HomeMy WebLinkAbout10-22-13 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 22, 2013
11:30 A.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 JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3. APPROVE THE DISTRICT’S AUDITED FINANCIAL STATEMENTS,
INCLUDING THE INDEPENDENT AUDITORS’ UNQUALIFIED OPINION, FOR
THE FISCAL YEAR ENDED JUNE 30, 2013 (KOEPPEN) [5 minutes]
4. ADOPT RESOLUTION NOs. 4219 AND 4220, TO INITIATE THE PROCESS
FOR THE EXCLUSION OF PARCELS WITHIN IMPROVEMENT DISTRICTS
(IDs) 19 AND 25; AND ADOPT RESOLUTION NOs. 4221 and 4222 TO
INITIATE THE PROCESS FOR THE ANNEXATION OF THE EXCLUDED
PARCELS IN IDs 19 AND 25 INTO IDs 22 AND 20 RESPECTIVELY (BELL) [5
minutes]
5. APPROVE THE ISSUANCE OF A PURCHASE ORDER TO INLAND
KENWORTH IN THE AMOUNT OF $175,876.30 FOR THE PURCHASE OF
ONE (1) NEW KENWORTH UTILITY CREW TRUCK AND DECLARE UNIT NO.
111 UTILITY CREW TRUCK SURPLUS (MARTINEZ) [5 minutes]
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6. DECLARE A 2.41-ACRE PARCEL LOCATED ON SWEETWATER SPRINGS
BOULEVARD (APN: 505-230-51-00) AS SURPLUS AND AUTHORIZE THE
DISPOSAL OF THE DECLARED PROPERTY IN ACCORDANCE WITH
APPLICABLE STATUTES AND LAWS IN THE BEST INTEREST OF THE
DISTRICT (DOBRAWA) [5 minutes]
7. APPROVE AN AGREEMENT WITH THE LAW FIRM OF STUTZ, ARTIANO,
SHINOFF AND HOLTZ, A PROFESSIONAL CORPORATION, FOR A TERM OF
TWO (2) YEARS THROUGH DECEMBER 31, 2015 TO PROVIDE GENERAL
COUNSEL SERVICES TO THE DISTRICT (WATTON) [5 minutes]
8. REPORT ON THE FINDINGS OF THE LATEST ACTUARIAL VALUATION
PERFORMED AS OF JUNE 30, 2013; AND 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 (KOEPPEN) [10
minutes]
RECESS TO CLOSED SESSION
9. CLOSED SESSION
a) CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION
[GOVERNMENT CODE §54956.9]
1. CASE
RETURN TO OPEN SESSION
10. ADJOURNMENT
BOARD MEMBERS ATTENDING:
Mitch Thompson, Chair
Jose Lopez
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All items appearing on this agenda, whether or not expressly listed for action, may be
deliberated and may be subject to action by the Board.
The Agenda, and any attachments containing written information, are available at the
District’s website at www.otaywater.gov. Written changes to any items to be considered
at the open meeting, or to any attachments, will be posted on the District’s website.
Copies of the Agenda and all attachments are also available through the District Secre-
tary by contacting her at (619) 670-2280.
If you have any disability which would require accommodation in order to enable you to
participate 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 18, 2013 I posted a copy of the foregoing agenda near
the regular meeting place of the Board of Directors of Otay Water District, said time be-
ing 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 18, 2013.
______/s/_ Susan Cruz, District Secretary _____
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 6, 2013
SUBMITTED BY:
Kevin Koeppen,
Finance Manager
PROJECT: DIV. NO. All
APPROVED BY:
Joseph R. Beachem, Chief Financial Officer
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: Approve the District’s Audited Financial Statements for the
Fiscal Year Ended June 30, 2013
GENERAL MANAGER’S RECOMMENDATION:
That the Board approve the District’s Audited Financial Statements
(Attachment B), including the Independent Auditors’ unqualified
opinion, for the fiscal year ended June 30, 2013.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To inform the Board of the significant financial events which
occurred during the fiscal year ended June 30, 2013 as reflected in
the audited financial statements.
ANALYSIS:
White Nelson Diehl Evans, LLP, performed the audit and found that, in
all material respects, the financial statements correctly represent
the financial position of the District. They found no material
errors in the financial records or statements (Attachment D). They
have two comments concerning internal controls, which are presented
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in their “Management Letter” (Attachment C). One of the Management
Letter comments is also reiterated in the “Agreed Upon Procedures”
report (Attachment E).
Total Assets:
Total assets decreased by $8.4 million or 1.42% during Fiscal Year
2013, to $582.3 million, due primarily to depreciation and the write-
off of CIP project expenditures that did not qualify as capital or
improvements to infrastructure. Other significant factors were the
annual payment of long-term debt and implementation of GASB 65.
Deferred Outflows:
In June 2013, the District issued $7.7 million of 2013 Water Revenue
Refunding Bonds for an advanced refunding of its 2004 Certificates of
Participation, which will be called on September 1, 2014. Excluding
costs of issuance, the District received $8.5 million in proceeds,
including a $1.0 million premium to fund the $8.1 million of
outstanding principal and $.4 million of remaining interest payments.
In accordance with GASB Nos. 23 and 65, the remaining interest
payments of $.4 million are reflected as a deferred outflow of
resources on the Statement of Net Position.
Total Liabilities & Net Positions:
Total liabilities decreased by approximately $2.1 million or 1.51%
from the previous fiscal year, to $134.5 million. This is
attributable to a decrease in long-term debt of $3.0 million.
The decrease in total assets of $8.4 million and increase in deferred
outflow of resources of $.4 million, along with the decrease in total
liabilities of $2.1 million, yields a decrease in net positions
(equity) of $5.9 million or 1.30%, to $448.2 million.
Capital Contributions:
Capital contributions for the year totaled $2.8 million during Fiscal
Year 2013, a decrease of $4.0 million or 59.34% from Fiscal Year 2012
contributions. This decrease is mainly due to the developers
slowdown on many projects. The decrease is also due to the reduction
in federal grant monies received.
Results of Operations:
Operating revenues increased $8.4 million or 12.40%, mainly as a
result of the overall increase in water rates from the prior fiscal
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year and increases in units sold due to drier weather and higher
temperatures.
Cost of water sales increased $4.5 million or 9.80% due to the
increase in CWA water costs. The additional increase of $2.0 million
is due to increases in depreciation and general and administrative
expense.
Non-Operating Revenues & Expenses:
Non-operating revenues decreased $0.5 million or 5.27%, to $8.6
million for FY-2013. The decrease was primarily a result of
decreased miscellaneous and investment income.
Additional Audit Correspondence:
As a part of completing the audit engagement, the audit firm also
provides 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. The auditors did identify two
significant deficiencies. A significant deficiency is not
considered a material weakness, yet important enough to merit
attention by those charged with governance. See Attachment C.
Audit Committee Letter: This letter describes overall aspects
of the audit, to include 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, disclosed one exception to compliance with the
District’s Investment Policy. See Attachment E.
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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, 2013
COMMITTEE ACTION:
The Finance, Administration, and Communications Committee recommend
that the Board accept the District’s audited financial statements,
including the Independent Auditor’s unqualified opinion, for the
fiscal year ended June 30, 2013.
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, 2013 AND 2012
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TABLE OF CONTENTS
JUNE 30, 2013 and 2012
Page
Number
Independent Auditors’ Report 1 - 3
Management’s Discussion and Analysis (Required Supplementary Information) 4 - 11
Basic Financial Statements:
Statements of Net Position 12 - 13
Statements of Revenues, Expenses and Changes in Net Position 14
Statements of Cash Flows 15 - 16
Notes to Financial Statements 17 – 43
Required Supplementary Information:
Schedule of Funding Progress for PERS 44
Schedule of Funding Progress for DPHP 44
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2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
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 Otay Water District as of and for the years ended
June 30, 2013 and 2012, 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits in accordance with auditing standards generally accepted in the United States of America, 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 audits to obtain reasonable assurance about whether the financial
statements are free of 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 auditors’ 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 auditors consider 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.
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Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective
financial position of the Otay Water District as of June 30, 2013 and 2012, 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.
Emphasis of Matters
As discussed in Note 1 to the basic financial statements, the District incorporated deferred outflows of resources
and deferred inflows of resources into the definitions of the required components of the residual measure of net
position due to the adoption of Governmental Accounting Standards Board’s Statement No. 63, “Financial
Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position”. The adoption
of this standard also provides a new statement of net position format to report all assets, deferred outflows of
resources, liabilities, deferred inflows of resources, and net position. Our opinion is not modified with respect to
this matter.
As discussed in Note 1 to the basic financial statements, the District has changed its method for accounting and
reporting certain items previously reported as assets or liabilities during fiscal years 2012 and 2013 due to the
adoption of Governmental Accounting Standards Board’s Statement No. 65, “Items Previously Reported as
Assets and Liabilities”. The adoption of this standard required retrospective application resulting in a
$2,252,393 and $2,406,704 reduction of previously reported net position as of July 1, 2012 and 2011,
respectively. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, PERS Defined Benefit Pension Plan – schedule of funding progress, and Other Post-
Employment Benefit Plan – schedule of funding progress on pages 4- 11 and 44 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.
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Other Matters
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated October XX,
2013, 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.
October XX, 2013
Carlsbad, California
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Management’s Discussion and Analysis
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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, 2013. 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.
Financial Highlights
The assets of the District exceeded its liabilities at the close of the most recent fiscal year by $448.2 million
(net position). Of this amount, $67.1 million (unrestricted net position) may be used to meet the District’s
ongoing obligations to citizens and creditors.
Total assets decreased by $8.4 million or 1.42% during Fiscal Year 2013, to $582.3 million, due primarily to
depreciation and the write-off of CIP projects that were no longer viable as a part of the District’s long range
plans for growth and improvements to infrastructure. Other significant factors were the annual payment of
long-term debt, implementation of GASB 65 and a reduction in grant funds received.
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) Statement of Net Position, 2) Statement of
Revenues, Expenses and Changes in Net Position, 3) Statement 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 Statement 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 Statement 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 Statement 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.
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Management’s Discussion and Analysis
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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 outflow of resources exceeded liabilities and deferred inflows of
resources by $448.2 million at the close of the most recent fiscal year.
By far the largest portion of the District’s net position, $376.5 million (84%), 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.
Statements of Net Position
(In Millions of Dollars)
2013 2012 2011
Assets
Current and Other Assets $ 106.3 $ 109.9 $ 122.5
Capital Assets 476.0 480.8 474.4
Total Assets 582.3 590.7 596.9
Deferred Outflows of Resources
Deferred amount on refunding 0.4 0.0 0.0
Total Deferred Outflows of Resources 0.4 0.0 0.0
Liabilities
Long-Term Debt Outstanding 109.0 112.0 115.3
Other Liabilities 25.5 24.6 24.4
Total Liabilities 134.5 136.6 139.7
Net Position
Invested in Capital Assets 376.5 381.7 377.7
Restricted for Debt Service 4.6 4.7 4.9
Unrestricted 67.1 67.7 74.6
Total Net position $ 448.2 $ 454.1 $ 457.2
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Management’s Discussion and Analysis
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While the District’s operations and population continue to grow, albeit at slower rates than in prior years,
the pattern of reduced growth of the District’s Net Position is indicative of the reduction in new
development projects within the District. This reduction is a result of the ongoing national housing slump
and financial crisis.
In FY-2013 the District continued its use of the $51.2 million of proceeds from the issuance of its 2010 Water
Revenue Bonds program (See Note 4 in the Notes to Financial Statements) for its CIP program (See Note
3 in the Notes to Financial Statements), as seen by the decrease in Current and Other Assets of $3.6
million, which was partially offset by a corresponding increase in Capital Assets of $11.6 million before
accumulated depreciation. The District also saw a decrease in Long-Term Debt of $3.0 million due to the
annual payments of long-term debt and the advance refunding of its 2004 Certificates of Participation.
In response to the prolonged business slowdown, during FY-2011 the District performed a review of Fixed
Assets throughout the system and wrote off $2.9 million of fully depreciated Property, Plant & Equipment
that was no longer serviceable or functioning efficiently. Additionally, an analysis of several Construction-
in-Progress projects such as the Otay Mesa Desalination and Disinfection System, Rancho Del Rey
Groundwater Well Development and San Miguel Habitat Management/Mitigation Area and determined
that some charges do not qualify as capitalizable cost. This resulted in FY-2012 expenses of $1.3 million
and FY-2013 expenses of $1.6 million.
For the entire financial reporting period, Fiscal Years 2013 and 2012, Total Net Position decreased
approximately $5.9 million for FY-2013, to $448.2 million, as compared to FY-2012 when Net Position
decreased by $3.1 million. At the end of FY-2013 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.
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Management’s Discussion and Analysis
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Statements of Revenues, Expenses, and Changes in Net Position
(In Millions of Dollars)
2013 2012 2011
Water Sales $ 72.2 $ 63.8 $ 58.3
Wastewater Revenue 2.6 2.4 2.4
Connection and Other Fees 2.1 2.2 2.5
Non-operating Revenues 8.6 9.1 8.8
Total Revenues 85.5 77.5 72.0
Depreciation Expense 16.5 15.2 13.9
Other Operating Expense 71.7 66.5 63.4
Non-operating Expense 6.0 5.7 4.1
Total Expenses 94.2 87.4 81.4
Loss Before Capital
Contributions (8.7) (9.9) (9.4)
Capital Contributions 2.8 6.8 7.9
Change in Net Position
Prior Period Adjustment
(5.9) (3.1) (1.5)
(2.6)
Beginning Net Position 454.1 457.2 461.3
Ending Net Position $ 448.2 $ 454.1 $ 457.2
Water Sales increased by $5.5 million in FY-2012 and $8.4 million in FY-2013, mainly due to rate increases
in both years and increased in units sold in FY13 due to drier weather and higher temperatures. The
slowdown in District growth, as a result of the economic crisis, appears to have leveled off as the annual
decreases in Connection and Other Fees eased from $0.3 million in FY-2012 to $0.1 million in FY-2013.
Other Operating Expense increased predominantly due to the increase in Cost of Water Sales, from a
combination of the increased price-per-acre-foot of water obtained from Los Angeles Metropolitan Water
District of 7.5%, and 9.1% from San Diego County Water Authority, brought on by the high cost of supply
programs as well as higher energy and operating costs.
The slowdown in the economy appears to have leveled off. However, due to the nationwide housing
mortgage crisis throughout the last several years, developers have either slowed-down or totally stopped
work on many projects until economic conditions improve and the demand for growth returns. This has
resulted in Capital Contributions remaining low over the last 3-years, compared to the extended growth of
the previous 10-years. While this slowdown now appears to have stabilized, the District was aided in its
Capital Contributions through the receipt of additional federal grant monies of $935,000 in FY-2012, and
$184,000 in FY-2013.
