HomeMy WebLinkAbout10-17-17 FA&C Committee Packet 1
OTAY WATER DISTRICT
FINANCE, ADMINISTRATION AND COMMUNICATIONS
COMMITTEE MEETING
and
SPECIAL MEETING OF THE BOARD OF DIRECTORS
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY, CALIFORNIA
BOARDROOM
TUESDAY
October 17, 2017
12:00 P.M.
This is a District Committee meeting. This meeting is being posted as a special meeting
in order to comply with the Brown Act (Government Code Section §54954.2) in the event that
a quorum of the Board is present. Items will be deliberated, however, no formal board actions
will be taken at this meeting. The committee makes recommendations
to the full board for its consideration and formal action.
AGENDA
1. ROLL CALL
2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO
SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU-
RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3. APPROVE A TWO-YEAR AGREEMENT WITH SUNLIFE TO PROVIDE LIFE,
ACCIDENTAL DEATH AND DISMEMBERMENT, AND VOLUNTARY LIFE
INSURANCE COVERAGE FROM JANUARY 1, 2018 THROUGH DECEMBER 31,
2019 (WILLIAMSON) [5 minutes]
4. APPROVE THE AUDITED FINANCIAL STATEMENTS, INCLUDING THE
INDEPENDENT AUDITORS’ UNQUALIFIED OPINION, FOR FISCAL YEAR ENDED
JUNE 30, 2017 (DYCHITAN) [5 minutes]
5. REVIEW OF THE ACTUARIAL REPORT AND NET COST OF THE ENHANCEMENT
OF THE RETIREE HEALTHCARE BENEFITS (BELL) [5 minutes]
6. ADJOURNMENT
BOARD MEMBERS ATTENDING:
Mark Robak, Chair
Mitch Thompson
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All items appearing on this agenda, whether or not expressly listed for action, may be delib-
erated and may be subject to action by the Board.
The Agenda, and any attachments containing written information, are available at the Dis-
trict’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 par-
ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior
to the meeting.
Certification of Posting
I certify that on October 13, 2017 I posted a copy of the foregoing agenda near the
regular meeting place of the Board of Directors of Otay Water District, said time being at least
24 hours in advance of the meeting of the Board of Directors (Government Code Section
§54954.2).
Executed at Spring Valley, California on October 13, 2017.
/s/ Susan Cruz, District Secretary
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 and Administration Committee met on October 17, 2017 to
review this item. The Committee supported presentation to the full
Board.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
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:
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 recommend
that the Board approve the District’s audited financial statements,
including the Independent Auditor’s unqualified opinion, for the
fiscal year ended June 30, 2017.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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,
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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
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:
This is an informational item.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
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
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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.
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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)
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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.
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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.
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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%
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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
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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%)
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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
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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:
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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
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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.
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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%
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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%
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.]
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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.
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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
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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.
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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.
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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).
October 17, 2017
Otay Water District
June 30, 2017 Updated
OPEB Actuarial Valuation
Retiree Health Program &
Contribution Study
1
Purpose of June 30, 2017 OPEB Valuation
•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
•Updated Funding Valuation
•Develop actuarially determined contribution (ADC) for prefunding;
ADC can look like the 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%
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
•Implied subsidy as non-Medicare premiums based on pool of actives and non-Medicare retirees
3
Implied Subsidy Defined
•Exists when non-Medicare retirees & actives pooled together for Medical coverage
•Retiree Cost > Pooled Groups Average Cost
•Implied Rate Subsidy = Expected Retiree Cost less Average Cost (Premium)
•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
Explicit (Cash)
Contribution
Implied
Subsidy
Projected Direct
Contributions
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
: : : :
: : : :
All Years $184,830,000 $7,106,000 $191,936,000
* Net of any required retiree contributions for coverage
7
Valuation Results at June 30, 2017
•Projected District Direct
Contributions = $191.9M
•Present Value = $33.7M
•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
•$1,065,019 in 2018/19
$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)
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Projected Total District Contributions*
Fiscal
Year
Recommended
ADC
Cash
Payments
Implied
Subsidy
Trust
Reimbursement
Total District
Contribution
Funded
%
2017/18 $1,116,418 $ 950,980 $147,796 $ 0 $2,215,194 83%
2018/19 $1,065,019 $ 980,808 $160,536 $ 0 $2,206,363 89%
2019/20 $1,011,358 $1,015,999 $139,619 $ 0 $2,166,976 93%
2020/21 $ 955,017 $1,062,982 $137,914 ($ 492,316) $1,663,597 97%
2021/22 $ 885,945 $1,112,252 $131,618 ($1,243,870) $ 885,945 100%
2022/23 $ 912,524 $1,176,212 $132,869 ($1,309,081) $ 912,524 100%
2023/24 $ 939,899 $1,241,079 $143,208 ($1,384,287) $ 939,899 100%
2024/25 $ 968,096 $1,332,428 $162,510 ($1,494,938) $ 968,096 100%
2025/26 $ 997,139 $1,420,476 $163,672 ($1,584,148) $ 997,139 100%
2026/27 $1,027,054 $1,544,437 $193,365 ($1,737,802) $1,027,054 100%
* Excludes impact of OPEB employee contributions
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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
•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)
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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%
Questions
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