code Section 14837 defines "small business" as a business in which the principal office is located in California and the officers of such business are domiciled in California, which is independently owned and operated and which is not dominant in its field of operation. IV. METHOD OF SELECTION OF PROFESSIONAL CONSULTANTS A. Major Projects - Anticipated Fee Greater than $2 00,000 1. The District will advertise in at least one local newspaper of general circulation, on the District’s webpage, and through CWA’s Small Contractor Outreach and Opportunities Programs, and any other medium deemed appropriate by the Pproject Mmanager, before a Request for Proposal (RFP) is issued. Interested parties will be required to submit a Letter of Interest and a Statement of Qualifications within the timeframe specified in the publication. The ‘‘Statement of Qualifications’’ shal l be a writt en document, shall contain background information on the firm that is current as of the date of submission of the statement and must highlight the work, expertise, and experience that qualify the firm to undertake the work required by the District, as such work is described in the publication. 2. All parties who submit Letters of Interest and a Statement of Qualifications, and are deemed qualified as a result of the Statement of Qualifications process, will receive a copy of the RFP. Proposals will only be accepted from those firms that submitted the Letter of Interest and the Statement of Qualifications within the timeframe specified in the publication. The form of the proposal will be prescribed by the District. If a firm has submitted a Statement of Qualifications within a calendar year and the qualifications remain correct and accurate, then only a L etter of I nterest will suffice. 3. The General Manager and the appropriate department head(s) shall approve the selection criteria and the associated weighing factor to be used in evaluating the proposals accepted by the District, in accordance with Paragraph 2, above. The General Manager, or his/her designee, shall appoint a review panel of no fewer than five qualified staff to review and evaluate the proposals, and to rank the firms in the order from most qualified to least qualified. The Project Manager may be part of the review panel, if the General Manager or his/her designee OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 9/07/161 10/014/1 7 Page 3 of 65 (other than the Project Manager) opens and scores the cost proposal . The review panel will not be provided any information about the cost proposal score and will interview only those firms, which in the panel’s opinion , appear to have the most desirable qualifications. If , in the opinion of the panel , none of the firms are qualified, all proposals may be rejected. In the event of an unusual project, which poses special problems beyond the scope previously encountered by staff personnel, the review panel may be augmented by an unbiased, qualified member of the profession being considered , so long as he/she has not and will not submit a proposal. 4. If a firm is rejected on the basis of its proposal, and is not asked to appear for an interview, the firm may appeal the decision by submitting a protest to the G eneral Manager or his/her designee . A copy of the proposal shall be submitted with the protest. The protest shall be filed within five business days of the rejection notification. The protest shall provide a comp elling reason why the firm believes the o riginal proposal contained all relevant experience or other requested information . If the General Manager , or his/her designee, concurs with the appellant, the firm shall be added to the inter view list. 5. Immediately upon conclusion of oral interviews, the review panel ’s oral scores will be combined with the written proposals scores and shall designate the order of preference of the candidates. 6. The department head designated by the General Manager , or his/her designee, shall commence negotiations of an agreement with the first choice of the review panel for the extent of serv ice to be ren dered and the compensation. If agree ment is not reached within a reasonable time, the department head shall terminate the nego tiations with the first choice and shall open negotiations with the second choice of the review panel and so on until a firm is retained or the list of selected firms is exhausted. Professional societies and organizations have published schedules of fees for professional services, which may be used as a guide following adjustment to reflect the actual scope of work expected of the firm selected. B. Intermediate Projects - Fees of $50,000 to $2 00,000 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 9/07/161 10/014/1 7 Page 4 of 65 1. The process for selecting consultants for intermediate projects shall be the same as prescribed in Sections IV- A and V of this policy, with the exception of formal interviews of the highest ranked consultants, which are not required and subject to other applicable exceptions described below. C. Minor Projects -- Fees up to $50,000 1. The process for selecting consultants for minor projects shall be the same as prescribed in Sections IV -A and V of this policy, with the exceptions noted below:in accordance with the Purchasing Manual. (a) The District will advertise on the District’s webpage, BidSync, and through any other medium deemed appropriate by the Pp roject Mmanager, before a (RFP) is issued. (b) The General Manager, or his/her designee, shall appoint a review panel of no fewer than three qualified staff to review and evaluate the proposals, and to rank the firms in the order from most qualified to least qualified. (c) Formal interviews of the highest ranked consultants are not required. V. PROCEDURAL REQUIREMENTS FOR SELECTION OF CONSULTANTS FOR MAJOR, INTERMEDIATE, AND MINOR PROJECTS 1. The appropriate department head receives proposals from all interested parties; which are defined as consultants that have submitted a Letter of Interest and a Statement of Qualifications as defined in Section IV-A-1. 2. The evaluating panel shall consider the qualifications and demonstrated experience of the prospective consultants as well as the fee proposed by each firm to provide the services as requested in the RFP. The panel will determine which firm offers the best value for the work required. Such determination will be made with due consideration to all factors, including the qualifications, approach to the scope of work, and experience of the consultant , relative to the project as measured in the score matrix. The weight assigned to each factor under consideration will be reflected in the score matrix included in the RFP. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 9/07/161 10/014/1 7 Page 5 of 65 3. A review panel is appointed in accordance with this policy. Review panel member names are not made avail able to consultants prior to a call for interview. 4. The first choice of the review panel is called for negotia tion. If an agreement cannot be negoti ated, the first choice will be dismissed from further considera tion on that par ticular project. Following the dismissal of the first choice, negotiations will commence with the second choice. 5. The District’s Pproject Mmanager evaluates the and contacts the references provided by the consultant and evaluates the past performance, if exists, on District’s projects, as well as intern et search about the company making it part of the recommendation to the Board. 6. A successful negotiation shall result in presenta tion by the department head to the General Manager or his/her designee, of a profes sional agre ement signed by the selected firm . The agreement may provide for differing methods of compensation based upon the type of work to be performed. "Per diem" or "hourly" compensation is the general rule when specific scope of work is yet to be deter mined. This type of compensation should carry a stated maximum amount, which will not be exceeded except by prior District approval. Fixed -fee or cost - plus-fixed-fee compensa tion is commonly used after scope of work has been explicitly identified. Compensation is paid as services are performed rather than in advance. 7. All contracts in excess of the amount authorized by the Board to the General Manager, or his/her designee, in accordance with Section 2.01 of the District’s Code of Ordinances, shall be submitted to the Board for consideration. 8. All agreements for professional services shall provide for the management phase of the resulting contract. A single P project Mmanager shall be des ignated by the consultant and a liaison manager shall be designated by the District for purposes of contract administration. 9. Late responses or untimely responses by prospec tive candidates should not be considered for fur ther action. The ability to respond to a publication or an invita tion for consid eration in a timely and responsive manner is essential to a future satis - factory contract relationship. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 9/07/161 10/014/1 7 Page 6 of 65 10. All proposed contracts shall be reviewed by the District's Legal Counsel and approved as to form prior to presentation to the General Manager or his/her designee. 11. The department head shall e nsure that other departments , which have a proper interest in the work under consid eration, are kept informed as to the progress of the work and that user decisions and desires are constructively considered within the constraints of financial and practical limitations. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 11/01/17 Page 1 of 5 I. PURPOSE The purpose of this policy is to establish procedures governing the selection of professional consultants needed for District Engineering projects. II. SCOPE This policy is applicable to selection of Professional Consultants needed for Engineering projects. III. POLICY For the purpose of this polic y, ‘‘professional consultants’’ means any ‘‘Firm’’ qualified and authorized to provide ‘‘architectural, landscape architectural, engineering, environmental, and land surveying services,’’ or ‘‘construction project management,’’ or ‘‘environmental services,’’ as each of those terms or services is defined in the California Government Code, commencing with Section §4525, as hereinafter amended or renumbered (the ‘‘Professional Services Provisions’’). This Policy provides a method and procedure pursuant to which professional consultants in engineering, architectural, landscape architectural, environmental, land surveying, and construction management, including plan checking, inspection, and p rojects requiring a special expertise , may be retained from the private sector to augment the District's professional capabilities or for the performance of specialized services not available to the District from the existing District workforce. Services provided to the District by professional consultants may cover a wide range of profes sional activity, including, but not limited to, studies, special reports, design, and related activi - ties on such projects as pipelines, pump stations, reservoirs, planning studies, and other expert testimony capabilities. Pursuant to the Professional Services Provisions, and particularly the provisions of the California Government Code Section §4526, the Otay Water District may adopt procedures that assure that professional services are engaged on the basis of demonstrated competence and qualifications for the t ypes of services to be performed and at fair and reasonable prices. Furthermore, m aximum participation of small business firms, as defined in Government Code Section 14837, and disadvantaged business enterprises (DBEs) Exhibit 2 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 11/01/17 Page 2 of 5 shall be encouraged. Government Code Section 14837 defines "small business" as a business in which the principal office is located in California and the officers of such business are domiciled in California, which is independently owned and operated and which is not dominant in its field of operation. IV. METHOD OF SELECTION OF PROFESSIONAL CONSULTANTS A. Major Projects - Anticipated Fee Greater than $2 00,000 1. The District will advertise in at least one local newspaper of general circulation, on the District’s webpage, and through CWA’s Small Contractor Outreach and Opportunities Programs, and any other medium deemed appropriate by the P roject M anager, before a Request for Proposal (RFP) is issued. Interested parties will be required to submit a Letter of Interest and a Statement of Qualifications within the timeframe specified in the publication. The ‘‘Statement of Qualifications’’ shall be a writt en document, shall contain background information on the firm that is current as of the date of submission of the statement and must highlight the work, expertise, and experience that qualify the firm to undertake the work required by the District, as such work is described in the publication. 2. All par ties who submit Letters of Interest and a Statement of Qualifications, and are deemed qualified as a result of the Statement of Qualifications process, will receive a copy of the RFP. Proposals will only be accepted from those firms that submitted the Let ter of Interest and the Statement of Qualifications within the timeframe specified in the publication. The form of the proposal will be prescribed by the District. If a firm has submitted a Statement of Qualifications within a calendar year and the qualifications remain correct and accurate, then only a L etter of I nterest will suffice. 3. The General Manager and the appropriate department head(s) shall approve the selection criteria and the associated weighing factor to be used in evaluating the proposals accepted by the District , in accordance with Paragraph 2, above. The General Manager, or his/her designee, shall appoint a review panel of no fewer than five qualified staff to review and evaluate the proposals, and to rank the firms in the order from most qualified to least qualified. The Project Manager may be part of the review panel, if the General Manager or his/her designee (other than the Project Manager) opens and scores the OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 11/01/17 Page 3 of 5 cost proposal . The review panel will not be provided any information about the cost proposal score and will interview only those firms, which in the panel’s opinion , appear to have the most desirable qualifications. If , in the opinion of the panel , none of the firms are qualified, all proposals may be rejected. In the event of an unusual project, which poses special problems beyond the scope previously encountered by staff personnel, the review panel may be augmented by an unbiased, qualified member of the profession being considered , so long as he/she has not and will not submit a proposal. 4. If a firm is rejected on the basis of its proposal, and is not asked to appear for an interview, the firm may appeal the decision by submitting a protest to the General Manager or his/her designee . A copy of the proposal shall be submitted with the protest. The protest shall be filed within five business days of the rejection notification. The protest shall provide a comp elling reason why the firm believes the original proposal contained all relevant experience or other requested information . If the General Manager , or his/her designee, concurs with the appellant, the firm shall be added to the inter view list. 5. Immediately upon conclusion of oral interviews, the review panel ’s oral scores will be combined with the written proposals scores and shall designate the order of preference of the candidates. 6. The department head designated by the General Manager , or his/her designee, shall commence negotiations of an agreement with the first choice of the review panel for the extent of serv ice to be ren dered and the compensation. If agree ment is not reached within a reasonable time, the department head shall terminate the nego tiations with the first choice and shall open negotiations with the second choice of the review panel and so on until a firm is retained or the list of selected firms is exhausted. Professional societies and organizations have published schedules of fees for professional services, which may be used as a guide following adjustment to reflect the actual scope of work expected of the firm selected. B. Intermediate Projects - Fees of $50,000 to $2 00,000 1. The process for selecting consultants for intermediate projects shall be the same as prescribed in Sections IV- A and V of this policy, with the exception of formal OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 11/01/17 Page 4 of 5 interviews of the highest ranked consultants, which are not required and subject to other applicable exceptions described below. C. Minor Projects -- Fees up to $50,000 1. The process for selecting consultants for minor projects shall be the same as prescribed in Sections IV -A and V of this policy, with the exceptions noted below:. (a) The District will advertise on the District’s webpage, BidSync, and through any other medium deemed appropriate by the Project M anager, before a (RFP) is issued. (b) The General Manager, or his/her designee, shall appoint a review panel of no fewer than three qualified staff to review and evaluate the proposals, and to rank the firms in the order from most qualified to least qualified. (c) Formal interviews of the highest ranked consultants are not required. V. PROCEDURAL REQUIREMENTS FOR SELECTION OF CONSULTANTS FOR MAJOR, INTERMEDIATE, AND MINOR PROJECTS 1. The appropriate department head receives proposals from all interested parties; which are defined as consultants that have submitted a Letter of Interest and a Statement of Qualifications as defined in Section IV-A-1. 2. The evaluating panel shall consider the qual ifications and demonstrated experience of the prospective consultants as well as the fee proposed by each firm to provide the services as requested in the RFP. The panel will determine which firm offers the best value for the work required. Such determination will be made with due consideration to all factors, including the qualifications, approach to the scope of work, and experience of the consultant , relative to the project as measured in the score matrix. The weight assigned to each factor under consideration will be reflected in the score matrix included in the RFP. 3. A review panel is appointed in accordance with this policy. Review panel member names are not made avail able to consultants prior to a call for interview. 4. The first cho ice of the review panel is called for negotia tion. If an agreement cannot be negoti ated, the first choice will be dismissed from further considera tion on that par ticular OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised POLICY FOR SELECTION OF PROFESSIONAL CONSULTANTS 21 8/1/90 11/01/17 Page 5 of 5 project. Following the dismissal of the first choice, negotiations will commence with the second choice. 5. The District’s Project Manager evaluates and contacts the references provided by the consultant and evaluates the past performance, if exists, on District’s projects, as well as internet search about the company making it part of the recommendation to the Board. 6. A successful negotiation shall result in presenta tion by the department head to the General Manager or his/her designee, of a profes sional agreement signed by the selected firm . The agreement may provide for differing methods of compensation based upon the type of work to be performed. "Per diem" or "hourly" compensation is the general rule when specific scope of work is yet to be deter mined. This type of compensation should carry a stated maximum amount, which will not be exceeded except by prior District approval. Fixed -fee or cost - plus-fixed-fee compensa tion is commonly used after scope of work has been explicitly identified. Compensation is paid as services are performed rather than in advance. 7. All contracts in excess of the amount authorized by the Board to the General Manager, or his/her designee, in accordance with Section 2.01 of the District’s Code of Ordinances, shall be submitted to the Board for consideration. 8. All agreements for professional services shall provide for the management phase of the resulting contract. A single P roject Manager shall be des ignated by the consultant and a liaison manager shall be designated by the District for purposes of contract administration. 9. Late responses or untimely responses by prospec tive candidates should not be considered for fur ther action. The ability to respond to a publication or an invita tion for considera tion in a timely and responsive manner is essential to a futu re satis - factory contract relationship. 10. All proposed contracts shall be reviewed by the District's Legal Counsel and approved as to form prior to presentation to the General Manager or his/her designee. 11. The department head shall e nsure that other departments , which have a proper interest in the work under consid eration, are kept informed as to the progress of the work and that user decisions and desires are constructively considered within the constraints of financial and practical limitations. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 1, 2017 SUBMITTED BY: Steve Beppler Senior Civil Engineer Bob Kennedy Engineering Manager PROJECT: P2625- 001102 001103 DIV. NO. 5 APPROVED BY: Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Authorize the Creation of a Capital Improvement Program (CIP) Project for the Design and Construction of a 12-Inch, 978 Zone Pipeline in Hidden Mesa Road in the Amount of $1.5 Million of which $90,000 will be in the Current Fiscal Year CIP Budget GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) authorize the creation of CIP P2625 for the design and construction of a 12-Inch, 978 Zone Pipeline in Hidden Mesa Road in the amount of $1.5 Million of which $90,000 will be in the current Fiscal Year CIP budget (see Exhibit A for Project location.) COMMITTEE ACTION: Please see Attachment A. PURPOSE: To establish a CIP and budget to initiate design and construction of a 12-Inch, 978 Zone Potable Water Pipeline in Hidden Mesa Road to enable the existing potable water transmission main (conveys fire flows) that runs primarily through utility easements along Vista Vereda and Hidden Mesa Trail to be partially abandoned and limit the extent of the replacement distribution water line. The total Project budget is $1.5 Million, with the current Fiscal Year budget to be increased by an amount of $90,000 to design the Project. 2 ANALYSIS: As part of the preliminary design effort currently in progress for CIP P2574, Vista Vereda Pipeline Replacement project, an evaluation of alternatives to the replacement of the existing transmission 12-inch potable water pipeline in the same alignment was performed. The original pipeline was installed in 1959 in utility easements as the area had not been developed. Over the past 50+ years, the subdivision of the land and construction of single-family homes have greatly changed the terrain along the pipeline alignment. The existing 20- foot wide easement that runs from Vista Vereda to Hidden Mesa Trail goes through backyards and side yards with areas of steep terrain adjacent to residences, restrictive access issues, and poses significant risks to nearby homes in the event of a pipeline failure. Site visits have been made with the General Manager and District staff to obtain their insight regarding the entire existing water line alignment. An alternative route for the transmission of fire flows to the western portions of the 978 Zone was identified in Hidden Mesa Road between Vista Grande Road and Hidden Mesa Trail, where the pipeline would be within public road right-of-ways and easily accessed for maintenance and monitoring purposes. The existing sections of 8-inch and 10-inch water lines in Hidden Mesa Road, approximately 3,000 feet in length, are insufficient to convey commercial area fire flows that are required in the western portion of the 978 Pressure Zone. The current CIP project budget for the Vista Vereda CIP P2574 Project is $2.5 Million and was established prior to the start of the design process, which has identified the issues raised above. If the replacement water line were to be constructed in the same alignment, the project budget would need to be increased to approximately $3.6 Million in consideration of the areas of difficult construction and limited access, plus potential legal fees related to the alignment. The alternative of moving the transmission line to Hidden Mesa Road and modifying the replacement water line for Vista Vereda to local distribution is projected to have an overall cost of $3.5 Million. While the initial construction cost of a new 12-inch water line in Hidden Mesa Road is about the same as the “replace in place” option of the existing Vista Vereda pipeline, the legal risks are lower as well as long-term maintenance costs. See Exhibit B for an analysis regarding the two (2) potential water line alternatives and their estimated project costs. This request is to establish a new CIP P2625 for this new water line in Hidden Mesa Road and to authorize a total budget of $1.5 Million 3 dollars with $90,000 to be spent in this Fiscal Year, which is a change to the 2018 CIP budget. Construction is planned to occur in Fiscal Year 2019, with costs projected at $1.4 Million and the warranty period to complete the Project in Fiscal Year 2020 will have $10,000 allocated for that work. The existing budget for the Vista Vereda CIP P2574 Project of $2.5 Million is anticipated to be reduced by $500,000 during the next budget process to reflect the reduction in the size and extent of the replacement pipeline required with changing it from a transmission main to a distribution line. While the current Fiscal Year budget for CIP P2574 was established to cover the design of whichever replacement water line alignment option was selected, the Hidden Mesa Road option is not specifically addressed in the CIP P2574 scope, prompting staff to create an individual CIP for this portion of the overall Project. Authorization of this CIP will allow staff to initiate the design using existing consultants immediately so that the Hidden Mesa Road pipeline design will be able to keep up with the work planned for Vista Vereda. The upgraded pipeline in Hidden Mesa Road will be scheduled for construction before the work in Vista Vereda is begun, to maintain transmission capabilities in the 978 Zone. Construction is expected to start in the fall of 2018. FISCAL IMPACT: Joe Beachem, Chief Financial Officer This action establishes the CIP program budget for the 12-Inch, 978 Zone Pipeline in Hidden Mesa Road of $90,000 for Fiscal Year 2018 and $1.5 Million total for the Project, which is expected to be completed by Fiscal Year 2020. While this expenditure was not incorporated into the planned rates, the District has sufficient financial flexibility to fund this CIP, based on the following factors. The existing budget for CIP P2574 of $2.5 Million is anticipated to be reduced by approximately $500,000. The replacement reserve is projected to be $14.4 Million over target at the end of Fiscal Year 2018 and $8.3 Million over target at the end of Fiscal Year 2023. In addition, based on current water sales volumes the General Fund is projecting to have an operating surplus of approximately $300,000 in Fiscal Year 2018, which, if realized at year-end, is sufficient to fund the $90,000 estimated Fiscal Year 2018 cost. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide high value water and wastewater services to the customers of the Otay Water District in a professional, effective, and efficient manner” and the General Manager’s Vision, “A District that is at the forefront in 4 innovations to provide water services at affordable rates, with a reputation for outstanding customer service.” LEGAL IMPACT: None. SB/BK/RP:jf P:\WORKING\CIP P2625 Hidden Mesa Road WL\Staff Report\BD 11-01-17 Staff Report CIP P2625 Hidden Mesa Rd (BK-RP) REV5.docx Attachments: Attachment A – Committee Action Exhibit A – Vicinity Map Exhibit B – Vista Vereda Water Line Replacement – Alternatives Cost Analysis ATTACHMENT A SUBJECT/PROJECT: CIP P2625- 001102 & 001103 Authorize the Creation of a Capital Improvement Program (CIP) Project for the Design and Construction of a 12-Inch, 978 Zone Pipeline in Hidden Mesa Road in the Amount of $1.5 Million of which $90,000 will be in the Current Fiscal Year CIP Budget COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a Committee Meeting held on October 18, 2017, and the following comments were made: Staff recommended that the Board authorize the creation of CIP P2625 for the design and construction of a 12-Inch, 978 Zone Pipeline in Hidden Mesa Road in the amount of $1.5 Million of which $90,000 will be in the current Fiscal Year CIP budget. Staff shared that in a preliminary design effort for CIP P2574 (Vista Vereda WL Replacement Project), which involves the replacement of approximately 2,500 linear feet of 12-inch steel water line that was installed in 1959, it became apparent that the replacement of the water line proposed significant construction and long-term risks to several of the properties that the water line crosses. It was indicated that the water line serves as a transmission line to other areas of the 978 Pressure Zone. Staff stated that to abandon the highest risk area of the water line, and provide local distribution in other areas, would mean transferring the transmission aspect of it to Hidden Mesa Road where about 3,000 linear feet of existing 10-inch and 8-inch water lines would be upgraded to a 12-inch water main. An analysis of the overall project was performed with the consideration of constructability and potential legal fees associated with the two primary project alternatives as presented in Exhibit B of the staff report. Replacing the existing water line in the same alignment is projected to have lower 6 construction costs than the alternative of moving the transmission to Hidden Mesa Road ($2.2 million versus $2.4 million). Overall, the project costs are anticipated to be higher ($3.6 million versus $3.5 million) when potential legal risks and other factors are considered. Staff highlighted that future maintenance of the water system will be easier, especially for access, with this alternative arrangement. Staff stated that the request to establish a new CIP P2625 for this new water line in Hidden Mesa Road (as it was not specifically addressed in the P2574 scope) and to authorize a total budget of $1.5 Million dollars with $90,000 to be spent in this Fiscal Year, which is a change to the 2018 CIP budget. It was indicated that construction is planned to occur in Fiscal Year 2019. The existing budget for the Vista Vereda CIP P2574 Project of $2.5 Million will be reviewed as design progresses and may potentially be reduced by $500,000 during the next budget process to reflect the reduction in the size and extent of the replacement pipeline. In response to a question from the Committee, staff stated that the District is still within its budget although a new CIP Project (P2625) is being requested for the design and construction of the 12-Inch 978 Zone Pipeline. As stated on Page 3 of the staff report, the Committee inquired about the statement regarding the replacement reserve that is projected to be $14.4 Million over target at the end of Fiscal Year 2018 and $8.3 Million over the target at the end of Fiscal Year 2023. Staff indicated that the statement was made to point out how the replacement reserve has sufficient funds to cover the newly proposed CIP Project (P2625). It also reflects that the replacement reserve is over the District’s targeted funds; not over the maximum funds. In response to a question from the Committee, staff stated that the District’s average percentage for CIP contingencies is approximately 3%-5%. The Committee discussed the costs of Option 1 and Option 2 alternatives detailed in Exhibit B of the staff report. The Committee pointed out the summary on Page 4 of Exhibit B, which states that although Option 1 has lower construction and soft costs, the overall project costs are potentially higher than Option 2 due to the risks included under 7 the contingency item such as legal actions, delays, easement and access issues. The Committee shared that they took a tour of the site and found it difficult to walk around the area, and commented that Option 2 is more cost effective and that it will have easier access in the future for employees. Following the discussion, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. OTAY WATER DISTRICT 978 PZ PIPELINE DISTRIBUTION SYSTEM EXHIBIT AP: \ W O R K I N G \ C I P P 2 6 2 5 H i d d e n M e s a R o a d W L \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ ( P o r t r a i t L a y o u t ) H i d d e n M e s a R d P i p e l i n e . m x d OPEN SPACE 5171207700 51712 026005171200200 5171310500 5172822300 514470050 0 OPEN SPACE 5144411600 0 900450 Feet HIDDEN M E S A RD HILLSDALE RD HIDDEN SPRINGS D R VIST A G R A N D E R D PENCE DR OWD BOUNDARY HIDDEN MESA VI S T A V E R E D A TRAIL HIDDEN MESA ROAD PROPOSED 12-INCH WATER LINE VICINITY MAP PROJECT SITE NTS DIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ?ò Aä%&s ?p ?Ë F !