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Management’s Discussion and Analysis
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Non-operating Revenues
Non-operating Revenues by Major Source
(In Millions of Dollars)
2013 2012 2011
Taxes and assessments $ 3.5 $ 3.5 $ 3.9
Rents and leases 1.3 1.2 1.2
Other Non-operating Revenue 3.8 4.4 3.7
Total Non-operating Revenues 8.6 9.1 8.8
The District’s non-operating revenues increased by $0.3 million in FY-2012 and decreased by $0.5 million
in FY-2013. The decrease in FY-2013 was primarily a result of decreased miscellaneous and investment
income.
Prior Period Adjustment
In March 2012 the Governmental Accounting Standards Board (GASB) issued statement No. 65,
“Items Previously Reported as Assets and Liabilities”, effective for periods beginning after December 15,
2012. The District implemented this standard in fiscal year 2013. The result of the implementation of this
standard was to decrease the net position at July 1, 2012 and July 1, 2011 by $2.2 million and $2.4 million,
respectively, which is the amount of unamortized debt issuance costs at July 1, 2012 and July 1, 2011.
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Management’s Discussion and Analysis
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Capital Assets and Debt Administration
The District’s capital assets (net of accumulated depreciation) as of June 30, 2013, totaled $476 million.
Included in this amount is land. The District’s capital assets decreased by 1.0% for FY-2013 and
increased by 1.4% in FY-2012.
Capital Assets
(In Millions of Dollars)
2013 2012 2011
Land $ 13.7 $ 13.7 $ 13.6
Construction in Progress 17.1 17.5 17.9
Water System 458.8 452.1 441.9
Recycled Water System 108.9 108.0 98.3
Sewer System 41.2 37.8 37.7
Field Equipment 8.9 8.6 9.8
Buildings 18.8 18.6 18.5
Transportation Equipment 3.5 3.2 3.2
Communication Equipment 2.6 2.5 2.4
Office Equipment 17.3 17.2 17.3
690.8 679.2 660.6
Less Accumulated
Depreciation (214.8) (198.4) (186.2)
Net Capital Assets $ 476.0 $ 480.8 $ 474.4
As indicated by figures in the table above, the majority of capital assets added during both fiscal years
were related to the potable and recycled water systems. In addition, the majority of the cost of
construction-in-progress is also related to these water systems. Additional information on the District’s
capital assets can be found in Note 3 of the Notes to Financial Statements.
At June 30, 2013, the District had $109 million in outstanding long-term debt (net of $3.5 million of
maturities occurring in FY-2014), which consisted of the following:
General Obligation Bonds $ 5.8
Certificates of Participation 46.5
Revenue Bonds 56.7
Total Long-Term Debt $ 109.0
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Management’s Discussion and Analysis
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In June 2013, the District issued $7.7 million of 2013 Water Revenue Refunding Bonds for an advance
refunding of its 2004 Certificates of Participation, which will be called on September 1, 2014. Excluding
costs of issuance the District received $8.5 million in proceeds, including a $1.0 million premium, to fund
the $8.1 million of outstanding principal and $.4 million of remaining interest payments. In accordance
with GASB Nos. 23 and 65, the remaining interest payments of $.4 million are reflected as a deferred
outflow of resources on the Statement of Net Position.
Additional information on the District’s long-term debt can be found in Note 4 of the Notes to Financial
Statements.
Fiscal Year 2013-2014 Budget
Economic Factors
Growth in the San Diego area has declined over the last 4 years, but is now slowly improving. This
modest shift is also being reflected in the demand for housing. Although San Diego received less than
normal rainfall in Fiscal Year 2013, the District is expecting that San Diego’s rainfall will return to its
average pattern and volume in the coming years. Water sales volumes are expected to increase slightly
as the economy is slowly improving, but will be partially offset by customers’ efforts to conserve water in
a period of rising water costs. The coming years will continue to pose challenges for those in California’s
water community. It is uncertain if the challenges facing the Sacramento-San Joaquin Bay Delta, the
source of 30% of Southern California’s water supply, will be addressed. In addition, weather and rainfall
always bring a level of uncertainty to the delivery of water to customers in the arid southwestern states.
The combination of these factors add to the cost of providing a stable supply of water as water providers
look to new and more costly sources of water.
The District currently provides water service to about 74% of its projected ultimate population, serving
approximately 211,000 people. Long-term, this percentage should continue to increase as the District's
service area continues to develop and grow. Ultimately, the District is projected to serve approximately
285,000 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 CWA, who in turn purchases its
water from 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 and the Helix Water District (HWD), by 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 this, benefits can be achieved by both parties by using excess capacity of another
agency, and diversifying local supply, thereby increasing reliability.
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Management’s Discussion and Analysis
11
Financial
The District is projected to deliver approximately 28,985 acre-feet of potable water to 49,150 potable
customer accounts during Fiscal Year 2013-2014. Management feels that these projections are realistic
after accounting for low growth, supply changes, and a focus on conservation. Current economic
conditions throughout America have created price elasticity uncertainty for business and economic
projections in the current fiscal year. The nationwide housing mortgage crisis has leveled off, but
continues to result in foreclosures within the District. Additionally, the crisis in the banking and financial
industry has had a ripple effect resulting in continued levels of high unemployment. One of the
subsequent results of these two broad events is the relocation of many homeowners and renters into
new housing arrangements throughout San Diego County. Even with the various challenges, 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, taxpayers, 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.
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2013
2012
(As Restated)
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 2) 33,958,281$ 31,075,455$
Restricted cash and cash equivalents (Notes 1 and 2) 4,087,042 4,057,726
Investments (Note 2) 31,134,182 37,069,853
Restricted investments (Notes 1 and 2) 13,545,284 16,124,042
Accounts receivable, net 11,856,029 10,575,970
Accrued interest receivable 53,950 106,375
Taxes and availability charges receivable, net 431,159 481,955
Restricted taxes and availability charges receivable, net 41,657 57,313
Inventories 800,085 789,769
Prepaid expenses and other current assets 1,072,706 1,226,703
Total Current Assets 96,980,375 101,565,161
Noncurrent Assets:
Net OPEB asset (Note 7) 9,345,437 8,321,902
Capital Assets (Note 3):
Land 13,714,963 13,703,463
Construction in progress 17,110,048 17,452,274
Capital assets, net of depreciation 445,203,648 449,674,352
Total capital assets, net of depreciaton 476,028,659 480,830,089
Total Noncurrent Assets 485,374,096 489,151,991
Total Assets 582,354,471 590,717,152
DEFERRED OUTFLOWS OF RESOURCES
Deferred amount on refunding 390,591 -
Total Deferred Outflows of Resources 390,591 -
(Continued)
See accompanying independent auditors' report and notes to financial statements. 12
STATEMENTS OF NET POSITION
JUNE 30, 2013 AND 2012
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(As Restated)
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Note 4) 3,470,000 3,320,000
Accounts payable 11,733,543 10,478,366
Accrued payroll liabilities 2,755,421 2,591,272
Other accrued liabilities 3,487,430 3,932,442
Customer deposits 1,756,983 1,863,992
Accrued interest 1,518,651 1,639,681
Liabilities Payable From Restricted Assets:
Restricted accrued interest 76,154 81,354
Total Current Liabilities 24,798,182 23,907,107
Noncurrent Liabilities:
Long-term debt (Note 4):
General obligation bonds 5,849,918 6,401,271
Certificates of participation 46,465,525 56,023,740
Revenue bonds 56,678,987 49,521,421
Other noncurrent liabilities 718,543 721,626
Total Noncurrent Liabilities 109,712,973 112,668,058
Total Liabilities 134,511,155 136,575,165
NET POSITION
Invested in capital assets 376,549,168 381,725,015
Restricted for debt service 4,612,890 4,715,904
Unrestricted 67,071,849 67,701,068
Total Net Position 448,233,907$ 454,141,987$
See accompanying independent auditors' report and notes to financial statements. 13
STATEMENTS OF NET POSITION (CONTINUED)
JUNE 30, 2013 AND 2012
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(As Restated)
OPERATING REVENUES
Water sales 72,187,081$ 63,830,272$
Wastewater revenue 2,625,087 2,400,313
Connection and other fees 2,069,220 2,169,764
Total Operating Revenues 76,881,388 68,400,349
OPERATING EXPENSES
Cost of water sales 50,600,551 46,106,403
Wastewater 1,638,354 2,547,929
Administrative and general 19,428,008 17,926,430
Depreciation 16,545,622 15,214,704
Total Operating Expenses 88,212,535 81,795,466
Operating Income (Loss) (11,331,147) (13,395,117)
NONOPERATING REVENUES (EXPENSES)
Investment income 22,155 436,596
Taxes and assessments 3,545,595 3,502,155
Availability charges 707,881 696,863
Gain (loss) on sale of capital assets (546,799) (278,540)
Miscellaneous revenues 4,934,714 4,788,711
Donations (120,684) (121,617)
Interest expense (3,977,538) (3,899,927)
Miscellaneous expenses (1,917,389) (1,612,914)
Total Nonoperating Revenues (Expenses) 2,647,935 3,511,327
Income (Loss) Before Capital Contributions (8,683,212) (9,883,790)
Capital Contributions 2,775,132 6,825,897
Changes in Net Position (5,908,080) (3,057,893)
Total Net Position, Beginning, As Originally Stated 454,141,987 459,606,584
Prior Period Adjustment (Note 12) - (2,406,704)
Total Net Position, Beginning, As Restated (Note 12) 454,141,987 457,199,880
Total Net Position, Ending 448,233,907$ 454,141,987$
See accompanying independent auditors' report and notes to financial statements. 14
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEARS ENDED JUNE 30, 2013 AND 2012
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2013 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 73,425,100$ 64,648,558$
Receipts from connections and other fees 2,069,220 2,169,764
Other receipts 3,657,800 3,566,651
Payments to suppliers (51,083,778) (46,620,831)
Payments to employees (20,491,758) (20,521,468)
Other payments (2,038,073) (1,724,744)
Net Cash Provided (Used) by Operating Activities 5,538,511 1,517,930
CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES
Receipts from taxes and assessments 3,612,045 3,493,423
Receipts from property rents and leases 1,276,914 1,222,060
Net Cash Provided (Used) by Noncapital
and Related Financing Activities 4,888,959 4,715,483
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Proceeds from capital contributions 1,515,238 3,363,090
Proceeds from sale of capital assets - 28,128
Proceeds from debt related taxes and assessments 707,881 696,863
Net proceeds from issuance of long-term debt 8,329,385 -
Retirements of long-term debt (8,100,000) -
Principal payments on long-term debt (3,320,000) (3,146,010)
Interest payments and fees (5,201,467) (5,199,488)
Acquisition and construction of capital assets (10,035,376) (17,276,246)
Net Cash Provided (Used) by Capital
and Related Financing Activities (16,104,339) (21,533,663)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received on investments 395,773 580,872
Proceeds from sale and maturities of investments 68,832,000 108,410,000
Purchase of investments (60,638,762) (112,360,000)
Net Cash Provided (Used) by Investing Activities 8,589,011 (3,369,128)
Net Increase (Decrease) in
Cash and cash equivalents 2,912,142 (18,669,378)
Cash and cash equivalents, Beginning 35,133,181 53,802,559
Cash and cash equivalents, Ending 38,045,323$ 35,133,181$
(Continued)
See accompanying independent auditors' report and notes to financial statements. 15
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2013 AND 2012
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2013 2012
Reconciliation of operating income (loss) to net cash flows provided
(used) by operating activities:
Operating income (loss) (11,331,147)$ (13,395,117)$
Adjustments to reconcile operating income
to net cash provided (used) by operating activities:
Depreciation 16,545,622 15,214,704
Miscellaneous revenues 3,657,800 3,566,651
Miscellaneous expenses (2,038,073) (1,724,744)
(Increase) decrease in accounts receivable (1,280,059) (1,340,832)
(Increase) decrease in inventory (10,316) 45,552
(Increase) decrease in net OPEB asset (1,023,535) (905,556)
(Increase) decrease in prepaid expenses and other current assets 153,997 (37,497)
Increase (decrease) in accounts payable 1,255,177 (2,522,194)
Increase (decrease) in accrued payroll and related expenses 164,149 (341,005)
Increase (decrease) in other accrued liabilities (445,012) 3,192,574
Increase (decrease) in customer deposits (107,009) (241,195)
Increase (decrease) in prepaid capacity fees (3,083) 6,589
Net Cash Provided (Used) By Operating Activities 5,538,511$ 1,517,930$
Schedule of Cash and Cash Equivalents:
Current assets:
Cash and cash equivalents 33,958,281$ 31,075,455$
Restricted cash and cash equivalents 4,087,042 4,057,726
Total Cash and Cash Equivalents 38,045,323$ 35,133,181$
Supplemental Disclosures:
Non-cash Investing and Financing Activities Consisted of the Following:
Contributed Capital for Water and Sewer System 1,259,894$ 3,462,807$
Change in Fair Value of Investments and Recognized Gains/Losses (353,950) (127,662)
Amortization Related to Long-Term Debt 154,246 164,101
See accompanying independent auditors' report and notes to financial statements.16
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2013 AND 2012
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NOTE DESCRIPTION PAGE
1 Reporting Entity and Summary of Significant Accounting Policies..… 17 – 21
2 Cash and Investments…………………………………………..……... 22 – 26
3 Capital Assets…………………………………………………..……... 27 – 28
4 Long-Term Debt………………………………………………….…… 29 – 32
5 Net Position………………………………………………………….. 33
6 Defined Benefit Pension Plan…………………………………………. 33 – 34
7 Other Post Employment Benefits………………………..…………..... 35 – 37
8 Water Conservation Authority………………………………………... 37
9 Commitments and Contingencies…………………………………….. 38
10 Risk Management…………………………………………………….. 38 – 39
11 Interest Expense……………………………………………………..... 39
12 Prior Period Adjustment……………………………………………… 40
13 Segment information…………………………………………….......... 41 – 43
Required Supplementary Information:
1 Schedule of Funding Progress for PERS………………………………44
2 Schedule of Funding Progress for DPHP……………………………...44
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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See independent auditors’ report. 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 and the Otay Water District
Financing Authority (the Authority).
The Otay Water 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 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 unit will provide a
financial benefit or impose a financial burden on the District. The District has accounted for the Financing Authority
as a "blended" component unit. Despite being legally separate, the Financing Authority is so intertwined with the
District that it is in substance, part of the District's operations. Accordingly, the balances and transactions of this
component unit are reported within the funds of the District. Separate financial statements are not issued for 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 Statement of Net Position. The Statement 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.
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) invested in capital assets, (2) restricted net
position, and (3) unrestricted net position. These classifications are defined as follows:
Invested 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 asset, 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 invested in capital assets.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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See independent auditors’ report. 18
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
B) Measurement Focus, Basis of Accounting and Financial Statement Presentation – Continued
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, contributors, 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 assets that do not meet the definition of “invested in capital assets”
or “restricted net position”.
The District distinguishes operating revenues and expenses from those revenues and expenses that are nonoperating.
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. Nonoperating revenues and expenses are those revenues
and expenses generated that are not directly 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 $52,535 and $57,465 at June 30, 2013 and 2012, respectively.
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 Statement 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.
C) New Accounting Pronouncements
Implemented
In fiscal year 2012-2013, the District implemented Governmental Accounting Standards Board (GASB) Statement
No. 63, “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position”.
This statement incorporates deferred outflows of resources and deferred inflows of resources, as defined by GASB
Concepts Statement No. 4, “Elements of Financial Statements” into the definitions of the required components of the
residual measure of net position, formerly net assets. This statement also provides a new Statement of Net Position
format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position.
In fiscal year 2012-2013, the District early implemented GASB Statement No. 65, “Items Previously Reported as
Assets and Liabilities”. This statement established accounting and financial reporting standards that reclassify, as
deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets
and liabilities. Due to the early implementation of this statement, the calculation of deferred amount on refunding was
revised to eliminate the inclusion of costs that should be recognized as an expense in the period incurred and
eliminated debt issuance costs which should be recognized as an expense in the period incurred. Accounting changes
adopted to conform to the provisions of this statement should be applied retroactively. The result of the
implementation of this standard was to decrease the net position at July 1, 2012 and July 1, 2011 by $2,252,393 and
$2,406,704, respectively, which is the amount of unamortized debt issuance costs at July 1, 2012 and July 1, 2011,
respectively.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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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 may impact the District’s financial reporting requirements in the
future:
GASB 66 - “Technical Corrections, an amendment of GASB Statement No. 10 and Statement No. 62”,
effective for periods beginning after December 15, 2012.
GASB 67 - “Financial Reporting for Pension Plans, an amendment of GASB Statement No. 25”, effective
for the fiscal years beginning after June 15, 2013.
GASB 68 - “Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No. 27”,
effective for the fiscal years beginning after June 15, 2014.
GASB 69 - “Government Combinations and Disposals of Government Operations”, effective for periods
beginning after December 15, 2013.
GASB 70 - “Accounting and Financial Reporting for Nonexchange Financial Guarantees”, effective for the
periods beginning after June 15, 2013.
D) Deferred Outflows / Inflows of Resources
In addition to assets, the statement 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 one item that qualifies for reporting in this 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 statement 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 does not have any type of these items as of June 30, 2013 or June 30, 2012.
E) Statement of Cash Flows
For purposes of the Statement 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 cost.
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.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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See independent auditors’ report. 20
NOTES TO FINANCIAL STATEMENTS
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 approximate fair market 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 year ending June 30, 2013 of $995,721 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 2-4 Years
Office Equipment 2-10 Years
Recycled Water System 50-75 Years
Sewer System 25-50 Years
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. As of June 30, 2013 and 2012, total accrued paid time off was $2,120,399 and
$1,991,841, respectively.
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 collectability of existing specific accounts. The allowance for
doubtful accounts was $150,000 and $14,461 for 2013 and 2012, respectively.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
L) 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 and liabilities 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.
M) 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.
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.
N) 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, 2013 AND 2012
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See independent auditors’ report. 22
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:
Statement of Net Position:
Current Assets 2013 2012
Cash and Cash Equivalents $ 33,958,281 $ 31,075,455
Restricted Cash and Cash Equivalents 4,087,042 4,057,726
Investments 31,134,182 37,069,853
Restricted Investments 13,545,284 16,124,042
Total Cash and Investments $ 82,724,789 $ 88,327,076
Cash and Investments consist of the following:
2013 2012
Cash on Hand $ 2,950 $ 2,950
Deposits with Financial Institutions 1,107,051 1,519,979
Investments 81,614,788 86,804,147
Total Cash and Investments $ 82,724,789 $ 88,327,076
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, 2013 AND 2012
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See independent auditors’ report. 23
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 rate risk is by purchasing a combination of shorter
term and longer term investments 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, 2013
and 2012.
June 30, 2013
12 Months 13 to 24 25 to 60 More Than
Investment Type Or Less Months Months 60 Months
U.S. Government Sponsored Entities $ 44,599,731 $ 3,002,850 $17,974,890 $23,621,991 $ -
Local Agency Investment Fund
(LAIF) 17,032,057 17,032,057 - - -
San Diego County Pool 19,983,000 19,983,000 - - -
Total $ 81,614,788 $40,017,907 $17,974,890 $23,621,991 $ -
Remaining Maturity (in Months)
June 30, 2012
12 Months 13 to 24 25 to 60 More Than
Investment Type Or Less Months Months 60 Months
U.S. Government Sponsored Entities $ 53,100,166 $ 5,744,244 $24,995,670 $22,360,252 $ -
Local Agency Investment Fund
(LAIF) 11,614,981 11,614,981 - - -
San Diego County Pool 22,089,000 22,089,000 - - -
Total $ 86,804,147 $39,448,225 $24,995,670 $22,360,252 $ -
Remaining Maturity (in Months)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 24
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, 2013 and 2012 for each investment type.
June 30, 2013
Minimum
Legal Not
Investment Type Rating AAA AA Rated
U.S. Government Sponsored Entities $ 44,599,731 N/A $44,599,731 $ - $ -
Local Agency Investment
Fund (LAIF) 17,032,057 N/A - - 17,032,057
San Diego County Pool 19,983,000 N/A - - 19,983,000
Total $ 81,614,788 $44,599,731 $ - $37,015,057
Rating as of Year End
June 30, 2012
Minimum
Legal Not
Investment Type Rating AAA AA Rated
U.S. Government Sponsored Entities $ 53,100,166 N/A $53,100,166 $ - $ -
Local Agency Investment
Fund (LAIF) 11,614,981 N/A - - 11,614,981
San Diego County Pool 22,089,000 N/A - - 22,089,000
Total $ 86,804,147 $53,100,166 $ - $33,703,981
Rating as of Year End
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 25
2) CASH AND INVESTMENTS - Continued
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, 2013 and 2012 are as follows:
June 30, 2013
June 30, 2012
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 Entity’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, 2013, $1,063,279 of the District’s deposits with financial institutions in excess of federal depository insurance
limits were held in collateralized accounts. As of June 30, 2012, $1,720,135 of the District’s deposits with financial
institutions in excess of federal depository insurance limits were held in collateralized accounts.
Issuer Investment Type Reported Amount
Federal Home Loan Bank U.S. Government Sponsored Entities $ 12,961,010
Federal Home Loan Mortgage Corp
Federal National Mortgage Association
Federal Farm Credit Banks
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
9,720,091
4,976,820
14,955,390
Issuer Investment Type Reported Amount
Federal Home Loan Bank U.S. Government Sponsored Entities $ 17,991,270
Federal Home Loan Mortgage Corp
Federal National Mortgage Association
Federal Farm Credit Banks
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
15,753,834
14,993,400
4,361,662
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 26
2) CASH AND INVESTMENTS - Continued
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.
San Diego County Pooled Fund
The San Diego County Pooled Investment Fund (SDCPIF) is a pooled investment fund program governed by the County of
San Diego Board of Supervisors, and administered by the County of San Diego Treasurer and Tax Collector. Investments in
SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty.
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, CA 92101.
Collateral for Deposits
All cash is entirely insured or collateralized.
Under the provisions of the California Government Code, California banks and savings and loan associations are required to
secure the District's deposits by pledging government securities as collateral. The market value of the pledged securities must
equal at least 110% of the District's deposits. California law also allows financial institutions to secure District deposits by
pledging first trust deed mortgage notes having a value of 150% of the District's total deposits.
The District may waive the 110% collateral requirement for deposits which are insured up to $250,000 by the FDIC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 27
3) CAPITAL ASSETS
The following is a summary of changes in Capital Assets for the year ended June 30, 2013:
Beginning Balance Additions Deletions Ending Balance
Capital Assets, Not Depreciated
Land 13,703,463$ 11,500$ -$ 13,714,963$
Construction in Progress 17,452,274 11,751,086 (12,093,312) 17,110,048
Total Capital Assets Not Depreciated 31,155,737 11,762,586 (12,093,312) 30,825,011
Capital Assets, Being Depreciated
Infrastructure 597,894,929 11,620,876 (881,331) 608,634,474
Field Equipment 8,602,060 331,974 - 8,934,034
Buildings 18,649,209 200,300 - 18,849,509
Transportation Equipment 3,221,249 277,860 (1,320) 3,497,789
Communication Equipment 2,514,151 81,670 (33,341) 2,562,480
Office Equipment 17,201,420 209,037 (112,115) 17,298,342
Total Capital Assets Being Depreciated 648,083,018 12,721,717 (1,028,107) 659,776,628
Less Accumulated Depreciation:
Infrastructure 169,258,402 12,993,086 (254,187) 181,997,301
Field Equipment 7,373,481 206,182 - 7,579,663
Buildings 7,347,820 484,727 - 7,832,547
Transportation Equipment 2,306,300 310,796 (1,321) 2,615,775
Communication Equipment 1,035,846 445,648 (33,342) 1,448,152
Office Equipment 11,086,817 2,105,183 (92,458) 13,099,542
Total Accumulated Depreciation 198,408,666 16,545,622 (381,308) 214,572,980
Total Capital Assets Being Depreciated, Net 449,674,352 (3,823,905) (646,799) 445,203,648
Total Capital Assets, Net 480,830,089$ 7,938,681$ (12,740,111)$ 476,028,659$
Depreciation expense for the years ended June 30, 2013 and 2012 was $16,545,622 and $15,214,704, respectively.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 28
3) CAPITAL ASSETS (Continued)
The following is a summary of changes in Capital Assets for the year ended June 30, 2012:
Beginning Balance Additions Deletions Ending Balance
Capital Assets, Not Depreciated
Land 13,636,663$ 66,800$ -$ 13,703,463$
Construction in Progress 17,909,282 19,086,698 (19,543,706) 17,452,274
Total Capital Assets Not Depreciated 31,545,945 19,153,498 (19,543,706) 31,155,737
Capital Assets, Being Depreciated
Infrastructure 577,926,518 20,908,862 (940,451) 597,894,929
Field Equipment 9,847,809 149,661 (1,395,410) 8,602,060
Buildings 18,451,132 198,077 - 18,649,209
Transportation Equipment 3,177,687 221,872 (178,310) 3,221,249
Communication Equipment 2,359,043 155,108 - 2,514,151
Office Equipment 17,332,966 681,123 (812,669) 17,201,420
Total Capital Assets Being Depreciated 629,095,155 22,314,703 (3,326,840) 648,083,018
Less Accumulated Depreciation:
Infrastructure 157,565,903 12,330,306 (637,807) 169,258,402
Field Equipment 8,619,183 149,708 (1,395,410) 7,373,481
Buildings 6,911,291 436,529 7,347,820
Transportation Equipment 2,250,422 234,188 (178,310) 2,306,300
Communication Equipment 644,017 391,829 1,035,846
Office Equipment 10,223,319 1,672,144 (808,646) 11,086,817
Total Accumulated Depreciation 186,214,135 15,214,704 (3,020,173) 198,408,666
Total Capital Assets Being Depreciated, Net 442,881,020 7,099,999 (306,667) 449,674,352
Total Capital Assets, Net 474,426,965$ 26,253,497$ (19,850,373)$ 480,830,089$
Depreciation expense for the years ended June 30, 2012 and 2011 was $15,214,704 and $13,880,206, respectively.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 29
4) LONG-TERM DEBT
Long-term liabilities for the year ended June 30, 2013 are as follows:
Beginning
Balance
(As Restated) Additions Deletions
Ending
Balance
Due Within
One Year
General Obligation Bonds:
Improvement District No. 27 - 2009 $ 6,755,000 $ - $ 520,000 $ 6,235,000 $ 535,000
Unamortized Bond Premium 166,271 - 16,353 149,918 -
Net General Obligation Bonds 6,921,271 - 536,353 6,384,918 535,000
Certificates of Participation:
1996 Certificates of Participation 10,900,000 - 500,000 10,400,000 500,000
2004 Certificates of Participation 8,680,000 - 8,680,000 - -
2007 Certificates of Participation 38,665,000 - 920,000 37,745,000 955,000
1996 COPS Unamortized Discount (11,178) - (746) (10,432) -
2007 COPS Unamortized Discount (223,087) - (9,044) (214,043) -
2004 COPS Unamortized Premium 13,005 - 13,005 - -
Net Certificates of Participation 58,023,740 - 10,103,215 47,920,525 1,455,000
Revenue Bonds:
2010 Water Revenue Bonds Series A 13,055,000 - 800,000 12,255,000 820,000
2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 -
2010 Series A Unamortized Premium 911,421 - 74,402 837,019 -
2013 Water Revenue Refunding Bonds - 7,735,000 - 7,735,000 660,000
2013 Bonds Unamortized Premium - 984,976 8,008 976,968 -
Net Revenue Bonds 50,321,421 8,719,976 882,410 58,158,987 1,480,000
Total Long-Term Liabilities $115,266,432 $8,719,976 $11,521,978 $112,464,430 $3,470,000
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 30
4) LONG-TERM DEBT – Continued
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 General Obligation Refunding Bonds
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.
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 Total
2014 $ 535,000 $ 220,437 755,437$
2015 550,000 204,162 754,162
2016 570,000 187,362 757,362
2017 585,000 169,306 754,306
2018 605,000 147,700 752,700
2019-2023 3,390,000 348,003 3,738,003
$ 6,235,000 $ 1,276,970 $ 7,511,970
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 31
4) LONG-TERM DEBT - Continued
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, 2014. The interest rate at June 30, 2013 was 0.05%. The installment
payments are to be paid annually at $350,000 to $900,000 from September 1, 1996 through September 1, 2026.
In July 2004, Refunding Certificates of Participation (COPS) with a face value of $12,270,000 were sold by the Otay Service
Corporation to advance refund $11,680,000 of outstanding 1993 COPS. An installment 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.
In June 2013, the July 2004 COPS were refunded with the issuance of the 2013 Water Revenue Refunding Bonds (see
Revenue Bonds on page 32). Proceeds of $8,575,519, 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 2004 COPS. Pursuant to an
optional redemption clause in the 2004 COPS, the District will be able to redeem the 2004 bonds, without premium at any
time after September 1, 2014. The savings between the cash flow required to service the old debt and the cash flow required
to service the new debt is $763,318 and represents an economic gain on refunding of $707,071.
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%.
There is no aggregate reserve requirement for the COPS. Future debt service requirements for the certificates are as follows:
For the Year
Ended June 30,Principal Interest* Principal Interest
2014 $ 500,000 $ 4,992 $ 955,000 $ 1,553,864
2015 500,000 4,742 995,000 1,517,301
2016 600,000 4,450 1,035,000 1,479,239
2017 600,000 4,150 1,075,000 1,439,408
2018 600,000 3,850 1,115,000 1,397,798
2019-2023 3,700,000 13,908 6,260,000 6,287,081
2024-2028 3,900,000 3,425 7,670,000 4,867,417
2029-2033 - - 9,460,000 3,058,810
2034-2038 - - 9,180,000 824,687
$10,400,000 $ 39,517 $ 37,745,000 $22,425,605
1996 COPS 2007 COPS
* Variable Rate - Interest reflected at June 30, 2013 at a rate of 0.05%.