\F JA M A C H A R D C H A S E A V E 12" WATER PIPELINE REPLACEMENT P2625 VISTA VEREDA WATERLINE P2574 EXHIBIT B Vista Vereda Water Line Replacement – Alternatives Cost Analysis During the preliminary design phase of the Vista Vereda Water Line Replacement project, a decision is required as to whether to maintain the transmission capabilities of the water line designated to be replaced along Vista Vereda over to Hidden Mesa Trail or to construct a new transmission line in Hidden Mesa Road and have the replacement water line along Vista Vereda changed to a distribution line and not extend over to Hidden Mesa Trail. This memorandum provides a cost analysis for making this decision based upon planning level costs, identified areas of increased construction costs and potential risks, and consideration of long-term maintenance issues. The existing alignment of the 12-inch Vista Vereda Water Line is shown in Figure 1. It provides transmission of fire flows to the western portions of the 978 pressure zone. The water line runs through 20-foot wide easements along Vista Vereda and across properties to Hidden Mesa Trail. The portion that runs parallel to Vista Vereda is adjacent to a District utility easement that begins as 40-foot wide at Vista Grande and reduces to 30-foot wide about midway up Vista Vereda. At the end of Vista Vereda, the 20-foot easement runs by itself over to Hidden Mesa Trail through some difficult terrain. The two basic options for the replacement of the water line are provided below and illustrated in Figures 2 & 3: Option 1 – Replace the Vista Vereda water line with a new 12-inch transmission water line along the same general alignment; or Option 2 – Limit the replacement of the Vista Vereda water line to provide local distribution and install a new 12-inch transmission water line in Hidden Mesa Road. Assumptions The estimated project costs for this option are broken down by areas of replacement to reflect terrain and access issues that significant impact construction costs. The basis of the costs are those that the District has recently received for the Hillsdale Road 12-inch Water Line Replacement project bid in July 2017, including appurtenances and allowances, and adjusted to the anticipated midpoint of construction. Option 1 – Vista Vereda Transmission The replacement water line for all segments of this option will be 12-inch piping to provide transmission capabilities. See Figure 2 for the individual areas identified for differing costs. Area 1 is along Vista Vereda and the replacement pipeline may follow an alignment within the adjacent 40-foot wide District utility easement. Although there are other utilities within this area, it appears that a suitable alignment may be found to enable installation costs relatively similar to those that the District has recently received Exhibit B Vista Vereda WL – Alternatives Cost Analysis October 2017 2 for the Hillsdale Road Water Line Replacement project. Area 2 along Vista Vereda has less available space for an alternative alignment for the water line as the adjacent District utility easement is 30-foot wide and other utilities present potential conflicts in several areas. Installation costs in this area are projected to be higher than Area 1 by 50% at this time to deal with the conflicts to enable an acceptable alignment. Area 3 is where the existing 20-foot water line easement will need to be followed, greatly limiting the contractor’s ability to access and construct the water line, but the grades are not an issue. It also includes numerous trees to be removed, including a 4-foot diameter tree. For this area, construction costs are foreseen to be 100% above the Area 1 costs to reflect these issues. Area 4 is the area of biggest concern for the project as it features retaining walls, sharp drop-offs adjacent to homes, and is within just the 20-foot easement. Costs for construction in this area are taken at 4 times the Area 1 prices considering the working area, access issues that may require temporary construction easements, and mitigation of risks the contractor would need to include in his pricing. Area 5 is in Hidden Mesa Trail and is considered the same as Area 1 in the cost of construction. More detailed site topography and potential water line alignments for Areas 1 through 4 are provided in Appendix A. Option 1 Project Costs – Vista Vereda Transmission Construction Costs Area Length (ft) Unit Cost Cost 1 750 – 12-inch $500 $ 375,000 2 450 – 12-inch $750 $ 338,000 3 700 – 12-inch $1,000 $ 700,000 4 300 – 12-inch $2,000 $ 600,000 5 350 – 12-inch $500 $ 175,000 Total Construction Costs $ 2,188,000 Construction Management $ 100,000 Design $ 235,000 Project Administration $ 200,000 Project Outreach $ 100,000 Contingency (Legal, Easements, Delays, etc.) $ 750,000 Project Total $ 3,573,000 The design costs are fees already provided from the design engineer. Other soft costs, except for contingency, are based upon past construction projects of similar size and nature of work, adjusted for the project size. The estimated contingency cost is derived from the sensitivity of the project on the neighborhood and the potential for having to defend the District’s ability to construct the project despite the impact the project will have to individual properties. Exhibit B Vista Vereda WL – Alternatives Cost Analysis October 2017 3 Option 2 – Vista Vereda Distribution/ Hidden Mesa Road Transmission The replacement water line for each segment under this option will vary from 12-inch piping to provide transmission capabilities to 4-inch or less to reestablish water services to all residences. See Figure 3 for the individual areas identified for differing costs. Area 1 is for a 12-inch water line along Vista Vereda, the same as that proposed under Option 1, where the replacement pipeline may follow an alignment within the adjacent 40-foot wide District utility easement. Although there are other utilities within this area, it appears that a suitable alignment may be found to enable installation costs relatively similar to those that the District has recently received for the Hillsdale Road Water Line Replacement project. Area 2 along Vista Vereda is proposed to be an 8-inch water line. It has less available space for an alternative alignment for the water line as the adjacent District utility easement is 30-foot wide and other utilities present potential conflicts in several areas. Installation costs in this area are projected to be higher than Area 1 by 50% at this time to deal with the conflicts to enable an acceptable alignment, with pricing adjusted to reflect an 8-inch line instead of a 12-inch pipe. Area 3 is where the existing 20-foot water line easement will need to be followed, greatly limiting the contractor’s ability to access and construct the water line, but the grades are not an issue. The need to only run a 6-inch or smaller pipe through this area greatly reduces the potential impact to the properties. For this area, construction costs are foreseen to be 100% above the Area 1 costs to reflect these issues, but reduced by half to reflect the smaller pipe size and construction footprint. With the Vista Vereda line now revised to distribution, there is no construction work in Areas 4 & 5 under Option 1. Area 6 is the new 12-inch water line along Hidden Mesa Road from Vista Grande to Hidden Mesa Trail. This line is proposed to be constructed in the existing 10-inch and 8-inch water line trenches in the street, reducing the risk of rock excavation. Considering this, the construction cost for the water line was estimated using 90% of the Area 1 costs. Option 2 Project Costs – Vista Vereda Distribution/ Hidden Mesa Road Transmission Construction Costs Area Length (ft) & Size Unit Cost Cost 1 750 – 12-inch $500 $ 375,000 2 450 – 8-inch $700 $ 315,000 3 700 – 6-inch or less $500 $ 350,000 6 3000 – 12-inch $450 $ 1,350,000 Total Construction Costs $ 2,390,000 Construction Management $ 150,000 Design $ 300,000 Project Administration $ 250,000 Project Outreach $ 100,000 Contingency (Legal, Easements, Delays, etc.) $ 250,000 Project Total $ 3,440,000 Exhibit B Vista Vereda WL – Alternatives Cost Analysis October 2017 4 The design costs are fees already provided from the design engineer. Other soft costs, except for contingency, are based upon past construction projects of similar size and nature of work, adjusted for the project size. The estimated contingency cost is derived from the sensitivity of the project on the neighborhood and the potential for having to defend the District’s ability to construct the project despite the impact the project will have to individual properties. Option 2 has significantly lower impacts to the neighborhood than Option 1 with the contingency adjusted to reflect this. Summary Although Option 1 has lower construction and soft costs, the overall project costs are potentially higher than Option 2 due to the risks included under the contingency item, which include potential legal actions over the impacts of the construction and subsequent restoration, delays resulting from these proceedings, and access issues that may result in temporary construction easement procurement. In addition, future maintenance cost can be expected to be lower for Option 2 as the transmission pipeline will have easier access and pose a low risk for property damage. Attachments: Appendix A – Detailed Topography and Potential Water Line Alignments P:\WORKING\CIP P2625 Hidden Mesa Road WL\Staff Report\Exhibit B - Vista Vereda WL Options Costs - Oct 2017(Ver 2).docx OTAY WATER DISTRICT 978 PZ PIPELINE DISTRIBUTION SYSTEMFIGURE 1P:\WORKING\CIP P2625 Hidden Mesa Road WL\Graphics\Exhibits-Figures\10-5-Exhibits\Figure 1.mxd ROW RO W 5171701300 R O W 5171401600 5173200800 5171123900 5171401700 5171120600 5 1 7 1 1 2 3 7 0 0 5 1 7 1 1 1 4 8 0 0 5171701200 5 1 7 3 2 0 1 0 0 0 5171116500 5171113300 5172411000 5173201200 5 1 71 1 127 00 5 1 7 3 2 0 0 7 0 0 5 1 7 1 1 1 1 2 0 0 5 1 7 1 4 0 1 8 0 0 5171112400 5 1 7 1 1 2 3 8 0 0 5 1 7 1 1 1 4 6 0 0 5 1 7 1 1 1 4 7 0 0 5172411100 5171122600 5171116400 5171122800 5171121300 5171111800 5171124900 5171114400 5 1 7 1 1 1 3 4 0 0 51711 24700 5173200400 5173200900 5 1 7 1 1 1 4 9 0 0 5171122900 5 1 7 1 1 1 5 0 0 0 5173200600 5173200500 5171400800 5172412300 5171126000 5173200100 5 1 7 1 1 2 5 0 0 0 5 1 7 3 2 0 0 2 0 0 5173200300 5172421400 5172421500 5 1 7 1 4 0 0 7 0 0 5 1 7 1 4 0 0 5 0 0 5171125900 5 1 7 1 4 0 1 1 0 0 5171400900 5171401000 5 1 7 1 4 0 0 6 0 0 5173201300 5172412200 5171701000 5171122400 5171122700 5144201300 5171701100 5144021900 51442018005144201900 0 240120 Feet HIDDEN V I S T A HIDDEN MESA VISTA VEREDA TRAIL EXISTING VISTA VEREDA 12-INCH PIPELINE ALIGNMENT F TRESEDER VISTA VEREDAEX 12" WATERLINE P2625 M E S A R D G R A N D E RD CIRCLE OTAY WATER DISTRICT FIGURE 2P:\WORKING\CIP P2625 Hidden Mesa Road WL\Graphics\Exhibits-Figures\10-5-Exhibits\Figure 2.mxd ROW RO W 5171701300 R O W 5171401600 5173200800 5171123900 5171401700 5171120600 5 1 7 1 1 2 3 7 0 0 5 1 7 1 1 1 4 8 0 0 5171701200 5 17 32 01 0 0 0 5171116500 5172411000 5171113300 5173201200 517 1 11 2 7 00 5 1 7 3 2 0 0 7 0 0 5 1 7 1 1 1 1 2 0 0 5 1 7 1 4 0 1 8 0 0 5171112400 5 1 7 1 1 2 3 8 0 0 5 1 7 1 1 1 4 6 0 0 5 1 7 1 1 1 4 7 0 0 5172411100 5171122600 5171116400 5171122800 5171121300 5171111800 5171124900 5171114400 5 1 7 1 1 1 3 4 0 0 51711 24700 5173200400 5173200900 5 1 7 1 1 1 4 9 0 0 5171122900 5 1 7 1 1 1 5 0 0 0 5173200600 5173200500 5171400800 5172412300 5171126000 5173200100 5 1 7 1 1 2 5 0 0 0 5 1 7 3 2 0 0 2 0 0 5173200300 5172421400 5172421500 5 1 7 1 4 0 0 7 0 0 5 1 7 1 4 0 0 5 0 0 5171125900 5 1 7 1 4 0 1 1 0 0 5171400900 5171401000 5 1 7 1 4 0 0 6 0 0 5173201300 5172412200 5171701000 5171122400 5171122700 5144201300 5171701100 5144021900 51442018005144201900 0 240120 Feet HIDDEN V I S T A HIDDEN MESA VISTA VEREDA TRAIL OPTION 1 - NEW VISTA VEREDA 12-INCH PIPELINE ALIGNMENT F TRESEDER NEW VISTA VEREDA12" WATERLINE-REPLACE-IN-PLACE ORPARALLEL ALIGNMENT P2625 M E S A R D G R A N D E RD CIRCLE AREA 5 AREA 4 AREA 3 AREA 2 AREA 1 POTENTIALALTERNATIVE ALIGNMENT OTAY WATER DISTRICT FIGURE 3P:\WORKING\CIP P2625 Hidden Mesa Road WL\Graphics\Exhibits-Figures\10-5-Exhibits\Figure 3.mxd ROW OPEN SPACE OPEN SPACE 5172622700 5171200200 5171701300 5 1 5 0 9 2 6 8 0 0 5151901300 5172822300 5171207700 5171701000 5150925400 5151701100 5171700400 5 1 4 4 0 3 0 5 0 0 5172622600 5150925300 5144030600 5170219300 5172820100 5170213800 5172411300 5150925200 5150926300 0 460230 Feet HIDDEN HIDDEN MESA VISTA VEREDA TRAIL OPTION 2 - NEW VISTA VEREDA & HIDDEN MESA RD PIPELINE ALIGNMENTS F TRESEDER HIDDEN MESA RD12" WATERLINEALIGNMENT P2625 M E S A R D VIS T A G R A N D E R D CIRCLE VISTA VEREDAWATERLINEALIGNMENT AREA 6 HIDDEN SPRINGS DR AREA 3 AREA 2 AREA 1 POTENTIALALTERNATIVEALIGNMENT 8" 12" 6" OR LESS APPENDIX A Detailed Topography and Potential Water Line Alignments STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 1, 2017 SUBMITTED BY: Marissa Dychitan Senior Accountant PROJECT: DIV. NO. All APPROVED BY: Rita Bell, Finance Manager Kevin Koeppen, Assistant Chief Financial Officer Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Approve the Audited Financial Statements for the Fiscal Year Ended June 30, 2017 GENERAL MANAGER’S RECOMMENDATION: That the Board approve the Audited Financial Statements (Attachment B), including the Independent Auditors’ unqualified opinion, for the fiscal year ended June 30, 2017. COMMITTEE ACTION: See Attachment A. PURPOSE: To inform the Board of the significant financial events which occurred during the fiscal year ended June 30, 2017 as reflected in the audited financial statements. ANALYSIS: Teaman, Ramirez & Smith, Inc., performed the audit and found that, in all material respects, the financial statements correctly represent the 2 financial position of the District. They found no material errors in the financial records or statements (Attachment D). Total Assets: Total assets decreased by $3.3 million or 0.58% during Fiscal Year 2017, to $563.1 million, due primarily to depreciation. The depreciation impact is partially offset by investments in capital assets. Deferred Outflows & Deferred Inflows: Deferred outflows increased by $2.6 million or 31% and Deferred inflows decreased by $1.9 million or 33% due to the changes in Deferred Actuarial Pension Costs. The total change of $4.5 million was due to the actual investment earnings being lower than projected investment earnings and changes in actuarial assumptions. Total Liabilities & Net Positions: Total liabilities increased by approximately $1.3 million from the previous fiscal year, to $169.0 million. This is attributable to the $5.1 million increase in Net Pension Liability which is caused by the $5.2 million difference between actual and projected earnings on the Pension Plan Investments and an increase in accounts payable. The increase in accounts payables is due to timing. These increases are partially offset by the decrease in long-term debt of $4.2 million. Net positions (equity) decreased by $100,000 or 0.02% to $401.2 million. The change in net positions is the sum of the decrease in total assets of $3.3 million and the increase in deferred outflow of $2.6 million reduced by the sum of the decrease in deferred inflow of resources of $1.9 million and the increase in total liabilities of $1.3 million. Capital Contributions: Capital contributions for Fiscal Year 2017 were $5.6 million. This consists of Developers contributing $1.1 million in capacity fees and $3.9 million in contributed fixed assets. Ratepayers also paid $0.6 million in availability fees, which are considered a part of capital contributions. Results of Operations: Operating revenues increased by $9.6 million or 12.17%, mainly as a result of the overall increase in water rates and sales volume. 3 Cost of water sales increased by $5.1 million or 9.85% due an increase in water sales volume and unit purchase costs. Non-Operating Revenues & Expenses: Non-operating revenues increased by $1.2 million or 13.48% for FY 2017 due to an increase in capacity fee drawdown from capital contribution to CIPs that did not qualify as capital expense. Non-operating revenues come from property taxes and assessments, rent and leases, investment earnings and miscellaneous revenues. Non-operating expenses increased by $1.5 million or 24.19% due to an increase in interest expense brought about by the amortization of 2007 COPs refunding costs and other miscellaneous expenses. Additional Audit Correspondence: As a part of completing the audit engagement, Teaman, Ramirez and Smith, Inc., also provided the following letters summarizing their observations and conclusions concerning the District’s overall financial processes: Management Letter: The auditors did not identify any deficiencies in internal controls that they considered to be material weaknesses. See Attachment C. Audit Committee Letter: This letter describes overall aspects of the audit, including audit principles, performance, dealings with management, and significant findings or issues. There were no transactions entered into by the District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. There were no disagreements with management concerning financial accounting, reporting, or auditing matters, and there were no significant difficulties in dealing with management in performing the audit. See Attachment D. Report on Applying Agreed-Upon Procedures: A review of the District’s investment portfolio at year end, and a sample of specific investment transactions completed throughout the fiscal year were performed and there were no exceptions to compliance from the District’s Investment Policy. See Attachment E. 4 FISCAL IMPACT: None. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning, formalized financial policies, enhanced budget controls, fair pricing, debt planning, and improved financial reporting. LEGAL IMPACT: None. Attachments: A) Committee Action Form B) Audited Annual Financial Statements C) Management Letter D) Audit Committee Letter E) Report on Applying Agreed-Upon Procedures ATTACHMENT A SUBJECT/PROJECT: Approve the District’s Audited Financial Statements for the Fiscal Year Ended June 30, 2017 COMMITTEE ACTION: The Finance, Administration and Communications Committee reviewed this item at a meeting held on October 17, 2017 and the following comments were made: Staff is recommending that the Board approve the District’s audited financial statements, including the Independent Auditors’ unqualified opinion for the fiscal year (FY) ended June 30, 2017. Teaman, Ramirez & Smith, Inc. performed the audit and found that, in all material respects, the financial statements correctly represent the financial position of the District. Staff provided a review of the District’s financials for the year ending June 30, 2017 and indicated: Total assets decreased $3.3 million due mainly to depreciation offset by investments in capital infrastructure. While total cash and cash equivalents decreased $3.7 million to $17.5 million the decrease in total cash and cash equivalents was partially due to the shift from cash and cash equivalents to investments. On a combined basis cash, cash equivalents and investments decreased from $86.2 million to $84.9 million. This decrease was due to timing in collection of receivables from customers. Total liabilities increased by $1.3 million, which is attributable to an increase in the Net Pension Liability and an increase in accounts payable due to timing. These increases were partially offset by a reduction in long-term debt. Capital contributions for the year totaled $5.6 million, which consists of developers contributing $1.1 million in capacity fees and $3.9 million in contributed fixed assets and $0.6 million in availability fees from ratepayers. The changes in total assets, deferred outflows, liabilities and deferred inflows of resources resulted in a $100,000 reduction in net position. Operating revenues increased $9.6 million while water costs increased $5.1 million due to increase in price and consumption while depreciation and general and administrative expenses increased $2 million. The Districts Net Position as of June 30, 2017 was $401.2 million. It was indicated that the auditors found no material errors in the financial records or statements and there were no transactions entered into by the District during the year for which there is lack of authoritative guidance or consensus. Messrs. Rich Teaman, Sr. Partner, and Joshua Calhoun, Partner, of Teaman Ramirez & Smith, Inc., attended the meeting and provided a review of the audit process and results of the audit. Mr. Teaman indicated that his firm will be issuing an “unmodified report” (this is the new language which replaces “unqualified opinion”). Their issuance of an unmodified report indicates that they found no issues with the financial statements and they believe the statements are fairly stated. This is the highest level opinion that can be received on an audit. He stated this year, GASB 82 was implemented related to the District’s pension plan which is noted on page 2 of the financial statements. GASB 82 only changes how the information on pages 58 and 59 are presented and did not change the balances in the pension related to wages. He noted that footnote number 1c on page 21 of the financial statements discusses pending accounting standard, GASB 75, which is related to Other Post Employee Benefits (OPEB), will become effective in FY 2018. The new standard will significantly change how the amounts are calculated and how the information is presented in the financial statements. It is very similar to the reporting changes related to the pensions that was implemented a couple years ago. He indicated that footnote number 7, Defined Benefit Pension Plan, on page 40 relates to the California Public Employees’ Retirement System (CalPERS) discount rate. On page 45 of the financial statement it notes preset changes in CalPERS discount rate currently set at 7.65%. CalPERS has decided that the discount rate will be lowered over the next three fiscal years as they feel it is not accurate over the long term. The rate will be adjusted as follows over the next 3 FYs: ` FY 2017-2018 7.375% FY 2018-2019 7.25% FY 2019-2020 7.00% The discount rate impacts the District’s net pension liability which is reflected on page 45. He noted along with the financial statements, the audit firm issues several reports: o Management Letter which reviews internal controls and financial compliance which is required under government auditing standards. His firm had no findings or exceptions to report. o Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements which reviews internal controls and compliance with the law. There were no issues to report on either internal controls or financial compliance. o Agreed-Upon Procedures Report indicates their firms review of investment transactions in relation to the District’s Investment Policy and State Law. His firm found no instances of non-compliance. o SAS 114 Report which provides the auditors an opportunity to report to the board what transpired on the audit; if there were problems, if staff was unresponsive, opinion shopping, etc. He stated that the audit went very well and they did not have any issues or problems during the audit. He stated that his firm has nothing to report. Mr. Teaman noted that there are estimates in the financial statements for the market value of the District’s investments, the depreciable value of capital assets, the OPEB obligation and defined benefit pension plan liability. He stated that the methodologies utilized by the District in estimating these items are appropriate and the numbers reflected are good based on information available today. The Committee inquired if the audit includes a review of the District’s controls in the area of protecting data. Mr. Teaman indicated that they look at that area to some degree, but they are not experts in that area. They review and test some of the District’s controls and they also do what is called a walk- through test where they ask staff to show them what they do. They do not test every aspect, but from their observation, the District is doing what they should and it seems that the appropriate staff is being employed for that specific task. Staff noted that the District does not take customer social security numbers and credit card numbers are held by outside vendors. The District is always confirming that vendors are PCI compliant and staff feels comfortable with the controls that are in place. Upon completion of the discussion, the committee accepted staffs’ report and supported presentation to the full board as an action item. OTAY WATER DISTRICT FINANCIAL STATEMENTS WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY TABLE OF CONTENTS JUNE 30, 2017 and 2016 Page Number Independent Auditors’ Report 1 - 2 Management’s Discussion & Analysis 3 - 10 Basic Financial Statements: Statements of Net Position 11 - 12 Statements of Revenues, Expenses, and Changes in Net Position 13 Statements of Cash Flows 14 - 15 Notes to Financial Statements 16 - 56 Required Supplementary Information: Schedule of Funding Progress for DPHP 57 Schedule of Changes in the Net Pension Liability and Related Ratios 58 Schedule of Contributions 59 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY INDEPENDENT AUDITORS' REPORT Board of Directors Otay Water District Spring Valley, California Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Otay Water District (the “District”), as of and for the years ended June 30, 2017 and 2016, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and the State Controller’s Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Otay Water District as of June 30, 2017 and 2016, and the respective changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America, as well as the accounting systems prescribed by the California State Controller’s Office and California regulations governing Special Districts. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Emphasis of Matters As described in Note 2 to the basic financial statements, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 82, Pension Issues - An Amendment of GASB No. 67, No. 68, and No. 72. Our opinion is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and required supplementary information on pages _____ and _____ be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated _______ __, 2017, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance. Riverside, California _______ __, 2017 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 3 As management of the Otay Water District (the “District”), we offer readers of the District’s financial statements, this narrative overview, and analysis of the District’s financial performance during the fiscal year ending June 30, 2017. Please read it in conjunction with the District’s financial statements that follow Management’s Discussion and Analysis. All amounts, unless otherwise indicated, are expressed in millions of dollars. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements, which are comprised of the following: 1) Statements of Net Position, 2) Statements of Revenues, Expenses, and Changes in Net Position, 3) Statements of Cash Flows, and 4) Notes to the Financial Statements. This report also contains other supplementary information in addition to the basic financial statements. The Statements of Net Position presents information on all of the District’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net positions may serve as a useful indicator of whether the financial position of the District is improving or weakening. The Statements of Revenues, Expenses and Changes in Net Position presents information showing how the District’s net position changed during the most recent fiscal year. All changes in net positions are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). The Statements of Cash Flows presents information on cash receipts and payments for the fiscal year. The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data supplied in each of the specific financial statements listed above. Financial Highlights The assets and deferred outflows of resources of the District exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $401.2 million (net position). Of this amount, $45.9 million (unrestricted net position) may be used to meet the District’s ongoing obligations to citizens and creditors. The overall net positions remains relatively unchanged. Total assets decreased by $3.3 million or .58% during Fiscal Year 2017, to $563.1 million, due primarily to depreciation offset by investments in capital infrastructure, contributions, and improved operating results. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 4 In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the District’s progress in funding its obligation to provide pension benefits to its employees. Financial Analysis: As noted, net position may serve, over time, as a useful indicator of an entity’s financial position. In the case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $401.2 million at the close of the most recent fiscal year. By far, the largest portion of the District’s net position, $351.0 million (87%), reflects its investment in capital assets, less any remaining outstanding debt used to acquire those assets. The District uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the District’s investment in its capital assets is reported effectively as a resource, it should be noted that the resources needed to repay the debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 5 Statements of Net Position (In Millions of Dollars) 2017 2016 2015 Assets Current and Other Assets $ 112.9 $ 112.4 $ 109.7 Capital Assets 450.2 454.0 466.2 Total Assets 563.1 566.4 568.9 Deferred Outflows of Resources Deferred Amount on Refunding 0.2 1.3 0.0 Deferred Contributions to Pension Plan 10.7 7.0 3.6 Total Deferred Outflows of Resources 10.9 8.3 3.6 Liabilities Long-Term Debt Outstanding 95.6 99.8 101.5 Net Pension Liability 45.2 40.1 38.7 Other Liabilities 28.2 27.8 24.9 Total Liabilities 169.0 167.7 165.1 Deferred Inflows of Resources Deferred Actuarial Pension Costs 3.8 5.7 5.0 Total Deferred Inflows of Resources 3.8 5.7 5.0 Net Position Net Investment in Capital Assets 351.0 351.6 354.0 Restricted for Debt Service 4.3 4.4 4.6 Unrestricted 45.9 45.3 43.8 Total Net Position $ 401.2 $ 401.3 $ 402.4 The District’s operations and population continue to grow, albeit at slower rates than the housing boom years. Much of this growth has and will continue to occur in the residential sector, especially in the area of multi-family dwellings, as well as in the commercial area. The District still has available land to develop unlike other parts of the County, as well as low unemployment and job creation, which has spurred the development in the service area. In FY 2017, the District’s Capital Assets increased by $9.5 million before accumulated depreciation. (See Note 4 in the Notes to Financial Statements). The District also saw a decrease in Long-Term Debt of $4.2 million due to the annual payments of long-term debt (See Note 5 in the Notes to Financial Statements). DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 6 Certain planning and environmental study costs associated with capital projects such as the Otay Mesa Desalination and Recycled CIP Projects due to the Permanent Moratorium in Otay Mesa do not qualify as capital costs under Generally Accepted Accounting Principles and are included in the miscellaneous (non- operating) expenses of the District. For FY 2017 and FY 2016 those expenses were $2.3 million and $1.4 million, respectively. At the end of FY 2017 the District is able to report positive balances in all categories of net position. This situation also held true for the prior two fiscal years. Statements of Revenues, Expenses, and Changes in Net Position (In Millions of Dollars) 2017 2016 2015 Water Sales $ 83.7 $ 73.9 $ 79.1 Wastewater Revenue 3.0 3.2 3.1 Connection and Other Fees 1.8 1.8 1.7 Non-operating Revenues 10.1 8.9 8.9 Total Revenues 98.6 87.8 92.8 Depreciation Expense 17.8 16.5 16.2 Other Operating Expenses 78.8 73.2 75.7 Non-operating Expenses 7.7 6.2 6.0 Total Expenses 104.3 95.9 97.9 Loss Before Capital Contributions (5.7) (8.1) (5.1) Capital Contributions 5.6 7.0 3.1 Change in Net Position (0.1) (1.1) (2.0) Beginning Net Position, As Previously Stated 401.3 402.4 444.8 Prior Period Adjustment 0.0 0.0 (40.4) Beginning Net Position, As Restated 401.3 402.4 404.4 Ending Net Position $ 401.2 $ 401.3 $ 402.4 Water Sales increased by $9.8 million in FY 2017 and decreased by $5.2 million in FY 2016. The increase in FY 2017 was due to both increases in units sold and water rates. The increases in unit sales is largely due to the elimination of water use restrictions in FY 2017. The decrease in FY 2016 was mainly due to decreases in units sold as a result of the drought conditions and usage restrictions. The financial impact related to the reduction in unit sales was partially offset by increases in rates. Other Operating Expenses increased by $5.6 million in FY 2017 and decreased by $2.5 million in FY 2016 predominantly due to the increase and decrease in Cost of Water Sales brought about by the increase and decrease in units purchased in FY 2017 and FY 2016 respectively. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 7 Connection and Other Fees revenues remains the same in FY 2017 and increased by $0.1 million in FY 2016. Capital Contributions decreased by $1.4 million in FY 2017and increased by $3.9 million in FY 2016. The decrease is mainly due to decrease in Grants and reimbursement from Caltrans in FY 2017. Non-operating Revenues Non-operating Revenues by Major Source (In Millions of Dollars) 2017 2016 2015 Taxes and Assessments $ 4.1 $ 4.0 $ 3.8 Rents and Leases 1.4 1.3 1.2 Other Non-operating Revenue 4.6 3.6 3.9 Total Non-operating Revenues $ 10.1 $ 8.9 $ 8.9 The District’s total non-operating revenues increased by $1.2 million in FY 2017 and remains the same in FY 2016. The increase in FY 2017 was primarily due to the transfer of $1.8 million capacity revenue from capital contribution to fund a portion of the CIP projects that did not qualify as capital expenditures and were included in the miscellaneous expense. Capital Assets and Debt Administration The District’s capital assets (net of accumulated depreciation) as of June 30, 2017, totaled $450.2 million. Included in this amount is land. The District’s net capital assets decreased by .84% for FY 2017 and 1.1% for FY 2016. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 8 Capital Assets (In Millions of Dollars) 2017 2016 2015 Land $ 14.4 $ 14.1 $ 13.7 Construction in Progress 14.2 12.5 15.1 Water System 483.8 476.6 468.8 Recycled Water System 112.3 111.8 110.5 Sewer System 44.5 42.8 42.0 Field Equipment 9.0 9.1 8.7 Buildings 20.6 20.6 19.0 Transportation Equipment 3.3 3.4 3.4 Communication Equipment 3.4 3.3 3.1 Office Equipment 17.6 19.4 18.2 723.1 713.6 702.5 Less Accumulated Depreciation (272.9) (259.6) (243.3) Net Capital Assets $ 450.2 $ 454.0 $ 459.2 As indicated by figures in the table above, the majority of capital assets added during both fiscal years were related to the potable and sewer systems. In addition, the majority of the cost of construction-in- progress is also related to water systems. Additional information on the District’s capital assets can be found in Note 4 of the Notes to Financial Statements. At June 30, 2017, the District had $95.6 million in outstanding debt (net of $3.8 million of maturities occurring in FY 2018), which consisted of the following: General Obligation Bonds $ 3.5 Certificates of Participation 7.6 Revenue Bonds 84.5 Total Long-Term Debt $ 95.6 In May 2016, the District issued $33.4 million of 2016 Water Revenue Refunding Bonds for an advance refunding of its 2007 Certificates of Participation, which will be called on September 1, 2017. Excluding costs of issuance the District received $36.6 million in proceeds, including a $3.6 million premium, to fund the $34.8 million of outstanding principal and $1.8 million of remaining interest payments. In accordance with GASB Nos. 23 and 65, the remaining interest payments of $0.2 million in FY 2017 and $1.3 million in FY 2016 is reflected as a deferred outflow of resources on the Statements of Net Position. Additional information on the District’s long-term debt can be found in Note 5 of the Notes to Financial Statements DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 9 Prior Period Adjustment The Governmental Accounting Standards Board (GASB) issued Statement No. 68, “Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27”, and No. 71 “Pension Transitions for Contributions Made Subsequent to the Measurement Date-an amendment of GASB No. 68” for periods beginning after June 15, 2014. The District implemented these standards in fiscal year 2015. The result of the implementation of these standards was to decrease the net position at July 1, 2014 by $40.4 million which consists of net pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense. Fiscal Year 2017-2018 Budget Economic Factors The San Diego region imports 84% of its potable supply so factors such as local rainfall as well as weather conditions elsewhere in the western portion of the nation can affect the region. San Diego received more than normal rainfall in Fiscal Year 2017, and the District anticipates an average rainfall pattern in the coming years. Water sales have declined for the District by nearly 30% in the last ten years. This was driven by many factors including the economic downturn caused by the great recession, increases in the price of imported water, and most recently the State mandated cuts in potable water use due to the prolonged statewide drought. The conservation mandates by the State ended in FY 2017 because of record rain and snowfall. Customers will still see messaging to conserve water as this has become a way of life in California. The District expects sales to recover 3% of the water volume in FY 2018, but expect sales to remain 12% below FY 2015 levels because of ongoing conservation efforts. Decreases in water sales revenue have been offset by the corresponding decreases in water purchase expense, as well as reductions in District managed costs such as reduced employee count and internal cost cuts, achieved through automation and streamlining of processes. Should further loss in water sales continue due to limited supplies or mandated cuts, the District’s actions will be commensurate with the magnitude of the reduction. The District continues to respond to the challenges presented by growth and the ongoing drought by creating new opportunities and new organizational efficiencies. By utilizing and continuing to refine its Strategic Business Plan, it has captured the Board of Director’s vision and united its staff in a common mission. The District has achieved a number of significant accomplishments based on its successful adherence to its Strategic Business Plan. The District is not only poised to continue successfully providing an affordable, safe, and reliable water supply for the people of its service area, but is set to reap the rewards of greater efficiencies and economies of scale. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 10 The District is currently at about 69% of its projected ultimate population, serving approximately 224,000 people. Long-term, this percentage should continue to increase as the District's service area continues to develop and grow. By 2050, the District is projected to serve approximately 308,000 people, with an average daily demand of 46 million gallons per day (MGD). Currently, the District services the needs of this growing population by purchasing water from the San Diego County Water Authority (CWA), who in turn purchases its water from the Metropolitan Water District (MWD) and the Imperial Irrigation District (IID). Otay takes delivery of the water through several connections of large diameter pipelines owned and operated by CWA. The District currently receives treated water from CWA directly and from the Helix Water District via a contract with CWA. In addition, the District has an emergency agreement with the City of San Diego to purchase water in the case of a shutdown of the main treated water source. The City of San Diego also has a long-term contract with the District to provide recycled water for landscape and irrigation usage. Through innovative agreements like these, benefits can be achieved by both parties by using excess capacity of another agency, and diversifying local supply, thereby increasing reliability. Financial The District is budgeted to deliver approximately 24,800 acre-feet of potable water to 49,761 potable customer accounts during Fiscal Year 2017-2018. Management feels that these projections are realistic after accounting for low growth, supply changes, and a focus on conservation. A combination of factors, including the drought and economic uncertainty, have created challenges in developing projections for the current fiscal year. Both unemployment and levels of distressed activity in the commercial and residential resale market have improved from their economic crisis peaks. However, while unemployment has recovered, housing starts remain significantly below the levels of the boom years from 2001 to 2005. The negative impacts to the District of the economic indicators and conservation are partially offset by growth as the District’s commercial and residential permits have shown slow and steady improvement from previous lows. While all of these factors impact the region’s water usage, people’s need for water remains an underlying constant. Staff continues working diligently on developing new water supplies as they work through the financial impacts of conservation and the modest economic turnaround. Management is unaware of any other conditions that could have a significant impact on the District’s current financial position, net position, or operating results. Contacting the District’s Financial Management This financial report is designed to provide a general overview of the Otay Water District’s finances for the Board of Directors, citizens, creditors, and other interested parties. Questions concerning any of the information provided in the report or requests for additional information should be addressed to the District’s Finance Department, 2554 Sweetwater Springs Blvd., Spring Valley, CA 91978-2004. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 2017 2016 ASSETS Current Assets: Cash and Cash Equivalents (Notes 1 and 2)17,427,875$ 21,122,543$ Restricted Cash and Cash Equivalents (Notes 1 and 2)50,204 8,208 Investments (Note 2)38,401,158 36,806,704 Board Designated Investments (Note 2)24,743,895 23,876,678 Restricted Investments (Notes 1 and 2)4,256,520 4,394,093 Accounts Receivable, Net 12,372,840 11,116,393 Accrued Interest Receivable 216,011 157,620 Taxes and Availability Charges Receivable, Net 222,092 341,651 Restricted Taxes and Availability Charges Receivable, Net 34,375 32,173 Inventories 737,185 722,225 Prepaid Items and Other Receivables 962,019 1,309,335 Total Current Assets 99,424,174 99,887,623 Non-current Assets: Net OPEB Asset (Note 8)13,555,636 12,519,549 Capital Assets (Note 4): Land 14,389,187 14,085,251 Construction in Progress 14,201,511 12,541,701 Capital Assets, Net of Depreciation 421,606,252 427,341,594 Total Capital Assets, Net of Depreciation 450,196,950 453,968,546 Total Non-current Assets 463,752,586 466,488,095 Total Assets 563,176,760 566,375,718 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)10,681,129 7,001,426 Deferred Amount on Refunding 191,428 1,339,997 Total Deferred Outflows of Resources 10,872,557$ 8,341,423$ Continued STATEMENTS OF NET POSITION JUNE 30, 2017 AND 2016 The accompanying notes are an integral part of these statements. 11 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 2017 2016 LIABILITIES Current Liabilities: Current Maturities of Long-term Debt (Note 5)3,820,000$ 3,920,000$ Accounts Payable 11,544,414 11,497,728 Accrued Payroll Liabilities 785,496 574,037 Other Accrued Liabilities 3,771,503 3,813,262 Customer and Developer Deposits 3,451,690 3,313,631 Accrued Interest 1,417,440 1,197,113 Unearned Revenues 305,560 421,800 Liabilities Payable from Restricted Assets: Restricted Accrued Interest 53,267 59,604 Total Current Liabilities 25,149,370 24,797,175 Non-current Liabilities: Long-term Debt (Note 5): General Obligation Bonds 3,474,498 4,095,853 Certificates of Participation 7,592,548 8,191,803 Revenue Bonds 84,519,618 87,483,686 Net Pension Liability 45,249,444 40,143,128 Other Non-current Liabilities 3,074,313 3,040,648 Total Non-current Liabilities 143,910,421 142,955,118 Total Liabilities 169,059,791 167,752,293 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)3,802,537 5,677,071 Total Deferred Inflows of Resources 3,802,537 5,677,071 NET POSITION Net Investment in Capital Assets 350,981,714 351,617,201 Restricted for Debt Service 4,306,724 4,402,301 Unrestricted 45,898,551 45,268,275 Total Net Position 401,186,989$ 401,287,777$ STATEMENTS OF NET POSITION - CONTINUED JUNE 30, 2017 AND 2016 The accompanying notes are an integral part of these statements. 12 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 2017 2016 OPERATING REVENUES Water Sales 83,720,150$ 73,940,200$ Wastewater Revenue 2,983,495 3,175,300 Connection and Other Fees 1,777,609 1,760,807 Total Operating Revenues 88,481,254 78,876,307 OPERATING EXPENSES Cost of Water Sales 56,882,487 51,826,046 Wastewater 1,964,855 2,051,913 Administrative and General 19,991,542 19,318,247 Depreciation 17,785,497 16,473,337 Total Operating Expenses 96,624,381 89,669,543 Operating Income (Loss)(8,143,127)(10,793,236) NON-OPERATING REVENUES (EXPENSES) Investment Earnings 408,754 758,004 Taxes and Assessments 4,114,583 3,966,593 Availability Charges 729,325 616,591 Gain (Loss) on Sale of Capital Assets (605,536)46,423 Rents and Leases 1,375,305 1,281,150 Miscellaneous Revenues 4,107,558 2,228,200 Donations (125,742)(120,722) Interest Expense (5,069,767)(4,603,093) Miscellaneous Expenses (2,463,060)(1,485,778) Total Non-operating Revenues (Expenses)2,471,420 2,687,368 Income (Loss) Before Capital Contributions (5,671,707)(8,105,868) Capital Contributions 5,570,919 6,971,319 Change in Net Position (100,788)(1,134,549) Total Net Position, Beginning 401,287,777 402,422,326 Total Net Position, Ending 401,186,989$ 401,287,777$ STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 The accompanying notes are an integral part of these statements. 13 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers 85,585,257$ 77,072,615$ Receipts from Connections and Other Fees 1,777,609 1,760,807 Other Receipts 3,991,318 2,650,000 Payments to Suppliers (57,754,567)(52,065,783) Payments to Employees (21,985,918)(22,197,793) Other Payments (2,462,313)(1,505,690) Net Cash Provided By (Used For) Operating Activities 9,151,386 5,714,156 CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Receipts from Taxes and Assessments 4,231,939 3,945,795 Receipts from Property Rents and Leases 1,249,563 1,160,428 Net Cash Provided By (Used For) Noncapital and Related Financing Activities 5,481,502 5,106,223 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Contributions 1,653,484 5,122,137 Proceeds from Sale of Capital Assets 8,507 60,925 Proceeds from Debt Related Taxes and Assessments 729,325 616,591 Deposit to Escrow Account for Advance Refunding - (36,099,997) Proceeds from Long-Term Debt - 37,015,950 Principal Payments on Long-Term Debt (3,920,000)(3,690,000) Interest Payments and Fees (4,254,214)(4,951,802) Acquisition and Construction of Capital Assets (10,528,927)(9,415,809) Net Cash Provided By (Used For) Capital and Related Financing Activities (16,311,825)(11,342,005) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received on Investments 350,363 697,675 Proceeds from Sale and Maturities of Investments 35,603,790 65,385,175 Purchase of Investments (37,927,888)(67,646,067) Net Cash Provided By (Used For) Investing Activities (1,973,735)(1,563,217) Net Increase (Decrease) in Cash and Cash Equivalents (3,652,672)(2,084,843) Cash and Cash Equivalents - Beginning 21,130,751 23,215,594 Cash and Cash Equivalents - Ending 17,478,079$ 21,130,751$ Continued STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 The accompanying notes are an integral part of these statements.14 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 2017 2016 Reconciliation of Operating Income (Loss) to Net Cash Flows Provided By (Used For) Operating Activities: Operating Income (Loss)(8,143,127)$ (10,793,236)$ Adjustments to Reconcile Operating Income to Net Cash Provided By (Used For) Operating Activities: Depreciation 17,785,497 16,473,337 Miscellaneous Revenues 3,991,318 2,650,000 Miscellaneous Expenses (2,462,313) (1,505,690) (Increase) Decrease in Accounts Receivable (1,256,447) (1,129,343) (Increase) Decrease in Inventory (14,960) 84,783 (Increase) Decrease in Net OPEB Asset (1,036,087) (1,047,163) (Increase) Decrease in Prepaid Items and Other Receivables 347,316 (320,453) (Increase) Decrease in Deferred Actuarial Pension Costs (3,679,703) (2,716,700) Increase (Decrease) in Accounts Payable 46,686 1,718,251 Increase (Decrease) in Accrued Payroll and Related Expenses 211,459 (483,939) Increase (Decrease) in Other Accrued Liabilities (41,759) 170,751 Increase (Decrease) in Customer and Developer Deposits 138,059 1,086,458 Increase (Decrease) in Prepaid Capacity Fees 33,665 107,317 Increase (Decrease) in Net Pension Liability 5,106,316 1,419,783 Increase (Decrease) in Deferred Actuarial Pension Costs (1,874,534) - Net Cash Provided By (Used For) Operating Activities 9,151,386$ 5,714,156$ Schedule of Cash and Cash Equivalents: Current Assets: Cash and Cash Equivalents 17,427,875$ 21,122,543$ Restricted Cash and Cash Equivalents 50,204 8,208 Total Cash and Cash Equivalents 17,478,079$ 21,130,751$ Supplemental Disclosures Non-Cash Investing and Financing Activities Consisted of the Following: Contributed Capital for Water and Sewer System 3,917,435$ 1,849,182$ Change in Fair Value of Investments and Recognized Gains/Losses 414,578 60,177 Amortization Related to Long-term Debt 364,678 191,428 STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 The accompanying notes are an integral part of these statements.15 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 16 NOTE DESCRIPTION PAGE 1 Reporting Entity and Summary of Significant Accounting Policies..……….. 17 - 24 2 Cash and Investments………………………………………………………... 25 - 29 3 Fair Value Measurements…………………………………………..……….. 30 - 31 4 Capital Assets…………………………………………………..……………. 32 - 33 5 Long-Term Debt………………………………………………….………….. 34 - 39 6 Net Position………………………………………………………………….. 40 7 Defined Benefit Pension Plan……………………………………………….. 40 - 47 8 Other Post Employment Benefits………………………..…………............... 48 - 50 9 Water Conservation Authority………………………………………............ 50 - 51 10 Commitments and Contingencies……………………………………………. 51 11 Risk Management……………………………………………………………. 52 - 53 12 Interest Expense……………………………………………………............... 53 13 Segment Information………………………………………………..……….. 53 - 56 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 17 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Reporting Entity The reporting entity Otay Water District (the “District”) includes the accounts of the District, Otay Service Corporation (the “Corporation”) and the Otay Water District Financing Authority (the “Financing Authority”). The Otay Water District (the “District”) is a public entity established in 1956 pursuant to the Municipal Water District Law of 1911 (Section 711 et. Seq. of the California Water Code) for the purpose of providing water and sewer services to the properties in the District. The District is governed by a Board of Directors consisting of five directors elected by geographical divisions based on District population for a four-year alternating term. The District formed the Otay Service Corporation on June 21, 1993, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. The Service Corporation was formed to assist the District in the financing of public capital improvements. The District formed the Financing Authority on March 3, 2010 under the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code. The Financing Authority was formed to assist the District in the financing of public capital improvements. The financial statements present the District and its component units. The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority of the component unit’s board, or because the component units will provide a financial benefit or impose a financial burden on the District. The District has accounted for the Service Corporation and Financing Authority as “blended” component units. Despite being legally separate, the Service Corporation and Financing Authority are so intertwined with the District that they are in substance, part of the District’s operations. Accordingly, the balances and transactions of these component units are reported within the funds of the District. Separate financial statements are not issued for the Service Corporation and the Financing Authority. B) Measurement Focus, Basis of Accounting and Financial Statement Presentation Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. The accompanying financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or noncurrent) associated with these activities are included on the Statements of Net Position. The Statements of Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The District reports its activities as an enterprise fund, which is used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the District is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 18 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting financial reporting purposes. Net position of the District is classified into three components: (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. These classifications are defined as follows: Net Investment in Capital Assets This component of net position consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of notes or borrowing that are attributable to the acquisition of the assets, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of the net investment in capital assets. Restricted Net Position This component of net position consists of net position with constrained use through external constraints imposed by creditors (such as through debt covenants), grantors, contributions, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of net position that do not meet the definition of “net investment in capital assets” or “restricted net position”. The District distinguishes operating revenues and expenses from those revenues and expenses that are non-operating. Operating revenues are those revenues that are generated by water sales and wastewater services while operating expenses pertain directly to the furnishing of those services. Non-operating revenues and expenses are those revenues and expenses generated that are not associated with the normal business of supplying water and wastewater treatment services. The District recognizes revenues from water sales, wastewater revenues, and meter fees as they are earned. Taxes and assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego, net of allowance for delinquencies of $28,496 at June 30, 2017 and $41,536 at June 30, 2016. Additionally, capacity fee contributions received which are related to specific operating expenses are offset against those expenses and included in Cost of Water Sales in the Statements of Revenues and Expenses and Changes in Net Position. Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s practice to consider restricted - net position to have been depleted before unrestricted - net position is applied, however it is at the Board’s discretion. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 19 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements Implemented Governmental Accounting Standard Board Statement No. 74 In June of 2015, GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This Statement was issued to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) for making decisions and assessing accountability. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2016. Currently, this statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 77 In August of 2015, GASB issued Statement No. 77, Tax Abatement Disclosures. This Statement is intended to provide financial statement users needed information about certain limitations on a government’s ability to raise resources and for financial reporting purposes requires disclosure on tax abatement information about (1) a reporting government’s own tax abatement agreements and (2) those that are entered into by other governments that reduce the reporting government’s tax revenues. Statement No. 77 is effective for periods beginning after December 15, 2015. It is believed that the implementation of this Statement will not have a material effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 78 In December of 2015, GASB issued Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans. This statement addresses a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that 1) is not a state or local governmental pension plan, 2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and 3) has no predominant state or local governmental employer. This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The requirements of this Statement are effective for reporting periods beginning after December 15, 2015. Currently, this statement has no effect on the District’s financial statements. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 20 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Implemented - Continued Governmental Accounting Standard Board Statement No. 80 In January of 2016, GASB issued Statement No. 80, Blending Requirements for Certain Component Units – An Amendment of GASB Statement No. 14. This statement was issued to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for- profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016. Currently, this statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 82 In March of 2016, GASB issued Statement No. 82, Pension Issues – An Amendment of GASB Statements No. 67, No. 68, and No. 73. This statement was issued to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. Prior to the issuance of this Statement, Statements 67 and 68 required presentation of covered payroll, which is the payroll of employees that are provided with pensions through the pension plan, and ratios that use that measure, in schedules of required supplementary information. This Statement amends Statements 67 and 68 to instead require the presentation of covered payroll, defined as the payroll on which contributions to a pension plan are based, and ratios that use that measure. This Statement also clarifies the term deviation used in Actuarial Standards of Practice and payments made by the employer to satisfy contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. The District has implemented GASB No. 82 which is reflected on the District’s financial statements. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 21 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Pending Accounting Standards GASB has issued the following statements which impact the District’s financial reporting requirements in the future: i. GASB 75 – “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions”, effective for fiscal years beginning after June 15, 2017. ii. GASB 83 – “Certain Asset Retirement Obligations”, effective for fiscal years beginning after June 15, 2018. ii. GASB 84 – “Fiduciary Activities”, effective for fiscal years beginning after December 15, 2018. iii. GASB 85 – “Omnibus 2017”, effective for fiscal years beginning after June 15, 2017. iv. GASB 86 – “Certain Debt Extinguishment Issues”, effective for fiscal years beginning after June 15, 2017. v. GASB 87 – “Leases”, effective for fiscal years beginning after December 15, 2019. D) Deferred Outflows / Inflows of Resources In addition to assets, the statements of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has two items that qualifies for reporting in this category, deferred accrued pension costs are items that are deferred and recognized as an outflow of resources in the period the amounts become available. Additionally, the category, deferred amount on refunding, which resulted from the difference in the carrying value of refunded debt and its reacquisition price. This amount is shown as deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statements of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The District has only one item that qualifies for reporting in this category. Accordingly, the item, deferred actuarial pension cost, are deferred and recognized as an inflow of resources in the period that the amounts become available. E) Statements of Cash Flows For purposes of the Statements of Cash Flows, the District considers all highly liquid investments (including restricted assets) with a maturity period, at purchase, of three months or less to be cash equivalents. F) Investments Investments are stated at their fair value, which represents the quoted or stated market value. Investments that are not traded on a market, such as investments in external pools, are valued based on the stated fair value as represented by the external pool. All investments are stated at their fair value, the District has not elected to report certain investments at amortized costs. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 22 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued G) Inventory and Prepaids Inventory consists primarily of materials used in the construction and maintenance of the water and sewer system and is valued at weighted average cost. Both inventory and prepaids use the consumption method whereby they are reported as an asset and expensed as they are consumed. H) Capital Assets Capital assets are recorded at cost, where historical records are available, and at an estimated historical cost where no historical records exist. Infrastructure assets in excess of $20,000 and other capital assets in excess of $10,000 are capitalized if they have an expected useful life of two years or more. The District will also capitalize individual purchases under the capitalization threshold if they are part of a new capital program. The cost of purchased and self- constructed additions to utility plant and major replacements of property are capitalized. Costs include materials, direct labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, overhead, and interest incurred during the construction period. Repairs, maintenance, and minor replacements of property are charged to expense. Donated assets are capitalized at their acquisition value on the date contributed. The District capitalizes interest on construction projects up to the point in time that the project is substantially completed. Capitalized interest for fiscal years ending June 30, 2017 of $181,582 and 2016 of $274,429 is included in the cost of water system assets and is depreciated on the straight-line basis over the estimated useful lives of such assets. Depreciation is calculated using the straight-line method over the following estimated useful lives: Water System 15-70 Years Field Equipment 2-50 Years Buildings 30-50 Years Communication Equipment 2-10 Years Transportation Equipment 2-7 Years Office Equipment 2-10 Years Recycled Water System 50-75 Years Sewer System 25-50 Years NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 23 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued I) Compensated Absences It is the District’s policy to record vested or accumulated vacation and sick leave as an expense and liability as benefits accrue to employees. June 30, 2017 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 2,634,850 $ 2,846,634 $ 2,747,784 $ 2,733,700 $ 273,370 Current portion is reflected in Accrued Payroll Liabilities and remainder in other non-current liabilities on the Statements of Net Position. June 30, 2016 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 2,530,192 $ 2,805,394 $ 2,700,736 $ 2,634,850 $ 263,485 Current portion is reflected in Accrued Payroll Liabilities and remainder in other non-current liabilities on the Statements of Net Position. J) Classification of Liabilities Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be funded from restricted assets. K) Allowance for Doubtful Accounts The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that the accounts will be uncollectible. Uncollectible accounts are determined by the allowance method based upon prior experience and management’s assessment of the collectibility of existing specific accounts. The allowance for doubtful accounts was $154,581 for 2017 and $170,887 for 2016. L) Property Taxes Tax levies are limited to 1% of full market value (at time of purchase) which results in a tax rate of $1.00 per $100 assessed valuation, under the provisions of Proposition 13. Tax rates for voter-approved indebtedness are excluded from this limitation. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 24 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued L) Property Taxes - Continued The County of San Diego (the “County”) bills and collects property taxes on behalf of the District. The County’s tax calendar year is July 1 to June 30. Property taxes attach as a lien on property on January 1. Taxes are levied on July 1 and are payable in two equal installments on November 1 and February 1, and become delinquent after December 10 and April 10, respectively. M) Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District’s California Public Employees’ Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. N) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. O) Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 25 2) CASH AND INVESTMENTS The primary goals of the District’s Investment Policy are to assure compliance with all Federal, State, and Local laws governing the investment of funds under the control of the organization, protect the principal of investments entrusted, and generate income under the parameters of such policies. Cash and Investments are classified in the accompanying financial statements as follows: Statements of Net Position: 2017 2016 Cash and Cash Equivalents $ 17,427,875 $ 21,122,543 Restricted Cash and Cash Equivalents 50,204 8,208 Investments 38,401,158 36,806,704 Board Designated Investments 24,743,895 23,876,678 Restricted Investments 4,256,520 4,394,093 Total Cash and Investments $ 84,879,652 $ 86,208,226 Cash and Investments consist of the following: 2017 2016 Cash on Hand $ 2,950 $ 2,950 Deposits with Financial Institutions 1,112,650 1,485,808 Investments 83,764,052 84,719,468 Total Cash and Investments $ 84,879,652 $ 86,208,226 Investments Authorized by the California Government Code and the District’s Investment Policy The table below identifies the investment types that are authorized for the District by the California Government Code (or the District’s Investment Policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District’s Investment Policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District’s Investment Policy. Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity Of Portfolio(1) In One Issuer U.S. Treasury Obligations 5 years None None U.S. Government Sponsored Entities 5 years None None Certificates of Deposit 5 years 15% None Corporate Medium-Term Notes 5 years 15% None Commercial Paper 270 days 15% 10% Money Market Mutual Funds N/A 15% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None (1) Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 26 2) CASH AND INVESTMENTS - Continued Investments Authorized by Debt Agreements Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District’s Investment Policy. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the District manages its exposure to interest rates risk is by purchasing investments with shorter durations than the maximum allowable under the District investment policy and by timing cash flows from maturities, so that a portion of the portfolio is maturing or coming close to maturity evenly over time, as necessary, to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the District’s investments to market interest rate fluctuations are provided by the following tables that show the distribution of the District’s investments by maturity as of June 30, 2017 and 2016. June 30, 2017 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 67,349,620 $ 9,979,720 $ 27,850,900 $ 29,519,000 $ - Local Agency Investment Fund (LAIF) 12,276,228 12,276,228 - - - San Diego County Pool 4,088,000 4,088,000 - - - Money Market Funds 50,204 50,204 - - - Total $ 83,764,052 $ 26,394,152 $ 27,850,900 $ 29,519,000 $ - June 30, 2016 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 64,993,625 $ 10,005,920 $ 17,207,568 $ 37,780,137 $ - Local Agency Investment Fund (LAIF) 6,331,635 6,331,635 - - - San Diego County Pool 13,386,000 13,386,000 - - - Money Market Funds 8,208 8,208 - - - Total $ 84,719,468 $ 29,731,763 $ 17,207,568 $ 37,780,137 $ - NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 27 2) CASH AND INVESTMENTS - Continued Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code or the District’s Investment Policy, or debt agreements, and the Moody’s ratings as of June 30, 2017 and 2016. June 30, 2017 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 67,349,620 N/A $ 67,349,620 $ - $ - $ - Local Agency Investment Fund (LAIF) 12,276,228 N/A - - - 12,276,228 San Diego County Pool 4,088,000 N/A - - - 4,088,000 Money Market Funds 50,204 N/A - - 50,204 - Total $ 83,764,052 $ 67,349,620 $- $ 50,204 $ 16,364,228 June 30, 2016 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 64,993,625 N/A $ 64,993,625 $ - $ - $ - Local Agency Investment Fund (LAIF) 6,331,635 N/A - - - 6,331,635 San Diego County Pool 13,386,000 N/A - - - 13,386,000 Money Market Funds 8,208 N/A - - 8,208 - Total $ 84,719,468 $ 64,993,625 $- $ 8,208 $ 19,717,635 Concentration of Credit Risk The investment policy of the District contains various limitations on the amounts that can be invested in any one type or group of investments and in any issuer, beyond that stipulated by the California Government Code, Sections 53600 through 53692. Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total District investments as of June 30, 2017 and 2016 are as follows: June 30, 2017 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 15,927,740 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 13,930,280 Federal National Mortgage Association U.S. Government Sponsored Entities $ 23,578,680 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 11,914,080 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 28 2) CASH AND INVESTMENTS - Continued Concentration of Credit Risk - Continued June 30, 2016 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 13,221,648 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 26,023,080 Federal National Mortgage Association U.S. Government Sponsored Entities $ 11,740,057 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 14,008,840 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local government units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2017, $2,207,200 and as of June 30, 2016, $1,403,394 of the District’s deposits with financial institutions in excess of federal depository insurance limits were held in collateralized accounts. Local Agency Investment Fund (LAIF) The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the District’s investment in this pool is reported in the accompanying financial statements at amounts based upon District’s pro- rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost-basis. The LAIF is a special fund of the California State Treasury through which local governments may pool investments. The District may invest up to $50,000,000 in the fund. Investments in LAIF are highly liquid, as deposits can be converted to cash within twenty-four hours without loss of interest. Investments with LAIF are secured by the full faith and credit of the State of California. The yield of LAIF for the quarter ended June 30, 2017 and 2016 was 0.92% and 0.51%, respectively. The estimated amortized cost and fair value of the LAIF pool at June 30, 2017 was $77,539,216,146 and $75,442,588,513 at June 30, 2016. The District’s share of the pool at June 30, 2017 was approximately 0.0158 and June 30, 2016 was approximately 0.0084 percent. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 29 2) CASH AND INVESTMENTS - Continued San Diego County Pooled Fund The San Diego County Pooled Investment Fund (SDCPIF) is pooled investment fund program governed by the County of San Diego Board of Supervisors, and administered by the County of San Diego Treasurers and Tax Collector. Investments in SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty, determined on an amortized cash basis, the same as the fair value of the District’s position in the pool. The County of San Diego’s bank deposits are either federally insured or collateralized in accordance with the California Government Code. Pool detail is included in the County of San Diego Comprehensive Annual Financial Report (CAFR). Copies of the CAFR may be obtained from the County of San Diego Auditor-Controller’s Office - 1600 Pacific Coast Highway, San Diego California 92101. Restricted Cash and Cash Equivalents 2017 2016 Debt Service: Water Revenue Bond Series 2010A $ 13,845 $ 2,264 Water Revenue Bond Series 2010B 36,359 5,944 Total $ 50,204 $ 8,208 Board Designated Investments Investments are Board restricted for the cost of the following District projects: 2017 2016 New Water Supply $ 622,723 $ 487,059 Replacement 24,121,172 23,389,619 Total $ 24,743,895 $ 23,876,678 Restricted Investments 2017 2016 Debt Service: General Obligation Bond ID No. 27-2009 $ 551,400 $ 657,076 Water Revenue Bond Series 2010A 1,021,760 1,030,556 Water Revenue Bond Series 2010B 2,683,360 2,706,461 Total $ 4,256,520 $ 4,394,093 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 30 3) FAIR VALUE MEASUREMENTS Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurements and Application, provides the framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value with Level 1 given the highest priority and Level 3 the lowest priority. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the organization has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following: a. Quoted prices for similar assets or liabilities in active markets. b. Quoted prices for identical or similar assets or liabilities in markets that are not active. c. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level 3 inputs are unobservable inputs for the asset or liability. Fair value of assets measured on a recurring basis at June 30, 2017, are as follows: Significant Other Observable Inputs June 30, 2017 Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 67,349,620 $ 67,349,620 $ - Local Agency Investment Fund (LAIF) 12,276,228 - 12,276,228 San Diego County Pool 4,088,000 - 4,088,000 Money Market Funds 50,204 50,204 - Total $ 83,764,052 $ 67,399,824 $ 16,364,228 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 31 3) FAIR VALUE MEASUREMENTS - Continued Fair value of assets measured on a recurring basis at June 30, 2016, are as follows: Significant Other Observable Inputs June 30, 2016 Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 64,993,625 $ 64,993,625 $ - Local Agency Investment Fund (LAIF) 6,331,635 - 6,331,635 San Diego County Pool 13,386,000 - 13,386,000 Money Market Funds 8,208 8,208 - Total $ 84,719,468 $ 65,001,833 $ 19,717,635 Investments classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. Uncategorized investments do not fall under the fair value hierarchy as there is no active market for the investments. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 32 4) CAPITAL ASSETS The following is a summary of changes in Capital Assets for the year ended June 30, 2017: Beginning Ending Balance Additions Deletions Adjustments1 Balance Capital Assets, Not Depreciated Land $ 14,085,251 $ 303,936 $ - $ - $ 14,389,187 Construction in Progress 12,541,701 10,502,297 (8,842,487) - 14,201,511 Total Capital Assets Not Depreciated 26,626,952 10,806,233 (8,842,487) - 28,590,698 Capital Assets, Being Depreciated Infrastructure 631,201,238 10,874,045 (1,384,141) (49,540) 640,641,602 Field Equipment 9,123,178 672,982 (1,203,861) 396,321 8,988,620 Buildings 20,574,350 328,324 (326,549) - 20,576,125 Transportation Equipment 3,437,794 227,545 (31,560) (346,781) 3,286,998 Communication Equipment 3,283,251 264,362 (176,572) - 3,371,041 Office Equipment 19,355,538 451,069 (2,186,023) - 17,620,584 Total Capital Assets Being Depreciated 686,975,349 12,818,327 (5,308,706) - 694,484,970 Less Accumulated Depreciation: Infrastructure 220,794,506 15,198,502 (697,049) (15,137) 235,280,822 Field Equipment 7,667,659 438,346 (1,203,861) 134,748 7,036,892 Buildings 9,303,722 553,998 (260,737) - 9,596,983 Transportation Equipment 2,589,264 170,113 (31,560) (119,611) 2,608,206 Communication Equipment 2,577,906 225,912 (176,572) - 2,627,246 Office Equipment 16,700,698 1,198,626 (2,170,755) - 15,728,569 Total Accumulated Depreciation 259,633,755 17,785,497 (4,540,534) - 272,878,718 Total Capital Assets Being Depreciated, Net 427,341,594 (4,967,170) (768,172) - 421,606,252 Total Capital Assets, Net $ 453,968,546 $ 5,839,063 $ (9,610,659) $ - $ 450,196,950 1Adjustments are related to recategorization of capital assets during the fiscal year. Depreciation expense for the year ended June 30, 2017 was $17,785,497. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 33 4) CAPITAL ASSETS - Continued The following is a summary of changes in Capital Assets for the year ended June 30, 2016: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated Land $ 13,714,963 $ 370,418 $ (130) $ 14,085,251 Construction in Progress 15,106,336 9,127,008 (11,691,643) 12,541,701 Total Capital Assets Not Depreciated 28,821,299 9,497,426 (11,691,773) 26,626,952 Capital Assets, Being Depreciated Infrastructure 621,338,227 9,880,756 (17,745) 631,201,238 Field Equipment 8,720,188 500,562 (97,572) 9,123,178 Buildings 18,992,652 1,592,991 (11,293) 20,574,350 Transportation Equipment 3,398,370 127,517 (88,093) 3,437,794 Communication Equipment 3,097,068 221,871 (35,688) 3,283,251 Office Equipment 18,223,444 1,135,511 (3,417) 19,355,538 Total Capital Assets Being Depreciated 673,769,949 13,459,208 (253,808) 686,975,349 Less Accumulated Depreciation: Infrastructure 206,825,493 13,972,386 (3,373) 220,794,506 Field Equipment 7,569,568 195,663 (97,572) 7,667,659 Buildings 8,841,448 473,567 (11,293) 9,303,722 Transportation Equipment 2,443,598 233,759 (88,093) 2,589,264 Communication Equipment 2,219,957 393,637 (35,688) 2,577,906 Office Equipment 15,499,790 1,204,325 (3,417) 16,700,698 Total Accumulated Depreciation 243,399,854 16,473,337 (239,436) 259,633,755 Total Capital Assets Being Depreciated, Net 430,370,095 (3,014,129) (14,372) 427,341,594 Total Capital Assets, Net $ 459,191,394 $ 6,483,297 $ (11,706,145) $ 453,968,546 Depreciation expense for the year ended June 30, 2016 was $16,473,337. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 34 5) LONG-TERM DEBT Long-term liabilities for the year ended June 30, 2017 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 - 2009 $ 4,580,000 $ - $ 585,000 $ 3,995,000 $ 605,000 Unamortized Bond Premium 100,853 - 16,355 84,498 - Net General Obligation Bonds 4,680,853 - 601,355 4,079,498 605,000 Certificates of Participation: 1996 Certificates of Participation 8,800,000 - 600,000 8,200,000 600,000 1996 COPS Unamortized Discount (8,197) - (745) (7,452) - Net Certificates of Participation 8,791,803 - 599,255 8,192,548 600,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 9,720,000 - 900,000 8,820,000 940,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 5,855,000 - 635,000 5,220,000 660,000 2016 Water Revenue Refunding Bonds 33,385,000 - 1,200,000 32,185,000 1,015,000 2010 Series A Unamortized Premium 613,813 - 74,402 539,411 - 2013 Bonds Unamortized Premium 688,683 - 96,095 592,588 - 2016 Bonds Unamortized Premium 3,601,190 - 178,571 3,422,619 - Net Revenue Bonds 90,218,686 - 3,084,068 87,134,618 2,615,000 Total Long-Term Liabilities $ 103,691,342 $ - $ 4,284,678 $ 99,406,664 $ 3,820,000 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 35 5) LONG-TERM DEBT - Continued Long-term liabilities for the year ended June 30, 2016 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 - 2009 $ 5,150,000 $ - $ 570,000 $ 4,580,000 $ 585,000 Unamortized Bond Premium 117,208 - 16,355 100,853 - Net General Obligation Bonds 5,267,208 - 586,355 4,680,853 585,000 Certificates of Participation: 1996 Certificates of Participation 9,400,000 - 600,000 8,800,000 600,000 2007 Certificates of Participation 35,795,000 - 35,795,000 - - 1996 COPS Unamortized Discount (8,942) - (745) (8,197) - 2007 COPS Unamortized Discount (195,955) - (195,955) - - Net Certificates of Participation 44,990,103 - 36,198,300 8,791,803 600,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 10,590,000 - 870,000 9,720,000 900,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 6,470,000 - 615,000 5,855,000 635,000 2016 Water Revenue Refunding Bonds - 33,385,000 - 33,385,000 1,200,000 2010 Series A Unamortized Premium 688,215 - 74,402 613,813 - 2013 Bonds Unamortized Premium 784,778 - 96,095 688,683 - 2016 Bonds Unamortized Premium - 3,630,950 29,760 3,601,190 - Net Revenue Bonds 54,887,993 37,015,950 1,685,257 90,218,686 2,735,000 Total Long-Term Liabilities $ 105,145,304 $ 37,015,950 $ 38,469,912 $ 103,691,342 $ 3,920,000 General Obligation Bonds In June 1998, the District issued $11,835,000 of General Obligation Refunding Bonds. The proceeds of this issue, together with other lawfully available monies, were to be used to establish an irrevocable escrow to advance refund and defease in their entirety the District’s previous outstanding General Obligation Bond issue. In November 2009, the District issued $7,780,000 of General Obligation Refunding Bonds Improvement District No. 27-2009 to refund the 1998 issue. The proceeds from the bond issue were $7,989,884, which included an original issue premium of $209,884. An amount of $7,824,647, which consisted of unpaid principal and accrued interest, was deposited into an escrow fund. Pursuant to an optional redemption clause in the 1998 bonds, the District was able to redeem the 1998 bonds, without premium at any time after September 1, 2009. On December 15, 2009 the 1998 bonds were refunded. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 36 5) LONG-TERM DEBT - Continued General Obligation Bonds - Continued These bonds are general obligations of Improvement District No. 27 (ID 27) of the District. The Board of Directors has the power and is obligated to levy annual ad valorem taxes without limitation, as to rate or amount for payment of the bonds and the interest upon all property which is within ID 27 and subject to taxation. The General Obligation Bonds are payable from District-wide tax revenues. The Board may utilize other sources for servicing the bond debt and interest. The Improvement District No. 27-2009 General Obligation Refunding Bonds have interest rates from 3.00% to 4.00% with maturities through Fiscal Year 2023. Future debt service requirements for the bonds are as follows: For the Year Ended June 30, Principal Interest 2018 $ 605,000 $ 147,700 2019 635,000 122,900 2020 650,000 97,200 2021 680,000 70,600 2022 705,000 42,900 2023 720,000 14,400 $ 3,995,000 $ 495,700 Certificates of Participation (COPS) In June 1996, COPS with face value of $15,400,000 were sold by the Otay Service Corporation to finance the cost of design, acquisition, and construction of certain capital improvements. An installment purchase agreement between the District, as Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. The installment payments are to be paid from taxes and net revenues, as described in the installment agreement. The certificates bear interest at a variable weekly rate not to exceed 12%. The variable interest rate is tied to the 30-day LIBOR index and the Securities Industry and Financial Markets Association (SIFMA) index. An irrevocable letter of credit facility is necessary to market the District’s variable rate debt. This facility is with Union Bank and covers the outstanding principal and interest. The facility expires on June 29, 2020. The interest rate at June 30, 2017 was 0.90%. The installment payments are to be paid annually at $350,000 to $1,100,000 from September 1, 1996 through September 1, 2026. In March 2007, Revenue Certificates of Participation (COPS) with face value of $42,000,000 were sold by the Otay Service Corporation to improve the District’s water storage system and distribution facilities. An installment purchase agreement between the District, as a Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. The installment payments are to be paid from taxes and net revenues, as described in the installment agreement. The certificates are due in annual installments of $785,000 to $2,445,000 from September 1, 2007 through September 1, 2036; bearing interest at 3.7% to 4.47%. On May 1, 2016 the 2007 COPS was refunded. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 37 5) LONG-TERM DEBT - Continued There is no aggregate reserve requirement for the COPS. Future debt service requirements for the certificates are as follows: For the Year 1996 COPS Ended June 30, Principal Interest(1) 2018 $ 600,000 $ 38,500 2019 700,000 35,083 2020 700,000 31,583 2021 700,000 28,083 2022 800,000 24,167 2023-2027 4,700,000 54,417 $ 8,200,000 $ 211,833 (1)Variable Rate - Interest reflected at June 30, 2017 at a rate of 0.90%. The COPS debt issue contain various covenants and restrictions, principally that the District fix, prescribe, revise and collect rates, fees and charges for the Water System which will at lease sufficient to yield, during each fiscal year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal year ended June 30, 2017. Defeased Certificate of Participation (COPS) In May 2016, the March 2007 COPS were refunded with the issuance of the 2016 Water Revenue Refunding Bonds. Proceeds of $36,577,898, which consisted of unpaid principal and accrued interest, were used to establish an irrevocable escrow to advance refund and defease in their entirety the District’s 2007 COPS. Pursuant to an optional redemption clause in the 2007 COPS, the District will be able to redeem the 2007 bonds, without premium at any time after September 1, 2017. As a result, the 2007 COPS are considered to be defeased and the liability of those bonds has been removed from long-term liabilities. The outstanding balance at June 30, 2017 was $34,760,000. Water Revenue Bonds In April 2010, Water Revenue Bonds with a face value of $50,195,000 were sold by the Otay Water District Financing Authority to provide funds for the construction of water storage and transmission facilities. The bond issue consisted of two series; Water Revenue Bonds, Series 2010A (Non-AMT Tax Exempt) with a face value of $13,840,000 plus a $1,078,824 original issue premium, and Water Revenue Bonds, Series 2010B (Taxable Build America Bonds) with a face value of $36,255,000. The Series 2010A bonds are due in annual installments of $785,000 to $1,295,000 from September 1, 2012 through September 1, 2025; bearing interest at 2% to 5.25%. The Series 2010B bonds are due in annual installments of $1,365,000 to $3,505,000 from September 1, 2026 through September 1, 2040; bearing interest at 6.377% to 6.577%. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 38 5) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued Interest on both Series is payable on September 1, 2010 and semiannually thereafter on March 1st and September 1st of each year until maturity or earlier redemption. The installment payments are to be made from Taxes and Net Revenues of the Water System as described in the installment purchase agreement, on parity with the payments required to be made by the District for the 1996, and 2007 Certificates of Participation described above and the 2013 Water Revenue Refunding Bonds described below. The proceeds of the bonds will be used to fund the project described above as well as to fund reserve funds of $1,030,688 (Series 2010A) and $2,707,418 (Series 2010B). $542,666 was used to fund various costs of issuance. The original issue premium is being amortized over the 14 year life of the Series 2010A bonds. Amortization for the year ending June 30, 2017 was $74,402 and is included in interest expense. The unamortized premium at June 30, 2017 is $539,411 and June 30, 2016 was $613,813. The 2010 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe, revise and collection rates, fees and charges for the Water System which will at lease sufficient to yield, during each fiscal year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal year ended June 30, 2017. In June 2013, the 2013 Water Revenue Refunding Bonds were issued to defease the 2004 Refunding Certificates of Participation. The bonds were issued with a face value of $7,735,000 plus a $984,975 original issue premium. The bonds are due in annual installments of $660,000 to $835,000 from September 1, 2013 through September 1, 2023; bearing interest at 1% to 4%. The installment payments are to be made from Taxes and Net Revenues of the Water System, on parity with the payments required to be made by the District for the 1996, and 2007 Certificates of Participation and the 2010A and 2010B described above. The original issue premium is being amortized over the 11 year life of the Series 2013 bonds. Amortization for the year ending June 30, 2017 was $96,095 and is included in interest expense. The unamortized premium at June 30, 2017 is $592,588 and June 30, 2016 was $688,683. In May 2016, Water Revenue Refunding Bonds were issued to defease the 2007 Revenue Certificates of Participation. The bonds are due in annual installments of $1,200,000 to $2,235,000 from September 1, 2016 through September 1, 2036; bearing interest of 2% to 5%. The bonds were issued with a face value of $33,385,000 plus $3,630,950 original issue premium. The savings between the cash flow required to service, the old debt and the cash flow required to service the new debt is $5,664,140 and represent an economic gain on refunding of $4,538,175. The original issue premium is being amortized over the 20 year life of the Series 2016 bonds. Amortization for the year ending June 30, 2017 was $178,571 and is included in interest expense. The unamortized premium at June 30, 2017 is $3,422,619 and at June 30, 2016 was $3,601,190. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 39 5) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued The total amount outstanding at June 30, 2017 and aggregate maturities of the revenue bonds for the fiscal years subsequent to June 30, 2017, are as follows: For the Year 2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B Ended June 30, Principal Interest Principal Interest 2018 $ 940,000 $ 406,288 $ - $ 2,371,868 2019 975,000 367,988 - 2,371,868 2020 1,015,000 323,112 - 2,371,868 2021 1,065,000 271,112 - 2,371,868 2022 1,120,000 216,487 2,371,868 2023-2027 3,705,000 291,969 2,815,000 11,682,540 2028-2032 - - 8,760,000 9,631,794 2033-2037 - - 12,005,000 6,275,281 2038-2042 - - 12,775,000 1,747,345 $ 8,820,000 $ 1,876,956 $ 36,355,000 $ 41,196,300 For the Year 2013 Water Revenue Refunding Bonds 2016 Water Revenue Refunding Bonds Ended June 30, Principal Interest Principal Interest 2018 $ 660,000 $ 195,600 $ 1,015,000 $ 1,214,806 2019 685,000 168,700 1,045,000 1,173,456 2020 715,000 140,700 1,100,000 1,119,831 2021 745,000 111,500 1,155,000 1,063,456 2022 775,000 81,100 1,215,000 1,004,206 2023-2027 1,640,000 66,200 7,120,000 4,014,907 2028-2032 - - 8,955,000 2,238,719 2033-2037 - - 10,580,000 761,972 $ 5,220,000 $ 763,800 $ 32,185,000 $ 12,591,353 Revenues Pledged The District has pledged a portion of future water sales revenues to repay its Water Revenue Bonds and Certificates of Participation. Total principal and interest remaining on the water revenue bonds and certificates of participation is $147,420,242 payable through fiscal year 2042. For the current year, principal and interest paid by the water sales revenues were $3,335,000 and $4,082,446, respectively. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 40 6) NET POSITION Designations of Net Position In addition to the restricted net position, a portion of unrestricted net position, have been designated by the Board of Directors for the following purposes as of June 30, 2017 and 2016: 2017 2016 Designated Betterment $ 2,564,335 $ 2,081,586 Replacement Reserve 22,353,996 32,508,472 Designated New Supply Fund 100,751 64,711 Employee Benefits Reserve 188,381 135,933 Total $ 25,207,463 $ 34,790,702 7) DEFINED BENEFIT PENSION PLAN A) General Information about the Pension Plans Plan Descriptions All qualified permanent and probationary employees are eligible to participate in the District’s Plan, agent multiple- employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and District resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for the plan are applied as specified by the Public Employees’ Retirement Law. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 41 7) DEFINED BENEFIT PENSION PLAN - Continued A) General Information about the Pension Plans - Continued Benefits Provided - Continued The Plans’ provisions and benefits in effect at June 30, 2017 and 2016 are summarized as follows: Prior to On or After Hire Date January 1, 2013 January 1, 2013 Benefit Formula 2.7% at 55 2% at 62 Benefit Vesting Schedule 5 years service 5 years service Benefit Payments Monthly for life Monthly for life Retirement Age 50 - 55 52 - 67 Monthly Benefits, as a % of Eligible Compensation 2.0% to 2.7% 1.0% to 2.5% Required Employee Contribution Rates 8% 6.25% Required Employer Contribution Rates 20.869% - 25.435% 25.435% - 32.631% Employees Covered The following employees were covered by the benefit terms for the Plan: 2017 2016 Inactive Employees or Beneficiaries Currently Receiving Benefits 174 169 Inactive Employees Entitled to But Not Yet Receiving Benefits 140 138 Active Employees 137 138 Total 451 445 Contributions Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. B) Net Pension Liability The District’s net pension liability for the Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2016, using the annual actuarial valuation as of June 30, 2015 rolled forward to June 30, 2016 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown on the following page: NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 42 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Actuarial Assumptions The total pension liabilities in the June 30, 2015 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2015 Measurement Date June 30, 2016 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Payroll Growth 3.0% Projected Salary Increase 3.3% - 14.2%(1) Investment Rate of Return 7.5%(2) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2015 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the CalPERS website. The total pension liabilities in the June 30, 2014 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2014 Measurement Date June 30, 2015 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Payroll Growth 3.0% Projected Salary Increase 3.3% - 14.2%(1) Investment Rate of Return 7.5%(2) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2014 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the CalPERS website. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 43 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Discount Rate The discount rate used to measure the total pension liability was 7.65% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.65 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrator expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long- term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above the rounded down to the nearest one quarter of one percent. The following table reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 44 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Discount Rate Asset Class New Strategic Allocation Real Return Years 1 - 10(a) Real Return Years 11+(b) Global Equity 51.0% 5.25% 5.71% Global Fixed Income 20.0% 0.99% 2.43% Inflation Sensitive 6.0% 0.45% 3.36% Private Equity 10.0% 6.83% 6.95% Real Estate 10.0% 4.50% 5.13% Infrastructure and Forestland 2.0% 4.50% 5.09% Liquidity 1.0% -0.55% -1.05% Total 100% (a) An expected inflation of 2.5% used for this period. (b) An expected inflation of 3.0% used for this period. C) Changes in the Net Position Liability The changes in the Net Position Liability for the Plan for June 30, 2017: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $ 114,283,338 $ 74,140,210 $ 40,143,128 Changes in the Year: Service Cost 2,298,617 - 2,298,617 Interest on the Total Pension Liability 8,575,275 - 8,575,275 Changes in Benefit Terms - - - Differences Between Actual and Expected Experience (613,440) - (613,440) Changes in Assumptions - - Contribution - Employer - 3,819,770 (3,819,770) Contribution - Employee - 1,010,337 (1,010,337) Net Investment Income - 369,214 (369,214) Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,448,218) - Administrative Expense - (45,185) 45,185 Net Changes 4,812,234 (294,082) 5,106,316 Ending Balance $ 119,095,572 $ 73,846,128 $ 45,249,444 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 45 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Position Liability The changes in the Net Position Liability for the Plan for June 30, 2016: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $ 112,069,436 $ 73,346,091 $ 38,723,345 Changes in the Year: Service Cost 2,250,860 - 2,250,860 Interest on the Total Pension Liability 8,229,312 - 8,229,312 Changes in Benefit Terms -- - Differences Between Actual and Expected Experience (981,200) - (981,200) Changes in Assumptions (1,996,819)- (1,996,819) Contribution - Employer - 3,557,098 (3,557,098) Contribution - Employee - 1,007,023 (1,007,023) Net Investment Income - 1,601,760 (1,601,760) Benefit Payments, Including Refunds of Employee Contributions (5,288,251) (5,288,251) - Administrative Expense -(83,511) 83,511 Net Changes 2,213,902 794,119 1,419,783 Ending Balance $ 114,283,338 $ 74,140,210 $ 40,143,128 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the District for the Plan, calculated using the discount rate for the Plan, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1- percentage point lower or 1-percentage point higher than the current rate: 2017 2016 1% Decrease 6.65%6.65% Net Pension Liability $ 60,824,149 $ 55,289,674 Current Discount Rate 7.65% 7.65% Net Pension Liability $ 45,249,444 $ 40,143,128 1% Increase 8.65% 8.65% Net Pension Liability $ 32,314,666 $ 27,584,842 Note: In a decision by CalPERS in December 2016, the discount rate will be lowered over the next three fiscal years as follows: FY 2017-2018 7.375% FY 2018-2019 7.25% FY 2019-2020 7.00% CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 46 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Position Liability - Continued Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2017, the District recognized pension expense of $3,682,561. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following services: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 4,130,482 $ - Differences between actual and expected experience - (698,864) Changes in assumptions - (619,703) Net differences between projected and actual earnings on pension plan investments 6,550,647 (2,483,970) Total $ 10,681,129 $ (3,802,537) $4,130,482 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Year Ended Outflow/(Inflows) June 30 of Resources 2017 $ (550,942) 2018 417,089 2019 1,834,343 2020 1,047,620 2021 - Thereafter - CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 47 7) DEFINED BENEFIT PENSION PLAN - Continued D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions - Continued For the year ended June 30, 2016, the District recognized pension expense of $2,557,616. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following services: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 3,854,533 $ - Differences between actual and expected experience - (642,855) Changes in assumptions - (1,308,261) Net differences between projected and actual earnings on pension plan investments 3,146,893 (3,725,955) Total $ 7,001,426 $ (5,677,071) $3,854,533 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Year Ended Outflow/(Inflows) June 30 of Resources 2017 $ (1,482,165) 2018 (1,379,475) 2019 (455,262) 2020 786,724 2021 - Thereafter - E) Payable to the Pension Plan At June 30, 2017, the District reported a payable of $80,021 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2017 and $61,904 for June 30, 2016 reflected in the accrued payroll liabilities on the Statements of Net Position. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 48 8) OTHER POST EMPLOYMENT BENEFITS Plan Description The District’s defined benefit postemployment healthcare plan, (DPHP), provides medical benefits to eligible retired District employees and beneficiaries. DPHP is part of the Public Agency portion of the California Employers’ Retiree Benefit Trust Fund (CERBT), an agent multiple-employer plan administered by California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for participating public employers within the State of California. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814. Prior to the plan agreements signed in 2011, the eligibility in the plan was broken into 3 tiers, employees hired before January 1, 1981, employees hired on or after January 1, 1981 but before July 1, 1993 and employees hired on or after July 1, 1993. Board members elected before January 1, 1995 are also eligible for the plan. Eligibility also includes age and years of service requirements which vary by tier. Benefits include up to 100% medical and/or dental premiums for life for the retiree for Tier I, II or III employees, and up to 100% spouse premium until death of retiree or age 65 whichever is greater and dependent premium up to age 19 depending on the tier. Subsequent to the agreements in 2011 and 2012 all employees are eligible for the plan after 20 years of consecutive service and unrepresented employees hired before January 1, 2013 are eligible after 15 years. Survivor benefits are covered beyond Medicare. Funding Policy The contribution requirements of plan members and the District are established and may be amended by the Board of Directors. Effective January 1, 2013, represented employees hired prior to January 1, 2013 or hired on or after January 1, 2013 from another public agency that has reciprocity without having a break in service of more than six months, contribute .75% of covered salaries. In addition, unrepresented and represented employees hired on or after January 1, 2013, and do not have reciprocity from another public agency, contribute 1.75% and 2.5% of covered salaries, respectively. DPHP members receiving benefits contribute based on their selected plan options of EPO, HMO or PPO and whether they are outside the State of California. Contributions by plan members range from $0 to $196 per month for coverage to age 65, and from $0 to $202 per month, respectively, thereafter. Annual OPEB Cost and Net OPEB Obligation/Asset The District’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal annual cost. Any unfunded actuarial liability (or funding excess) is amortized over a period not to exceed thirty years. The current ARC rate is 8.9% of the annual covered payroll. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 49 8) OTHER POST EMPLOYMENT BENEFITS - Continued Annual OPEB Cost and Net OPEB Obligation/Asset - Continued The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation/assets: 2017 2016 Annual Required Contribution (ARC) $ 1,245,000 $ 1,239,000 Interest on Net OPEB Asset (907,667) (831,748) Adjustment to Annual Required Contribution (ARC) 911,000 810,000 Annual OPEB Cost (Expense) 1,248,333 1,217,252 Contributions Made 2,284,420 2,264,415 Increase in Net OPEB Asset (1,036,087) (1,047,163) Net OPEB Asset - Beginning of Year (12,519,549) (11,472,386) Net OPEB Asset - End of Year $ (13,555,636) $ (12,519,549) For 2017, in addition to the ARC, the District contributed cash benefit payments outside the trust (healthcare premium payments for retirees to Special District Risk Management Authority (SDRMA) in the amount of $919,420, which is included in the $2,284,420 of contributions shown above. For 2016, this amount was $909,415, which is included in the $2,264,415 of contributions shown above. The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation/asset for the fiscal years 2017, 2016 and 2015 were as follows: THREE-YEAR TREND INFORMATION FOR CERBT Fiscal Annual OPEB Percentage of Net OPEB Year Cost (AOC) OPEB Cost Contributed Obligation 6/30/17 $ 1,248,333 183% $ (13,555,636) 6/30/16 $ 1,217,252 186% $ (12,519,549) 6/30/15 $ 1,373,063 179% $ (11,472,386) Funded Status and Funding Progress The funded status of the plan as of June 30, 2015, the most recent actuarial valuation date, was as follows: Actuarial Accrued Liability (AAL) $ 23,689,000 Actuarial Value of Plan Assets $ 16,920,000 Unfunded Actuarial Accrued Liability (UAAL) $ 6,769,000 Funded Ratio (Actuarial Value of Plan Assets/AAL) 71.42% Covered Payroll (Active Plan Members) $ 13,080,000 UAAL as a Percentage of Covered Payroll 51.75% NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 50 8) OTHER POST EMPLOYMENT BENEFITS - Continued Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following is a summary of the actuarial assumptions and methods: Valuation Date June 30, 2015 Actuarial Cost Method Entry Age Normal Cost Method Amortization Method Level Percent of Payroll Remaining Amortization Period 23-Year Fixed (Closed) Period as of the Valuation Date Asset Valuation Method 5-Year Smoothed Market Actuarial Assumptions: Investment Rate of Return 7.25% (Net of Administrative Expenses) Projected Salary Increase 3.25% Inflation 3.00% Individual Salary Growth CalPERS 1997-2007 Experience Study Healthcare Cost Trend Rate Medical: 10% per annum graded down in approximately one-half percent increments to an ultimate rate of 5%. Dental: 4% per annum. 9) WATER CONSERVATION AUTHORITY In 1999 the District formed the Water Conservation Garden Authority (the “Authority”), a Joint Powers Authority, with other local entities to construct, maintain and operate a xeriscape demonstration garden in the furtherance of water conservation. The authority is a non-profit public charity organization and is exempt from income taxes. During the years ended June 30, 2017 and 2016, the District contributed $125,742 and $120,722, respectively, for the development, construction and operation costs of the xeriscape demonstration garden. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 51 9) WATER CONSERVATION AUTHORITY - Continued A summary of the Authority’s June 30, 2016 audited financial statement is as follows (latest report available): Assets $ 1,316,319 Liabilities 0 Net Assets $ 1,316,319 Revenues, Gains and Other Support $ 500,000 Expenses 569,995 Changes in Net Assets $ (69,995) 10) COMMITMENTS AND CONTINGENCIES Construction Commitments The District had committed to capital projects under construction with an estimated cost to complete of $9,520,486 at June 30, 2017. Litigation Certain claims, suits and complaints arising in the ordinary course of operation have been filed or are pending against the District. In the opinion of the staff and counsel, all such matters are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involved such amounts, as would not have significant effect on the financial position or results of operations of the District if disposed of unfavorably. Refundable Terminal Storage Fees The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee in order to provide the District with the funds necessary to build additional storage capacity. The agreement further allows the developers to relinquish all or a portion of such water storage capacity. If the District grants to another property owner the relinquished storage capacity, the District shall refund to the applicable developer $746 per equivalent dwelling unit (EDU). There were 17,867 EDUs that were subject to this agreement. At June 30, 2017, 1,750 EDUs had been relinquished and refunded, 15,086 EDUs had been connected, and 1,031 EDUs have neither been relinquished nor connected. At June 30, 2016, 1,750 EDUs had been relinquished and refunded, 15,083 EDUs had been connected, and 1,034 EDUs have neither been relinquished nor connected. Developer Agreements The District has entered into various Developer Agreements with developers towards the expansion of District facilities. The developers agree to make certain improvements and after the completion of the projects the District agrees to reimburse such improvements with a maximum reimbursement amount for each developer. Contractually, the District does not incur a liability for the work until the work is accepted by the District. As of June 30, 2017, none of the outstanding developer agreements had been accepted. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 52 11) RISK MANAGEMENT General Liability The District is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omissions, and natural disasters. Beginning in July 2003, the District began participation in an insurance pool through the Special District Risk Management Authority (SDRMA). SDRMA is a not-for-profit public agency formed under California Government Code Sections 6500 et. Seq. SDRMA is governed by a board composed of members from participating agencies. The mission of SDRMA is to provide renewable, efficiently priced risk financing and risk management services through a financially sound pool. The District pays an annual premium for commercial insurance covering general liability, excess liability, property, automobile, public employee dishonesty, and various other claims. Accordingly, the District retains no risk of loss. Separate financial statements of SDRMA may be obtained at Special District Risk Management Authority, 1112 “I” Street, Suite 300, Sacramento, CA 95814. General and Auto Liability, Public Officials’ Errors and Omissions and Employment Practices Liability: Total risk financing limits of $10 million combined single limit at $10 million per occurrence, subject to the following deductibles: $5,000 per occurrence for third party general liability property damage; $1,000 per occurrence for third party auto liability property damage; 50% co-insurance of cost expended by SDRMA, in excess of $10,000 up to $50,000, per occurrence, as respects any employment practices claim or suit arising in whole or any part out of any action involving discipline, demotion, reassignment or termination of any employee of the member. Employee Dishonesty Coverage: Total of $1,000,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and Theft, Disappearance and Destruction coverage’s effective July 1, 2016. Property Loss: Replacement cost, for property on file, if replaced, and if not replaced within two years after the loss, paid on an actual cash value basis, to a combined total of $1 billion per occurrence, subject to a $1,000 deductible per occurrence, effective July 1, 2016. Boiler and Machinery: Replacement cost up to $100 million per occurrence, subject to a $1,000 deductible, effective July 1, 2016. Public Officials Personal Liability: $500,000 each occurrence, with an annual aggregate of $500,000 per each elected/appointed official to which this coverage applies, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage’s, deductible of $500 per claim, effective July 1, 2016. Comprehensive and Collision: On selected vehicles, with deductibles of $500/$1,000, as elected; ACV limits; fully self- funded by SDRMA; Policy No. LCA - SDRMA – 2015-16, effective July 1, 2016. Workers’ Compensation Coverage and Employer’s Liability: Statutory limits per occurrence for Workers’ Compensation and $5.0 million for Employer’s Liability Coverage, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage, effective July 1, 2016. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 53 11) RISK MANAGEMENT - Continued Health Insurance Beginning in January 2008, the District began providing health insurance through SDRMA covering all of its employees, retirees, and other dependents. SDRMA is a pooled medical program, administered in conjunction with the California State Association of Counties (CSAC). Adequacy of Protection During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. 12) INTEREST EXPENSE Interest expense for the years ended June 30, 2017 and 2016 is as follows: 2017 2016 Amount Expensed $ 5,069,767 $ 4,603,093 Amount Capitalized as a Cost of Construction Projects 181,582 274,429 Total Interest $ 5,251,349 $ 4,877,522 13) SEGMENT INFORMATION During the June 30, 2011 fiscal year, the District issued Revenue Bonds to finance certain capital improvements. While water and wastewater services are accounted for jointly in these financial statements, the investors in the Revenue Bonds rely solely on the revenues of the water services for repayment. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 54 13) SEGMENT INFORMATION - Continued Summary financial information for the water services is presented for June 30, 2017: Condensed Statement of Net Position June 30, 2017 Water Services ASSETS Cash and Investments $ 76,498,144 Accounts Receivable 12,196,393 Other Current Asset 2,137,382 Capital Assets 428,761,526 Other Assets 13,088,537 Total Assets 532,681,982 DEFERRED OUTFLOWS OF RESOURCES Deferred Amount of Refunding 191,428 Deferred Actuarial Pension Costs 10,230,653 Total Deferred Outflows of Resources 10,422,081 LIABILITIES Accounts Payable 11,461,508 Other Miscellaneous Liabilities 4,301,290 Other Current Liabilities 9,047,957 General Obligation Bonds 3,474,498 Certificates of Participation 7,592,548 Revenue Bonds 84,519,618 Net Pension Liability 43,181,320 Other Non-current Liabilities 3,074,313 Total Liabilities 166,653,052 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs 3,638,714 Total Deferred Inflows of Resources 3,638,714 NET POSITION Net Investment in Capital Assets 329,546,290 Restricted for Debt Service 4,306,724 Unrestricted 38,959,283 Total Net Position $ 372,812,297 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 55 13) SEGMENT INFORMATION - Continued Condensed Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2017 Water Services Operating Revenues Water Sales $ 83,720,150 Connection and Other Fees 1,776,557 Total Operating Revenues 85,496,707 Operating Expenses Cost of Water Sales 56,882,487 Administrative and General 20,034,652 Depreciation 16,723,248 Total Operating Expenses 93,640,387 Operating Income (Loss) (8,143,680) Non-operating Revenues (Expenses) Investment Earnings 358,684 Taxes and Assessments 4,098,267 Availability Charges 638,357 Gain (Loss) on Sale of Capital Assets (605,536) Rents and Leases 1,375,305 Miscellaneous Revenues 3,323,595 Donations (125,742) Interest Expense (5,069,767) Miscellaneous Expenses (2,447,969) Total Non-operating Revenues (Expenses) 1,545,194 Income (Loss) Before Capital Contributions (6,598,486) Capital Contributions 5,490,495 Change in Net Position (1,107,991) Total Net Position, Beginning 373,920,288 Total Net Position, Ending $ 372,812,297 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 56 13) SEGMENT INFORMATION - Continued Condensed Statement of Cash Flows For the Year Ended June 30, 2017 Water Services Net Cash Provided/(Used) by: Operating Activities $ 7,757,465 Non-capital and Related Financing Activities 5,481,502 Capital and Related Financing Activities (14,867,834) Investing Activities (2,023,805) Net Increase (Decrease) in Cash and Cash Equivalents (3,652,672) Cash and Cash Equivalents, Beginning 21,130,751 Cash and Cash Equivalents, Ending $ 17,478,079 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY CREQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 57 Schedule of Funding Progress for DPHP Actuarial Accrued UAAL as a Actuarial Actuarial Liability Unfunded Percentage of Valuation Value of (AAL) Entry AAL Funded Covered Covered Date Assets Age (UAAL) Ratio Payroll Payroll (A) (B) (B - A) (A/B) (C) [(B-A)/C] 6/30/15 Miscellaneous $ 16,920,000 $ 23,689,000 $ 6,769,000 71.42% $ 13,080,000 51.75% 6/30/13 Miscellaneous $ 11,831,000 $ 22,891,000 $ 11,060,000 51.68% $ 11,969,000 92.41% 6/30/11 Miscellaneous $ 7,893,000 $ 18,289,000 $ 10,396,000 43.16% $ 12,429,000 83.64% REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 58 Schedule of Changes in the Net Pension Liability and Related Ratios Last 10 Years1 Measurement Period2 2015-2016 2014-2015 2013-2014 TOTAL PENSION LIABILITY Service Cost $ 2,298,617 $ 2,250,860 $ 2,330,709 Interest 8,575,275 8,229,312 7,907,915 Changes of Benefit Terms - - - Changes of Assumptions - (1,996,819) - Difference Between Expected and Actual Experience (613,440) (981,200) - Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,288,251) (4,885,406) Net Change in Total Pension Liability 4,812,234 2,213,902 5,353,218 Total Pension Liability - Beginning 114,283,338 112,069,436 106,716,218 Total Pension Liability - Ending (a) $ 119,095,572 $ 114,283,338 $ 112,069,436 PLAN FIDUCIARY NET POSITION Contributions - Employer $ 3,819,770 $ 3,557,098 $ 3,137,174 Contributions - Employee 1,010,337 1,007,023 1,074,954 Net Investment Income 369,214 1,601,760 10,874,999 Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,288,251) (4,885,406) Administrative Expense (45,185) (83,511) - Other Changes in Fiduciary Net Position - - - Net Change in Fiduciary Net Position (294,082) 794,119 10,201,721 Plan Fiduciary Net Position - Beginning 74,140,210 73,346,091 63,144,370 Plan Fiduciary Net Position - Ending (b) $ 73,846,128 $ 74,140,210 $ 73,346,091 Plan Net Pension Liability/(Asset) - Ending (a) - (b) $ 45,249,444 $ 40,143,128 $ 38,723,345 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 62.01% 64.87% 65.45% Covered Payroll $ 12,767,963 $ 12,451,513 $ 12,276,578 Plan Net Pension Liability/(Asset) as a Percentage of Covered Payroll 354.40% 322.40% 315.42% 1 Measurement period 2015-16 (fiscal year 2016-2017) was the third year of implementation; therefore, only three years are shown. 2 Historical information is required only for measurement periods for which GASB 68 is applicable Notes to Schedule: Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2015. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes of Assumptions: For the 2017 fiscal year, there were no changes. For the 2016 fiscal year, amounts reported reflect an adjustment the discount rate of 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 59 E 30, 2017 and 2016 Schedule of Plan Contributions1 Fiscal Year 2016-17 Fiscal Year 2014-15 Fiscal Year 2013-14 Actuarially Determined Contribution2 $ 3,819,770 $ 3,557,098 $ 3,137,174 Contributions in Relation to the Actuarially Determined Contribution2 (3,819,770) (3,557,098) (3,137,174) Contribution Deficiency (Excess) $ - $ - $ - Covered Payroll3 $ 12,767,963 $ 12,451,513 $ 12,276,578 Contributions as a Percentage of Covered Payroll3 29.92% 28.55% 25.55% 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions toward their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 Payroll from prior year $12,088,848 was assumed to increase by the 3.00 percent payroll growth assumption. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2015-16 were from the June 30, 2013 public agency valuations. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details see June 30, 2013 Funding Valuation Report Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2013 Funding Valuation Report Inflation 2.75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007 Mortality The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2017 and 2016 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors Otay Water District Spring Valley, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the business-type activities of the Otay Water District (the “District”), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated _________ __, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Riverside, California ________ __, 2017 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY _________ __, 2017 Board of Directors Otay Water District Spring Valley, CA We have audited the financial statements of the business-type activities of the Otay Water District (the “District”) for the year ended June 30, 2017. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated May 2, 2017. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the District are described in Note 1 to the financial statements. As described in Note 1 to the financial statements, the District changed accounting policies related to Statement of Governmental Accounting Standards (GASB Statement) No. 82, Pension Issues - An Amendment of GASB Statements No. 67, No. 68, and No. 73, in the 2017 fiscal year. Accordingly, the cumulative effect of the accounting changes as of the beginning of the year are reported in the financial statements. We noted no transactions entered into by the District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the business-type activities’ financial statements were: Management’s estimate of the fair value of investments is based on information provided by financial institutions. We evaluated the key factors and assumptions used to develop the fair value of investments in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of capital assets depreciation is based on historical estimates of each capitalized item’s useful life. We evaluated the key factors and assumptions used to develop the capital assets depreciation in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of net other postemployment benefits (OPEB) obligation is based on an actuarial valuation. We evaluated the key factors and assumptions used to develop the net OPEB obligation in determining that it is reasonable in relation to the financial statements taken as a whole. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management’s estimation of defined benefit pension obligation is based on an actuarial valuation. We evaluated the key factors and assumptions used to develop the defined benefit pension obligation in determining that it is reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were: The disclosure of the fair value of investments in Notes 2 and 3 to the financial statements represents amounts susceptible to market fluctuation. The disclosure of capital assets in Note 4 to the financial statements is based on historical information which could differ from actual useful lives of each capitalized item. The disclosure of other postemployment benefits and the net OPEB obligation in Note 8 to the financial statements represents management’s estimate based on an actuarial valuation. Actual results could differ depending on these key factors and assumptions used for the actuarial valuation. The disclosure of defined benefit pension plan in Note 7 to the financial statements represents management’s estimate based on an actuarial valuation. Actual results could differ depending on these key factors and assumptions used for the actuarial valuation. The financial statement disclosures are neutral, consistent and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. None of the misstatements detected as of a result of audit procedures were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated ________ __, 2017. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the District’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the District’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the management and discussion and analysis, Schedule of Funding Progress for DPHP, Schedule of Changes in the Net Pension Liability and Related Ratios, and Schedule of Contributions, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. Restriction on Use This information is intended solely for the use of the Board of Directors and management of the District and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY INDEPENDENT ACCOUNTANTS’ REPORT ON APPLYING AGREED-UPON PROCEDURES Mr. Joseph Beachem Chief Financial Officer Otay Water District Spring Valley, CA We have performed the procedures enumerated below, which were agreed to by the Otay Water District (the “District”), solely to assist the District’s senior management in evaluating the investments of the District as of and for the fiscal year ended June 30, 2017. The District’s management is responsible for evaluating the investments of the District. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. Our procedures and findings are as follows: 1. Obtain a copy of the District’s investment policy and determine that it is in effect for the fiscal year ended June 30, 2017. Finding: At June 30, 2017, the current investment policy (Policy #27) is dated May 4, 2016. This policy was reviewed and approved at May 6, 2015 and was last amended on May 4, 2016 at the regular board meeting. Prior to this the policy was last amended on May 7, 2014. Therefore the investment policy is in effect for the time period under review. 2. Select 4 investments held at year end and determine if they are allowable investments under the District’s Investment Policy. Finding: We selected the following investments: FFCB - Maturity 8/23/2018, FHLM - Maturity 4/26/2019, FHLB - Maturity 10/11/2019, and FNMA - Maturity 11/08/2019. All four investments are allowable and within maturity limits as stated in the District’s investment policy at June 30, 2017. 3. For the four investments selected in #2 above, determine if they are held by a third party custodian designated by the District. Finding: The four investments examined are held by a third party custodian, Union Bank of California, designated by the District in compliance with the District’s investment policy. Per discussion with the District’s management and evidenced by Union Bank of California’s statement, Union Bank does not act as a broker dealer for the District but acts as a custodial agent of the District holding the investments in a trust capacity. DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY 2 4. Confirm the par or original investment amount and market value for the four investments selected above with the custodian or issuer of the investments. Finding: No exceptions were noted as a result of our procedures. 5. Select two investment earnings transactions that took place during the year and recompute the earnings to determine if the proper amount was received. Finding: Selected the following investment earnings transactions: interest earned on FHLB Bond on March 28, 2017 and interest earned on FHLM Bond on March 29, 2017. No exceptions were noted as a result of our procedures. 6. Trace amounts received for transactions selected at #5 above into the District’s bank accounts. Finding: No exceptions were noted as a result of our procedures. 7. Select five investment transactions (buy, sell, trade or maturity) occurring during the year under review and determine that the transactions are permissible under the District’s investment policy. Finding: We selected the following investment transactions: FFCB Bond sold on July 01, 2016, FFCB Bond purchased on October 3, 2016, FHLB Bond purchased on September 28, 2016, FHLM Note purchased on February 28, 2017, and FNMA Note purchased on December 30, 2016. Those transactions were permissible under the District’s investment policy. No exceptions were noted as a result of our procedures. 8. Review the supporting documents for the five investments selected at #7 above to determine if the transactions were appropriately recorded into the District’s general ledger. Finding: No exceptions were noted as a result of our procedures. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to, and did not, conduct an audit or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the investments of the District for the fiscal year ending June 30, 2017. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Board of Directors and senior management of the Otay Water District and is not intended to be and should not be used by anyone other than these specified parties. Riverside, California ________ __, 2017 DRAFT COPY – 10/12/2017 PRELIMINARY & TENTATIVE for DISCUSSION PURPOSES ONLY Page 1 of 3 RESOLUTION NO. 4341 A RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT SUPPORTING MUNICIPAL WATER SYSTEMS WHEREAS, the United States' municipal water systems are among the finest in the world; and WHEREAS, high quality, safe drinking water is already available at most public locations; and WHEREAS, water districts are responsible for delivering safe and affordable water to our citizens; and WHEREAS, bottled water is regulated by the FDA and municipal tap water is regulated by the EPA and has more stringent requirements for testing, and WHEREAS, local governments invest over $100 billion a year to provide water and sewer services; and WHEREAS, bottled water often costs more than an equivalent volume of gasoline, equivalent to 1,000 to 10,000 times more than tap water; and WHEREAS, up to 40% of bottled water on the market comes from municipal water systems; and WHEREAS, bottled water often travels many miles from the source, resulting in the burning of massive amounts of fossil fuels, releasing CO2 and other pollution into the atmosphere; and Page 2 of 3 WHEREAS, plastic water bottles are one of the fastest growing sources of municipal waste; and WHEREAS, in the U.S. the production of plastic bottles for bottled water currently requires the energy equivalent of more than 17 million barrels of oil per year – enough to generate fuel for over a million cars for a year – and generates more than 2.5 million tons of carbon dioxide; and WHEREAS, the National City Water Taste Test, which recognizes all of the great work municipal water systems do for its residents on a daily basis, year after year; and WHEREAS, the evidence suggests that banning bottled water from government use highlights the importance of municipal water and decreases the impact of bottled water on municipal waste; and WHEREAS, The Otay Water District recognizes the importance of bottled water in times of emergency and times when municipal water is unavailable; and NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED by the Board of Directors of the Otay Water District that the District will eliminate the purchase and use of bottled water unless a time of emergency when municipal water is unavailable. BE IT FURTHER RESOLVED that the Board hereby approves and adopts Resolution No. 4341. Page 3 of 3 PASSED, APPROVED AND ADOPTED by the Board of Directors of Otay Water District at a board meeting held this 1st day of November 2017, by the following vote: Ayes: Noes: Abstain: Absent: ________________________ President ATTEST: ____________________________ District Secretary 11/1/2017 1 Yes to Tap! MISSION To provide high value water and wastewater services to the customers of the Otay Water District in a professional, effective, and efficient manner. VISION A District that is at the forefront in innovations to provide water services at affordable rates, with a reputation for outstanding customer service. 11/1/2017 2 Otay Consumer Confidence Report Otay – Pipeline Article Yes to Tap ‐Twitter 11/1/2017 3 What are other Local Agencies doing? Vista Irrigation District What are other Local Agencies doing? Sweetwater Authority Water Trailer at community events Southern California Agencies Santa Ana Watershed Project Authority (SAWPA) Eastern Municipal Water District, Western Municipal Water District, Inland Empire Utilities Agency, San Bernardino Valley Water District, Orange County Water District 11/1/2017 4 Nationally ‐Louisville Pure Tap Nationally – Washington D.C. Other Organizations AWWA National Rural Water Association 11/1/2017 5 U.S. Conference of Mayors Resolution Supporting Municipal Water Systems What can we do? •Take the pledge to not buy bottled water unless used in an emergency. •Educate customers about tap vs. bottled •Install hydration stations in the District •Supply tap water at events we attend •Partner with other agencies like SDCWA to make a regional effort similar to Washington D.C. •Be proud of the product we sell! Yes to Tap! SPECIFICATIONS Elkay EZH2O Bottle Filling Station with Single ADA Cooler Filtered 8 GPH Stainless Model LZS8WSVRSK In keeping with our policy of continuing product improvement, Elkay reserves the right to change product specifications without notice. Please visit elkay.com for the most current version of Elkay product specification sheets. This specification describes an Elkay product with design, quality, and functional benefits to the user. When making a comparison of other producers’ offerings, be certain these features are not overlooked. Elkay REV 03302017 2222 Camden Court © 2017 Page 1 of 3 LZS8WSVRSK Oak Brook, IL 60523 LZS8WSVRSK_spec.pdf PRODUCT SPECIFICATIONS Elkay EZH2O® Bottle Filling Station with Single ADA Cooler, Filtered 8 GPH Stainless. Chilling Capacity of 8.0 GPH (gallons per hour) of 50 F drinking water, based on 80 F inlet water and 90 F ambient, per ASHRAE 18 testing. Features shall include Hands-Free®, Visual Filter Monitor, Filtered, Green Ticker™, Laminar Flow, Silver Ion Antimicrobial, Real Drain. Furnished with Vandal-Resistant bubbler. Electronic Bottle Filler Sensor With Electronic Front And Side Bubbler Pushbar activation. Product shall be Wall Mount (On-Wall), for Indoor applications, serving 1 station(s). Unit shall be lead-free design which is certified to NSF/ANSI 61 & 372 (lead free) and meets Federal and State low-lead requirements. Special Features: Hands-Free®, Visual Filter Monitor, Filtered, Green Ticker™, Laminar Flow, Silver Ion Antimicrobial, Real Drain Finish: Stainless Steel Power: 115V/60Hz Bubbler Style: Vandal-Resistant Activation by: Electronic Bottle Filler Sensor With Electronic Front And Side Bubbler Pushbar Mounting Type: Wall Mount (On-Wall) Chilling Option*: 8.0 GPH Full Load Amps 6 Rated Watts: 370 Dimensions (L x W x H): 18-3/8" x 19" x 39-1/16" Approx. Shipping Weight: 85 lbs. Installation Location: Indoor No. of Stations Served: 1 *Based on 80° F inlet water & 90° F ambient air temp for 50° F chilled drinking water. Touchless, sensor-activation, designed for easy use Visual Filter Monitor: LED Filter Status Indicator for when filter change is necessary. Filter is certified to NSF 42 and 53 for lead, particulate, chlorine, taste and odor reduction. 3,000 gal. capacity. Green Ticker: Informs user of number of 20 oz. plastic water bottles saved from waste. Laminar flow provides clean fill with minimal splash. Silver Ion Antimicrobial protection on key plastic components to inhibit the growth of mold and mildew. Vandal-resistant, bubblers are one-piece, chrome plated with integral hood guard design to prevent contamination from other users, airborne deposits and tampering. AMERICAN PRIDE. A LIFETIME TRADITION. Like your family, the Elkay family has values and traditions that endure. For almost a century, Elkay has been a family-owned and operated company, providing thousands of jobs that support our families and communities. Included with Product: Water Cooler, Bottle Filler, Filter PRODUCT COMPLIANCE ADA Buy American Act GreenSpec® NSF/ANSI 42, 53, 61, and 372 (lead free) UL 399 Installation Instructions (PDF) 5 Year Limited Warranty on the refrigeration system of the unit. Electrical components and water system are warranted for 12 months from date of installation. Warranty pertains to drinking water applications only. Non-drinking water applications are not covered under warranty. Warranty (PDF) OPTIONAL ACCESSORIES 51300C - WaterSentry® Plus Replacement Filter (Bottle Fillers) LKAPREZL - Accessory - Cane Apron for EZ MLP100 - Accessory - In Wall Carrier (Single) 98568C - WaterSentry® Mounting Cover (Stainless Steel) PART:________________________________QTY: _____________ PROJECT:______________________________________________ CONTACT:______________________________________________ DATE:__________________________________________________ NOTES:_________________________________________________ APPROVAL:_____________________________________________ SPECIFICATIONS Elkay EZH2O Bottle Filling Station with Single ADA Cooler Filtered 8 GPH Stainless Model LZS8WSVRSK In keeping with our policy of continuing product improvement, Elkay reserves the right to change product specifications without notice. Please visit elkay.com for the most current version of Elkay product specification sheets. This specification describes an Elkay product with design, quality, and functional benefits to the user. When making a comparison of other producers’ offerings, be certain these features are not overlooked. Elkay REV 03302017 2222 Camden Court © 2017 Page 2 of 3 LZS8WSVRSK Oak Brook, IL 60523 LZS8WSVRSK_spec.pdf COOLING SYSTEM Compressor: Hermetically-sealed, reciprocating type, single phase. Sealed-in lifetime lubrication. Condenser: Fan cooled, copper tube with aluminum fins. Fan motor is permanently lubricated. Cooling Unit: Combination tube-tank type. Continuous copper tubing with is fully insulated with EPS foam that meets UL requirements for self-extinguishing material. Refrigerant Control: Refrigerant R-134a is controlled by accurately calibrated capillary tube. Temperature Control: Easily accessible enclosed adjustable thermostat is factory preset. Requires no adjustment other than for altitude requirements. SPECIFICATIONS Elkay EZH2O Bottle Filling Station with Single ADA Cooler Filtered 8 GPH Stainless Model LZS8WSVRSK In keeping with our policy of continuing product improvement, Elkay reserves the right to change product specifications without notice. Please visit elkay.com for the most current version of Elkay product specification sheets. This specification describes an Elkay product with design, quality, and functional benefits to the user. When making a comparison of other producers’ offerings, be certain these features are not overlooked. Elkay REV 03302017 2222 Camden Court © 2017 Page 3 of 3 LZS8WSVRSK Oak Brook, IL 60523 LZS8WSVRSK_spec.pdf Grainger.com The U.S. Conference of Mayors 76th Annual Meeting June 20-24, 2008, Miami 2008 ADOPTED RESOLUTION SUPPORTING MUNICIPAL WATER SYSTEMS WHEREAS, the United States' municipal water systems are among the finest in the world; and WHEREAS, high quality, safe drinking water is already available at most public locations; and WHEREAS, mayors are responsible for delivering safe and affordable water to our citizens; and WHEREAS, bottled water is regulated by the FDA and municipal tap water is regulated by the EPA and has more stringent requirements for testing; and WHEREAS, local governments invest approximately $82 billion a year to provide water and sewer services; and WHEREAS, bottled water often costs more than an equivalent volume of gasoline, equivalent to 1,000 to 10,000 times more than tap water; and WHEREAS, up to 40% of bottled water on the market comes from municipal water systems and the bottled water industry generated$15 billion in revenues in 2006 from U.S. consumers; and WHEREAS, bottled water often travels many miles from the source, resulting in the burning of massive amounts of fossil fuels, releasing CO2 and other pollution into the atmosphere; and WHEREAS, plastic water bottles are one of the fastest growing sources of municipal waste; and WHEREAS, in the U.S. the production of plastic bottles for bottled water currently requires the energy equivalent of more than 17 million barrels of oil per year – enough to generate fuel for over a million cars for a year – and generates more than 2.5 million tons of carbon dioxide; and WHEREAS, the National City Water Taste Test, which recognizes all of the great work municipal water systems do for its residents on a daily basis, year after year; and WHEREAS, The US Conference of Mayors, per Resolution #90 adopted in June 2007, has compiled much information regarding the importance of municipal water and the impact of bottled water on municipal waste; and WHEREAS, the evidence suggests that banning bottled water from government use highlights the importance of municipal water and decreases the impact of bottled water on municipal waste; and WHEREAS, The Conference of Mayors recognizes the importance of bottled water in times of emergency and times when municipal water is unavailable, NOW, THEREFORE, BE IT RESOLVED, that The US Conference of Mayors encourages cities to phase out, where feasible, government use of bottled water and promote the importance of municipal water. STAFF REPORT TYPE MEETING: Regular Board Meeting MEETING DATE: November 1, 2017 SUBMITTED BY: Mark Watton, General Manager W.O./G.F. NO: DIV. NO. APPROVED BY: Susan Cruz, District Secretary Mark Watton, General Manager SUBJECT: Board of Directors 2017 and 2018 Calendar of Meetings GENERAL MANAGER’S RECOMMENDATION: At the request of the Board, the attached Board of Director’s meeting calendar for 2017 and 2018 is being presented for discussion. PURPOSE: This staff report is being presented to provide the Board the opportunity to review the 2017 and 2018 Board of Director’s meeting calendar and amend the schedule as needed. COMMITTEE ACTION: N/A ANALYSIS: The Board requested that this item be presented at each meeting so they may have an opportunity to review the Board meeting calendar schedule and amend it as needed. STRATEGIC GOAL: N/A FISCAL IMPACT: None. LEGAL IMPACT: None. Attachment: Calendar of Meetings for 2017 and 2018 G:\UserData\DistSec\WINWORD\STAFRPTS\Board Meeting Calendar 11-1-17.doc Board of Directors, Workshops and Committee Meetings 2017 Regular Board Meetings: Special Board or Committee Meetings (3rd Wednesday of Each Month or as Noted) January 4, 2017 February 1, 2017 March 1, 2017 April 5, 2017 May 3, 2017 June 7, 2017 July 5, 2017 August 2, 2017 September 6, 2017 October 4, 2017 November 1, 2017 December 6, 2017 January 18, 2017 February 15, 2017 March 15, 2017 April 19, 2017 May 17, 2017 June 21, 2017 July 19, 2017 August 16, 2017 September 20, 2017 October 18, 2017 November 15, 2017 December 20, 2017 SPECIAL BOARD MEETINGS: BOARD WORKSHOPS: Board of Directors, Workshops and Committee Meetings 2018 Regular Board Meetings: Special Board or Committee Meetings (3rd Wednesday of Each Month or as Noted) January 3, 2018 February 7, 2018 March 7, 2018 April 4, 2018 May 2, 2018 June 6, 2018 July 11, 2018 August 1, 2018 September 5, 2018 October 3, 2018 November 7, 2018 December 5, 2018 January 17, 2018 February 21, 2018 March 21, 2018 April 18, 2018 May 16, 2018 June 20, 2018 July 18, 2018 August 15, 2018 September 19, 2018 October 17, 2018 November 21, 2018 December 19, 2018 SPECIAL BOARD MEETINGS: BOARD WORKSHOPS: STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 1, 2017 SUBMITTED BY: Rita Bell, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Kevin Koeppen, Assistant Chief Financial Officer Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Retiree Healthcare Benefits - Review of the Actuarial Report and Net Cost of the Enhancement of the Retiree Healthcare Benefits GENERAL MANAGER’S RECOMMENDATION: This staff report is an informational item that provides findings to the Board of Directors regarding: 1. The latest actuarial valuation performed as of June 30, 2017. 2. The actuarial evaluation determining the net cost or savings of the Other Post Employment Benefit (OPEB) Plan enhancement versus the increased employee contributions to PERS. COMMITTEE ACTION: See Attachment A. PURPOSE: Every two years the District is required to hire an Actuary to perform a study that determines the cost of the District’s OPEB Plan. The District has received the 2017 Actuarial Report prepared by Marilyn Jones of Nyhart. The District’s Actuarially Determined Contribution (ADC), formerly known as the Annual Required Contribution (ARC), is calculated as part of the actuarial report and is the amount reported in the Administrative Expenses of the District’s financial statements. In addition to the typical information found in an actuarial study, Nyhart was asked to evaluate the status of the cost and benefit of the increased employee contributions and the enhancement of the OPEB benefits. ANALYSIS: Every two years the District hires an actuarial firm to prepare the OPEB evaluation which is used to determine the Actuarially Determined Contribution. This evaluation has been completed and the findings are presented in this Staff Report. Actuarially Determined Contribution (ADC) The Actuarially Determined Contribution is based on the normal cost plus an amortization of the net Unfunded Accrued OPEB Liability. The FY 2018 ADC is $83,582 less than the FY 2017 ARC. The 2019 ADC is $51,399 less than the FY 2018 ADC. As the OPEB fund gets closer to a fully funded status, the Unfunded Accrued OPEB Liability and the ADC will continue to decline. The Total (Accrued) OPEB Liability for June 30, 2017 was $26.4 million. This is $2.7 million more than June 30, 2015, primarily because of passage of time (additional accruals plus interest less benefit payments). Assumption Changes While there were some key assumption changes the changes were offsetting. Description 2017 Valuation Comments CERBT Expected Rate of Return 7.00%7.25% Assumes the District to continually fund for its retiree health benefits through CERBT under Strategy 1. The rate reflects the CERBT published median interest rate for Strategy 1 of 7.25%. Mortality MP2016 MP2014 Updated to reflect the most recent mortality rates under CalPERS pension plan. People are living longer. Medical Trend Rates Non-Medicare Medicare 2017 Actual 7.0%7.2%Prior valuation used Medicare 2018 Actual 6.5%6.7%trend rates 0.0% to 0.2% higher than 2019 6.00%6.0%6.1%non-Medicare trend rates. 2020 5.50%5.5%5.6% 2021 +5.00%5.0%5.0% 2015 Valuation KEY ASSUMPTION CHANGES Cost/Savings of Plan and Contribution Changes Since the 2011 OPEB enhancement, staff has reported to the Board on three occasions regarding the net savings status. In the 2013 actuarial study, the net costs in FY 2014 were expected to exceed the projected savings by $43,000, with net savings expected over time. In the 2015 actuarial study, the net costs in FY 2016 were expected to exceed the projected savings by $30,000. In this 2017 study, the net costs in FY 2018 are expected to exceed the projected savings by $23,253, with the cost of the benefit enhancement projected to be $967,287 while the savings from the increased employee contributions are projected to be $944,034. Net savings are expected beginning in FY 2019 and in all future years. The FY 2019 projected benefit is expected to result in a net savings of $55,566 followed by savings of $142,845, $233,812, and $338,549, respectively, in the following three years. Funding Status In addition to the District funding the ADC for the plan, it also budgets and pays for the retiree medical premiums. As a result of funding the retiree medical premiums through the budget and not from the Trust, the funding level is accelerated. The District continues to budget for these costs and this actuarial study reflects this funding strategy. With the various assumption changes, and the continued accelerated funding, the actuarial study shows the Trust funding level increasing from the current 83% to 100% by the end of FY 2021. The prior actuarial study anticipated the funding level to be 100% by FY 2021. Budget Impact Staff did not account for a decreasing ADC in the budgeting process, as the study occurred after the FY 2018 budget was approved. The budgeted and projected OPEB funding amounts estimated as part of the FY 2018 budget were greater than the current actuarially projected costs in all fiscal years. As a result, staff anticipates savings versus the current FY 2018 budget and will adjust down the future funding projections to match the newest actuarial projected costs as part of the FY 2019 budget process. In the current year, with the assumption changes the budgeted funding is approximately $51,000 greater than the actuarial projected cost. In the next fiscal year, FY 2019, the projected budget will be greater than the projected cost by $65,000. After all assumption and projection changes are factored into the actuarial calculations, the funding level of the Trust is expected to reach 100% by the end of FY 2021. The timing of becoming 100% funded is consistent with the previous study. FISCAL IMPACT: Joe Beachem, Chief Financial Officer For FY 2018 the updated OPEB costs are below the budgeted OPEB funding by $51,000. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning. LEGAL IMPACT: N/A Attachments: A – Committee Action B – Actuarial Valuation Report & Contribution Study C – Nyhart Presentation ATTACHMENT A SUBJECT/PROJECT: Retiree Health Care Benefits - Review of the Actuarial Report and Net Cost of the Enhancement of the Retiree Healthcare Benefits COMMITTEE ACTION: The Finance, Administration and Communications Committee reviewed this item at a meeting held on October 17, 2017 and the following comments were made: Staff provided a report on the findings of the latest actuarial valuation of the Other Post Employee Benefits (OPEB) performed as of June 30, 2017 and the net cost of the OPEB enhancement versus the increase employee contributions to PERS. Every 2 years the District is required to have an actuarial valuation performed to determine the cost of the OPEB Plan. The valuation presented today was performed as of June 30, 2017 and covers FY’s 18 and 19. The prior study was performed as of June 30, 2015. In addition to the actuarial valuation, the District requested that the actuaries perform a study comparing the cost associated with the enhanced OPEB plan and the benefit of the increased employee contributions to PERS. For the current study, the most significant change that negatively impacted the actuarial results was the decrease in CalPERS discount rate. While this change negatively impacted the results, that impact was offset by actual percentage increases in medical costs being less than the previous actuarial study’s projections and the continuation of the District’s accelerated funding. Staff noted that the total OPEB liability as of June 30, 2017 has increased $2.7 million since June 30, 2015, the current funded percentage is 83% as of June 30, 2017, and the plan is scheduled to be 100% funded by 2021, all of which are consistent with the previous study. For FY 2018, the Actuarial Determined Contribution (ADC) (ADC is the new term for what was previously called the ARC [Annual Required Contribution]) is decreasing by $84,000 versus FY 2017. The costs of the OPEB enhancement are anticipated to exceed the benefits of the additional employee PERS contribution by $23,000 in FY18. This net cost is expected to become a net benefit of $56,000 in FY19. That benefit is expected to increase in future years to between $300,000 and $400,000 annually. The District’s plan to continue the accelerated funding, by paying the retiree medical premiums, results in a long-term benefit by significantly reducing the District’s ADC payments over time. Staff indicated that when compared to the FY 2018 budget, the updated cost figures per the actuarial study represent a savings of $51,000 to the District. When compared to the FY 2019 projection, the updated actuarial figures are $65,000 less than projection. The savings versus the FY 2019 projection will be adjusted during the FY 2019 budget process. In summary, when compared to the FY 2015 study, the estimated costs are decreasing and the changes in the liability and value of the assets are such that the funded percentage and timing for becoming 100% funded is consistent with the previous study. Staff introduced Ms. Marylin Jones, of Nyhart, who reviewed the findings of the actuarial report and Net Cost of the enhancement of the retiree healthcare benefits: The purpose of the June 30, 2017 OPEB valuation is: o To comply with new GASB 75 accounting requirement that must be implemented in FY 2018. o Update the OPEB funding valuation o Determine impact of enhancements to the OPEB benefits as it relates to the increased employee contributions Ms. Jones reviewed the District’s retiree health program (reference slide no. 3 in attached presentation) and the actuarial valuation process (reference slide no. 5). It was indicated that when non-Medicare retirees medical premiums are pooled with active employee premiums the average cost for medical premiums is $6000. It was noted that once a retiree reaches 65, the Districts medical benefits becomes supplemental and the premiums for these retirees decreases. A table was presented (reference slide no. 6) with the District’s projected direct contribution for all future years for retirees and their dependents. The table was based on the District’s current employee and retiree population as of the evaluation date of June 30, 2017. It was noted that the table does not include any monies that the retiree pays and the additional OPEB contribution that active employees are paying as part of the medical benefit enhancement. The committee requested that the percentage increase be included in slide number 6 along with the employee contributions to indicate the net contribution from the District. The current unfunded OPEB liability is $4.4 million which consists of past liability earned by both active and retired employees that has no offsetting assets associated with it. The recommended ADC for FY 2018 is $1,116,000. The ADC pays for what is earned in the current year by the active employees for their future retiree health benefit and the current year payment to cover the Net OPEB Liability (NOL or unfunded liability) ($787,000 + $329,000 = $1,116,000). As of June 30, 2017, the OPEB liability is 83% funded versus 71% in 2015. Ms. Jones noted that two key assumptions changed in the actuarial report for FY2018 and 2019. The discount rate was lowered from 7.25% to 7% and they used CalPERS’ most recent mortality table. The OPEB liability is expected to be fully funded in FY 2021. It was noted that once the past service liability is funded, the District should start making the payments for the retiree benefits from the trust, otherwise, the District would be overfunding the trust. Once the payments are being made by the trust, the retiree benefits become cost neutral to the District as the benefit becomes self-paid by the active employees. GASB 75 requires that the OPEB unfunded liability be accrued on the financial statements, similar to the requirements of GASB 68 for pension. Each fiscal year, changes in the unfunded liability must be accrued more quickly (5 to 8 years). Previously you were allowed to accrue the liability over a 30-year period. In response to an inquiry from the Committee, Ms. Jones indicated that she could add the number of retirees to the report that the projections are based on. It was discussed for new employees hired on or after January 1, 2013, the CalPERS retirement benefit is 2% at 62 years old and 2.5% at 67 years old. To earn the retiree health benefit, employees must complete 20 years of service to the District and be 55 years old. The Committee discussed the benefits that experienced employees bring to the District and they indicated that they would like to look at different options to create an incentive for employees to work beyond age 55. Upon completion of the discussion, the committee accepted staffs’ report and supported presentation to the full board as an informational item. October 11, 2017 PRIVATE Ms. Rita Bell Finance Manager Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91978-2096 Re: OPEB Actuarial Valuation & Contribution Study Dear Ms. Bell: We are presenting our report of the June 30, 2017 actuarial valuation conducted on behalf of Otay Water District (the “District”) for its retiree health program. The purpose of the valuation is to measure the District’s liability for other postemployment benefits (OPEB) and to determine an actuarially determined contribution (ADC). The ADC is a target or recommended contribution to a defined benefit OPEB plan for the reporting period, determined in accordance with parameters set by the District and in conformity with Actuarial Standards of Practice. In addition, we have included in Section IV of the report a funding adequacy study of the member OPEB contributions established in 2011 to fund OPEB benefit enhancements. Finally, the valuation results will also serve as the basis for complying with GASB 75 for the fiscal year ending June 30, 2018. The Nyhart Company is an employee owned actuarial, benefits and compensation consulting firm specializing in group health and retiree health and qualified pension plan valuations. We have set forth the results of our study in this report. We have enjoyed working on this assignment and are available to answer any questions. Sincerely, NYHART Marilyn K Jones, ASA, MAAA, EA, FCA Consulting Actuary MKJ:rl Enclosure Otay Water District OPEB Actuarial Valuation & Study Retiree Health Program As of June 30, 2017 C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Otay Water District OPEB Actuarial Valuation & Study Retiree Health Program As of June 30, 2017 Table of Contents Page Section I. Executive Summary............................................................................................................................ 