The two COP debt issues contain various covenants and restrictions, principally that the District fix, prescribe, revise and
collect rates, fees and charges for the Water System which will be at least 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, 2013.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 32
4) LONG-TERM DEBT - Continued
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%. 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, 2013 was $74,402 and is included in interest expense. The unamortized premium at June 30, 2013 is
$837,019.
The 2010 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe,
revise and collect rates, fees and charges for the Water System which will be at least 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, 2013.
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, 2013 was $8,008 and is included in interest expense. The unamortized premium at June 30, 2013 is
$976,968.
The total amount outstanding at June 30, 2013 and aggregate maturities of the revenue bonds for the fiscal years subsequent to
June 30, 2013, are as follows:
For the Year
Ended June 30,Principal Interest Principal Interest Principal Interest
2014 $ 820,000 $ 533,538 $ - $ 2,371,868 $ 660,000 $ 197,198
2015 845,000 508,563 - 2,371,868 605,000 258,700
2016 870,000 478,488 - 2,371,868 615,000 243,425
2017 900,000 443,088 - 2,371,868 635,000 221,500
2018 940,000 406,288 - 2,371,868 660,000 195,600
2019-2023 5,350,000 1,337,813 - 11,859,342 3,725,000 551,500
2024-2028 2,530,000 132,856 2,815,000 11,453,765 835,000 16,700
2029-2033 - - 8,760,000 9,049,258 - -
2034-2038 - - 12,005,000 5,459,732 - -
2039-2042 - - 12,775,000 1,002,335 - -
$ 12,255,000 $ 3,840,632 $ 36,355,000 $ 50,683,772 $ 7,735,000 $ 1,684,623
2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B 2013 Water Revenue Refunding Bonds
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 33
5) NET POSITION
Designations of Net Position
In addition to restricted net positions, a portion of unrestricted net position have been designated by the Board of Directors for
the following purposes as of June 30, 2013 and 2012:
2013 2012
Designated Betterment $ 3,629,786 $ -
Expansion Reserve 623,834 17,943,825
Replacement Reserve 24,182,442 15,911,850
Designated New Supply Fund 24,000 1,593,571
Employee Benefits Reserve 149,705 1,660,369
Total $ 28,609,767 $ 37,109,615
6) DEFINED BENEFIT PENSION PLAN
Plan Description
The District’s defined plan, (the “Plan”), provides retirement and disability benefits, annual cost-of-living adjustments, and
death benefits to plan members and beneficiaries. The Plan is part of the Public Agency portion of the California Public
Employees’ Retirement System (CalPERS), an agent multiple-employer plan administered by CalPERS, which acts as a
common investment and administrative agent for participating public employers within the State of California. A menu of
benefit provisions as well as other requirements is established by State statute within the Public Employees’ Retirement Law.
The Plan selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits
through District resolution. 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.
Funding Policy
Active classic members in the Plan are required to contribute 8% of their annual covered salary. By agreement between the
Employee Association and the District, the represented employees paid 5.25% of covered salaries beginning August 15, 2011.
Also by agreement, the unrepresented employees began paying 4.5% of covered salaries as of July 15, 2011. Prior to these
agreements all employees paid 1% of covered salaries. In these same agreements, all employees, after June 30, 2012
contributed an additional 3.5% of covered salaries. Effective January 1, 2013, classic employees contributed an additional
2.75% of covered salaries. For new members (employees hired on or after January 1, 2013 and are new entrants to the
PERS System), employees pay a 6.25% contribution. The District is required to contribute the actuarially determined
remaining amounts necessary to fund the 2.7% at age 55 retirement plan benefits for its classic members and 2.0% at age
62 for its new members under the California Employees’ Pension Reform Act (PEPRA) provisions. The actuarial methods
and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate
for the fiscal year ended June 30, 2013 was 24.318%. The contribution requirements of the Plan members are established by
State statute and the employer contribution rate is established and may be amended by the CalPERS.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
FIN
A
L
DR
A
F
T
See independent auditors’ report. 34
6) DEFINED BENEFIT PENSION PLAN - Continued
Annual Pension Costs
For the fiscal year ended June 30, 2013, the District’s annual pension cost and actual contribution was $3,130,754. The
required contribution for the fiscal year ended June 30, 2013 was determined as part of the June 30, 2010 actuarial valuation.
The following is a summary of the actuarial assumptions and methods:
Valuation Date June 30, 2010
Actuarial Cost Method Entry Age Actuarial Cost Method
Amortization Method Level Percent of Payroll
Average Remaining Period 20 Years as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.75% (Net of Administrative Expenses)
Projected Salary Increase 3.55% to 14.45% Depending on Age, Service, and Type of Employment
Inflation 3.00%
Payroll Growth 3.25%
Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed
annual inflation component of 3.00% and an annual production growth of
0.25%.
Initial unfunded liabilities are amortized over a closed period that depends on the Plan’s date of entry into CalPERS.
Subsequent Plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that
occur in the operation of the plan are amortized over a 30 year rolling period, which results in an amortization of 6% of
unamortized gains and losses each year. If the plan’s accrued liability exceeds the actuarial value of the plan assets, then the
amortization payment of the total unfunded liability may not be lower than the payment calculated over a 30-year amortization
period.
THREE-YEAR TREND INFORMATION FOR PERS
Fiscal Annual Pension Percentage of Net Pension
Year Cost (APC)APC Contributed Obligation
6/30/13 $ 3,130,754 100% $ 0
6/30/12 $ 2,951,409 100% $ 0
6/30/11 $ 2,427,744 100% $ 0
Funded Status and Funding Progress
As of June 30, 2011, the most recent actuarial valuation date, the plan was 70.6% funded. The actuarial accrued liability
(AAL) for benefits was $88,411,019, and the actuarial value of assets was $62,435,349, resulting in an unfunded actuarial
accrued liability (UAAL) of $25,975,670. The covered payroll (annual payroll of active employees covered by the plan) was
$12,289,529, and the ratio of the UAAL to the covered payroll was 211.4%.
The schedule of funding progress, presented as required supplementary information following the notes to the financial
statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing
over the time relative to the actuarial accrued liability for benefits.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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7) 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 between January 1, 1981 and 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 100% medical and dental premiums for life for the retiree for
Tier I, II or III employees, and up to 100% spouse premium for life and dependent premium up to age 19 depending on the
tier. The plan also includes survivor benefits to Medicare.
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 Gold,
and whether they are located outside the State of California. Contributions by plan members range from $0 to $149 per
month for coverage to age 65, and from $0 to $148 per month, respectively, thereafter.
Annual OPEB Cost and Net OPEB Obligation/Asset
The District’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC),
an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level
of funding that, if paid on an ongoing basis is projected to cover the normal annual cost. Any unfunded actuarial liability
(or funding excess) is amortized over a period not to exceed thirty years. The current ARC rate is 10.0% of the annual
covered payroll.
The following table shows the components of the District’s annual OPEB cost for the year, the amount actually
contributed to the plan, and changes in the District’s net OPEB obligation/asset:
2013 2012
Annual Required Contribution (ARC) 1,287,000$ 1,304,000$
Interest on net OPEB asset (603,338) (537,685)
Adjustment to Annual Required Contribution
(ARC) 543,000 473,000
Annual OPEB cost (expense) 1,226,662 1,239,315
Contributions made 2,250,198 2,144,871
Increase in net OPEB asset (1,023,535) (905,556)
Net OPEB asset - beginning of year (8,321,902) (7,416,346)
Net OPEB asset - end of year (9,345,437)$ (8,321,902)$
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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7) OTHER POST EMPLOYMENT BENEFITS - Continued
For 2013, 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 $877,196, which is
included in the $2,250,198 of contributions shown on the previous page. For 2012 this amount was $749,871, which is
included in the $2,144,871 of contributions shown on the previous page.
The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation/asset for the fiscal years 2013, 2012 and 2011 were as follows:
Fiscal Annual OPEB Percentage of Net OPEB
Year Cost (AOC) OPEB Cost Contributed Asset
6/30/2013 1,226,662$ 183%(9,345,437)$
6/30/2012 1,239,315$ 173%(8,321,902)$
6/30/2011 $ 409,288 255% $ (7,416,346)
THREE-YEAR TREND INFORMATION FOR CERBT
Funded Status and Funding Progress
The funded status of the plan as of June 30, 2013, the most recent actuarial valuation date, was as follows:
Actuarial Accrued Liability (AAL) $ 22,891,000
Actuarial Value of Plan Assets $ 11,831,000
Unfunded Actuarial Accrued Liability (UAAL) $ 11,060,000
Funded Ratio (Actuarial Value of Plan Assets/AAL)51.68%
Covered Payroll (Active Plan Members) $ 12,833,000
UAAL as a Percentage of Covered Payroll 86.18%
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 plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the
benefits.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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7) OTHER POST EMPLOYMENT BENEFITS - Continued
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 the 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 employer and plan members to that point. The actuarial methods and
assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued
liabilities and the actuarial 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, 2013
Actuarial Cost Method Entry Age Normal Cost Method
Amortization Method Level Percent of Payroll
Remaining Amortization Period 24 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.
8) WATER CONSERVATION AUTHORITY
In 1999 the District formed the Water Conservation 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, 2013
and 2012, the District contributed $120,684 and $121,617, respectively, for the development, construction and operation costs
of the xeriscape demonstration garden.
A summary of the Authority’s June 30, 2012 audited financial statement is as follows (latest report available):
Assets $ 1,655,591
Liabilities -
Net Assets $ 1,655,591
Revenues, Gains and Other Support $ 187
Expenses (160,398)
Changes in Net Assets $ (160,211)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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See independent auditors’ report. 38
9) COMMITMENTS AND CONTINGENCIES
Construction Commitments
The District had committed to capital projects under construction with an estimated cost to complete of $6,879,357 at June 30,
2013.
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 a 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, 2012, 1,751 EDUs had been relinquished and
refunded, 15,026 EDUs had been connected, and 1,090 EDUs have neither been relinquished nor connected. At June 30,
2013, 1,751 EDUs had been relinquished and refunded, 15,031 EDUs had been connected, and 1,085 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, 2013, none of the outstanding developer
agreements had been accepted, however it is anticipated that the District will be liable for an amount not to exceed $341,046
at the point of acceptance. Accordingly, the District has accrued a liability as of year end.
10) RISK MANAGEMENT
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’ and Employees’ 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:
$500 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, for employment
related claims. However, 100% of the obligation will be waived if certain criteria are met, as provided in the
Memorandum of Coverage.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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10) RISK MANAGEMENT (Continued)
Employee Dishonesty Coverage: Total of $400,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and
Theft, Disappearance and Destruction coverage’s effective July 1, 2012.
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 $2,000 deductible per occurrence,
effective July 1, 2012.
Boiler and Machinery: Replacement cost up to $100 Million per occurrence, subject to a $1,000 deductible, effective July 1,
2012.
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, 2012.
Comprehensive and Collision: on selected vehicles, with deductibles of $250/$500 or $500/$1,000, as elected; ACV limits;
fully self-funded by SDRMA; Policy No. LCA - SDRMA - 201111, effective July 1, 2012.
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, 2012.
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 self-funded, 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.
11) INTEREST EXPENSE
Interest expense for the years ended June 30, 2013 and 2012, is as follows:
2013 2012
Amount Expensed $ 3,977,538 $ 3,899,927
Amount Capitalized as a Cost of
Construction Projects 995,721 1,185,443
Total Interest $ 4,973,259 $ 5,085,370
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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12) PRIOR PERIOD ADJUSTMENT and RESTATEMENT OF 2012 BALANCES
During fiscal year ended June 30, 2013, the District early implemented GASB Statement No. 65, “Items Previously
Reported as Assets and Liabilities”. Due to the early implementation of this statement, bond issuance costs and certain
amounts classified as deferred amounts on refunding, which had previously been capitalized on the statement of net
position and written off over the life of the corresponding debt issuance, have been restated as expenses in the periods
incurred. The amount previously capitalized as of July 1, 2011, $2,406,704, is reflected as a prior period adjustment. On
the statement of net position, fiscal year 2012 balances have been restated for the removal of debt issuance costs and
certain deferred amounts of refunding (previously shown as a component of long-term debt). On the statement of
revenues, expenses and changes in net position, 2012 columns have been restated to remove $154,312 previously shown
as amortization expense (a component of miscellaneous expenses).
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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13) SEGMENT INFORMATION
During the June 30, 2011 fiscal year, the District issued Revenue Bonds to finance certain capital improvements. While water
and wastewater services are accounted for jointly in these financial statements, the investors in the Revenue Bonds rely solely
on the revenues of the water services for repayment.
Summary financial information for the water services is presented for June 30, 2013.
Water Services
ASSETS
Current Assets 98,171,085$
Capital Assets 458,689,482
Other Assets 9,345,437
Total Assets 566,206,004
DEFERRED OUTFLOWS OF RESOURCES
Deferred amount on refunding 390,591
Total Deferred Outflows of Resources 390,591
LIABILITIES
Current Liabilities 24,364,563
Long-Term Liabilities 109,705,473
Total Liabilities 134,070,036
NET POSITION
Invested in capital assets 359,209,991
Restricted for debt service 4,612,890
Unrestricted 68,703,678
Total Net Position 432,526,559$
Condensed Statement of Net Position
June 30, 2013
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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13) SEGMENT INFORMATION - Continued
Water Services
Operating Revenues
Water sales 72,157,781$
Connection and other fees 1,915,679
Total Operating Revenues 74,073,460
Operating Expenses
Cost of Water Sales 50,600,551
Administrative and General 19,428,008
Depreciation 15,613,824
Total Operating Expenses 85,642,383
Operating Income (Loss)(11,568,923)
Nonoperating Revenues (Expenses)
Investment income 19,851
Taxes and assessments 3,542,969
Availability charges 655,115
Gain (loss) on sale of capital assets (546,799)
Miscellaneous revenues 4,934,714
Donations (120,684)
Interest expense (3,977,538)
Miscellaneous expenses (1,917,390)
Total Nonoperating Revenues (Expenses)2,590,239
Income (Loss) Before Capital Contributions (8,978,684)
Capital Contributions 1,251,399
Changes in Net Position (7,727,285)
Total Net Position, Begin As Restated (Note 12)440,253,844
Total Net Position, Ending 432,526,559$
For The Year Ended June 30, 2013
and Changes in Net Position
Condensed Statement of Revenues, Expenses
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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13) SEGMENT INFORMATION - Continued
Water Services
Net Cash Provided by Operating Activities 4,963,208$
Net Cash Provided by Noncapital and Related
Financing Activities 2,954,725
Net Cash Provided (Used) by Capital and Related
Financing Activities (13,592,496)
Net Cash Used by Investing Activities 8,586,705
Net Increase (Decrease) in Cash and Cash
Equivalents 2,912,142
Cash and cash equivalents, Beginning 35,133,181
Cash and cash equivalents, Ending 38,045,323$
Condensed Statement of Cash Flows
For The Year Ended June 30, 2013
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2013 AND 2012
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REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 2013 AND 2012
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Schedule of Funding Progress for PERS
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]
6/30/11
Miscellaneous $ 62,435,349 $ 88,411,019 $ 25,975,670 70.6%$ 12,289,529 211.4%
6/30/10
Miscellaneous $ 57,613,987 $ 81,306,934 $ 23,692,947 70.9%$ 12,140,989 195.1%
6/30/09
Miscellaneous $ 53,736,612 $ 75,300,790 $ 21,564,178 71.4%$ 11,880,481 181.5%
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]
6/30/13
Miscellaneous $ 11,831,000 $ 22,891,000 $ 11,060,000 51.68%$ 12,833,000 86.18%
6/30/11
Miscellaneous $ 7,893,000 $ 18,289,000 $ 10,396,000 43.16%$ 12,429,000 83.64%
6/30/09
Miscellaneous $ 6,273,000 $ 10,070,000 $ 3,797,000 62.29%$ 11,878,000 31.97%
REQUIRED SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 2013 AND 2012
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2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
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 and Management
of 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 Otay Water District as of and for the year ended June 30, 2013, and the
related notes to the financial statements which collectively comprise the Otay Water District’s basic financial statements
and have issued our report thereon dated October XX, 2013.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Otay Water 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 opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Otay Water District’s internal control. Accordingly, we do not express an opinion on the effectiveness
of Otay Water 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 entity’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 and
therefore, material weaknesses or significant deficiencies may exist that were not identified. 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. We did identify certain deficiencies in internal
control, described below, that we consider to be significant deficiencies.
Billing Customers Authorized Rates
In the course of our audit of the District’s internal control over utility billing, we noted that a rate increase was not applied
in the time frame directed by the Board of Directors. A rate increase was voted to take effect for all bills mailed after
January 1, 2013. District policy required that a 30 day notice be sent to customers before the new rates could take effect.
This notice was not mailed in time for certain billing cycles to be billed the new rates. As a result, certain customers were
billed during January 2013, at the old rates, and not billed under the new rates until February 2013.
Management Response:
Staff does not disagree with any of the facts in the above statement.
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Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Otay Water District’s financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, 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 instances of noncompliance or other
matters, described below, that are required to be reported under Government Auditing Standards.
Compliance with Investment Policy
In the course of our audit of the District’s compliance with their investment policy, we noted that the District held one
investment, a Farmer Mac Note that was not in compliance with their investment policy at June 30, 2013.
Management Response:
Staff agrees with the management comment. The investment should not have been purchased at that time. The investment
is a safe investment in a government sponsored entity (GSE), allowable under state code, and is similar to other government
sponsored entities in which the District invests. The investment was made during a time period where staff was in the
process of updating the investment policy, which included updating the listing of allowable GSE’s, including the GSE
references in the management comment.
Otay Water District’s Responses to Findings
Otay Water District’s responses to the findings identified in our audit are shown above. Otay Water District’s responses
were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express
no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing in internal control and compliance and the results of
that testing, and not to provide an opinion on the effectiveness of the organization’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
organization’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
October XX, 2013
Carlsbad, CA
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2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
Board of Directors
Audit Committee
Otay Water District
Spring Valley, California
We have audited the basic financial statements of the Otay Water District (the District) for the year
ended June 30, 2013 and have issued our report thereon dated October XX, 2013. Professional
standards require that we provide you with information about our responsibilities under generally
accepted auditing standards (and, if applicable, Government Auditing Standards), as well as certain
information related to the planned scope and timing of our audit. We have communicated such
information in our engagement letter dated January 15, 2013 and well as in a meeting with Board
President Jose Lopez on July 11, 2013. 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
discussed in Note 1c to the basic financial statements, the District incorporated deferred outflows of
resources and deferred inflows of resources into the definitions of the required components of the
residual measure of net position due to the adoption of Governmental Accounting Standards Board’s
Statement No. 63, “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of
Resources, and Net Position”. The adoption of this standard also provides a new statement of net
position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of
resources, and net position. Also discussed in Note 1c to the basic financial statements, the District has
changed its method for accounting and reporting certain items previously reported as assets or
liabilities during fiscal year 2012-2013 due to the early adoption of Governmental Accounting
Standards Board’s Statement No. 65, “Items Previously Reported as Assets and Liabilities”. The
adoption of this standard required retrospective application resulting in a $2,252,393 reduction of
previously reported net position as of the beginning of the year. 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.
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Significant Audit Findings (Continued)
Qualitative Aspects of Accounting Practices (Continued)
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 District’s financial statements were:
a. Management’s estimate of the fair market value of investments which is based on market
values provided by outside sources.
b. Management’s estimate of useful lives of capital assets for depreciation purposes is based
on industry standards.
c. The funded status and funding progress of the public defined benefit plan with CalPERS is
based on an actuarial valuation.
d. The funded status and funding progress of the Other Post-Employment Benefits is based on
an actuarial valuation.
We evaluated the key factors and assumptions used to develop these estimates in determining that they
were 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 disclosure affecting the financial statements was
reported in Note 6 regarding the defined benefit pension plan and Note 7 regarding Other Post-
Employment Benefits.
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.
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Significant Audit Findings (Continued)
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during
the audit, other than those that are clearly trivial, and communicate them to the appropriate level of
management. As a result of our audit related test work, we proposed no corrections to the financial
statements that, in our judgment, had a significant effect on the District’s financial reporting process.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated October XX, 2013.
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.
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.
October XX, 2013
Carlsbad, CA
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2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
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 for the fiscal year ended June 30, 2013. The District’s management is responsible for the
evaluation of 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, 2013.
a. Findings: At June 30, 2013, the current investment policy (Policy #27) is dated August
10, 2011. This policy was reviewed and approved for the 2012/2013 fiscal year as
Consent Item #7e at the August 1, 2012 Regular Board Meeting. 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.
a. Findings: Four investments chosen were FHLB – Maturity 11/27/2013, FHLMC –
Maturity 12/10/2014, FFCB – Maturity 3/12/2015, Farmer Mac Note – Maturity
1/25/2016. The Farmer Mac Note was not an authorized investment at June 30,
2013. The other three investments are allowable and within maturity limits as stated in
the District’s Investment Policy at June 30, 2013.
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Mr. Joseph Beachem, CFO
Otay Water District Page 2
3. For the four investments selected in #2 above, determine if they are held by a third party
custodian designated by the District.
a. Findings: Per discussion with District management and evidenced by Union Bank of
California statement, Union Bank does not act as a broker dealer for the District but acts
as a custodial agent of the District holding the investment in a trust department. The four
investments examined are held by a third party custodian designated by the District in
compliance with District Policy.
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.
a. Findings: Investment values confirmed with Union Bank of California at June 30, 2013
with no exceptions.
5. Select two investment earnings transactions that took place during the year and recompute the
earnings to determine if the proper amount was received.
a. Findings: Investment earnings recalculated with no exceptions for two transactions
selected.
6. Trace amounts received for transactions selected at #5 above into the District’s bank accounts.
a. Transactions traced into District’s Union Bank of California Money Market account with
no exceptions for the two transactions selected.
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.
a. Findings: Reviewed five investment transactions. All transactions were permissible
under the District’s Investment Policy.
8. Review the supporting documents for the five investments selected at #7 above to determine if
the transactions were appropriately recorded in the District’s general ledger.
a. Findings: Five investments selected at #7 above were appropriately recorded in the
District’s General Ledger without exception.
We were not engaged to, and did not, conduct an audit, the objective of which would be the expression of
an opinion on the investments of the District for the fiscal year ending June 30, 2013. Accordingly, we
do not express such an opinion. Had we performed additional procedures, other matters might have come
to our attention that would have been reported to you.
This report is limited solely for the information and use of the Board and senior management of the Otay
Water District and is not intended to be and should not be used by anyone other than those specified
parties.
October XX, 2013
Carlsbad, California
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STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 6, 2013
SUBMITTED BY:
Rita Bell, Finance Manager
PROJECT: DIV. NO. All
APPROVED BY:
Joseph R. Beachem, Chief Financial Officer
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: Resolutions of Intention to Consolidate Improvement District
(ID) 19 into ID 22 and ID 25 into ID 20 and Authorizing
Required Advertising of these Resolutions as Required by the
Water Code and Government Code
GENERAL MANAGER’S RECOMMENDATION:
That the Board approve the attached Resolutions of Intention, Nos.
4219 and 4220, that are necessary to initiate the process for the
exclusion of parcels within Improvement Districts (IDs) 19 and 25.
Concurrent with said action, that the Board also approve the attached
Resolutions of Intention, Nos. 4221 and 4222 that are necessary to
initiate the process for the annexation of the excluded parcels in
IDs 19 and 25 into IDs 22 and 20, respectively.
PURPOSE:
That the Board authorize and initiate the process for the exclusion
of parcels within Improvement Districts (IDs) 19 and 25 to be annexed
into IDs 22 and 20, respectively.
Authorize staff to advertise per Government Code Section 6066 the
attached Resolutions of Intention 4219, 4220, 4221, and 4222 for a
period of two weeks. Once this requirement has been complied with, a
second set of resolutions will be presented to confirm the exclusions
and annexations. Direct staff to submit the appropriate forms and
fees required to complete the Board action with the State Board of
Equalization and the County of San Diego that would exclude parcels
within IDs 19 and 25 to be annexed into IDs 22 and 20, respectively.
A subsequent action will request that IDs 19 and 25 be dissolved
effective July 1, 2014.
ANALYSIS:
On May 14, 2013, the Board directed staff to move forward with the
consolidation process. This action is the first of two necessary
steps to complete this consolidation. Once the exclusion and
annexation are initiated by the Board, staff will publish the
resolutions as required by statute and then the Board will have the
ability to confirm the exclusion and annexation at a subsequent
meeting. The exclusion will then become effective on the 31st day
after completion of the publication and posting of the resolutions to
exclude. The annexations become effective after the date of the
adoption of the resolutions approving the annexation.
The availability charges and water rates and charges are identical
between IDs 19 and 22 and IDs 25 and 20, and staff has determined
that there is no longer a reason to separate these parcels. This
will streamline the accounting and tracking of these parcels within
the District’s various information systems.
Because the proposed consolidation technically imposes a “new” charge
on customers, in compliance with the Proposition 218 requirements
notices were sent to all customers within these IDs to inform them of
their option to protest rate changes. The required public hearing
took place at the September 4, 2013 Board Meeting where the Board
determined there were no protests regarding this action.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
None.
STRATEGIC GOAL:
Through well-established financial policies and wise management of
funds, the District will continue to guarantee fiscal responsibility
to its ratepayers and the community at large.
LEGAL IMPACT:
None.
Attachments:
A) Committee Action
B) Resolution No. 4219
C) Resolution No. 4220
D) Resolution No. 4221
E) Resolution No. 4222
ATTACHMENT A
SUBJECT/PROJECT:
Resolutions of Intention to Consolidate Improvement
District (ID) 19 into ID 22 and ID 25 into ID 20 and
Authorizing Required Advertising of these Resolutions as
Required by the Water Code and Government Code
COMMITTEE ACTION:
That the Finance, Administration and Communications Committee
recommend that the Board approve the attached Resolutions of
Intention, Nos. 4219 and 4220, that are necessary to initiate the
process for the exclusion of parcels within Improvement Districts
(IDs) 19 and 25. Concurrent with said action, that the Board also
approve the attached Resolutions of Intention, Nos. 4221 and 4222
that are necessary to initiate the process for the annexation of the
excluded parcels in IDs 19 and 25 into IDs 22 and 20, respectively.
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.
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RESOLUTION NO. 4219
RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT DECLARING ITS INTENTION TO EXCLUDE PARCELS FROM IMPROVEMENT DISTRICT 19
WHEREAS, on April 19th, 1971 by Resolution No. 866, the Otay Water District
Board of Directors (“Board”) formed Improvement District (“ID”) 19 for the purpose of
incurring necessary bonded indebtedness for the acquisition, construction and
completion of water improvements and works; and
WHEREAS, on July 3rd, 1972 by Resolution No. 986, the Board formed ID 22 for
the purpose of incurring necessary bonded indebtedness for the acquisition,
construction, and completion of water improvements and works; and
WHEREAS, the availability charges and water rates and charges are identical
between IDs 19 and 22; and
WHEREAS, staff has determined that there is no longer a reason to separate
these parcels; and
WHEREAS, by initiating proceedings to consolidate ID 19 into ID 22 it would
streamline the accounting and tracking of these parcels; and
WHEREAS, the Board hereby declares, by its own motion, its intention to
exclude parcels in ID 19 pursuant to Water Code Sections 72080, et seq., with an eye
towards annexing the excluded parcels into ID 22; and
WHEREAS, in compliance with Proposition 218, the Otay Water District held the
required public hearing on the new fees and charges for the parcels excluded from ID
19 and annexed into ID 22, if approved, at its September 4, 2013 Board meeting, where
the Board determined that there were no protests regarding this action;
NOW, THEREFORE, BE IT RESOLVED as follows:
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1. That the Board of Directors, on its own motion, does hereby declare its
intention to exclude parcels within ID 19, as identified in Exhibit 1 to this resolution.
2. That the taxes for carrying out the purposes of ID 19 will not be levied
upon taxable property in the excluded territory following such exclusion.
3. That there is no bond debt on ID 19 and, therefore, taxes for the payment
of principal and interest on any outstanding bonds of ID 19 will not be levied upon
taxable property in the excluded territory following such exclusion.
4. That, following such exclusion, the taxable property in the territory
remaining in ID 19, if any, shall continue to be levied upon and taxed to provide funds
for the purposes of ID 19.
5. That a map showing the exterior boundaries of the proposed territory to be
excluded, with relation to the territory remaining in ID 19, is on file with the Secretary of
the District and is available for inspection by any person or persons interested. Said
map shall govern for all details as to the extent of the proposed exclusion.
6. That notice is hereby given that a hearing shall be held by the Board on
Wednesday, November 6, 2013, at 3:30 p.m. on the questions of the proposed
exclusion and the effect of such exclusion upon the Otay Water District, ID 19 and the
territory to be excluded. At such time and place, any person interested, including all
persons owning property in the Otay Water District or in ID 19, will be heard.
BE IT FURTHER RESOLVED that the Board directs staff to provide notice of the
proposed exclusion and publish a copy of this Resolution of Intention to Exclude
pursuant to and consistent with Government Code section 6066 and Water Code
section 72084.
PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay
Water District at a regular meeting held this 6th day of November, 2013.