1 Section II. Financial Results ................................................................................................................................. 5 Section III. Projected Cash Flows ......................................................................................................................... 9 Section IV. OPEB Contribution Study.................................................................................................................. 11 Section V. Benefit Plan Provisions...................................................................................................................... 14 Section VI. Valuation Data ..................................................................................................................................... 17 Section VII. Actuarial Assumptions and Methods ............................................................................................. 18 Section VIII. Actuarial Certification ........................................................................................................................ 22 Section IX. Definitions ............................................................................................................................................ 24 C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 1 SECTION I. EXECUTIVE SUMMARY Background The Otay Water District (the “District”) selected Nyhart to perform an updated actuarial valuation of its retiree health program. The purpose of the valuation is to measure the District’s liability for OPEB benefits and to determine an actuarially determined contribution (ADC) for the fiscal periods ending June 30, 2018 and June 30, 2019. The ADC is a target or recommended contribution to a defined benefit OPEB plan for the applicable period, determined in accordance with parameters set by the District and in conformity with Actuarial Standards of Practice. In addition, we have included in Section IV of the report a funding adequacy study of the member OPEB contributions established in 2011 to fund OPEB benefit enhancements. Finally, the valuation results will also serve as the basis for complying with GASB 75 for the fiscal year ending June 30, 2018 The District currently provides health coverage to approximately 131 employees who are earning service credits towards eligibility for health coverage at retirement. In addition, there are 79 retired or disabled retirees currently receiving health coverage from the District. Data statistics for the current covered population can be found in Section VI of the report. At retirement, the District provides a contribution for the continuation of medical and dental coverage for eligible employees. For current employees, eligibility for a District contribution requires retirement from the District on or after age 55 with at least 20 (15 for un-represented employees hired prior to January 1, 2013) years of District service. The District’s contribution is equal to 100% of the retiree premium and 88% of the dependent premium. Employees may retire as early as age 50 if retiring under disability or under hardship with a reduced District contribution. Some current retirees retired under different provisions and may also have District paid life insurance. Section V of the report details the plan provisions and current premium costs that were included in the valuation. The District participates in the Special District Risk Management Authority (SDRMA) health benefit pool. Under SDRMA,, the premium rates charged to the District are based on the experience of all participating employers and the premiums are the same for both active and non-Medicare eligible retired employees covered under the same plan. An implied rate subsidy can exist when the non-Medicare rates for retirees are the same as for active employees. Since non-Medicare eligible retirees are typically much older than active employees, their actual medical costs are typically higher than for active employees. Both GASB accounting standards and actuarial standards of practices (ASOPs) require that implied rate subsidies be considered in the valuation of medical costs. This valuation includes an estimate of the liability for the implicit rate subsidy. Results of the Retiree Health Valuation We have determined the amount of the present value of the projected District contributions (actuarial liability) for OPEB benefits, as of June 30, 2017, the valuation date, is $33,665,683. This amount includes $31,056,899 for the District’s direct (explicit) contribution for retiree health benefits and $2,608,784 for the implicit rate subsidy and is based on a discount rate of 7.0%. The amount represents the present value of all District contributions for retiree health benefits projected to be paid by the District for current and future retirees. If the District had this amount in a fund earning interest at the rate of 7.0% per year, and all other actuarial assumptions were met, the fund would have enough to pay the District’s required contribution for retiree health benefits. This includes benefits for the current retirees as well as current active employees expected to retire in the future. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 2 The actuarial liability is apportioned into past service, current service and future service components; the past service component (actuarial accrued liability now referred to as Total OPEB Liability), the current service component (normal cost or current year accrual) and the future service component (not yet accrued liability). The table below presents the liability components (separately for the District’s explicit contribution towards retiree health benefits and the implicit contribution due to the rate subsidy) as of June 30, 2017, the valuation date. Explicit Liability Implicit Liability Total Liability 1. Actuarial Liability $31,056,899 $2,608,784 $33,665,683 2. Total (Accrued) OPEB Liability $24,455,297 $1,994,230 $26,449,527 3. Normal Cost $ 719,559 $ 67,592 $ 787,151 4. Present Value of Future Normal Costs (1. – 2. – 3.) $ 5,882,043 $ 546,962 $ 6,429,005 Note: The above results do not include employees not yet hired as of the valuation date. Changes from Prior Valuation The valuation reflects updated census, plan and premium information. In addition, there were several assumption and method changes including updates to the healthcare costs and trends, an update to the mortality table to reflect recent experience and a lowering of the discount rate to 7.0% for CERBT investment strategy 1. A reconciliation of the approximate change in the liabilities from the prior valuation is provided below: Actuarial Liability Total (Accrued) OPEB Liability June 30, 2015 Valuation @7.25% $30.8M $23.7M Increase due to passage of time (additional accruals plus interest less benefit payments) 2.4M 2.9M Increase due to liability for new entrants 0.3M 0.0M Net experience gain and actuarial differences ( 0.3M) ( 0.5M) Net decrease due to updated assumptions and methods ( 0.9M) ( 0.5M) Increase due to lowering of discount rate to 7.0% 1.4M 0.8M June 30, 2017 Valuation @7.0% $33.7M $26.4M $26,450,000 $6,429,000 $787,000 Total Actuarial Liability = $33,666,000 Total (Accrued) OPEB Liability Liability for Future Years' Accruals Current Year Accrual (Normal Cost) C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 3 Plan Assets The District pre-funds the OPEB benefits through the California Employers’ Retiree Benefit Trust (CERBT). The market value of assets as of June 30, 2017 is $21,722,258. For funding purposes, the District has selected an asset smoothing method to determine the actuarial value of assets. The smoothing method recognized any asset gains or losses over 5 years recognizing 20% per year. The actuarial value of assets at June 30, 2017 is $22,059,854. The table below compares the market value rate of return and the actuarial value rate of return to the assumed rate of return over past years: 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Market Value Rate of Return 24.50% 0.4% 11.2% 18.1% -0.1% 1.3% 10.5% Actuarial Value Rate of Return 9.0% 7.0% 7.7% 9.8% 7.4% 7.3% 7.1% Expected Rate of Return 7.75% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% Note: Amounts prior to fiscal year 2013-14 are from prior actuary’s report. The Net (unfunded) OPEB Liability at June 30, 2017 is $4,389,673. The Plan’s funded ratio (actuarial value of assets over Total OPEB Liability) is 83%. Funding The District’s funding policy is to pre-fund the actuarially determined contribution (ADC) (previously referred to as an annual required contribution) through the CERBT under investment strategy 1. The District’s practice is to fund the ADC into the CERBT in addition to making direct payments for benefits for the retirees without seeking reimbursement from the CERBT. Based on this practice, the OPEB plan is expected to reach full funding by the 2021-22 fiscal year. Section II – I provides a projection of the District contributions and the plan’s funded status. Actuarially Determined Contribution (ADC) The actuarially determined contribution (ADC) is determined based on the normal cost (current accrual for benefits being earned) plus an amortization of the net (unfunded accrued) OPEB liability at June 30, 2017 over 20 years (on a level-percentage of pay basis). The ADC is equal to $1,116,418 (or 8.92% of payroll) for the fiscal year ending June 30, 2018 and includes $899,240 for the District’s explicit contribution and $217,178 for the implicit rate subsidy. The projected ADC for the fiscal year ending June 30, 2019 is $1,149,911. This amount is reduced to $1,065,019 if the projected gain from the District excess (direct contributions not reimbursed) is included. The estimated District direct contribution amount for retiree health benefits for the 2017-18 fiscal year is $1,098,776 (including $147,796 for the implicit rate subsidy). This amount includes payments for employees expected to retire during the 2017-18 fiscal year. Based on the District’s past practice of not reimbursing itself from the CERBT for these payments, the District’s total contribution for OPEB benefits is $2,215,194 for fiscal year 2017-18. Section II-I provides a 10-year projection of the District’s contributions. Actuarial Basis The actuarial valuation is based on the assumptions and methods outlined in Section VII of the report. To the extent that a single or a combination of assumptions is not met, the future liability may fluctuate significantly from its current measurement. As an example, the healthcare cost increase anticipates that the rate of increase in medical cost will be at moderate levels and decline over several years. Increases higher than assumed would bring larger liabilities and expensing requirements. Another key assumption used in the valuation is the discount (interest) rate which is based on the expected rate of return of plan assets. Sensitivity for a 1% increase and decrease in the healthcare trend rates and for a 1% increase and decrease in the discount rate is provided in Section II-H. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 4 Scheduled to take effect in 2020, the "Cadillac Tax" is a 40% non-deductible excise tax on employer-sponsored health coverage that provides high-cost benefits. For insured plans, the insurance company is responsible for payment of the excise tax. For self-funded plans, the employer is responsible for payment of the excise tax. The valuation includes an estimate of the additional liability for the Cadillac Tax. The valuation is based on the census, plan and rate information provided by the District. To the extent that the data provided lacks clarity in interpretation or is missing relevant information, this can result in liabilities different than those presented in the report. Often missing or unclear information is not identified until future valuations. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 5 SECTION I I. FINANCIAL RESULTS A. Valuation Results The table below presents the employer liabilities associated with the District’s retiree health benefits. The actuarial liability is the present value of all District contributions projected to be paid under the program. The total OPEB liability (TOL), previously referred to as the actuarially accrued liability, reflects the amount attributable to the past service of current employees and retirees. The normal cost reflects the accrual attributable for the current period and includes interest. Explicit Implicit Total 1. Actuarial Liability or Present Value of Benefits Actives $18,515,185 $1,890,858 $20,406,043 Retirees 12,541,714 717,926 13,259,640 Total $31,056,899 $2,608,784 $33,665,683 2. Total OPEB Liability (TOL) Actives $11,913,583 $1,276,304 $13,189,887 Retirees 12,541,714 717,926 13,259,640 Total $24,455,297 $1,994,230 $26,449,527 3. Normal Cost $ 719,559 $ 67,592 $ 787,151 No. of Active Employees 131 Average Age 47.8 Average Past Service 10.9 No. of Retired Employees 79 Average Age 70.2 Average Retirement Age 57.7 B. Reconciliation of Market Value of Plan Assets The reconciliation of Plan Assets for the last two fiscal years is presented below: Fiscal Year Ending 6/30/2016 6/30/2017 1. Beginning Market Value of Assets $17,018,064 $18,475,729 2. Contribution 1,239,000 1,245,000 3. Fund Earnings (gross) 233,113 2,018,380 4. Benefit Payments 0 0 5. Investment Expenses ( 6,102) ( 7,117) 6. Administrative Expenses ( 8,346) ( 9,734) 7. Ending Market Value of Assets $18,475,729 $21,722,258 8. Estimated Return on Assets 1.3% 10.5% C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 6 C. Development of Actuarial Value of Assets The actuarial value of assets is based on the expected market value appreciation. The actual market appreciation or depreciation, both realized and unrealized, is phased in over five years as the expected growth is phased out. The table below presents the development of the actuarial value of assets. 6/30/2014 6/30/2015 6/30/2016 6/30/2017 1 Market value of assets $21,722,258 2 Actual rate of return 18.08% (0.14%) 1.29% 10.53% 3 Expected rate of return 7.25% 7.25% 7.25% 7.25% 4 Actual fund earnings $2,291,695 ($ 22,391) $ 227,011 $2,011,263 4,507,579 5 Expected fund earnings 919,038 1,184,802 1,278,200 1,384,269 4,766,530 6 Gain(loss) [(4) - (5)] $1,372,657 ($1,207,193) ($1,051,189) $ 626,994 7 Percent of gain/(loss) recognized 6/30/2017 80% 60% 40% 20% 8 Recognized gain/(loss) [(6) x (7)] $1,098,126 ($724,316) ($420,476) $125,399 $78,645 9. Blended value of assets at 6/30/2017 [(1) - (4) + (5) + (8)] $22,059,854 10.Percent increase/(decrease) of (9) over (1) 1.55% 11.Actuarial value of assets, not more than 120% nor less than 80% of market value $22,059,854 D. Development of Actuarial Value of Assets The actuarial value of assets is based on the market value of assets plus any contribution receivable or benefits payable. The actuarial value of assets at June 30, 2017 is $22,059,854 E. Development of Net OPEB Liability (NOL) The table below presents the development of the net OPEB liability previously referred to as the unfunded actuarial accrued liability. The net OPEB liability is the excess of the TOL over the actuarial value of plan assets. Explicit Implicit Total 1. Total (Accrued) OPEB Liability $24,455,297 $1,994,230 $26,449,527 2. Actuarial Value of Assets ( 22,059,854) ( 0) ( 22,059,854) 3. Net (Unfunded Accrued) OPEB Liability (NOL) $ 2,395,443 $1,994,230 $ 4,389,673 F. Amortization of NOL The amortization of the NOL component of the actuarially determined contribution (ADC) is being amortized over a period of 20 years on a level-percentage of pay basis. Under the level-percentage of pay method, the amortization payment is scheduled to increase in future years based on wage inflation. 1. NOL $ 2,395,443 $1,994,230 $ 4,389,673 2. Amortization Factor 13.33165 13.33165 13.33165 3. Amortization of NOL $ 179,681 $ 149,586 $ 329,267 C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 7 G. Actuarially Determined Contribution (ADC) The table below presents the development of the actuarially determined contribution (ADC) for the fiscal year ending June 30, 2018 and for the fiscal years ending June 30, 2019. Explicit Implicit Total FY2017/2018 1. Normal Cost $ 719,559 $ 67,592 $ 787,151 2. Amortization of NOL 179,681 149,586 329,267 3. Actuarially Determined Contribution (ADC) $ 899,240 $ 217,178 $ 1,116,418 4. Estimated Payroll $12,513,000 $12,513,000 $12,513,000 5. ADC as % of Payroll 7.19% 1.73% 8.92% FY2018/2019* 1. Normal Cost $ 741,146 $ 69,620 $ 810,766 2. Amortization of NOL 185,071 154,074 339,145 3. Actuarially Determined Contribution (ADC) $ 926,217 $ 223,694 $ 1,149,911 4. Estimated Payroll $12,888,000 $12,888,000 $12,888,000 5. ADC as % of Payroll 7.19% 1.73% 8.92% * Excludes projected gain from additional contribution if the District does not reimburse direct District contributions for benefits. See Section I for adjusted ADC. H. Sensitivity Analysis: The impact of a 1% decrease and increase in the discount (interest) rate and the impact of a 1% increase and decrease in future healthcare trend rates on the District’s actuarial liability, TOL, NOL and the ADC is provided below: 1% Decrease in Discount Rate Dollar ($) Increase/ (Decrease) Percentage (%) Increase/ (Decrease) - Actuarial Liability $ 6,924,863 21% - TOL $ 4,120,046 16% - NOL $ 4,120,046 94% - ADC $ 482,493 43% 1% Increase in Discount Rate - Actuarial Liability ($5,289,001) (16%) - TOL ($3,331,675) (13%) - NOL ($3,331,675) (76%) - ADC ($ 414,269) (37%) 1% Increase in Future Healthcare Trend Rates - Actuarial Liability $ 6,643,921 20% - TOL $ 4,504,003 17% - NOL $ 4,504,003 103% - ADC $ 559,728 50% 1% Decrease in Future Healthcare Trend Rates - Actuarial Liability ($5,128,787) (15%) - TOL ($3,552,157) (13%) - NOL ($3,552,157) (81%) - ADC ($ 431,258) (39%) C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 8 I. Ten - Year Projection of Net OPEB Liability (NOL) and Actuarially Determined Contribution (ADC) A ten - year projection of the District’s contributions and funded status is provided below. Fiscal Year ADC District Contributions BOY Net (Accrued) OPEB Liability Funded % Cash Payments Implicit Subsidy Trust Funding Trust* Reimb. Total District Contrib. 2017-18 $1,116,418 $ 950,980 $147,796 $1,116,418 $ 0 $2,215,194 $4,389,673 83% 2018-19 $1,065,019 $ 980,808 $160,536 $1,065,019 $ 0 $2,206,363 $3,230,450 89% 2019-20 $1,011,358 $1,015,999 $139,619 $1,011,358 $ 0 $2,166,976 $2,021,037 93% 2020-21 $ 955,017 $1,062,982 $137,914 $ 955,017 ($ 492,316) $1,663,597 $ 790,175 97% 2021-22 $ 885,945 $1,112,252 $131,618 $ 885,945 ($1,243,870) $ 885,945 $ 0 100% 2022-23 $ 912,524 $1,176,212 $132,869 $ 912,524 ($1,309,081) $ 912,524 $ 0 100% 2023-24 $ 939,899 $1,241,079 $143,208 $ 939,899 ($1,384,287) $ 939,899 $ 0 100% 2024-25 $ 968,096 $1,332,428 $162,510 $ 968,096 ($1,494,938) $ 968,096 $ 0 100% 2025-26 $ 997,139 $1,420,476 $163,672 $ 997,139 ($1,584,148) $ 997,139 $ 0 100% 2026-27 $1,027,054 $1,544,437 $193,365 $1,027,054 ($1,737,802) $1,027,054 $ 0 100% * Once full funding is reached, the projections assume the District makes a contribution to the CERBT equal to the ADC and reimburses itself for the direct cash payments and implied subsidy for the fiscal year. The ten-year projections are based on an open group projection that assumes the total aggregate payroll increases in accordance with the aggregate payroll assumption, new hires are assumed to have the same normal cost percentage as the current actives and no new hires will retire during the ten-year projection period. Actual results may vary significantly based on the District’s actual experience in future years. Future gains from the District payments in excess of the actuarially determined contribution are amortized over 20 years until full funding is reached. 75% 80% 85% 90% 95% 100% 105% $- $500,000 $1,000,000 $1,500,000 $2,000,000 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 Ten Year Projection of Funded Ratio, ADC, Direct (Cash plus Subsidy) Contributions for Benefits Actuarially Determined Contribution (ADC) Direct (Cash plus Subsidy) Contributions for Benefits Funded Status C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 9 SECTION III. PROJECTED CASH FLOWS The valuation process includes the projection of the expected benefits (including the explicit District contribution and the implicit rate subsidy) to be paid by the District under its retiree health benefits program. This expected cash flow takes into account the likelihood of each employee reaching age for eligibility to retire and receive health benefits. The projection is performed by applying the turnover assumption to each active employee for the period between the valuation date and the expected retirement date. Once the employees reach their retirement date, a certain percent are assumed to enter the retiree group each year. Employees already over the latest assumed retirement age as of the valuation date are assumed to retire immediately. The per capita cost as of the valuation date is projected to increase at the applicable healthcare trend rates both before and after the employee's assumed retirement. The projected per capita costs are multiplied by the number of expected future retirees in a given future year to arrive at the cash flow for that year. Also, a certain number of retirees will leave the group each year due to expected deaths or reaching a limit age and this group will cease to be included in the cash flow from that point forward. Because this is a closed-group valuation, the number of retirees dying each year will eventually exceed the number of new retirees, and the size of the cash flow will begin to decrease and eventually go to zero. The expected employer cash flows associated for direct payments for benefit for selected future years are provided in the following table: C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 10 Projected Employer Total Direct Contributions for Benefits – Representative Years Fiscal Year Explicit (Cash) Implicit (Subsidy) District Total 2017/18 $ 950,980 $ 147,796 $ 1,098,776 2018/19 $ 980,808 $ 160,536 $ 1,141,344 2019/20 $ 1,015,999 $ 139,619 $ 1,155,618 2020/21 $ 1,062,982 $ 137,914 $ 1,200,896 2021/22 $ 1,112,252 $ 131,618 $ 1,243,870 2022/23 $ 1,176,212 $ 132,869 $ 1,309,081 2023/24 $ 1,241,079 $ 143,208 $ 1,384,287 2024/25 $ 1,332,428 $ 162,510 $ 1,494,938 2025/26 $ 1,420,476 $ 163,672 $ 1,584,148 2026/27 $ 1,544,437 $ 193,365 $ 1,737,802 2027/28 $ 1,692,509 $ 199,906 $ 1,892,415 2028/29 $ 1,850,263 $ 180,464 $ 2,030,727 2029/30 $ 2,051,894 $ 216,902 $ 2,268,796 2030/31 $ 2,250,021 $ 247,902 $ 2,497,923 2031/32 $ 2,408,561 $ 241,315 $ 2,649,876 2032/33 $ 2,598,089 $ 287,941 $ 2,886,030 2033/34 $ 2,801,681 $ 333,569 $ 3,135,250 2034/35 $ 2,982,518 $ 349,285 $ 3,331,803 2035/36 $ 3,165,494 $ 389,698 $ 3,555,192 2036/37 $ 3,311,128 $ 385,581 $ 3,696,709 2037/38 $ 3,448,847 $ 384,993 $ 3,833,840 2038/39 $ 3,585,052 $ 388,233 $ 3,973,285 2039/40 $ 3,667,627 $ 317,969 $ 3,985,596 2040/41 $ 3,768,860 $ 290,587 $ 4,059,447 2041/42 $ 3,880,676 $ 279,131 $ 4,159,807 2042/43 $ 3,921,672 $ 198,526 $ 4,120,198 2043/44 $ 3,987,926 $ 157,703 $ 4,145,629 2044/45 $ 4,061,162 $ 136,265 $ 4,197,427 2045/46 $ 4,119,277 $ 104,541 $ 4,223,818 2050/51 $ 4,340,134 $ 72,299 $ 4,412,433 2055/56 $ 4,285,360 $ 0 $ 4,285,360 2060/61 $ 3,975,012 $ 0 $ 3,975,012 2065/66 $ 3,343,700 $ 0 $ 3,343,700 2070/71 $ 2,459,835 $ 0 $ 2,459,835 2075/76 $ 1,515,240 $ 0 $ 1,515,240 2080/81 $ 741,837 $ 0 $ 741,837 2085/86 $ 279,588 $ 0 $ 279,588 2090/91 $ 74,187 $ 0 $ 74,187 2095/96 $ 7,140 $ 0 $ 7,140 2100/01 $ 0 $ 0 $ 0 All Years $184,829,909 $7,105,821 $191,935,730 C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 11 SECTION IV. OPEB CONTRIBUTION STUDY This study analyzes the adequacy of the OPEB member contributions established in conjunction with enhancements to the OPEB benefits previously (the “Prior Plan”) provided to employees hired on or after July 1, 1993. These enhancements are reflected in the District’s current plan outlined in Section V. Along with these enhancements, member OPEB contributions were established as additional member paid contributions for their CalPERS pension benefits. The member OPEB contributions are outlined below: Unrepresented Represented CalPERS Member Contributions Classic New Classic New Required CalPERS Member Contribution 8.00% 6.25% 8.00% 6.25% Additional CalPERS Member Contribution 0.00% 1.75% 0.75% 2.50% Total CalPERS Member Contribution 8.00% 8.00% 8.75% 8.75% Prior CalPERS Member Contribution 1.00% 1.00% 1.00% 1.00% Member Contribution for OPEB Funding 7.00% 7.00% 7.75% 7.75% A. Description of the Prior Plan Effective July 1, 2011, employees hired on or after July 1, 1993 became eligible for the current plan described in Section V of the report. Prior to this, these employees were limited to medical coverage only to Medicare eligibility subject to the following terms: Eligibility: Retirement from the District on or after age 55 with at least 15 years of service or disability retirement on or after age 50 with at least 10 years of service. No coverage for hardship. District Contribution: 50% of the retiree only premium. Spouse and Dependent Coverage: Retiree could cover eligible spouse and dependents on a self-pay basis. Death Benefit: Coverage ceases upon death of the retiree. Benefits: Medical (Gold PPO) Only; no dental, vision or life insurance. B. Accumulated Assets for OPEB Funding The accumulated assets associated with the Member OPEB Contributions are estimated based on applying the estimated annual rate of return to the beginning year accumulated amount for a full year and for the exposure period for the Annual Member OPEB Contributions. For projection purposes in Section D, the valuation assumed rate of return on CERBT assets is applied. For fiscal years after 2014-15 the exposure assumes member OPEB contributions are made on average in the middle of the year. Fiscal Year Estimated Annual CERBT Return Average Contribution Exposure (Years) Unrepresented Employees Represented Employees Total Accumulated Member OPEB Contribution Annual Member OPEB Contribution Accumulated Member OPEB Contribution Annual Member OPEB Contribution Accumulated Member OPEB Contribution 2011-12 0.38% 0.37 $138,652 $ 138,847 $259,304 $ 259,669 $ 398,516 2012-13 11.20% 0.33 $320,012 $ 485,819 $557,397 $ 866,021 $1,351,840 2013-14 18.30% 0.30 $309,934 $ 900,684 $590,760 $1,645,810 $2,546,494 2014-15 ( 0.24%) 0.39 $304,850 $1,203,087 $603,073 $2,244,639 $3,447,726 2015-16 1.29% 0.50 $299,510 $1,521,513 $665,992 $2,946,318 $4,467,831 2016-17 10.53% 0.50 $290,396 $1,987,478 $653,638 $3,944,743 $5,932,221 Note: Amounts prior to fiscal year 2015-16 are from the prior actuary’s report. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 12 C. Funded Status of Current Plan Vs. Prior Plan The table below presents the June 30, 2017 liabilities and related funding measures of the Current Plan vs. the Prior Plan (employee hired on or after July 1, 1993 received the prior plan benefits). Current Plan Prior Plan Difference 1. Actuarial Liability or Present Value of Benefits Actives $20,406,043 $ 4,841,938 $15,564,105 Retirees 13,259,640 12,357,735 901,905 Total $33,665,683 $17,199,673 $16,466,010 2. Total (Accrued) OPEB Liability (TOL) Actives $13,189,887 $3,611,415 $ 9,578,472 Retirees 13,259,640 $12,357,735 901,905 Total $26,449,527 $15,969,150 $10,480,377 3. Actuarial Value of Assets* ( 22,059,854) ( 15,969,150) ( 6,090,704) 4. Net (Unfunded) OPEB Liability (NOL) $ 4,389,673 $ 0 $ 4,389,673 4. Funded % 83% 100% 58% 5. 2017-18 Normal Cost $ 787,151 $ 149,131 $ 638,020 6. Normal Cost as % of Payroll 6.29% 1.19% 5.10% 7. Amortization of NOL $ 329,267 $ 0 $ 329,267 * Note: Prior Plan assets are based on the Current Plan actuarial value of assets plus the accumulated Member OPEB contribution; total Prior Plan assets are set not to exceed the TOL. D. Ten-Year Projection of OPEB Contributions and Plan Funded Status of Current Plan Vs. Prior Plan The tables below and on the following page present a ten-year projection of the District and Member contributions along with the Net (Unfunded) OPEB Liability and plan funding percentage (%) for the Current Plan, the Prior Plan and the resulting differences. The ten-year projections are based on an open group projection that assumes the total aggregate payroll increases in accordance with the aggregate payroll assumption, new hires are assumed to have the same normal cost percentage as the current actives and no new hires will retire during the ten year projection period. Actual results may vary significantly based on the District’s actual experience in future years. Future gains from the District payments in excess of the actuarially determined contribution are amortized over 20 years until full funding is reached. Current Plan Fiscal Year Normal Cost NOL Amortization Total ADC Projected Payroll Member OPEB Contribution Net District ADC BOY NOL BOY Funding % 2017-18 $ 787,151 $329,267 $1,116,418 $ 12,513,000 $ 944,034 $172,384 $4,389,673 83% 2018-19 $ 810,766 $254,253 $1,065,019 $ 12,888,390 $ 966,980 $ 98,039 $3,230,450 89% 2019-20 $ 835,088 $176,270 $1,011,358 $ 13,275,042 $ 995,990 $ 15,368 $2,021,037 93% 2020-21 $ 860,141 $ 94,876 $ 955,017 $ 13,673,293 $ 1,025,869 ($ 70,852) $ 790,175 97% 2021-22 $ 885,945 $ 0 $ 885,945 $ 14,083,492 $ 1,056,645 ($170,700) $ 0 100% 2022-23 $ 912,524 $ 0 $ 912,524 $ 14,505,996 $ 1,088,345 ($175,821) $ 0 100% 2023-24 $ 939,899 $ 0 $ 939,899 $ 14,941,176 $ 1,120,995 ($181,096) $ 0 100% 2024-25 $ 968,096 $ 0 $ 968,096 $ 15,389,412 $ 1,154,625 ($186,529) $ 0 100% 2025-26 $ 997,139 $ 0 $ 997,139 $ 15,851,094 $ 1,189,264 ($192,125) $ 0 100% 2026-27 $1,027,054 $ 0 $1,027,054 $ 16,326,627 $ 1,224,941 ($197,887) $ 0 100% C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 13 Prior Plan Fiscal Year Normal Cost NOL Amortization Total ADC Projected Payroll Member OPEB Contribution Net District ADC BOY NOL BOY Funding % 2017-18 $ 149,131 $ 0 $ 149,131 $ 12,513,000 $ 0 $ 149,131 $ 0 100% 2018-19 $ 153,605 $ 0 $ 153,605 $ 12,888,390 $ 0 $ 153,605 $ 0 100% 2019-20 $ 158,213 $ 0 $ 158,213 $ 13,275,042 $ 0 $ 158,213 $ 0 100% 2020-21 $ 162,960 $ 0 $ 162,960 $ 13,673,293 $ 0 $ 162,960 $ 0 100% 2021-22 $ 167,849 $ 0 $ 167,849 $ 14,083,492 $ 0 $ 167,849 $ 0 100% 2022-23 $ 172,884 $ 0 $ 172,884 $ 14,505,996 $ 0 $ 172,884 $ 0 100% 2023-24 $ 178,071 $ 0 $ 178,071 $ 14,941,176 $ 0 $ 178,071 $ 0 100% 2024-25 $ 183,413 $ 0 $ 183,413 $ 15,389,412 $ 0 $ 183,413 $ 0 100% 2025-26 $ 188,915 $ 0 $ 188,915 $ 15,851,094 $ 0 $ 188,915 $ 0 100% 2026-27 $ 194,582 $ 0 $ 194,582 $ 16,326,627 $ 0 $ 194,582 $ 0 100% Difference: Current Plan Minus Prior Plan Fiscal Year Normal Cost NOL Amortization Total ADC Projected Payroll Member OPEB Contribution Net District ADC BOY NOL BOY Funding % 2017-18 $638,020 $329,267 $ 967,287 $ 12,513,000 $ 944,034 $ 23,253 $4,389,673 ( 17%) 2018-19 $657,160 $254,253 $ 911,414 $ 12,888,390 $ 966,980 ($ 55,566) $3,230,450 ( 11%) 2019-20 $676,875 $176,270 $ 853,145 $ 13,275,042 $ 995,990 ($ 142,845) $2,021,037 ( 7%) 2020-21 $697,181 $ 94,876 $ 792,057 $ 13,673,293 $ 1,025,869 ($ 233,812) $ 790,175 ( 3%) 2021-22 $718,097 $ 0 $ 718,096 $ 14,083,492 $ 1,056,645 ($ 338,549) $ 0 100% 2022-23 $739,640 $ 0 $ 739,640 $ 14,505,996 $ 1,088,345 ($ 348,705) $ 0 100% 2023-24 $761,829 $ 0 $ 761,828 $ 14,941,176 $ 1,120,995 ($ 359,167) $ 0 100% 2024-25 $784,684 $ 0 $ 784,683 $ 15,389,412 $ 1,154,625 ($ 369,942) $ 0 100% 2025-26 $808,224 $ 0 $ 808,224 $ 15,851,094 $ 1,189,264 ($ 381,040) $ 0 100% 2026-27 $832,471 $ 0 $ 832,472 $ 16,326,627 $ 1,224,941 ($ 392,469) $ 0 100% C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 14 SECTION V. BENEFIT PLAN PROVISIONS This study analyzes the post-employment benefit plan provided by the District. The District provides continuation of health, and in some cases, life insurance benefits to full-time eligible employees at retirement. Eligibility for continuation of coverage requires retirement directly from both the District and CalPERS. Eligibility is based on the employee meeting certain age and years of District service requirements which varies by employee group. In addition, the District’s contribution varies depending on an employee’s date of retirement and date of hire as follows: Un-Represented Employees Employees Retiring After July 15, 2011 Eligibility for benefits requires obtaining at least age 55 and retiring with at least 20 years (15 years if hired prior to 1/1/2013) years of continuous full-time District. The District’s contribution towards medical and dental benefits is 100% of the retiree premium and 88% of the dependent premium. Employees retiring under disability or hardship may retire early and receive a reduction to the District contribution based on the table below. Disability retirement requires at least 10 years of District service and Hardship retirement requires at least 20 years (15 years if hired prior to 1/1/2013) of District service. Age Percentage 50 70% 51 76% 52 82% 53 88% 54 94% Spouse and eligible dependents may continue coverage upon death of the retiree and receive a District contribution equal to 88% of the applicable premium. Coverage continues for spouse’s lifetime and to dependent age 19. Upon death of an eligible active employee, spouse may continue coverage on the same basis if they were eligible to retire at the time of their death. Employees Retiring On or Prior to July 15, 2011 Eligibility for benefits requires obtaining at least age 55 and retiring with at least 5 years of District service if hired prior to 1/1/1981 or age plus District service greater than or equal to age 70 if hired on or after 1/1/1981. Eligibility for benefits requires obtaining at least age 55 and retiring with at least 15 years of continuous full- time District service if hired prior to 1/1/2013 or 20 years if hired on or after 1/1/2013. The District’s contribution towards medical and dental benefits is 100% of the retiree premium and 88% (100% if retiring prior to 12/29/2003) of the dependent premium. The District also provides $3,000 of life insurance to age 65 and $1,950 from age 65 to age 70 (plus $1,000/$650 of spouse life insurance if hired prior to 1/1/1981 and retiring prior to 12/29/2003). Spouse and eligible dependents may continue coverage upon death of the retiree and receive a District contribution equal to 100% (88% if retired on or after 12/29/2003) of the applicable premium to spouse Medicare eligibility age or age 19 for dependent. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 15 Represented Employees Employees Retiring After August 10, 2011 Eligibility for benefits requires obtaining at least age 55 and retiring with at least 20 years of District service. The District’s contribution towards medical and dental benefits is 100% of the retiree premium and 88% (100% if retiring prior to 12/29/2003) of the dependent premium. Employees retiring under disability or hardship retire may retire early and receive a reduction to the District contribution based on the table below Disability retirement requires at least 10 years of District service and Hardship retirement requires at least 20 years of District service. Age Percentage 50 70% 51 76% 52 82% 53 88% 54 94% Spouse and eligible dependents may continue coverage upon death of the retiree and receive a District contribution equal to 88% of the applicable premium. Coverage continues for spouse’s lifetime. Upon death of an eligible active employee, spouse (and dependent to age 19) may continue coverage on the same basis. Employees Retiring On or Prior to August 10, 2011 Eligibility for benefits requires obtaining at least age 55 and retiring with at least 5 years of District service if hired prior to 1/1/1981 or age plus District service greater than or equal to age 70 if hired on or after 1/1/1981. Eligibility for benefits requires obtaining at least age 55 and retiring with at least 15 years of District service if hired prior to 1/1/2013 or 20 years if hired on or after 1/1/2013. The District’s contribution towards medical and dental benefits is 100% of the retiree premium and 88% (100% if retiring prior to 12/29/2003) of the dependent premium. The District also provides $3,000 of life insurance to age 65 and $1,950 from age 65 to age 70 (plus $1,000/$650 of spouse life insurance if hired prior to 1/1/1981 and retiring prior to 12/29/2003). Spouse and eligible dependents may continue coverage upon death of the retiree and receive a District contribution equal to 100% (88% if retired on or after 12/29/2003) of the applicable premium to spouse Medicare eligibility age or age 19 for dependent. Directors Directors elected prior to 1/1/1995 were eligible to continue retiree health benefits and receive a District contribution for Medical and Dental if retiring on or after age 60 with at least 12 years of District service. Directors elected on or after 1/1/1995 are not eligible for retiree health benefits. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 16 Premium Rates The District currently offers the following health plans to eligible retirees. The premiums billed for retiree medical coverage under age 65 (Medicare eligibility age) are the same as those for active medical coverage. Thus, the District is providing a “rate subsidy” to the retirees based on this blended rate. Actuarial Standard of Practice (ASOP) 6 and GASB require that when an employer provides benefits to both active employees and retirees through the same plan, the benefits to retirees should be segregated and measured independently. This requires valuing any “rate subsidy” as an additional financial obligation to the District. All premiums are monthly and are effective for the calendar year. 2017 Gold PPO EPO HMO 15 Gold PPO OOS EPO OOS Dental Plan Retiree Only $ 707.00 $ 827.00 $ 778.00 $ 834.00 $ 976.00 $ 55.34 Retiree Plus One $1,414.00 $1,654.00 $1,560.00 $1,668.00 $1,950.00 $ 88.37 Retiree Plus Family $1,838.00 $2,151.00 $2,026.00 $2,169.00 $2,536.00 $130.84 Retiree Only With Medicare $ 502.00 NA NA $ 502.00 NA $ 55.34 Retiree and Spouse With Medicare $1,004.00 NA NA $1,004.00 NA $ 88.37 2018 Gold PPO EPO HMO 15 Gold PPO OOS EPO OOS Dental Plan Retiree Only $ 742.56 $ 826.20 $ 801.72 $ 871.08 $ 1,018.98 * Retiree Plus One $1,480.02 $1,647.30 $1,602.42 $1,740.12 $2,034.90 * Retiree Plus Family $1,922.70 $2,139.96 $2,079.78 $2,263.38 $2,645.88 * Retiree Only With Medicare $ 523.26 NA NA $ 523.26 NA * Retiree and Spouse With Medicare $1,004.00 NA NA $1,046.52 NA * * Not available at time of valuation. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 17 SECTION VI. VALUATION DATA The valuation was based on the census furnished to us by the District. A reconciliation and summary data statistics as of the Valuation Date are provided in the following tables: Data Reconciliation Actives Retirees Disableds Survivors Total June 30, 2015 136 77 2 0 215 Terminated/Duplicates ( 7) 0 0 0 ( 7) Retired ( 4) 4 0 0 0 Deaths 0 ( 4) 0 0 ( 4) Survivor Benefits 0 0 0 0 0 New Hires 6 0 0 0 6 June 30, 2017 131 77 2 0 210 The following tables display the age distribution for retirees and the age/service distribution for active employees. Age Distribution of Eligible Retired Participants & Beneficiaries Age Pre-65 Post- 65 Total <50 0 0 0 50-54 1 0 1 55-59 7 0 7 60-64 14 0 14 65-69 0 22 22 70-74 0 17 17 75-79 0 5 5 80+ 0 13 13 Total: 22 57 79 Average Age: 60.5 74.0 70.2 Average Retirement Age: 55.3 58.6 57.7 Age/Service Distribution of All Active Benefit Eligible Employees Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 Total Un-repr. Repr. 20-24 0 0 0 0 25-29 1 1 2 1 1 30-34 6 1 1 8 1 7 35-39 7 5 2 14 3 11 40-44 8 5 6 4 1 24 6 18 45-49 5 5 10 8 2 30 9 21 50-54 1 4 11 5 2 3 1 27 7 20 55-59 3 1 7 3 0 1 0 15 7 8 60-64 1 1 6 2 0 0 0 10 3 7 65-69 0 0 1 0 0 0 0 1 0 1 70+ 0 0 0 0 0 0 0 0 0 0 Total: 32 23 44 22 5 4 1 131 37 94 Average Age: 47.8 49.0 47.4 Average Service: 10.9 12.4 10.3 Estimated Payroll: $12,513,000 $7,678,000 $4,835,000 C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 18 SECTION VII. ACTUARIAL ASSUMPTIONS AND METHODS The liabilities set forth in this report are based on the actuarial assumptions described in this section. Fiscal Year: July 1st to June 30th Valuation Date: June 30, 2017 Funding Periods Covered: FY2017/18 and FY2018/19 Funding Policy: The actuarially determined contribution (ADC) assuming the District’s funding strategy is to fund the normal cost (current accrual for benefits being earned) plus an amortization of the net (unfunded accrued) OPEB liability at June 30, 2017 over 15 years. The District will fund the ADC plus direct contributions for retiree benefits until the net OPEB liability reaches zero (0). Expected Rate of Return: 7.0% per annum. This discount rate assumes the District continues to fully fund for its retiree health benefits through the California Employers’ Retiree Benefit Trust (CERBT) under its investment allocation strategy 1. The rate reflects the CERBT published median interest rate for strategy 1 of 7.28% with an additional margin for adverse deviation. [The prior valuation used 7.25%] Discount Rate: 7.0% per annum. [The prior valuation used 7.25%] Sensitivity analysis showing a 1% increase or decrease in the discount rate is also provided. Inflation: 2.75% per annum [The prior valuation used 3.0%] Payroll Increases: 3.0% per annum, in aggregate [The prior valuation used 3.25%] Merit Increases: Merit increases from the most recent CalPERS pension plan experiences study. The benefits are not payroll related but each individual’s projected cost is allocated over their lifetime as a level-percentage of pay. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 19 Pre-retirement Turnover: According to the termination rates under the CalPERS pension plan. Sample rates for Miscellaneous employees are as follows: Entry Age Service 20 30 40 50 0 17.42% 16.06% 14.68% 13.32% 5 8.68% 7.11% 5.54% 0.97% 10 6.68% 5.07% 0.71% 0.38% 15 5.03% 3.47% 0.23% 0.04% 20 3.70% 0.21% 0.05% 0.01% 25 2.29% 0.05% 0.01% 0.01% 30 0.05% 0.01% 0.01% 0.01% Pre-retirement Mortality: According to the pre-retirement mortality rates under the CalPERS pension plan updated to reflect the most recent experience study with mortality improvements using Mortality Improvement Scale MP 2016. [The prior valuation used Mortality Improvement Scale MP 2014] Post-retirement Mortality: According to the pre-retirement mortality rates under the CalPERS pension plan updated to reflect the most recent experience study with mortality improvements using Mortality Improvement Scale MP 2016. [The prior valuation used Mortality Improvement Scale MP 2014] Retirement Age: According to the retirement rates under the most recent CalPERS pension plan experience study. According to the following retirement tables: Miscellaneous Tier 1: 2.7% @55 Miscellaneous Tier 2: 2.0% @62 Disability Retirement: According to the disability rates for Miscellaneous employees under the CalPERS pension plan updated to reflect the most recent experience study. Hardship Retirement: Loss will be incorporated upon event [The prior valuation included a 1% liability load on active liabilities] Participation Rates: 100% of eligible active employees are assumed to elect medical coverage and 80% of eligible active employees are assumed to elect dental coverage at retirement. Actual plan coverage is used for current retirees. Plan Participation: Future retirees are assumed to elect plan coverage based on current plan elections to Medicare eligibility then PPO coverage. PPO coverage is assumed for all future retirees currently waiving coverage. Spouse Coverage: The current coverage status is used for both current and future retirees. 100% are assumed to elect coverage for their spouse, if currently covering their spouse (80% if waived coverage). Male spouses are assumed to be 3 years older than female spouses. Actual spouse ages are used for current retirees. Dependent Coverage: 10% of future retirees with family coverage are assumed to continue dependent coverage to the retiree’s age 65. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 20 Medicare Eligibility: 100% of future retirees are assumed to be eligible for and elect Medicare coverages. Average Claim Costs: The valuation was based on the premiums rates furnished by the District. These costs include medical and prescription drug for both active and retired employees. A claim cost curve was developed using an assumption for aging based on an assumed population for the Special District Risk Management Authority (SDRMA) pool using Tower Watson HealthMaps. This results in an expected claim cost for every 5 year age bracket. Sample annual medical/Rx costs are provided in the table below. Age EPO PPO HMO 50-54 $10,655 $ 9,290 $ 9,780 55-59 $12,530 $10,925 $11,500 60-64 $14,985 $13,065 $13,750 [The prior valuation used separate costs for males and females. The above costs assume that the District’s male and female composition is similar to the pool population which was provided on a combined basis] Medical Trend Rates: Medical costs are adjusted in future years by the following trends: Year PPO 2017 Actual 2018 Actual 2019 6.0% 2020 5.5% 2021+ 5.0% [The prior valuation used Medicare trend rates 0 to 0.2% higher than Non-Medicare trend rates] Dental Trend Rates: Year Trend 2018+ 4.0% Life Insurance: Life insurance costs are assumed to remain constant in future years. Cadillac Tax: 1.25% load on the non-Medicare liabilities Actuarial Cost Method: The actuarial cost method used to determine the allocation of the retiree health actuarial liability to the past (accrued), current and future periods is the Entry Age Normal (EAN) cost method. The EAN cost method is a projected benefit cost method which means the “cost” is based on the projected benefit expected to be paid at retirement. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 21 The EAN normal cost equals the level annual amount of contribution from the employee’s date of hire (entry date) to their retirement date that is sufficient to fund the projected benefit. While both are acceptable methods, typically for plans unrelated to pay the normal cost is calculated to remain level in dollars and for pay-related plans the normal cost is calculated to remain level as a percentage of pay. The District has elected to determine the EAN normal cost as a level percentage of pay. The EAN actuarial accrued liability equals the present value of all future benefits for retired and current employees and their beneficiaries less the portion expected to be funded by future normal costs. All eligible employees and participating retirees and spouses as of the measurement date listed in the data provided by the District were included in the valuation in accordance with the provisions of the Plan. Future New Entrants: Closed group valuation so none assumed. Actuarial Value of Assets: Any assets of the plan will be valued using an asset smoothing method spreading asset gains and losses over 5 years. Amortization of NOL: For funding purposes, the unfunded actuarial accrued or net OPEB liability (NOL) is being amortized over 20 years on a level percentage of pay basis using a fresh start method. Future experience gains and losses may be amortized over a rolling (open) 15-year period and plan and assumption changes will be amortized over fixed (closed) 20 year periods. [The prior valuation based funding on the GASB 45 annual required contribution development which on average would yield an amortization period of 20 years.] C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 22 SECTION VIII. ACTUARIAL CERTIFI CATION This report summarizes the actuarial valuation for the Otay Water District (the “District”) as of June 30, 2017. The purpose of the valuation is to measure the District’s liability for OPEB benefits and to determine an actuarially determined contribution (ADC) for the fiscal periods ending June 30, 2018 and June 30, 2019. The ADC is a target or recommended contribution to a defined benefit OPEB plan for the applicable period, determined in accordance with the parameters and in conformity with Actuarial Standards of Practice. The valuation results will also serve as the basis for complying with GASB 75 applicable for the fiscal year ending June 30, 2018. To the best of our knowledge, the report presents a fair position of the funded status of the plan. The valuation is based upon our understanding of the plan provisions as summarized within the report. The information presented herein is based on the actuarial assumptions and substantive plan provisions summarized in this report and participant information and asset information furnished to us by the Plan Sponsor. We have reviewed the employee census provided by the Plan Sponsor for reasonableness when compared to the prior information provided but have not audited the information at the source, and therefore do not accept responsibility for the accuracy or the completeness of the data on which the information is based. When relevant data may be missing, we may have made assumptions we feel are neutral or conservative to the purpose of the measurement. We are not aware of any significant issues with and have relied on the data provided. The discount rate and other economic assumptions have been selected by the Plan Sponsor. Demographic assumptions have been selected by the Plan Sponsor with the concurrence of Nyhart. In our opinion, the actuarial assumptions are individually reasonable and in combination represent our estimate of anticipated experience of the Plan. All calculations have been made in accordance with generally accepted actuarial principles and practice. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period); and changes in plan provisions or applicable law. While some sensitivity analysis was provided in the report, we did not perform an analysis of the potential range of future measurements due to the limited scope of our engagement. To our knowledge, there have been no significant events prior to the current year's measurement date or as of the date of this report that could materially affect the results contained herein. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 23 Neither Nyhart nor any of its employees has any relationship with the plan or its sponsor that could impair or appear to impair the objectivity of this report. Our professional work is in full compliance with the American Academy of Actuaries “Code of Professional Conduct” Precept 7 regarding conflict of interest. The undersigned meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Should you have any questions please do not hesitate to contact me. Certified by: Marilyn K. Jones, ASA, EA, MAAA, FCA Date: October 11, 2017 Consulting Actuary C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 24 SECTION IX. DEFINITIONS The definitions of the terms used in the actuarial valuations are noted below. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting health care costs, such as: mortality, turnover, disablement and retirement; changes in compensation and Government provided health care benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items. Actuarial Cost Method – A procedure for determining the Actuarial Present Value of Future Benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Service Cost (or normal cost) and a Total (Accrued) OPEB Liability. Actuarially Determined Contribution - A target or recommended contribution to a defined benefit OPEB plan for the reporting period, determined in accordance with the parameters and in conformity with Actuarial Standards of Practice. Annual OPEB Cost – An accrual-basis measure of the periodic cost of an employer’s participation in a defined benefit OPEB plan. Actuarial Present Value (also referred to as Actuarial Liability) – The value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of Actuarial Assumptions. For purposes of this standard, each such amount or series of amounts is: a. adjusted for the probable financial effect of certain intervening events (such as changes in coverage, marital status, etc.); b. multiplied by the probability of the occurrence of an event (such as survival, death, disability, termination of employment, etc.) on which the payment is conditioned; and c. discounted according to an assumed rate (or rates) of return to reflect the time value of money. Deferred Outflow / (Inflow) of Resources – represents the following items that have not been recognized in the OPEB Expense: a. Differences between expected and actual experience of the OPEB plan b. Changes in assumptions c. Differences between projected and actual earnings in OPEB plan investments (for funded plans only) Explicit Subsidy – The difference between (a) the amounts required to be contributed by the retirees based on the premium rates and (b) actual cash contribution made by the employer. Funded Ratio – The actuarial value of assets expressed as a percentage of the actuarial accrued liability. Healthcare Cost Trend Rate – The rate of change in the per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 25 Implicit Rate Subsidy – In an experience-rated healthcare plan that includes both active employees and retirees with blended premium rates for all plan members, the difference between (a) the age-adjusted premiums approximating claim costs for retirees in the group (which, because of the effect of age on claim costs, generally will be higher than the blended premium rates for all group members) and (b) the amounts required to be contributed by the retirees. Normal Cost – The portion of the Actuarial Present Value of plan benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. OPEB – Benefits (such as death benefits, life insurance, disability, and long-term care) that are paid in the period after employment and that are provided separately from a pension plan, as well as healthcare benefits paid in the period after employment, regardless of the manner in which they are provided. OPEB does not include termination benefits or termination payments for sick leave. OPEB Expense – Changes in the Net OPEB Liability in the current reporting period, which includes Service Cost, interest cost, changes of benefit terms, expected earnings on OPEB Plan investments, reduction of active employees’ contributions, OPEB plan administrative expenses, and current period recognition of Deferred Outflows / (Inflows) of Resources. Pay-as-you-go – A method of financing a benefit plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due. Per Capita Costs – The current cost of providing postretirement health care benefits for one year at each age from the youngest age to the oldest age at which plan participants are expected to receive benefits under the plan. Present Value of Future Benefits – Total projected benefits include all benefits estimated to be payable to plan members (retirees and beneficiaries, terminated employees entitled to benefits but not yet receiving them, and current active members) as a result of their service through the valuation date and their expected future service. The actuarial present value of total projected benefits as of the valuation date is the present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment. Expressed another way, it is the amount that would have to be invested on the valuation date so that the amount invested plus investment earnings will provide sufficient assets to pay total projected benefits when due. Real Rate of Return – the rate of return on an investment after adjustment to eliminate inflation. Select and Ultimate Rates – Actuarial assumptions that contemplate different rates for successive years. Instead of a single assumed rate with respect to, for example, the healthcare trend rate assumption, the actuary may apply different rates for the early years of a projection and a single rate for all subsequent years. For example, if an actuary applies an assumed healthcare trend rate of 6.5% for year 20W0, 6.0% for 20W1, 5.5% for 20W2, then 5.0% for 20W3 and thereafter, then 6.5%, 6% and 5.5% are select rates, and 5% is the ultimate rate. Service Cost (also referred to as Normal Cost) – The portion of the Actuarial Present Value of projected benefit payments that are attributed to a valuation year by the Actuarial Cost Method. C:\Retmed\Otay Water District\2017\Final\Actuarial Valuation Report Otay WD Final Draft.docx Page | 26 Substantive Plan – The terms of an OPEB plan as understood by the employer(s) and plan participant. Total OPEB Liability (also referred to as Actuarial Accrued Liability) – That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of Future Benefits which is attributed to past periods of employee service (or not provided for by the future Service Costs). November 1, 2017 Otay Water District June 30, 2017 Updated OPEB Actuarial Valuation Retiree Health Program & Contribution Study 1 Purpose of June 30, 2017 OPEB Valuation •Updated Funding Valuation •Develop recommended actuarially determined contribution (ADC) previously referred to as the annual required contribution (ARC) •Fund normal cost (current benefit accrual) plus payment towards net (unfunded accrued) OPEB liability •No requirement to prefund •Earnings used to pay future contributions for benefits •Commitment to prefund ADC allows for higher discount rate for accounting •District’s Funding Practice: Prefund the ADC to trust and make direct payments for retirees until funding level at 100% •OPEB Contribution Study •Extended OPEB for employees hired on or after July 1, 1993 •Established Employee Contribution (7.0% Unrepr./7.75% Repr.) •Comply With GASB 75 (New) Accounting Requirements •Effective commencing with fiscal year ending June 30, 2018 •Separates funding and accounting (ARC goes away) •Biennial valuations still required Page 2 District Retiree Health Program •Benefits Provided: Continuation of medical and dental benefits •District Direct (Cash) Contributions: 100% of the retiree premium and 88% of the spouse/dependent premium •Reduced District contributions for employees retiring early (age 50 to 55) under disability or hardship •Some employees retired under different eligibility and contributions •Eligibility: Retire from the District on or after age 55 with at least 20 (15 for un-represented employees hired prior to 1/1/2013) years of District service. •District Participates in SDRMA for Medical Coverage •Community-rated program •Implied subsidy as non-Medicare premiums based on pool of actives and non-Medicare retirees 3 Implied Subsidy Defined Retiree Expected Costs minus Average Costs (Premium Charged) •Exists when non-Medicare retirees & actives pooled together for Medical coverage •Retiree Costs > Pooled Groups Average Costs •Implied Rate Subsidy = Expected Retiree Cost less Average Cost (Premium Charged for Coverage) •Required to be included as employer liability •New ASOP 6 – GASB defers to ASOPs •Newly issued GASB 74 & 75 4 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 25 30 35 40 45 50 55 60 65 An n u a l C l a i m C o s t s Age Average Cost Actual Cost Actuarial Valuation Process •Updated Funding Valuation • Collect Plan, Census & Rate (Premium) Information •131 active employees eligible for health benefits •79 retirees currently receiving District contribution •Project District Direct (Cash plus Implied Subsidy) Contributions Expected to be Paid for All Future Years (Projected Cash Flows) •Demographic assumptions: e.g. mortality, withdrawal, retirement •Financial assumptions: e.g. discount (interest rate), healthcare costs, healthcare trend •Discount Projected Cash Flows to Measurement Date to Determine Present Value of District’s Contributions •Allocate Present Value to Past, Future & Current Period Using Actuarial Cost Method Page 5 5 Projected District Direct* Contributions •Updated Funding Valuation •Develop recommended actuarially determined contribution (ADC) for prefunding •No requirement to prefund but ADCs allow District to use higher discount rate for accounting •Comply With GASB 74 and 75 (New) Accounting Requirements •GASB 74 disclosure requirement for funded OPEB plans effective fiscal year ending June 30, 2017 •GASB 75 new accounting commencing with fiscal year ending June 30, 2018 •Biennial valuations still required •10-Year Projections of Contributions & Funded Status Page 6 Fiscal Year Projected # of Retirees Explicit (Cash) Contributions Implied Subsidy Projected Direct Contributions % Incr 2017/18 79 $ 950,980 $147,796 $1,098,776 2018/19 79 $ 980,808 $160,536 $1,141,344 4% 2019/20 79 $1,015,999 $139,619 $1,155,618 1% 2020/21 80 $1,062,982 $137,914 $1,200,896 4% 2021/22 82 $1,112,252 $131,618 $1,243,870 4% 2022/23 84 $1,176,212 $132,869 $1,309,081 5% 2023/24 86 $1,241,079 $143,208 $1,384,287 6% 2024/25 89 $1,332,428 $162,510 $1,494,938 8% 2025/26 91 $1,420,476 $163,672 $1,584,148 6% 2026/27 95 $1,544,437 $193,365 $1,737,802 10% : : : : All Years $184.8M $7.1M $191.9M Present Value Assuming 7.0% Interest Rate $ 31.1M $2.6M $ 33.7M * Net of any required retiree contributions for coverage 6 7 Valuation Results at June 30, 2017 •Total (Accrued) OPEB Liability = $26,450,000 • $22,060,000 Funded • $4,390,000 Unfunded (AVA basis - $337,000 accumulated losses not recognized) •Recommended ADC (Contribution) = Fund Current Year Accrual plus 20 Yr Amortization of Unfunded Liability •$1,116,418 in 2017/18 or 8.9% of payroll •Employees Contribute 7.0% of pay (7.75% for Unrepresented) – $944,034 estimated in 2017/18 $22,060,000 $4,390,000 $6,429,000 $787,000 Present Value of Projected Direct (Cash plus Implied Subsidy) Contributions = $33.7M Total (Accrued) OPEB Liability - Funded Total (Accrued) OPEB Liability - Unfunded Liability for Future Years' Accruals Current Year Accrual (Normal Cost) 8 Comparison of Prior Funded Status and Contributions 6/30/2015 6/30/2017 Actuarial Accrued Liability $ 23,689,000 $ 26,450,000 Actuarial Value of Assets (AVA)* (16,920,000) (22,060,000) Unfunded Actuarial Accrued Liability $ 6,769,000 $ 4,390,000 Funded Percentage AVA 71% 83% ARC/ADC FY2015/16 $ 1,239,000 NA FY2016/17 $ 1,200,000 NA FY2017/18 $ 1,154,000 $ 1,116,000 FY2018/19 $ 1,100,000 $ 1,065,000 •Key assumption changes: Lowering the discount rate from 7.25% to 7.0% & updates to the CalPERS mortality table; mostly offsetting •$39,000 decrease in FY2017/18 contribution due to experience and actuary differences 7.0% 7.7% 9.8% 7.4% 7.3% 7.1% 18.1% 11.2% 18.1% -0.1% 1.3% 10.5% -1% 9% 19% 29% *Rate of Return - AVA (Red) vs. Market Value (Blue) 9 Projected Total District Contributions* Fiscal Year Recommended Contribution (ADC) Cash Payments Implied Subsidy Trust Reimbursement to District Total Contr. Employee OPEB Contr. District Contr. Net of Employee Plan Funded % 2017/18 $1,116,418 $ 950,980 $147,796 $ 0 $2,215,194 $ 944,034 $1,271,160 83% 2018/19 $1,065,019 $ 980,808 $160,536 $ 0 $2,206,363 $ 966,980 $1,239,383 89% 2019/20 $1,011,358 $1,015,999 $139,619 $ 0 $2,166,976 $ 995,990 $1,170,986 93% 2020/21 $ 955,017 $1,062,982 $137,914 ($ 492,316) $1,663,597 $1,025,869 $ 637,628 97% 2021/22 $ 885,945 $1,112,252 $131,618 ($1,243,870) $ 885,945 $1,056,645 ($ 170,700) 100% 2022/23 $ 912,524 $1,176,212 $132,869 ($1,309,081) $ 912,524 $1,088,345 ( $ 175,821) 100% 2023/24 $ 939,899 $1,241,079 $143,208 ($1,384,287) $ 939,899 $1,120,995 ($ 181,096) 100% 2024/25 $ 968,096 $1,332,428 $162,510 ($1,494,938) $ 968,096 $1,154,625 ($ 186,529) 100% 2025/26 $ 997,139 $1,420,476 $163,672 ($1,584,148) $ 997,139 $1,189,264 ($ 192,125) 100% 2026/27 $1,027,054 $1,544,437 $193,365 ($1,737,802) $1,027,054 $1,224,941 ($ 197,888) 100% * Projections assume that employees terminating or retiring will be replaced with comparable employees with aggregate payroll increasing 3.0% 10 OPEB Contribution Study Study compares increased cost of extending OPEB benefits to the additional employee contributions received by the District • 7.75% for Represented • 7.00% for Unrepresented employees ADC = Recommended Actuarially Determined Contribution NOL = Net (unfunded accrued) OPEB Liability Fiscal Year ADC Member Contrib. Net District ADC Current Plan BOY NOL Current Plan BOY Funding % 2017/18 $ 967K $ 944K $ 23K $4.390M 83% 2018/19 $911K $ 967K ( $ 56K) $3.230M 89% 2019/20 $853K $ 996K ( $ 143K) $2.021M 93% 2020/21 $792K $1,026K ( $ 234K) $0.790M 97% 2021/22 $718K $1,057K ( $ 339K) $0.000M 100% 2022/23 $739K $1,088K ( $ 349K) $0.000M 100% 2023/24 $762K $1,121K ( $ 359K) $0.000M 100% 2024/25 $785K $1,155K ( $ 370K) $0.000M 100% 2025/26 $808K $1,189K ( $ 381K) $0.000M 100% 2026/27 $832K $1,225K ( $ 393K) $0.000M 100% 11 GASB 75 Impact GASB 75 Accounting for Fiscal Year Ending June 30, 2018 •Recognize Net (Unfunded Accrued) OPEB Liability (NOL) on District’s Financial Statement •Measured at June 30, 2017; Estimate = $4,727,000 (Market Value Basis) •Note Disclosures and Required Supplementary Information (RSI) Similar to GASB 68 •Interest Rate and Healthcare Trend Rate Sensitivity Measurements •GASB 75 Expensing Required Every Fiscal Year – Faster Recognition of Gains/Losses - Interim period updates required •GASB 74 Disclosure of Net (Unfunded) OPEB Liability (NOL) – To be provided by CERBT (the OPEB Plan) Questions 12 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 1, 2017 SUBMITTED BY: Mark Watton General Manager W.O./G.F. NO: N/A DIV. NO. N/A APPROVED BY: Mark Watton, General Manager SUBJECT: General Manager’s Report ADMINISTRATIVE SERVICES: GIS: Asset Management Implementation – The implementation of the asset management decision tool, InfoMaster, including the end user training, is completed. This application solution is part of the asset management toolset, which provides pipeline condition assessment and budget forecasting. New App for Cathodic Test Station – A new GIS mobile app was developed to improve efficiency and accuracy of the cathodic test station annual survey. The tool has been deployed to Engineering staff and their consultants. The Engineering department has been using the tool to validate facilities, edit survey information, and communicate work progress. Human Resources: District Training - The District held training for all District employees on October 19th. Mr. Gordon Graham, an international expert on Risk Management, presented the topic of “5 Concurrent Themes of Success”. Mr. Graham trained the employees on how the discipline of Risk Management, coupled with the understanding of systems and complemented with Customer Service, Accountability and Integrity, can work together to better assure that things get done right. In addition, Mr. Graham provided training to management employees regarding job based harassment as required by law. Employees enjoyed the presentation and the training was well received. 2 Open Enrollment – Open enrollment was held in October and an informational meeting was held on October 25th. Employee Recognition Luncheon - The District’s Recognition Luncheon and BBQ was held Thursday, October 12th. Holiday Party - Mark your calendars to attend the Holiday Party being December 2nd from 6:00 pm to 9:00 pm at the Stone Brewery in Liberty Station. Recruitments/New Hires: o The District is preparing to recruit for Facilities Maintenance Technician due to an upcoming retirement. This position is critical to District operations. IT Operations: SCADA Roadmap - Staff kicked off the 14 project initiatives outlined in the SCADA Roadmap. The report outlines a coherent plan for improving SCADA services to include integration, analytics, and cybersecurity. The roadmap also provides a strategic framework for guiding the District’s efforts based on a clear vision supported by goals and time-based milestones that will be incorporated into the new strategic plan. Purchasing & Facilities: San Miguel Fire Protection District Inspection - The District passed its annual fire inspection at Operations, Warehouse and Fuel Island, conducted by Natalie Grimes, Fire Inspector with the San Miguel Fire Protection District. Ms. Grimes complimented staff for its cooperation during the inspection and indicated that she was “very impressed” with the maintenance of all relevant systems. U.S. Communities Sourcing Summit - Staff attended the U.S. Communities Government Purchasing Alliance Sourcing Summit hosted by the League of California Cities (League) and California State Association of Counties (CSAC). Created and sponsored by the League and CSAC, U.S. Communities provide all public agencies and nonprofits access to competitively bid low cost goods, services and solutions by aggregating the purchasing power of public agencies nationwide. Steele Canyon 832 Access Road Clearance and FEMA Reimbursable Repairs - With the recent end of nesting season, D&D Wildlife Habitat Restoration, Inc., has completed the vegetation clearing in and along the access road to the 832 tank site from the Steele Canyon entrance, which allows Utility Maintenance to make the necessary repairs to storm damaged sections most of which are eligible for FEMA reimbursement. 3 Safety & Security: Annual Regulatory Asbestos Cement Pipe (ACP) Training – Staff completed the annual Cal/OSHA regulatory compliance ACP training. The corresponding certificates were issued and filed as part of the District’s safety records. Monthly WebEOC Exercise – The District participates in monthly exercises to assist in keeping emergency response skills keen, refresh training, and lead to a more efficient and effective emergency response when the need to respond to an emergency arises. This month, emergency response staff completed the following exercise: “Review and, as required, update the Mutual Aid Resources list for the District and post both to your agency events log and the Water Hub”. Incident Investigation Forms - Electronic forms to capture the required information for investigating both minor and serious incidents have been developed. Input was solicited from stakeholders and the end result forms have been completed, tested, implemented and training on how to use them was also completed. The goal of these forms is to facilitate and streamline the investigation process when completing required information as part of investigating both minor and serious incidents. FINANCE: AMR Change Out Update - The next phase of AMR change outs began on October 10th. The contractor expects it will take six to eight weeks to complete 4,500 change outs. Financial Reporting: o For the three months ending September 30, 2017, there are total revenues of $28,754,757 and total expenses of $26,344,993. The revenues exceeded expenses by $2,409,764. o The market value shown in the Portfolio Summary and in the Investment Portfolio Details as of September 30, 2017 total $79,657,585 with an average yield to maturity of 1.159%. The total earnings year-to-date are $232,256. ENGINEERING AND WATER SYSTEM OPERATIONS: Engineering: 870-2 Pump Station Replacement: This project consists of a new pump station to replace the existing Low Head 571-1 and High Head 870-1 Pump Stations. The project also includes the replacement of the existing liner and cover for the 571-1 Reservoir (36.7 MG). During October 2017 the contractor, Pacific Hydrotech, mobilized to the project. Work to drain the 571-1 Reservoir also began in 4 preparation for the contract work. Current work on the project includes continuing to process submittal approvals for the contract work. During October, staff continued work with the San Diego Regional Water Quality Control Board (RWQCB) in support of the project’s final environmental permit. It is anticipated that the approval of the final permit will be completed by early November 2017. The San Diego County Water Authority (SDCWA) was instrumental in working with the RWQCB to prioritize the approval of the District’s permit. A mitigation requirement that includes a proposal to develop wetlands at the District’s Habitat Management Area (HMA) for project impacts to wetlands at the site is part of the District’s permit for the project. During November 2017, it is anticipated that the contractor will begin removal of the 571-1 Reservoir floating cover and liner and begin excavation for the planned piping that will be constructed under the reservoir. The project is within budget and scheduled to complete in October 2019. (P2083 & P2562) SR-11 Utility Relocations: This project consists of relocating several District potable water pipelines located in Otay Mesa Road, Sanyo Avenue, Enrico Fermi Drive, Alta Road, and within District easements. The first two rounds of relocations (Caltrans Utility Agreement Numbers 33592 and 33622) were completed in FY 2016. Staff held meetings with Caltrans in August and September 2017 to discuss the relocations from Enrico Fermi Drive to the future Mexico/USA international border crossing. District staff requested task order proposals for the design of Enrico Fermi Drive and Alta Road potable water relocations from the two (2) consultants that were awarded as- needed engineering design agreements on October 4, 2017. As part of the SR-11 project, Caltrans will need to acquire a portion of the District’s fee-owned right-of-way that is located in the Alta Road alignment south of Otay Mesa Road. Caltrans has submitted an appraisal of the District’s property they intend to acquire, which is currently under review. Caltrans has communicated to the District that their project is scheduled to advertise for construction bid in April 2018 and start construction in April 2019. (P2453) 978-1 & 850-2 Reservoir Interior/Exterior Coatings & Upgrades: This project consists of removing and replacing the interior and exterior coatings of the 978-1 (0.5 MG) Reservoir and the 850-2 (3.1 MG) Reservoir along with providing structural upgrades to ensure the tanks comply with both state and federal OSHA standards as well as the American Water Works Association and the County Health Department standards. Work at the 978-1 Reservoir is substantially complete and the reservoir was placed back in service in July 2017. During the month of October 2017, Blastco, Inc., the District’s contractor, completed the installation of the interior coating to the ceiling and walls of the 850-2 Reservoir. The contractor is 5 currently behind schedule due to contractor coordination. As a result, the District has begun to assess liquidated damages for late delivery of the project. The project is within budget. It is estimated that work on the 850-2 Reservoir will complete in December 2017. (P2534 & P2544) . Campo Road Sewer Replacement: The existing sanitary sewer from Avocado Road to Singer Drive is undersized and located in environmentally sensitive areas that are difficult to access. The Campo Road Sewer Replacement project will install approximately 7,420 linear feet of new 15-inch gravity sewer and include abandonment of the existing sewer main. Work in October 2017 included the installation of the new sewer main in the Rancho San Diego Towne Center near the intersection of Campo Road (SR 94) and Jamacha Road (SR 54). Work during October 2017 also included potholing for utilities along the planned alignment in Campo Road between the Rancho San Diego Towne Center and the area east of Skyline Church. Temporary K-Rail and traffic control was also placed in the westbound direction of Campo Road at the Jamacha Road intersection to support the construction of a sewer main jacking pit. A majority of the work in Campo Road, within the Caltrans right-of-way, is being performed at night. Activities near environmentally sensitive areas will be halted during the breeding season of endangered species, between February and September. The project is within budget and the overall project is scheduled for completion in April 2019. (S2024) 927 Zone, Force Main Assessment and Repair Project: This project consists of inspection, condition assessment, and repair of the