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Secretary
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RESOLUTION NO. 4220
RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT DECLARING ITS INTENTION TO EXCLUDE PARCELS FROM IMPROVEMENT DISTRICT 25
WHEREAS, on May 1st, 1978 by Resolution No. 1498, the Otay Water District
Board of Directors (“Board”) formed Improvement District (“ID”) 25 for the purpose of
incurring bonded indebtedness for the construction of a water transmission and
distribution system; and
WHEREAS, on May 17th, 1971 by Resolution No. 880, the Board formed ID 20
for the purpose of incurring necessary bonded indebtedness for the acquisition,
construction, and completion of water improvements and works; and
WHEREAS, the availability charges and water rates and charges are identical
between IDs 25 and 20; and
WHEREAS, staff has determined that there is no longer a reason to separate
these parcels; and
WHEREAS, by initiating proceedings to consolidate ID 25 into ID 20 it would
streamline the accounting and tracking of these parcels; and
WHEREAS, the Board hereby declares, by its own motion, its intention to
exclude parcels in ID 25 pursuant to Water Code Sections 72080, et seq., with an eye
towards annexing the excluded parcels into ID 20; and
WHEREAS, in compliance with Proposition 218, the Otay Water District held the
required public hearing on the new fees and charges for the parcels excluded from ID
25 and annexed into ID 20, if approved, at its September 4, 2013 Board meeting, where
the Board determined that there were no protests regarding this action;
NOW, THEREFORE, BE IT RESOLVED as follows:
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1. That the Board of Directors, on its own motion, does hereby declare its
intention to exclude parcels within ID 25, as identified in Exhibit 1 to this resolution.
2. That the taxes for carrying out the purposes of ID 25 will not be levied
upon taxable property in the excluded territory following such exclusion.
3. That there is no bond debt on ID 25 and, therefore, taxes for the payment
of principal and interest on any outstanding bonds of ID 25 will not be levied upon
taxable property in the excluded territory following such exclusion.
4. That, following such exclusion, the taxable property in the territory
remaining in ID 25, if any, shall continue to be levied upon and taxed to provide funds
for the purposes of ID 25.
5. That a map showing the exterior boundaries of the proposed territory to be
excluded, with relation to the territory remaining in ID 25, is on file with the Secretary of
the District and is available for inspection by any person or persons interested. Said
map shall govern for all details as to the extent of the proposed exclusion.
6. That notice is hereby given that a hearing shall be held by the Board on
Wednesday, November 6, 2013, at 3:30 p.m. on the questions of the proposed
exclusion and the effect of such exclusion upon the Otay Water District, ID 25 and the
territory to be excluded. At such time and place, any person interested, including all
persons owning property in the Otay Water District or in ID 25, will be heard.
BE IT FURTHER RESOLVED that the Board directs staff to provide notice of the
proposed exclusion and publish a copy of this Resolution of Intention to Exclude
pursuant to and consistent with Government Code section 6066 and Water Code
section 72084.
PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay
Water District at a regular meeting held this 6th day of November, 2013.
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Secretary
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RESOLUTION NO. 4221
A RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT DECLARING ITS INTENTION TO ANNEX PARCELS EXCLUDED FROM IMPROVEMENT DISTRICT 19 INTO IMPROVEMENT DISTRICT 22
WHEREAS, on April 19th, 1971 by Resolution No. 866, the Otay Water District
Board of Directors (“Board”) formed Improvement District (“ID”) 19 for the purpose of
incurring necessary bonded indebtedness for the acquisition, construction and
completion of water improvements and works; and
WHEREAS, on July 3rd, 1972 by Resolution No. 986, the Board formed ID 22 for
the purpose of incurring necessary bonded indebtedness for the acquisition,
construction, and completion of water improvements and works; and
WHEREAS, the availability charges and water rates and charges are identical
between IDs 19 and 22; and
WHEREAS, staff has determined that there is no longer a reason to separate
these parcels; and
WHEREAS, by initiating proceedings to consolidate ID 19 into ID 22 it would
streamline the accounting and tracking of these parcels; and
WHEREAS, the Board hereby declares its intention to annex parcels excluded
from ID 19, if approved, into ID 22, pursuant to Water Code sections 72700, et seq.; and
WHEREAS, in compliance with Proposition 218, the Otay Water District held the
required public hearing on the new fees and changes for the parcels excluded from ID
19 and annexed into ID 22, if approved, at its September 4, 2013 Board meeting, where
the Board determined that there were no protests regarding this action;
NOW, THEREFORE, BE IT RESOLVED as follows:
1. That the Board of Directors, pursuant to Water Code sections 72700, et
seq., does hereby declare its intention to annex the parcels excluded from ID 19, if
approved, into ID 22, as described in Exhibit “1”:
Page 2 of 3
2. That the purpose of the proposed annexation, in conjunction with the
exclusion of parcels from ID 19, is to streamline the accounting and tracking of parcels
in IDs with the same availability charges and water rates and charges, thereby
increasing efficiencies for the Otay Water District without resulting in any changes to the
fees or charges imposed on property owners.
3. A depiction of the area proposed to be annexed, and the boundaries of
IDs 19 and 22 following the annexation, is set forth on a map in Exhibit “1” filed with the
Secretary of the District, which map shall govern for all details as to the area proposed
to be annexed.
4. That the annexation of said parcels is subject to the owners complying
with the following terms and conditions:
(a) Payment of yearly assessment fees of $30.00 per acre of land and
$10.00 per parcel of land less than one acre which will be collected
through the County Tax Assessor’s office.
(c) In the event that water service is to be provided, the payment of all
applicable water meter fees per Equipment Dwelling Unit (EDU) at
the time the meter is purchased.
(d) Payment of all other applicable local or state agency fees or
charges.
5. That the holders of title to any of the parcels to be annexed may file
written protests with the Secretary of the District regarding the annexation or the
annexation upon the terms and conditions identified above, to the following address:
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District Secretary
Otay Water District
2554 Sweetwater Springs Boulevard
Spring Valley, CA 91978
4. That notice is hereby given that a hearing shall be held by the Board on
Wednesday, November 6, 2013, at 3:30 p.m. at which the Board will receive written
protests theretofore filed with the Secretary of the District, receive additional written
protests, and hear from any and all persons interested in the annexation.
BE IT FURTHER RESOLVED that the Board directs staff to provide notice of the
proposed annexation and publish and post a copy of this Resolution of Intention to
Annex pursuant to and consistent with Government Code section 6066 and Water Code
sections 72702 and 72703.
PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay
Water District at a regular meeting held this 6th day of November, 2013.
President
ATTEST:
__________________________________ District Secretary
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RESOLUTION NO. 4222
A RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT DECLARING ITS INTENTION TO ANNEX PARCELS EXCLUDED FROM IMPROVEMENT DISTRICT 25 INTO IMPROVEMENT DISTRICT 20
WHEREAS, on May 1st, 1978 by Resolution No. 1498, the Otay Water District
Board of Directors (“Board”) formed Improvement District (“ID”) 25 for the purpose of
incurring bonded indebtedness for the construction of a water transmission and
distribution system; and
WHEREAS, on May 17th, 1971 by Resolution No. 880, the Board formed ID 20
for the purpose of incurring necessary bonded indebtedness for the acquisition,
construction, and completion of water improvements and works; and
WHEREAS, the availability charges and water rates and charges are identical
between IDs 25 and 20; and
WHEREAS, staff has determined that there is no longer a reason to separate
these parcels; and
WHEREAS, by initiating proceedings to consolidate ID 25 into ID 20 it would
streamline the accounting and tracking of these parcels; and
WHEREAS, the Board hereby declares its intention to annex parcels excluded
from ID 20, if approved, into ID 25, pursuant to Water Code sections 72700, et seq.; and
WHEREAS, in compliance with Proposition 218, the Otay Water District held the
required public hearing on the new fees and changes for the parcels excluded from ID
25 and annexed into ID 20, if approved, at its September 4, 2013 Board meeting, where
the Board determined that there were no protests regarding this action;
NOW, THEREFORE, BE IT RESOLVED as follows:
1. That the Board of Directors, pursuant to Water Code sections 72700, et
seq., does hereby declare its intention to annex the parcels excluded from ID 25, if
approved, into ID 20, as described in Exhibit “1”:
Page 2 of 3
2. That the purpose of the proposed annexation, in conjunction with the
exclusion of parcels from ID 25, is to streamline the accounting and tracking of parcels
in IDs with the same availability charges and water rates and charges, thereby
increasing efficiencies for the Otay Water District without resulting in any changes to the
fees or charges imposed on property owners.
3. A depiction of the area proposed to be annexed, and the boundaries of
IDs 25 and 20 following the annexation, is set forth on a map in Exhibit “1” filed with the
Secretary of the District, which map shall govern for all details as to the area proposed
to be annexed.
4. That the annexation of said parcels is subject to the owners complying
with the following terms and conditions:
(a) Payment of yearly assessment fees of $30.00 per acre of land and
$10.00 per parcel of land less than one acre which will be collected
through the County Tax Assessor’s office.
(c) In the event that water service is to be provided, the payment of all
applicable water meter fees per Equipment Dwelling Unit (EDU) at
the time the meter is purchased.
(d) Payment of all other applicable local or state agency fees or
charges.
5. That the holders of title to any of the parcels to be annexed may file
written protests with the Secretary of the District regarding the annexation or the
annexation upon the terms and conditions identified above, to the following address:
Page 3 of 3
District Secretary
Otay Water District
2554 Sweetwater Springs Boulevard
Spring Valley, CA 91978
4. That notice is hereby given that a hearing shall be held by the Board on
Wednesday, November 6, 2013, at 3:30 p.m. at which the Board will receive written
protests theretofore filed with the Secretary of the District, receive additional written
protests, and hear from any and all persons interested in the annexation.
BE IT FURTHER RESOLVED that the Board directs staff to provide notice of the
proposed annexation and publish and post a copy of this Resolution of Intention to
Annex pursuant to and consistent with Government Code section 6066 and Water Code
sections 72702 and 72703.
PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay
Water District at a regular meeting held this 6th day of November, 2013.
President
ATTEST:
__________________________________ District Secretary
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STAFF REPORT
TYPE MEETING: Regular Board
MEETING DATE: November 6, 2013
SUBMITTED BY:
Jose Martinez, Utility
Services Manager
PROJECT: P2282 DIV. NO. ALL
APPROVED BY:
Pedro Porras, Chief Water Operations
German Alvarez, Asst. General Manager
Mark Watton, General Manager
SUBJECT: Approval to Purchase Utility Crew Truck
GENERAL MANAGER’S RECOMMENDATION:
That the Board authorize the General Manager to: 1) Issue a
purchase order to Inland Kenworth in the amount of $175,876.30
for the purchase of one (1) New Kenworth Utility Crew Truck and
2) declare Unit No. 111 Utility Crew Truck surplus.
COMMITTEE ACTION:
See Attachment “A”.
PURPOSE:
To obtain Board authorization to purchase a Utility Crew Truck.
ANALYSIS:
Included in the approved FY 2014 budget is one (1) new Utility
Crew Truck. The Utility Crew Truck is a replacement vehicle for
existing Unit No. 111 and is scheduled to be utilized by the
Utility Maintenance Staff.
The crew truck shown on Attachment “B” provides the Utility
Maintenance crews with job site access to equipment such as the
tools, parts, cranes, generators, air compressors and the safety
equipment needed to perform repairs in a timely manner.
Additionally, the crew truck transports the District’s heavy-
construction equipment including backhoes, skid steers, shoring
trailers, etc. The utility crew truck is the most utilized
vehicle by the crews when performing the maintenance and repair
of the District’s infrastructure.
Unit No. 111 is a 1999 GMC C-8500 Class 8 Utility Crew Truck.
This unit is 14 years old and has 72,100 chassis miles. Due to
the nature of the vehicle’s work the useful in-service life of
this machine is 7-10 years. Funding for this purchase has been
included in P2282 – Vehicle Replacement.
Based on system operation evaluations of work flow by the
Construction/Maintenance supervision and management, it is
recommended that one (1) new Kenworth Utility Crew Truck be
purchased and the older utility truck be declared surplus. Staff
evaluated alternative manufacturers and obtained recent pricing
paid by other agencies for comparable units. Based on the
information obtained it was determined that Kenworth was the one
with the best value for the District, therefore, we solicited
three quotes in accordance with District policy.
Quotes received include all applicable fees, taxes, and
delivery.
Dealer Vehicle Bid Quote Price
Inland Kenworth El Cajon
Kenworth T-370 Truck
with Utility Body and
Crane
$175,876.30
Summit Truck Bodies
Kenworth T-370 Truck
with Utility Body and
Crane
$176,948.88
Inland Kenworth
Montebello
Kenworth T-370 Truck
with Utility Body and
Crane
$179,352.82
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
Projected purchase budget for this vehicle is $170,000.00 The
purchase of this vehicle will cost $175,876.30 which will be
charged against the Vehicle Replacement CIP P2282. As a result
of savings in the actual costs of replacement of other CIP
budgeted items, and the elimination of two replacement vehicles
that are no loger required due to staffing needs, the total
projected expenses for this fiscal year will be under the the
approved budget amount.
The total FY 2014 project budget for vehicle replacements is
$632,200.00. Existing expenditures and current encumbrances for
the CIP, including the vehicle purchased under this request if
approved, are $579,994.63. This will complete the purchases for
vehicle replacements for this fiscal year.
Based on the Utility Service Manager’s evaluation, the FY 2014
vehicle replacement budget is sufficient to complete the
budgeted purchase.
The Finance Department has determined that 100% of the funds are
available in the replacement fund.
Expenditure Summary:
FY14 Vehicle Replacement Budget: $632,200.00
FY13 Expenditures and Encumbrances to Date:
Vehicle Replacement of existing fleet. $366,118.33
Scheduled Vehicle Replacement: $38,000.00
Proposed Vehicle Purchase: $175,876.30
Projected Expenditures of Vehicle
Replacement FY12 CIP 2282 Budget: $579,994.63
STRATEGIC GOAL:
Operate the system to meet demand twenty-four-hours a day, seven
days a week.
LEGAL IMPACT:
None.
General Manager
Attachment “A”, Committee Action
Attachment “B”, Utility Crew Truck Photo
ATTACHMENT A
SUBJECT/PROJECT:
Approval to Purchase Utility Crew Truck
COMMITTEE ACTION:
The Finance, Administration and Communications Committee met on
October 22, 2013 and supported staffs' recommendation.
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.
ATTACHMENT B
STAFF REPORT
TYPE MEETING: Regular Board
MEETING DATE: November 6, 2013
PROJECT: Various DIV. NO. All
SUBMITTED BY:
Stephen Dobrawa
Purchasing and Facilities Manager
Dan Martin
Engineering Manager
APPROVED BY:
Rom Sarno, Chief, Administrative Services
Rod Posada, Chief, Engineering
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: REQUEST AUTHORIZATION FOR THE GENERAL MANAGER TO DECLARE AND
DISPOSE OF SURPLUS REAL ESTATE PROPERTY
GENERAL MANAGER’S RECOMMENDATION:
That the Board declare the 2.41-acre parcel on Sweetwater Springs Blvd.
(APN 505-230-51-00) as surplus and authorize the General Manager to
dispose of the declared property in accordance with applicable statutes
and laws in the best interest of the District.
COMMITTEE ACTION:
See “Attachment A”.
PURPOSE:
To request that the Board declare real property as surplus to the
District’s needs and authorize the General Manager to dispose of the
property.
ANALYSIS:
APN 505-230-51-00
During the September 4, 2013 Board meeting, a request to have the Board
declare four (4) properties as surplus to the District’s needs was
presented. The Board voted to approve the recommendation with the
exception of the 2.41-acre parcel located on Sweetwater Springs Blvd.
and identified as APN 505-230-51-00.
At that time, the Board requested that the District contact adjoining
property owners who have expressed an interest in acquiring the
property. It was requested that the District inform them that it is
considering declaring the property surplus and disposing of it in
accordance with applicable laws. As a result, the District has been in
telephone and e-mail contact with Mr. Dan Floit, owner of the Jackson
Pointe Community. Mr. Floit indicates that he has no objection should
the District declare the property surplus and that he has been in
contact with Mr. Skip Flynn, and other members of the Lakeview HOA to
discuss granting them an emergency access easement to their property
should he be successful in acquiring it. The District has received an
e-mail message from Mr. Floit indicating this information and to date,
Mr. Flynn has not expressed any objections to the District’s intentions.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
It is anticipated that the District will obtain the fair market value
for the properties. The proceeds from the sale of each property will
be credited to the funds that provided for their purchase.
Staff anticipates that the Purchasing and Facilities Outside Services
budget will be exceeded by $22,500 to cover the cost of appraisal
services. At the time of the budget preparation, the sale of these
properties was not anticipated. Currently, Purchasing and Facilities’
expenses have not exceeded anticipated expenses and it is expected that
there will be sufficient funds available to offset the higher than
budgeted appraisal costs.
STRATEGIC GOAL:
Ensure financial health through formalized policies, prudent
investing and efficient operations.
Optimize District efficiencies.
LEGAL IMPACT:
None.
Attachments: Attachment A – Committee Action Report
Attachment B – Map of Subject Property
ATTACHMENT A
SUBJECT/PROJECT: REQUEST AUTHORIZATION FOR THE GENERAL MANAGER TO DECLARE AND
DISPOSE OF SURPLUS REAL ESTATE PROPERTY
COMMITTEE ACTION:
The Finance, Administration, and Communications Committee met on October
22, 2013 to review this item. The Committee supports presentation to
the full Board for their consideration.
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.
DR
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10th St
5th St 9th St
US Elevator RdPointe Pkwy
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1
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ROW
5052313500
5052312600
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DIV. 5
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DIV. 1
DIV. 3
DIV. 4
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0 270 540 810 1,080135FeetLOCA T I O N M A P
V I C I N I T Y M A PAttachment B - Map 1
N/A
N/A
505-230-51-00
2.41 ACRES
On Sweetwater Springs Blvd nearUS Elevator Road, Spring Valley
OTAY WATER DISTRICT
DIV. 3
ID 20
6/26/2013
DEVELOPER:
PROJECT#:
APN:
AREA:
OWNER:
PROPERTYLOCATION:
DATE:
DIR:
WID:
Parcel to be surplused:505-230-51-00
Ja m acha Blvd
CA-94 ECA-94 W
Austin Dr
Singer Ln
Del Rio Rd
Reservoir Dr
S Barcelona St
Pointe Pkwy
Sweetwater Springs Blvd
Fairhill Dr
Calavo Dr
Ivy St
Madrid Way
6th St
Highlands Blvd
S Bonita St
Apple St
Campo Rd
Ybarra RdCristobal Dr
Mo o r p ar k S t
D on Pic o Rd
Cuyamaca Ave
Jacoby Rd
2nd St
Trace Rd
Villa Bonita
4th St
San Bernardino Ave
Avenue A
Sangamon Ave
San Carlos Dr
G re e nle af R d
L e d g e sid e S t
D
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bletr
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Elmdale Dr
Diversion Dr
W
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Loma Ln
Fabled Waters Dr
G
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C liff vi e w P l
Ivanho St
La Mesa Ave Eubank Ln
B
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Bit
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Fi e l d c r e s t S t
Vi
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9th St
Javelin Way
Arapaho St
La Cresta Rd
Avenida Roberta
Norte Mesa Dr
N u e r t o L n
Canyonview CtGlenside St
Daleridge Pl
Contut Ct
D ale Rd
Casa Nueva St
Calle Marinero
Sierra Bonita St
S Cordoba Ave
Coach Dr
Limetree Ln
Harmony Ln
Via de Oro
A v e n u e G
B
rig
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t
C
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US Elevator Rd
Scenic Ter
Lake Breeze Ct
Felicia Ln
View Crest Ct
Anoel Ct
Gayla Ct
M
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L
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Alwood Ct
Campo Rd
Campo Rd
La Mesa Ave
Calavo Dr
C
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94 94
Parcel to be surplussed:505-230-51-00
STAFF REPORT
TYPE MEETING: Regular Board
MEETING DATE: November 6, 2013
SUBMITTED BY:
Mark Watton,
General Manager
PROJECT: DIV. NO. ALL
SUBJECT: Approve Agreement for General Counsel Services
GENERAL MANAGER’S RECOMMENDATION:
Approve an agreement with the law firm of Stutz, Artiano, Shinoff and Holtz, A Professional Corporation, for a term of two (2) years through December 31, 2015, to provide general counsel services to the District.
COMMITTEE ACTION:
Please see Attachment A. PURPOSE:
To present for the Board’s consideration an agreement with the law firm of Stutz, Artiano, Shinoff and Holtz, A Professional Corporation, for a term of two (2) years through December 31, 2015,
to provide general counsel services to the District. ANALYSIS: Stutz, Artiano, Shinoff and Holtz, A Professional Corporation (SASH),
has served as the District’s special counsel since January 1, 2011. The District’s current contract with SASH was for a two-year period
and is set to expire at the end of calendar year 2013. The District has been happy with the services SASH has provided and
is recommending that the board approve the proposed agreement as per the terms indicated in the agreement (Attachment B). If approved,
the agreement would provide for a two (2) year term expiring on December 31, 2015.
2
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
The agreement allows for one hundred (100) hours or $20,000 per
calendar month of basic retainer services as described in the attached agreement. Additional services, as described in Section 4.b of the agreement, and time in excess of the one hundred (100) hours will be compensated on an hourly basis based on the rates noted in the agreement.
LEGAL IMPACT:
None.
Attachments:
Attachment A – Committee Actions Attachment B – Proposed Legal Services Agreement
ATTACHMENT A
SUBJECT/PROJECT:
COMMITTEE ACTION:
The Finance, Administration and Communications Committee reviewed this
item at a meeting held on October 22, 2013 and supported presentation to the full board for consideration.
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.
G:\UserData\DistSec\WINWORD\AGREMNTS\Legal Services Agreement--2014 and 2015 (S0154193-2) 11-6-13.docx 1 Legal Serv
LEGAL SERVICES AGREEMENT
1. IDENTIFICATION OF PARTIES. This Agreement, executed in duplicate with each party
receiving an executed original, is made between Stutz Artiano Shinoff & Holtz, A Professional
Corporation, hereinafter referred to as “Law Firm” and Otay Water District, hereinafter referred
to as “Client.” This Agreement is entered into beginning the month of January, 2014, for legal
services. The agreement is made for a term of two years up to and including December 31,
2015. The Client and Law Firm will hold an annual review in 2014 regarding expectations,
performance, and other issues impacting the Client and Law Firm under this agreement.
2. LEGAL SERVICES TO BE PROVIDED. The legal services to be provided by Law Firm to
Client are as follows:
Representation, counsel and consultation in connection with Client’s general counsel
needs; human resources, legal support including review of policies and procedures, contract
review; preparation and participation in monthly Board meetings and special meetings
(“Services”).
Without limiting the generality of the foregoing, this Agreement shall govern so long as
Client desires to retain the Law Firm in connection with Services.
3. RESPONSIBILITIES OF LAW FIRM AND CLIENT. Law Firm will perform the services
called for under this Agreement, keep Client informed of progress and developments, and
respond promptly to Client’s inquiries and communications. Daniel R. Shinoff and Jeffery A.
Morris are intended to be the Law Firm attorneys primarily responsible for the consultation and
representation. Client will cooperate with the Law Firm in the representation set forth herein,
and will timely make any payments required by this Agreement.
4. ATTORNEY’S FEES. Client will pay Law Firm for attorneys’ fees for the consultation
and legal services provided under this Agreement as follows:
A. Basic Retainer. Law Firm shall be compensated for the performance of
basic retainer services pursuant to this Agreement in the amount of Twenty Thousand Dollars
($20,000) per calendar month commencing as of the effective date of this Agreement. Basic
retainer services for the purposes of this Agreement shall be deemed to be the first one hundred
(100) hours of Law Firm’s legal services rendered each month.
B. Additional Services. Law Firm shall be compensated for additional
services in accordance with the following:
1. As directed by the General Manager or Board President;
2. PERB hearings, writs of mandate, or other litigated matters not covered
by insurance;
G:\UserData\DistSec\WINWORD\AGREMNTS\Legal Services Agreement--2014 and 2015 (S0154193-2) 11-6-13.docx 2 Legal Serv
3. Other complex matters, employment, personnel matters, or special
projects with the approval of the General Manager or Board President.
Additional services and time in excess of the one hundred (100) hours per calendar
month spent by Law Firm’s Attorneys, Law Firm shall be compensated on an hourly basis at
$240.00 per hour for partners, $210.00 per hour for associates, and $95.00 per hour for
paralegals. The Law Firm will charge in increments of one-tenth of an hour, rounded off for
each particular activity to the nearest one-tenth of an hour. The minimum time charged for any
particular activity will be one-tenth of an hour.
Law Firm will charge for all activities undertaken in providing consultation and legal
services to Client under this Agreement, including, but not limited to, the following: time spent
formulating and dispensing legal advice and opinions; negotiation; gathering relevant
information; conferences; correspondence and legal documents (review and preparation); legal
research; and telephone conversations.
Client acknowledges that Law Firm has made no promises about the total amount of
attorneys’ fees to be incurred by Client under this Agreement.
5. COSTS. Client will pay all “costs” in connection with Law Firm’s representation of
Client under this Agreement. Costs will be billed directly to Client unless, at the option of Law
Firm, costs are advanced by Law Firm. Costs include, but are not limited to, long-distance
telephone charges, messenger service fees, photocopying expenses, as well as any other items
generally accepted as “costs.”
6. STATEMENTS AND PAYMENTS. Law Firm will send Client monthly statements
indicating attorneys’ fees and costs incurred and their basis, any amounts applied from
deposits, and any current balance owed. If no attorney’s fees or costs are incurred for a
particular month, or if they are minimal, the statement may be held and combined with that for
the following month. Any balance will be paid in full within thirty (30) days after the statement
is mailed.
7. MEDIATION CLAUSE. Client and Law Firm are agreeing to have any and all disputes
(except where Client may request arbitration of a fee dispute by the State Bar) that arise out of,
or relate to this Agreement, including but not limited to claims of negligence or malpractice
arising out of or relating to the legal services provided by Law Firm to Client, go to mediation
before the filing of any civil proceeding. Client, however, may request arbitration of a fee
dispute by the State Bar or San Diego County Bar Association as provided by Business and
Professions Code Section 6200, et seq.
8. ERRORS AND OMISSIONS INSURANCE. The Law Firm maintains errors and omissions
insurance coverage applicable to the services to be rendered under this Agreement.
G:\UserData\DistSec\WINWORD\AGREMNTS\Legal Services Agreement--2014 and 2015 (S0154193-2) 11-6-13.docx 3 Legal Serv
9. TERMINATION. The Client or the Law Firm may, at any time, with or without reason,
terminate this Agreement upon thirty (30) days prior written notice to the other party. In the
event of termination, the Law Firm shall be entitled to payment only for acceptable and
allowable work performed under this Agreement through the date of termination.
THE FOREGOING IS AGREED TO BY:
DATED: ______________________ OTAY WATER DISTRICT
By: _________________________________
Mark Watton
General Manager
DATED: ______________________ STUTZ ARTIANO SHINOFF & HOLTZ
A Professional Corporation
By: _________________________________
Jeffery A. Morris, Esq.
Partner
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 6, 2013
SUBMITTED BY:
Kevin Koeppen, Finance Manager
PROJECT: DIV. NO. All
APPROVED BY:
Joseph R. Beachem, Chief Financial Officer
German Alvarez, Assistant General Manager
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, 2013.
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 2013 Actuarial Report prepared by
Bartel Associates, LLC. This staff report is an informational item
that reviews the key findings of the Actuarial report. This study is
what determines the District’s Annual Required Contribution (ARC)
which is reported in the District’s financial statements. In
2
addition to the typical information found in an actuarial study,
Bartel Associates was asked to evaluate the status of the cost and
benefit of the increased employee contributions to PERS and the
enhancement of the OPEB benefits.
ANALYSIS:
Since the 2011 OPEB change, staff has reported to the Board on two
occasions regarding the net savings status. In each report the
savings exceeded the costs. Due to changes in the actuarial
assumptions the net costs are now anticipated to exceed the projected
benefit by $43,000 in FY 2014. The cost of the benefit enhancement
is projected to be $937,000 while the savings from the increased
employee PERS contributions is projected to be $894,000. The net
cost to the District, projected by the Actuary, will increase
slightly over the foreseeable future.
Using the new assumptions the unrepresented employees continue to
have a positive net savings to the District of $7,000 a year. This
savings is expected to grow slightly over time. The net savings of
the plan change and contributions for the represented employees has
moved to a slight negative of -$50,000. This cost is expected to
grow slightly over time.
The Actuary has made a number of assumption changes that have
increased the AAL (Actuarial Accrued Liability) and the ARC (Annual
Required Contribution). The most significant changes are in medical
costs and the mortality tables. These along with other changes have
increased the ARC by $173,000 in FY 2014 from $1,266,000 to
$1,439,000 and have increased the AAL by $2.2 million. These changes
also have a negative effect on the current funding level of the
Trust. However, another assumption change has an even greater
positive effect on the future ARC and Trust funding levels.
Since the creation of the Trust the District has not only paid the
ARC but has also paid the retiree medical premiums. Because of these
payments the retiree medical premiums are not paid from the Trust
resulting in an accelerated funding level. The prior actuarial study
did not assume the continued payment of those premiums by the
District. However, the District has continued to budget for these
costs and in this actuarial study the assumption has been changed to
reflect the budgeted and projected funding levels.
With all the assumption changes, the actuarial study shows the OPEB
trust funding level increasing rapidly from the current 52% to 83%
over the six-year budget plan, FY 2014 to FY 2019. The prior
actuarial study anticipated the funding level to be only 73% by
3
FY 2019. This budgeted rate of funding has the added benefit of
significantly reducing the District’s ARC payments over time.
Staff did not account for a decreasing ARC in the budgeting process.