existing Ralph W. Chapman Water Reclamation Facility (RWCWRF) 1980 era, 16,000 feet long, 14-inch diameter steel force main. Last winter, Charles King, the District’s contractor, completed the construction of the new blow offs, restored the access road to a serviceable condition, aided in placing the force main back into service, and demobilized from the project area. District staff worked with the contractor on a no-cost time extension to allow the remaining contract work to be completed during the subsequent environmental window. During the month of October 2017, the contractor remobilized to the site and began work to complete the cathodic protection improvements and final access road grading. Staff also initiated work with the contractor to construct a point repair on the 14-inch force main, which was identified as part of the inspection performed last winter. The overall project is within budget and anticipated to complete in December 2017. (R2116/P2508) Hillsdale Road Potable Water and Sewer Replacement: The existing water line in Hillsdale Road between Jamacha Road and Vista Grande Road has experienced several leaks and is nearing the end of its 6 useful life. This project consists of replacing approximately 4,050 linear feet of steel water line with a 12-inch Polyvinyl Chloride (PVC) water line. The project also includes the replacement of approximately 760 linear feet of 8-inch PVC sewer within Hillsdale Road. A Notice to Proceed was issued to T C Construction Company, Inc. on October 10, 2017. During October, the contractor began providing submittals for the project. The contractor also mobilized to the project to begin survey and potholing work. The project is within budget and on schedule to complete in May 2018. (P2573 & S2048) Fuerte Drive Sewer Relocation: The County of San Diego is realigning Fuerte Drive as part of a safety improvement project. The County has requested that the District relocate the existing sewer within the County’s project. The District’s sewer project consists of relocating approximately 255 linear feet of 8-inch PVC sewer. During October 2017, the District entered into a construction contract with Ortiz Corporation. The District’s work included in this contract is being coordinated by the County of San Diego with relocation work by SDG&E and the Helix Water District. It is anticipated that the District’s work will begin in late January 2018. The project is within budget and on schedule to complete in winter 2017/2018. (S2045) Vista Vereda Water Replacement: The existing 1950’s steel water line along Vista Vereda between Vista Grande Road and Hidden Mesa Trail in the Hillsdale area has experienced several leaks and is nearing the end of its useful life. The existing water main is located primarily within easements, many of which have had significant improvements performed over the years since the water line was constructed. Through the District’s As-Needed Engineering Design contract, a Task Order was issued on May 2, 2017 to Rick Engineering to design the project. A preliminary design report (PDR) is in progress, with a draft submitted to the District for review on September 28, 2017. Several alternatives for the replacement are evaluated in the PDR for consideration including the changing of the Vista Vereda water line from transmission main to local distribution only and upgrading the water lines in Hidden Mesa Road to become a transmission main. Based upon a preliminary assessment of the challenges of reconstructing a transmission main along the same current alignment, it is evident that the Hidden Mesa Road water line upgrade will be required. A new CIP project for this pipeline will be brought before the Board at the November 1, 2017 meeting for consideration. The initial design budget approved for the Vista Vereda project was based upon replacing the existing water line in place, but an alternative fee was included in Rick Engineering’s proposal for including the design in Hidden Mesa Road. The additional design fee is projected at $65,000, above the limits of the As-Needed Engineering Design Services FY 7 2017-2018 Program not to exceed amount of $500,000, although the Rick Engineering contract will not be exceeded due to awarding of other work under the program to the other consultant. Engineering staff is requesting the General Manager to increase the As-Needed Engineering Design Services FY 2017-2018 Program budget to $565,000. The project is on schedule for completion of the design in June 2018, although community outreach efforts may delay it. (P2574) Trenchless Sewer Rehabilitation: The District issued a construction contract to complete sewer repairs for 60 locations within the Calavo and Rancho San Diego Basins using trenchless technologies. During the month of September 2017, the contractor substantially completed the contract work and began punch list work in preparation for contract acceptance. A submittal of the punch list completion was received in October 2017 for confirmation, with closeout of the project expected by early November 2017. The project is within budget. (S2044) OWD Administration and Operations Parking Lot Improvements, Phase I – Lighting and Vehicle Charging Station: This project consists of replacing the existing parking lot light fixtures in both the Administration and Operations lots with high efficiency LED fixtures. The project also includes constructing an electric vehicle charging station in the employee Administration parking lot. During the month of October 2017, the contractor substantially completed the project. The next phase of improvements will include repairs to the AC paving, slurry sealing of the parking lots, and repainting of parking spaces and curbs. The lighting project is within budget. (P2555 & P2547) 624-2 Reservoir Interior/Exterior Coatings & Upgrades: This project consists of removing and replacing the interior and exterior coatings of the 624-2 (8.0 MG) Reservoir. The construction contract was awarded to Advanced Industrial Services (AIS). They completed the project in 2014, however, a warranty dive inspection in 2016 found the coating near the center roof vent was cracking and blistering. In early 2017, the reservoir was taken out of service, and after a more thorough inspection, AIS was directed to make the repairs. All the repairs to the interior coating have been completed which include complete replacement of the roof coating and touch-up repairs to the shell and floor. AIS also completed the minor exterior coating repairs and disinfection of the interior surfaces in preparation for filling. All work from AIS was completed under warranty. The reservoir was filled on October 17, 2017, passed all water quality testing and was placed back into service on October 25, 2017. (P2493) 8 980-2 Reservoir Interior/Exterior Coating and Upgrades: This project consists of removing and replacing the interior and exterior coatings of the 980-2 (5.0 MG) Reservoir, along with providing structural upgrades, to ensure the tank complies with both state and federal OSHA standards as well as the American Water Works Association and the County Health Department standards. At the October 4, 2017 Board meeting, a construction contract was awarded to Simpson Sandblasting and Special Coatings, Inc. It is anticipated that a Notice to Proceed for the construction project will be issued in early November 2017. The project is within budget and scheduled to complete in spring 2018. (P2546) Rancho San Diego Pump Station Rehabilitation: On April 30, 2014, the District and the San Diego County Sanitation District (Sanitation District) executed a reimbursement agreement for the improvements to the Rancho San Diego Pump Station that were expected to be completed on or about March 2016. The Sanitation District awarded a construction contract to T C Construction Company Inc. on September 14, 2016. Start-up and testing of the pump station is scheduled to begin in April of 2018. (S2027) Formation of Groundwater Sustainability Agency (GSA) and Groundwater Sustainability Plan (GSP): In September 2014, the Sustainable Groundwater Management Act (SGMA), Water Code Sections 10720- 10736.5, requires the formation of GSA(s) and GSP(s) throughout California including the District’s service area. The San Diego Formation (SDF) aquifer overlaps the District as well as other water retailers, including the City of San Diego (City), Sweetwater Authority (SWA), Otay Water District, and California American Water. In March 2016, the City applied to the California Department of Water Resources (DWR) to modify the SDF aquifer boundaries. In August 2017, the City solicited the District’s participation in a voluntary cooperative groundwater monitoring association per Water Code Sections 10927(g) and 10935 which would supplement the District’s ongoing participation in United States Geological Survey (USGS) via SWA; however, City, SWA, and District staff have most recently concluded that the voluntary cooperative groundwater monitoring association is not necessary since the agencies are considering forming GSA(s). (P1210) Pure Water Update: The Pure Water Project (Project) would construct facilities that have the ability to produce an annual average daily flow of 30 MGD in 2021, which in turn would reduce total suspended solids discharged to the ocean. The Project will expand the existing North City Water Reclamation Plant (NCWRP) and construct an adjacent North City Pure Water Facility. Two (2) alternative purified water pipelines are considered: one to Miramar Reservoir and one to San Vicente Reservoir. Other project components include a new pump station and force main to deliver additional wastewater 9 to the NCWRP; a brine/centrate discharge pipeline; upgrades to the existing Metro Biosolids Center; a new North City Renewable Energy Facility at the NCWRP; and a new Landfill Gas (LFG) Pipeline between the Miramar Landfill gas collection system and the NCWRP. On September 7, 2017, the City of San Diego released the draft Environmental Impact Report (EIR) for the Project. The draft EIR and associated technical appendices are available at this link: https://www.sandiego.gov/water/purewater/purewatersd/reports Comments must be received by November 21, 2017, to be included in the final document considered by the decision-making authorities. For the month of September 2017, the District sold 28 meters (91.5 EDUs), generating $764,823 in revenue. Projection for this period was 23.6 meters (30.8 EDUs), with budgeted revenue of $270,083. Total revenue for Fiscal Year 2018 is $1,323,901 against the annual budget of $3,241,000. Water System Operations (reporting for August): Out of 66 K-12 schools in the District, 45 (one school requested testing then later opted out so no samples were taken) requested to be tested; 44 have a sampling plan completed; 44 have collected samples and; 44 have received results. The District, however, cannot provide test results to the public for 60 days after receiving the laboratory results. Staff time for the school lead sampling is being tracked. It takes staff approximately 12 hours to complete lead testing from the initial contact from the school up until the reviewing of the Lab reports and discussing the results with the school. AB 746 (lead testing in schools) was signed by the Governor on October 13. This law will require schools that were built prior to January 1, 2010, and have not been tested for lead, to do so by July 1, 2019. Community water systems are responsible for the sampling and analysis of the schools. The State Water Resources Control Board is expected to develop guidance for community water systems so they can conform with this new law. At this time it appears that the schools that have been tested under the Lead Testing in Schools Program will not be required to be tested again and this requirement will only include grades K-12. On September 7, staff assisted the Inspection Department with a developer project shutdown on Stow Grow Avenue in Chula Vista to remove and replace a temporary end cap and blow off with a new end cap and a 2-inch blow off. The shutdown affected 6 residential customers and lasted 10 hours. A water trailer was on site for affected customers. 10 September 11 through September 15, staff worked on the treatment plant process after getting hit with heavy grease and an unknown substance which caused the plant to “upset” resulting in several plant shutdowns due to high effluent turbidity. Staff is adding polymer to the secondary clarifiers to help with turbidity issues. On September 25, the Lab Anlayst attended the National Environmental Laboratory Accreditation Conference (NELAC) workshop at the City of San Diego, NELAC is starting The NELAC Institute (TNI) compliance inspection for labs. Implementation of the regulation will be in 2019. Staff does not have a time schedule for what labs will be visited; however, staff is preparing the District lab for the inspection. On September 27, an unplanned emergency shutdown was performed on Concepcion Avenue in Spring Valley due to a break on the 6-inch ACP pipe. The shutdown affected 25 customers and lasted for 8 hours and 45 minutes. Two water trailers were on site for affected customers. In an effort to control the nitrification issues in Pipeline 4, SDCWA completed their pilot testing of boosting chloramines just south of the Otay 10 connection. The testing went well and helped reduce nitrification levels in potable flows delivered by them. SDCWA began another pilot test by boosting chloramines on Pipeline 4 at the Mission Trails Flow Regulatory Structure on October 19. This test will be conducted for two weeks. If this test is successful, SDCWA will then pursue a permanent chloramine boosting facility to help reduce nitrification levels. SDCWA and other member agencies have begun discussions on the feasibility of converting the disinfectant from chloramine to free chlorine for a defined period of time to mitigate nitrification levels on a proactive basis. This would likely be done for a 30-day period during the months of May or June. Mexico requested in writing 135.1 acre-feet of water for February 2018 and 157.6 acre-feet for October 2018; however, the District requested that the February flows be deferred until May 2018 to allow the largest reservoir in our system (Roll Reservoir/36 MG) to be brought back in service. Improvements to this reservoir are being performed to accommodate the new 870 Pump Station. 11 Purchases and Change Orders: The following table summarizes purchases and Change Orders issued during the period of September 28, 2017 through October 19, 2017 that were within staff signatory authority: Date Action Amount Contractor/ Consultant Project 9/28/2017 C.O. #1 ($40,487.00) Insituform Technologies, LLC Trenchless Sewer Rehabilitation Project (S2044) 10/3/17 P.O. $5,016.00 Vegetation Clearing D & D Wildlife Habitat 10/4/17 P.O. $2,000.00 Outside Services Packet Fusion, Inc. 10/5/17 P.O. $5,056.00 Vegetation Clearing D & D Wildlife Habitat 10/5/17 P.O. $24,900.00 Compensation and Benefits Study Ralph Andersen and Associates 10/5/17 P.O. $3,617.00 Smartnet Renewal Archive Data Solutions, LLC 10/11/17 P.O. $4,956.25 Outside Services Computer Protection Technology 10/18/17 P.O. $10,200.00 Watchlight 978-1 Reservoir Interior/Exterior Coating & Upgrade project (P2534) 10/19/17 P.O. $40,904.06 Crump & Co., Inc. Central Area to Otay Mesa Interconnection Pipelines Combination Air/Vacuum Valve Replacements (P2623) 12 Water Conservation and Sales: Water Conservation - September 2017 usage was 19% lower than September 2013 usage. Since September 2016, customers have saved an average of 16% over 2013 levels. T The September potable water purchases were 2,722.3 acre-feet which is 3.8% below the budget of 2,831.2 acre-feet. The cumulative purchases through September were 8,625.4 acre-feet which is 4.0% above the cumulative budget of 8,297.2 acre-feet. 13 The September recycled water purchases and production were 479.0 acre-feet which is 2.9% below the budget of 493.4 acre-feet. The cumulative production and purchases through September were 1,513.8 acre-feet which is 5.7% above the cumulative budget of 1,432.1 acre-feet. Potable, Recycled, and Sewer (Reporting up to the month of September): Total number of potable water meters: 49,709. Recycled water consumption for the month of September: o Total consumption: 480 acre-feet or 156,367,904 gallons. o Average daily consumption: 5,212,263 gallons per day. o Total cumulative recycled water consumption since July 1, 2017: 1488.0 acre-feet. o Total number of recycled water meters: 720. Wastewater flows for the month of September: o Total basin flow: 1,259,413 gallons per day. This is a decrease of 18% from August 2016. o Spring Valley Sanitation District Flow to Metro: 416,073 gallons per day. o Total Otay flow: 843,333 gallons per day. 14 o Flow Processed at the Ralph W. Chapman Water Recycling Facility: 745,667 gallons per day. The Treatment Plant’s total basin flows were 37.78 MG, of which 25.30 MG is the portion of Otay flows for September. The plant processed 22.37 MG of Otay’s portion of the flow, of which 2.93 MG was sent to Metro. o Flow to Metro from Otay Water District: 97,680 gallons per day. By the end of September there were 6,109 wastewater EDUs. Check Total 14,218.64 5,440.91 8,804.41 5,400.00 CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 2048995 09/27/17 15876 1903 SOLUTIONS LLC OWD170127T3YR 09/08/17 TEGILE EQUIP SUPPORT 42,900.00 42,900.00 2049038 10/04/17 18088 8X8 INC 2060399 08/30/17 TELECOM SYSTEM 5,000.00 2060397 08/30/17 TELECOM SYSTEM 4,800.00 2063859 09/05/17 TELECOM SYSTEM 4,300.00 2068578 09/07/17 TELECOM SYSTEM 118.64 2048996 09/27/17 18088 8X8 INC 2063426 09/01/17 TELECOM SYSTEM 394.60 394.60 2049061 10/11/17 01910 ABCANA INDUSTRIES INC 1014479 09/18/17 SODIUM HYPOCHLORITE 909.54 1014312 09/14/17 SODIUM HYPOCHLORITE 904.74 1014261 09/14/17 SODIUM HYPOCHLORITE 701.12 1014225 09/13/17 SODIUM HYPOCHLORITE 672.31 1014705 09/21/17 SODIUM HYPOCHLORITE 670.39 1014701 09/21/17 SODIUM HYPOCHLORITE 582.03 1014700 09/21/17 SODIUM HYPOCHLORITE 519.60 1014280 09/14/17 SODIUM HYPOCHLORITE 481.18 2049110 10/18/17 01910 ABCANA INDUSTRIES INC 1014869 09/25/17 SODIUM HYPOCHLORITE 912.42 912.42 2048997 09/27/17 01910 ABCANA INDUSTRIES INC 1013557 09/02/17 SODIUM HYPOCHLORITE 1,167.90 1014071 09/11/17 SODIUM HYPOCHLORITE 915.30 1013598 09/05/17 SODIUM HYPOCHLORITE 864.40 1013558 09/02/17 SODIUM HYPOCHLORITE 822.14 1013599 09/05/17 SODIUM HYPOCHLORITE 768.36 1014194 08/30/17 SODIUM HYPOCHLORITE 768.36 1013761 09/07/17 SODIUM HYPOCHLORITE 768.36 1014072 09/11/17 SODIUM HYPOCHLORITE 720.33 1013798 09/07/17 SODIUM HYPOCHLORITE 624.29 1013559 09/02/17 SODIUM HYPOCHLORITE 539.77 1013329 08/31/17 SODIUM HYPOCHLORITE 509.04 1013762 09/07/17 SODIUM HYPOCHLORITE 336.16 2049111 10/18/17 08488 ABLEFORCE INC 7648 10/09/17 SHAREPOINT SERVICES (9/12/17-9/20/17)675.00 675.00 2049062 10/11/17 08488 ABLEFORCE INC 7627 09/15/17 SHAREPOINT SERVICES (8/3/17-8/10/17)900.00 900.00 2048998 09/27/17 12174 AECOM TECHNICAL SERVICES INC 52 08/30/17 DISINFECTION SYSTEM 813.75 813.75 2048999 09/27/17 15024 AIRX UTILITY SURVEYORS INC 2008312017 09/11/17 UTILITY LOCATING SERVICES (8/1/17-8/31/17)17,078.00 17,078.00 2049112 10/18/17 18387 ALEXANDRO GONZALEZ Ref002491663 10/16/17 UB Refund Cst #0000231607 60.08 60.08 2049000 09/27/17 14462 ALYSON CONSULTING CM201755 09/05/17 MGMT/INSP (8/1/17-8/31/17)2,700.00 CM201754 09/05/17 MGMT/INSP (8/1/17-8/31/17)2,700.00 Page 1 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 3,929.60 3,536.64 4,208.17 2049113 10/18/17 18383 AMBER ESPARZA Ref002491659 10/16/17 UB Refund Cst #0000217603 42.01 42.01 2049114 10/18/17 11590 AMERICAN DIGITAL CARTOGRAPHY 22173 07/14/17 SOFTWARE LICENSE (8/1/17-7/31/18)8,201.00 8,201.00 2049063 10/11/17 18366 ANGELICA NORTHRIP Ref002491589 10/05/17 UB Refund Cst #0000206188 36.65 36.65 2049039 10/04/17 08967 ANTHEM EAP 56247 09/29/17 EAP AGREEMENT (OCT-DEC 2017)923.22 923.22 2049064 10/11/17 18195 ARCHIVE DATA SOLUTIONS LLC 093017 09/30/17 SMARTNET RENEWAL 3,617.00 3,617.00 2049115 10/18/17 18392 ARRIETA CONSTRUCTION Ref002491668 10/16/17 UB Refund Cst #0000233736 487.87 487.87 2049065 10/11/17 17264 ARTIANO SHINOFF 216364 09/22/17 LEGAL SERVICES (AUG 2017)35,866.06 35,866.06 2049001 09/27/17 17922 ASTON CARTER INC TS00193101 08/31/17 TEMPORARY EMPLOYMENT (8/14/17-8/18/17)1,964.80 TS00194493 09/07/17 TEMPORARY EMPLOYMENT (8/21/17-8/25/17)1,964.80 2049066 10/11/17 17922 ASTON CARTER INC TS00195966 09/14/17 TEMPORARY EMPLOYMENT (8/28/17-9/1/17)1,964.80 TS00197420 09/21/17 TEMPORARY EMPLOYMENT (9/5/17-9/8/17)1,571.84 2049116 10/18/17 07785 AT&T 000010217449 09/12/17 TELEPHONE SERVICES (8/12/17-9/11/17)12,427.91 12,427.91 2049002 09/27/17 12577 BLASTCO INC 1008312017 08/31/17 978-1 & 850-2 RESERVOIRS (ENDING 8/31/17)102,758.65 102,758.65 2049117 10/18/17 18386 BRANDY PARKS Ref002491662 10/16/17 UB Refund Cst #0000231359 24.53 24.53 2049118 10/18/17 18388 BRIGHTVIEW LANDSCAPE & DEVELOP Ref002491664 10/16/17 UB Refund Cst #0000232240 1,615.59 1,615.59 2049003 09/27/17 14112 BSE ENGINEERING INC 75400416 08/31/17 ELECTRICAL DESIGN (8/1/17-8/31/17)105.00 105.00 2049067 10/11/17 18373 CALM MEADOWS INC Ref002491596 10/05/17 UB Refund Cst #0000233311 142.48 142.48 2049004 09/27/17 15447 CANNON, LARRY 09212017LC 09/21/17 TUITION REIMBURSEMENT 1,366.24 1,366.24 2049040 10/04/17 17022 CASTLE ACCESS INC 0223094979 10/01/17 COLOCATION SERVICES 2,124.92 0223094775 09/01/17 COLOCATION SERVICES 2,083.25 2049119 10/18/17 15256 CIGNA GROUP INSURANCE / LINA 9267000010011717283410/16/17 VOLUNTARY SUPPLEMENTAL LIFE INSURANCE 4,351.66 4,351.66 2049005 09/27/17 04119 CLARKSON LAB & SUPPLY INC 92198 08/31/17 BACTERIOLOGICAL TESTING (8/14/17-8/15/17)756.00 92191 08/31/17 BACTERIOLOGICAL TESTING (8/2/17)206.00 92192 08/31/17 BACTERIOLOGICAL TESTING (8/3/17)206.00 92189 08/31/17 BACTERIOLOGICAL TESTING (8/1/17)189.00 92190 08/31/17 BACTERIOLOGICAL TESTING (8/1/17)189.00 92196 08/31/17 BACTERIOLOGICAL TESTING (8/8/17)189.00 92197 08/31/17 BACTERIOLOGICAL TESTING (8/9/17)188.00 92201 08/31/17 BACTERIOLOGICAL TESTING (8/30/17)178.00 92194 08/31/17 BACTERIOLOGICAL TESTING (8/8/17)151.00 92199 08/31/17 BACTERIOLOGICAL TESTING (8/21/17)103.00 Page 2 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 2,514.00 152,159.19 3,545.00 4,606.63 8,750.85 92200 08/31/17 BACTERIOLOGICAL TESTING (8/21/17)103.00 92193 08/31/17 BACTERIOLOGICAL TESTING 28.00 92195 08/31/17 BACTERIOLOGICAL TESTING 28.00 2049068 10/11/17 18331 CORE & MAIN LP H686912 09/22/17 METER UPGRADES 143,930.04 H687010 09/20/17 METER UPGRADES - RECYCLE 8,229.15 2049041 10/04/17 05622 CORRPRO COMPANIES INC 454291 09/01/17 COATING INSPECTION (8/1/17-8/31/17)4,504.50 4,504.50 2049120 10/18/17 02612 COUNCIL OF WATER UTILITIES 07182017 07/18/17 BUSINESS MEETING - COWU 50.00 50.00 2049006 09/27/17 00099 COUNTY OF SAN DIEGO DPWAROTAYMWD081709/11/17 EXCAVATION PERMITS (AUG 2017)7,991.20 7,991.20 2049069 10/11/17 00184 COUNTY OF SAN DIEGO 5364081717 08/17/17 UPFP PERMIT RENEWAL (10/31/17-10/31/18)1,460.00 5363081717 08/17/17 UPFP PERMIT RENEWAL (10/31/17-10/31/18)1,147.00 5365081717 08/17/17 UPFP PERMIT RENEWAL (10/31/17-10/31/18)469.00 1354081717 08/17/17 UPFP PERMIT RENEWAL (10/31/17-10/31/18)469.00 2049007 09/27/17 00615 COUNTY OF SAN DIEGO 092517 09/25/17 PLAN CHECK FEE 1,000.00 1,000.00 2049070 10/11/17 02122 COUNTY OF SAN DIEGO 100517 10/05/17 PERMITTED ENGINE REPLACEMENT 1,908.00 1,908.00 2049042 10/04/17 07494 COUNTY OF SAN DIEGO 171850523016A 09/21/17 SEWER SERVICE (2017/2018)2,353.75 171850523130A 09/21/17 SEWER SERVICE (2017/2018)1,681.25 171850523023A1 09/21/17 SEWER SERVICE (2017/2018)403.50 171857936417A 09/21/17 SEWER SERVICE (2017/2018)168.13 2049043 10/04/17 17770 COX BUSINESS 6702092417 09/24/17 TELECOM SVCS / METRO-E (9/24/17-10/23/17)8,242.65 6801091317 09/13/17 TELECOM SVCS / METRO-E (9/12/17-10/11/17)240.72 6701091517 09/15/17 TELECOM SVCS / METRO-E (9/14/17-10/13/17)133.74 9601092417 09/24/17 TELECOM SVCS / METRO-E (9/25/17-10/24/17)133.74 2049121 10/18/17 17770 COX BUSINESS 0301092817 09/28/17 TELECOM SVCS / METRO-E (9/28/17-10/27/17)133.74 133.74 2049071 10/11/17 18367 CRYSTAL NAVARRO Ref002491590 10/05/17 UB Refund Cst #0000212919 5.78 5.78 2049122 10/18/17 18393 CT DREAM REALTY Ref002491669 10/16/17 UB Refund Cst #0000238887 112.95 112.95 2049008 09/27/17 06415 CUMMINS PACIFIC LLC 00365922 08/30/17 REPLACEMENT GENSET 20,884.87 20,884.87 2049044 10/04/17 18329 CURTIS & DEOLINDA HOLMQUIST 092817 09/28/17 SETTLEMENT AGREEMENT/HILLSDALE ROAD 1,784.25 1,784.25 2049045 10/04/17 15898 D & D WILDLIFE HABITAT 54418 09/29/17 VEGETATION CLEARING 5,016.00 5,016.00 2049072 10/11/17 15898 D & D WILDLIFE HABITAT 54421 09/29/17 VEGETATION CLEARING 5,056.00 5,056.00 2049009 09/27/17 17731 DANIEL S HENTSCHKE 08312017 08/31/17 CONSULTANT SERVICES - LEGAL 3,231.25 3,231.25 2049123 10/18/17 18384 DAVID TARWATER Ref002491660 10/16/17 UB Refund Cst #0000230338 37.85 37.85 2049073 10/11/17 03341 DEPARTMENT OF CONSUMER AFFAIRS 2612082617 10/06/17 CPA RENEWAL 120.00 120.00 Page 3 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 17,716.79 1,606.75 20,345.69 2049073 10/11/17 03341 DEPARTMENT OF CONSUMER AFFAIRS 2612082617 10/06/17 CPA RENEWAL 120.00 120.00 2049010 09/27/17 08023 EMPLOYEE BENEFIT SPECIALISTS 0083880IN 08/31/17 EMPLOYEE BENEFITS (AUG 2017)795.00 795.00 2049011 09/27/17 03546 FERGUSON WATERWORKS # 1083 0606878 08/29/17 INVENTORY 350.19 350.19 2049012 09/27/17 17888 FIRST AMERICAN DATA TREE LLC 9003400817 08/31/17 ONLINE DOCUMENTS (MONTHLY)99.00 99.00 2049013 09/27/17 16469 FIRST CHOICE SERVICES 088299 09/07/17 COFFEE SERVICES 914.91 914.91 2049124 10/18/17 16469 FIRST CHOICE SERVICES 086576 08/09/17 COFFEE SERVICES 644.48 644.48 2049125 10/18/17 01535 FLO-SYSTEMS INC F1655017B155 08/24/17 BACKWASH PUMP 14,368.46 14,368.46 2049126 10/18/17 01612 FRANCHISE TAX BOARD Ben2491698 10/19/17 BI-WEEKLY PAYROLL DEDUCTION 100.00 100.00 2049046 10/04/17 01612 FRANCHISE TAX BOARD Ben2491238 10/05/17 BI-WEEKLY PAYROLL DEDUCTION 100.00 100.00 2049127 10/18/17 02344 FRANCHISE TAX BOARD Ben2491700 10/19/17 BI-WEEKLY PAYROLL DEDUCTION 100.00 100.00 2049047 10/04/17 02344 FRANCHISE TAX BOARD Ben2491240 10/05/17 BI-WEEKLY PAYROLL DEDUCTION 100.00 100.00 2049014 09/27/17 17855 GASTELUM, HECTOR 070317073117 09/19/17 MILEAGE REIMBURSEMENT (JULY 2017)126.26 126.26 2049074 10/11/17 03537 GHA TECHNOLOGIES INC 9972593 09/14/17 VERITAS SUPPORT 3,800.50 3,800.50 2049015 09/27/17 18235 GROUPWARE TECHNOLOGY INC 62069 09/07/17 PROFESSIONAL SERVICES 1,060.00 1,060.00 2049016 09/27/17 00174 HACH COMPANY 10611585 08/30/17 ANNUAL EQUIP SERVICE 7,982.00 10611584 08/30/17 LDO-2 INSTALL 5,646.00 10611226 08/29/17 APA6000 HACH 1,392.79 10611222 08/29/17 APA6000 HACH 1,348.00 10611220 08/29/17 APA6000 HACH 1,348.00 2049017 09/27/17 15622 ICF JONES & STOKES INC 0124799 09/11/17 ENVIRONMENTAL SERVICES (7/29/17-8/31/17)980.00 0124801 09/11/17 ENVIRONMENTAL SERVICES (7/29/17-8/25/17)626.75 2049018 09/27/17 17816 INDUSTRIAL SCIENTIFIC CORP 2024230 08/31/17 GAS DETECTION PROGRAM (AUG 2017)704.58 704.58 2049019 09/27/17 08969 INFOSEND INC 125328 08/31/17 BILL PROCESSING SVCS (AUG 2017)11,933.14 125327 08/31/17 BILL PROCESSING SVCS (AUG 2017)6,216.63 125652 09/05/17 BILL PROCESSING SVCS (AUG 2017)2,195.92 2049020 09/27/17 17106 IWG TOWERS ASSETS II LLC 415283 10/01/17 ANTENNA SUBLEASE (OCT 2017)1,673.00 1,673.00 2049128 10/18/17 18378 JAMES RODRIGUEZ Ref002491653 10/16/17 UB Refund Cst #0000051095 42.19 42.19 2049075 10/11/17 18370 JAMES ROSIER Ref002491593 10/05/17 UB Refund Cst #0000231004 14.06 14.06 2049076 10/11/17 18360 JANE HARRIS ROSE Ref002491583 10/05/17 UB Refund Cst #0000040129 179.34 179.34 2049021 09/27/17 10563 JCI JONES CHEMICALS INC 734013 09/08/17 CHLORINE GAS 1,837.80 1,837.80 2049022 09/27/17 18237 JEFFREY OLIVER CONSULTING 528 08/01/17 SOFTWARE LICENSE 5,995.00 5,995.00 Page 4 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 2049022 09/27/17 18237 JEFFREY OLIVER CONSULTING 528 08/01/17 SOFTWARE LICENSE 5,995.00 5,995.00 2049077 10/11/17 18362 JEFFREY YU Ref002491585 10/05/17 UB Refund Cst #0000094383 364.17 364.17 2049129 10/18/17 18382 JOHN MORREN Ref002491658 10/16/17 UB Refund Cst #0000217237 49.32 49.32 2049078 10/11/17 18369 KAITLYN PATTERSON Ref002491592 10/05/17 UB Refund Cst #0000230621 37.54 37.54 2049130 10/18/17 18381 KARL ALVRIGHT Ref002491657 10/16/17 UB Refund Cst #0000214825 75.00 75.00 2049131 10/18/17 18379 KUTA LIVING TRUST Ref002491654 10/16/17 UB Refund Cst #0000147850 153.92 153.92 2049079 10/11/17 18364 LAUREN ROBLES Ref002491587 10/05/17 UB Refund Cst #0000195888 27.40 27.40 2049080 10/11/17 07784 LICON, HECTOR 09302017 10/10/17 PRESCRIPTION GLASSES 655.00 655.00 2049132 10/18/17 17969 LONDON MOEDER ADVISORS 1413 09/29/17 CONSULTANT SERVICES 1,575.00 1,575.00 2049081 10/11/17 07591 MA, DONGXING 070816083016 06/19/17 RE-ISSUANCE OF CHECK 126.00 126.00 2049133 10/18/17 18390 MARK FLETCHER Ref002491666 10/16/17 UB Refund Cst #0000232969 48.02 48.02 2049082 10/11/17 18371 MAYNARD SMITH Ref002491594 10/05/17 UB Refund Cst #0000231628 75.00 75.00 2049134 10/18/17 18385 MERCER PROPERTY Ref002491661 10/16/17 UB Refund Cst #0000230648 20.92 20.92 2049023 09/27/17 16608 MICHAEL BAKER INT'L INC 989172 09/01/17 870-2 PS INSPECTION SVCS (ENDING 7/30/17)2,565.00 2,565.00 2049083 10/11/17 18361 MICHAEL HECKMAN Ref002491584 10/05/17 UB Refund Cst #0000042611 88.08 88.08 2049084 10/11/17 18365 MICHAEL VERA Ref002491588 10/05/17 UB Refund Cst #0000204108 22.07 22.07 2049135 10/18/17 16613 MISSION RESOURCE CONSERVATION 37901 08/09/17 WATERSMART SERVICES (JULY 2017)93.75 93.75 2049085 10/11/17 02371 MOODY'S INVESTORS SERVICE C2007480-000 09/15/17 ANNUAL FEE 96 COPS 5,500.00 5,500.00 2049086 10/11/17 17818 MUFG SECURITIES AMERICAS INC 1003170015 10/10/17 REMARKETING FEE (7/1/17-9/30/17)1,860.16 1,860.16 2049136 10/18/17 16255 NATIONWIDE RETIREMENT Ben2491688 10/19/17 BI-WEEKLY DEFERRED COMP PLAN 10,232.20 10,232.20 2049048 10/04/17 16255 NATIONWIDE RETIREMENT Ben2491228 10/05/17 BI-WEEKLY DEFERRED COMP PLAN 10,232.20 10,232.20 2049137 10/18/17 18064 NYHART 0133649 09/30/17 ACTUARIAL SERVICES (SEPT 2017)2,791.00 2,791.00 2049087 10/11/17 18368 OCTAVIO BELLO Ref002491591 10/05/17 UB Refund Cst #0000215482 24.56 24.56 2049024 09/27/17 01002 PACIFIC PIPELINE SUPPLY INC 316538 09/08/17 INVENTORY 600.45 600.45 2049049 10/04/17 18240 PACKET FUSION INC JC10320 08/17/17 OUTSIDE SERVICES 1,500.00 1,500.00 2049088 10/11/17 18240 PACKET FUSION INC JC10368 09/25/17 OUTSIDE SERVICES 500.00 500.00 2049138 10/18/17 18389 PATHLIGHT PROPERTY MANAGEMRNT Ref002491665 10/16/17 UB Refund Cst #0000232313 12.33 12.33 2049050 10/04/17 15948 PICA PIPELINE INSPECTION AND 188 08/31/17 INSP/CONDITION ASSESSMENT (7/1/17-8/31/17)5,900.00 5,900.00 2049025 09/27/17 15081 PINOMAKI DESIGN 5581 09/01/17 GRAPHIC DESIGN 255.00 255.00 Page 5 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 8,434.69 26,940.38 1,539.00 116,633.88 136,972.32 2049025 09/27/17 15081 PINOMAKI DESIGN 5581 09/01/17 GRAPHIC DESIGN 255.00 255.00 2049089 10/11/17 01715 PORRAS, PEDRO 102317102617a 08/24/17 MEAL ADVANCEMENT (10/23/17-10/26/17)220.00 220.00 2049090 10/11/17 03613 PSOMAS 133613 09/18/17 DESIGN SERVICES (ENDING 8/24/17)16,072.51 16,072.51 2049091 10/11/17 14776 RALPH ANDERSEN & ASSOCIATES INV00913 09/21/17 COMP & BENEFITS STUDY (THRU AUG 2017)1,500.00 1,500.00 2049092 10/11/17 18374 RHONDA SPANN Ref002491597 10/05/17 UB Refund Cst #0000233475 24.57 24.57 2049026 09/27/17 08972 RICK ENGINEERING COMPANY 0056686 08/24/17 TRAFFIC ENGINEERING SVCS (7/1/17-7/28/17)5,121.20 0056809 09/05/17 CAMPO ROAD SUPP SVCS (7/1/17-7/28/17)3,313.49 2049093 10/11/17 08972 RICK ENGINEERING COMPANY 17829D4 09/15/17 DESIGN SERVICES (7/29/17-8/25/17)13,184.46 0056868 09/14/17 TRAFFIC ENGINEERING SVCS (7/29/17-8/25/17)7,923.66 0056844 09/14/17 CAMPO ROAD SUPP SVCS (7/29/17-8/25/17)5,832.26 2049027 09/27/17 00521 RICK POST WELD & WET TAPPING 11594 08/29/17 WELD REPAIR 1,808.13 1,808.13 2049094 10/11/17 00521 RICK POST WELD & WET TAPPING 11600 09/19/17 WELD REPAIR 1,000.00 1,000.00 2049095 10/11/17 04542 ROBAK, MARK 090117093017 10/06/17 MILEAGE REIMBURSEMENT (SEPT 2017)114.49 114.49 2049139 10/18/17 18380 ROBERT DOYLE Ref002491655 10/16/17 UB Refund Cst #0000193432 30.91 30.91 2049096 10/11/17 18375 RONALD L SANTINI 8610100617 10/06/17 CUSTOMER REFUND 235.70 235.70 2049051 10/04/17 02620 ROTORK CONTROLS INC CI14586 07/20/17 ACTUATOR FOR 624 7,677.31 7,677.31 2049097 10/11/17 18372 SALAM ALAQBI Ref002491595 10/05/17 UB Refund Cst #0000232268 53.66 53.66 2049052 10/04/17 17714 SALMERON, EILEEN 081017100217 10/04/17 TRAVEL/MILEAGE EXP REIMB (8/10/17-10/2/17)139.26 139.26 2049098 10/11/17 00003 SAN DIEGO COUNTY WATER AUTH 0000001582 09/15/17 WATERSMART PROGRAM 789.00 0000001576 09/15/17 WATERSMART PROGRAM (JULY 2017)750.00 2049028 09/27/17 00121 SAN DIEGO GAS & ELECTRIC 091917 09/19/17 UTILITY EXPENSES (MONTHLY)48,120.87 48,120.87 2049053 10/04/17 00121 SAN DIEGO GAS & ELECTRIC 092617 09/26/17 UTILITY EXPENSES (MONTHLY)84,079.48 092517 09/25/17 UTILITY EXPENSES (MONTHLY)31,681.25 092117 09/21/17 UTILITY EXPENSES (MONTHLY)873.15 2049140 10/18/17 00121 SAN DIEGO GAS & ELECTRIC 100317 10/03/17 UTILITY EXPENSES (MONTHLY)101,279.24 092417 09/24/17 UTILITY EXPENSES (MONTHLY)31,285.96 100217 10/02/17 UTILITY EXPENSES (MONTHLY)4,407.12 2049141 10/18/17 18394 SCRIPPS HEALTH 3503101617 10/16/17 CUSTOMER REFUND 2,092.38 2,092.38 2049059 10/04/17 00429 SECRETARY OF STATE 10022017 10/03/17 OTHER AGENCY FEES 10.50 10.50 2049099 10/11/17 18363 SONIA GANDARA Ref002491586 10/05/17 UB Refund Cst #0000177842 26.57 26.57 2049100 10/11/17 17567 SOUTHLAND PIPE CORP 87826 09/19/17 BUTT STRAPS 2,747.63 2,747.63 Page 6 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 9,901.57 5,000.00 572.45 162,413.79 266.50 2049029 09/27/17 03516 SPECIAL DISTRICT RISK 1091083117 09/18/17 WORKERS COMPENSATION 9,873.72 61677 09/06/17 PROPERTY & LIABILITY INS (PRORATED)27.85 2049142 10/18/17 15974 SUN LIFE FINANCIAL Ben2491686 10/19/17 MONTHLY CONTRIBUTION TO LTD 5,153.47 5,153.47 2049101 10/11/17 06841 SUPERIOR ENVIRONMENTAL 1709027 09/18/17 OUTSIDE SERVICES (9/13/17)625.00 625.00 2049102 10/11/17 18376 SVPR COMMUNICATIONS 1176 07/01/17 COMMUNICATIONS CONSULTANT (JULY 2017)2,500.00 1180 08/01/17 COMMUNICATIONS CONSULTANT (AUG 2017)2,500.00 2049143 10/18/17 18376 SVPR COMMUNICATIONS 1186 09/01/17 COMMUNICATION CONSULTANT (SEPT 2017)2,500.00 2,500.00 2049103 10/11/17 17704 T&T JANITORIAL INC 20114078 08/31/17 JANITORIAL SERVICES (AUG 2017)4,780.00 4,780.00 2049144 10/18/17 15712 THOMAS WATKINS 3134101017 10/12/17 CUSTOMER REFUND 696.49 696.49 2049104 10/11/17 14177 THOMPSON, MITCHELL 090117093017 09/28/17 MILEAGE REIMBURSEMENT (SEPT 2017)43.34 43.34 2049145 10/18/17 18391 TIM GARCIA Ref002491667 10/16/17 UB Refund Cst #0000232989 75.00 75.00 2049146 10/18/17 02641 TRANE US INC 719540 10/02/17 BUILDING AUTOMATION SYSTEM 1,710.00 1,710.00 2049054 10/04/17 18014 U S CAD INC INV32637 08/31/17 CONSULTING SERVICES (8/22/17-8/29/17)5,400.00 5,400.00 2049030 09/27/17 00427 UNDERGROUND SERVICE ALERT OF 820170496 09/01/17 UNDERGROUND ALERTS (MONTHLY)676.60 676.60 2049031 09/27/17 15675 UNITED SITE SERVICES INC 42630 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)97.37 42625 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)79.18 42631 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)79.18 42626 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)79.18 42627 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)79.18 42628 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)79.18 2049056 10/04/17 07674 US BANK CC20170922237 09/22/17 CAL CARD EXPENSES (MONTHLY)162,413.79 42629 08/29/17 PORT. TOILET RENTAL (8/29/17-9/25/17)79.18 2049060 10/04/17 07674 US BANK CC20170922241 09/22/17 CAL CARD EXPENSES (MONTHLY)140.00 CC20170922157 09/22/17 CAL CARD EXPENSES (MONTHLY)126.50 2049147 10/18/17 15637 VALDEZ FAMILY SURVIVORS TRUST Ref002491656 10/16/17 UB Refund Cst #0000206134 13.42 13.42 2049032 09/27/17 08028 VALLEY CONSTRUCTION MANAGEMENT SD177603 09/01/17 MGMT/INSP (8/1/17-8/31/17)14,420.00 14,420.00 2049057 10/04/17 01095 VANTAGEPOINT TRANSFER AGENTS Ben2491234 10/05/17 BI-WEEKLY DEFERRED COMP PLAN 13,648.96 13,648.96 2049148 10/18/17 01095 VANTAGEPOINT TRANSFER AGENTS Ben2491694 10/19/17 BI-WEEKLY DEFERRED COMP PLAN 13,655.43 13,655.43 2049058 10/04/17 06414 VANTAGEPOINT TRANSFER AGENTS Ben2491236 10/05/17 BI-WEEKLY 401A PLAN 879.27 879.27 2049149 10/18/17 06414 VANTAGEPOINT TRANSFER AGENTS Ben2491696 10/19/17 BI-WEEKLY 401A PLAN 879.27 879.27 2049105 10/11/17 10340 WAGEWORKS INC INV317528 09/25/17 FLEXIBLE SPENDING ACCT 386.00 386.00 Page 7 of 8 Check Total CHECK REGISTER Otay Water District Date Range: 9/21/2017 - 10/18/2017 Check #Date Vendor Vendor Name Invoice Inv. Date Description Amount 500.00 2049105 10/11/17 10340 WAGEWORKS INC INV317528 09/25/17 FLEXIBLE SPENDING ACCT 386.00 386.00 2049033 09/27/17 15807 WATCHLIGHT CORPORATION 541002 09/15/17 ALARM MONITORING (OCT 2017)1,881.92 1,881.92 2049106 10/11/17 15807 WATCHLIGHT CORPORATION 3912091817 09/18/17 ALARM EQUIPMENT 3,602.30 3,602.30 2049107 10/11/17 14879 WATER CONSERVATION GARDEN 1190 09/12/17 GARDEN COSTS (2ND QTR FY2018)24,112.50 24,112.50 2049034 09/27/17 15726 WATER SYSTEMS CONSULTING INC 2699 08/31/17 HYDRAULIC MODELING (ENDING 8/31/17)3,245.00 3,245.00 2049035 09/27/17 03781 WATTON, MARK 071117073117 09/21/17 MILEAGE REIMBURSEMENT (7/11/17-7/31/17)101.12 101.12 2049036 09/27/17 01343 WE GOT YA PEST CONTROL INC 116560 08/28/17 BEE REMOVAL 125.00 116166 08/12/17 BEE REMOVAL 125.00 116005 08/08/17 BEE REMOVAL 125.00 116146 08/11/17 BEE REMOVAL 125.00 2049108 10/11/17 18173 WESTERN ALLIANCE BANK 208312017 09/18/17 RETENTION/WEIR CONST (8/1/17-8/31/17)4,956.00 4,956.00 2049037 09/27/17 18326 WG CONSTRUCTION INC 567 09/05/17 SITE WORK @ 832-1 7,711.25 7,711.25 2049109 10/11/17 18101 WIER CONSTRUCTION CORP 208312017 09/18/17 SEWER REPLACEMENT (8/1/17-8/31/17)94,164.00 94,164.00 2049150 10/18/17 18377 WILLIE GLOBE Ref002491652 10/16/17 UB Refund Cst #0000029599 42.79 42.79 Amount Pd Total:1,379,116.44 Check Grand Total:1,379,116.44 Page 8 of 8