As a result of this and the general conservative budgeting of OPEB
costs, the District’s rate modeling for OPEB funding is greater than
the actuarially projected costs in all but the current fiscal year.
In the current year, with the assumption changes the budgeted funding
is approximately $69,000 lower than the projected cost. In the next
fiscal year, FY 2015, the projected budget is expected to exceed the
projected cost by $80,000. Staff will adjust down the future funding
projections in the next budget process to match the newest actuarial
projected costs. After all assumption and projection changes are
factored into the actuarial calculations, the funding level of the
OPEB Trust is expected to reach 100% by fiscal 2023.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
For FY14 the updated OPEB costs including the ARC and the retiree
medical premiums exceeds the budgeted OPEB funding by $69,000. As
the additional funding of the Trust is not required, the budgeted
amount does not require an adjustment. Only the budgeted amount will
be paid into the OPEB Trust.
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
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.
OTAY WATER DISTRICT
RETIREE HEALTHCARE PLAN
June 30, 2013 GASB 45 Actuarial Valuation
Preliminary Results
Bartel Associates, LLC
John E. Bartel, President
Joseph R. D’Onofrio, Assistant Vice President
Adam Zimmerer, Actuarial Analyst
Cathy Wandro, Assistant Vice President
Revised October 11, 2013
O:\Clients\Otay Water District\Projects\OPEB\2013\Reports\BA OtayWD 13-10-11 OPEB 13-06-30 preliminary valuation results.docx
AGENDA
Topic Page
Benefit Summary 1
Data Summary 6
Assets 9
Assumptions & Methods Highlights 13
Results 21
Bartel Associates OPEB Database 45
Other Issues 48
Next Steps 49
Exhibits 50
October 11, 2013 1
BENEFIT SUMMARY
Eligibility Full-time employees who retire directly from District under
CalPERS (age 50 and 5 years of CalPERS service or disability)
Hired < 1/1/81 - Age 55 and 5 years of District service1
Hired ≥ 1/1/81 & < 7/1/93 and General Manager - Age 55 and
age plus District service ≥ 701
Hired ≥ 7/1/93 & < 1/1/13 - Age 55 and 20 years of District
service (15 years for Unrepresented)
Hired ≥ 1/1/13 - Age 55 & 20 years of District service
Directors
Elected < 1/1/95 - Age 60 and 12 years of District service2
Elected ≥ 1/1/95 - Not eligible
District service for eligibility is continuous service from last
hire date
Medicare eligible retirees and spouses must enroll in Medicare
Medical Plans EPO, PPO, and HMO available before Medicare eligibility
Only PPO available after Medicare eligibility
1 All full-time employees hired before 7/1/93 and continuously working for the District have 20 or more years of District service
on 6/30/13. Two active employees were hired before 1/1/81 and 10 active employees were hired between 1/1/81 and 7/1/93.
2 There are 2 retired Directors.
October 11, 2013 2
BENEFIT SUMMARY
Medical & Dental 100% of retiree premium for life
Retired < 12/29/03 - 100% spouse premium for life and 100%
eligible dependent premium to age 19
Retired ≥ 12/29/03 - 88% of spouse premium for life and 88%
eligible dependent premium to age 19
Retiree can pay eligible dependent premium after age 19 as
required by law
Eligible Directors - 100% of family premium for life
Survivors
Unrepresented
Retired < 7/15/11
Represented
Retired < 8/10/11
Directors
Elected < 1/1/95
Retired < 12/29/03 and Directors elected < 1/1/95 - 100%
spouse premium and 100% eligible dependent premium to
age 19
Retired ≥ 12/29/03 - 88% of spouse premium and eligible
dependent premium to age 19
Spouse coverage after retiree death but not past spouse age 65
Eligible dependent can pay full premium after age 19 as
required by law
Survivor benefit available to actives eligible to retire
October 11, 2013 3
BENEFIT SUMMARY
Survivors
Unrepresented
Retired ≥ 7/15/11
Represented
Retired ≥ 8/10/11
88% of spouse premium for life and eligible dependent
premium to age 19
Eligible dependent can pay full premium after age 19 as
required by law
Survivor benefit available to actives eligible to retire
October 11, 2013 4
BENEFIT SUMMARY
Disability &
Hardship
Disability - Age 50 and10 years of District service
Hardship
Hired < 1/1/13 - Hardship as determined by the District and
20 years of District service (15 years for Unrepresented)
Hired ≥ 1/1/13 - Hardship as determined by the District and
20 years of District service
Early retirement adjustment to benefit:
Age Percent
50 70%
51 76%
52 82%
53 88%
54 94%
≥55 100%
Life Insurance Retired < 12/29/03 - $3,000 for retiree to age 70
Retired < 12/29/03 & hired < 1/1/81 - $1,000 for spouse to
retiree age 70
Directors not eligible
October 11, 2013 5
BENEFIT SUMMARY
District Pay-As-
You-Go Cost
(‘000s)
Fiscal
Year
Cash
Subsidy
PayGo
Implied
Subsidy
PayGo
CERBT
PayGo
Total
PayGo
CAFR
PayGo
2012/13 $809 $86 $0 $895 n/a
2011/12 750 91 0 841 $841
2010/11 654 99 0 753 753
District
Contributions3
(‘000s)
Fiscal
Year
Cash
Subsidy
PayGo
Implied
Subsidy
PayGo
CERBT
Funding
Total
Contrib ARC
2012/13 $809 $86 $1,287 $2,182 $1,287
2011/12 750 91 1,304 2,145 1,304
2010/11 654 99 289 1,042 289
3 District’s current funding policy is to prefund full ARC with CERBT and additionally pay benefit payments as due from
District assets.
October 11, 2013 6
DATA SUMMARY
Participants
Valuation Date 6/30/07 6/30/09 6/30/11 6/30/13
Actives
Count 164 160 150 137
Average Age 44.3 44.8 46.5 46.5
Average District Service 7.5 8.4 10.2 9.5
Average Pay $68,873 $76,634 $80,784 $87,366
Total Payroll (000’s) 10,951 11,878 12,118 11,969
Waived Medical Coverage 10 10 9 8
Total Participating 154 150 141 129
Retirees
Count 67 69 69 80
Average Age 67.5 67.7 68.7 68.5
Ave Retirement Age 59.5 59.0 58.5 58.3
October 11, 2013 7
DATA SUMMARY
Active Participants
Active Participants 6/30/11 6/30/13
Unrepresented
Executive 8 7
Confidential 10 8
Confidential Management 3 3
Manager 9 9
Supervisor 12 9
Total Unrepresented 42 36
Represented
Administrative 54 50
Field 54 51
Total Represented 108 101
Total Actives 150 137
October 11, 2013 8
DATA SUMMARY
Active Participants
Valuation Date June 30, 2011 June 30, 2013
Employee Group Unrep Rep Total Unrep Rep Total
Actives
Count 42 108 150 36 101 137
Average Age 49.0 45.5 46.5 48.0 45.9 46.5
Average Service 12.6 8.7 9.8 11.6 8.7 9.5
Average Pay $114,543 $67,655 $80,784 $123,826 $74,371 $87,366
Total Payroll (000’s) 4,811 7,307 12,118 4,458 7,511 11,969
Waived Med Coverage 2 7 9 1 7 8
Total Participating 40 101 141 35 94 129
October 11, 2013 9
ASSETS
Market Value of Plan Assets
(Amounts in 000’s)
Market Value of Assets 2008/09 2009/10 2010/11 2011/12 2012/13
Market Value at Beginning of Year $5,611 $5,228 $6,372 $8,258 $9,595
CERBT Contributions 873 345 289 1,304 1,287
District PayGo Contributions4 608 598 654 750 809
Investment Earnings (1,252) 805 1,606 43 1,135
District Benefit Payments (608) (598) (654) (750) (809)
Administrative Expenses (4) (6) (9) (10) (16)
Market Value at End of Year 5,228 6,372 8,258 9,595 12,001
Market Value Est Net Return5 (21.2%) 15.1% 24.5% 0.38% 11.2%
CERBT Net Annual Return (23.0%) 15.9% 25.0% 0.15% 11.8%
4 Cash benefit payments made directly from District assets. Excludes implied subsidy payments. 5 Includes the impact of cash flow timing.
October 11, 2013 10
ASSETS
Actuarial Value of Plan Assets
(Amounts in 000’s)
Actuarial Value of Assets 2008/09 2009/10 2010/11 2011/12 2012/13
Actuarial Value at Beginning of Year $5,861 $6,273 $6,962 $7,893 $9,762
Cash Contributions 1,481 943 943 2,054 2,096
Expected Net Earnings 478 491 550 608 739
Benefit Payments (608) (598) (654) (750) (809)
Expected AVA at End of Year 7,212 7,109 7,801 9,804 11,788
Market Value at End of Year 5,228 6,372 8,258 9,595 12,001
MVA - Expected AVA (1,984) (737) 456 (209) 212
1/5 of (MVA - Expected AVA) (397) (147) 91 (42) 42
Preliminary AVA 6,815 6,962 7,893 9,762 11,831
Minimum AVA (80% of MVA) 4,182 5,098 6,606 7,676 9,601
Maximum AVA (120% of MVA) 6,273 7,647 9,909 11,514 14,401
Actuarial Value at End of Year 6,273 6,962 7,893 9,762 11,831
Actuarial Value Est Net Return (7.5%) 5.4% 9.0% 7.0% 7.9%
AVA/MVA 120% 109% 96% 102% 99%
October 11, 2013 11
ASSETS
2
4
6
8
10
12
14
16
6/30/08 6/30/09 6/30/10 6/30/11 6/30/12 6/30/13
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Valuation Date
Actuarial Value of Assets
(Millions of Dollars)
MVA AVA 80% MVA 120% MVA
October 11, 2013 12
ASSETS
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October 11, 2013 13
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Valuation Date June 30, 2011
2011/12 & 2012/13 ARCs
June 30, 2013
2013/14 & 2014/15 ARCs
Discount Rate 7.25% - Full ARC funding with
CERBT #1
Includes 0.36% margin for
adverse deviation
7.61% is expected long-term
return
Same
October 11, 2013 14
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Funding Policy Fund full ARC with CERBT
Fund #1
ARC plus benefit payments for
2011/12
Prefund full ARC with CERBT
Fund #1 plus budgeted benefit
payments from District assets
Portion of employees’
CalPERS member contribution
offsets District OPEB cost:
Hired < 1/1/13:
- Represented - .75% of
pay
- Unrepresented - None
Hired ≥ 1/1/13:
- Represented - 8.75% of
pay less CalPERS
member contribution
- Unrepresented - 8% of
pay less CalPERS
member contribution
Not reflected in valuation
October 11, 2013 15
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Medical Trend
Calendar
Year
Increase from Prior Year
Non-Medicare Medicare
All Plans
2011 Premiums2012 9.5% 10.0%2013 9.0% 9.4%2014 8.5% 8.9%2015 8.0% 8.3%2016 7.5% 7.8%2017 7.0% 7.2%2018 6.5% 6.7%2019 6.0% 6.1%2020 5.5% 5.6%2021+ 5.0% 5.0%
Calendar year premiums used
for following fiscal year
Calendar
Year
Increase from Prior Year
Non-Medicare Medicare
All Plans
2011 n/a 2012 n/a 2013 Premiums2014 Premiums 2015 8.0% 8.3% 2016 7.5% 7.8% 2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6%2021+ 5.0% 5.0%
Calendar year premiums
prorated for fiscal year
October 11, 2013 16
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Mortality,
Termination,
Disability
CalPERS 1997-2007
Experience Study
CalPERS 1997-2007
Experience Study
Mortality improvement
projection Scale AA. Sample
annual longevity increases:
Age Male Female
50 1.8% 1.7%
60 1.6% 0.5%
70 1.5% 0.5%
80 1.0% 0.7%
October 11, 2013 17
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
District Service
for Retirement
Hired < 1/1/81 - 5 years of
District service
Hired ≥ 1/1/81 & < 7/1/93 and
General Manager - Age plus
District service ≥ 70
Hired ≥ 7/1/93:
Unrepresented employees -
15 years of District service
Represented employees - 18
years of District
Hired < 1/1/81 - 5 years of
District service
Hired ≥ 1/1/81 & < 7/1/93 and
General Manager - Age plus
District service ≥ 70
Hired ≥ 7/1/93:
Unrepresented employees:
- Hired < 1/1/13 - 15 years
of District service
- Hired ≥ 1/1/13 - 20 years
of District service
Represented employees:
- 20 years of District service
5 years of District service if
employee does not have 15 or
20 years of service at age 65
October 11, 2013 18
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Service
Retirement
CalPERS 1997-2007
Experience Study
CalPERS Benefit 2.7%@55
CalPERS Hire Age 35
Expected Retire Age 58.1
CalPERS 1997-2007
Experience Study6
CalPERS Misc ERA
CalPERS Hire Age 35
Hire < 1/1/13 2.7%@55 58.1
Hire ≥ 1/1/13
Classic Member 2.7%@55 58.1
New Member 2.0%@62 60.9
Hardship
Retirements
5% of employees eligible to
retire at ages 50 through 54
Same
Participation at
Retirement
Currently covered and waived
Medical - 100%
Dental - 80%
Currently covered and waived
Medical - 100%
Dental - 100%
6 Expected Retirement Ages (ERA) for new member formulas based on CalPERS retirement assumptions for its AB 340
(PEPRA) actuarial cost analysis.
October 11, 2013 19
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Medical Plan at
Retirement
Currently covered:
Current plan election until
Medicare eligible
PPO after Medicare eligible
Waived actives - PPO
Waived retirees - n/a
Same
Preretirement
Survivor
Benefit
Not included Included
Cost Method Entry Age Normal -Normal
Cost is a level percentage of
payroll
Same
October 11, 2013 20
ASSUMPTIONS AND METHODS HIGHLIGHTS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Actuarial Value
of Assets
Investment gains and losses
spread over a 5-year rolling
period
Not less than 80% nor more
than 120% of market value
Same
Amortization
Method
Level percentage of payroll
26-year fixed (closed) period
for 2011/12 ARC
Level percentage of payroll
24-year fixed (closed) period
for 2012/13 ARC
October 11, 2013 21
RESULTS
Actuarial Obligations
6/30/11 Valuation 6/30/13 Valuation
Actuarial Obligations
(Amounts in 000’s)
Actual
6/30/11
Projected
6/30/13
Actual
6/30/13
Projected
6/30/14
Discount Rate 7.25% 7.25% 7.25% 7.25%
Present Value of Benefits
Actives $15,083 n/a $16,603 n/a
Retirees 9,100 n/a 13,059 n/a
Total 24,183 26,154 29,662 30,730
Actuarial Accrued Liability
Actives 9,189 n/a 9,832 n/a
Retirees 9,100 n/a 13,059 n/a
Total 18,289 20,725 22,891 24,168
Actuarial Value of Assets 7,893 11,764 11,831 14,093
Unfunded Actuarial Accrued Liability 10,396 8,961 11,060 10,075
AVA Funded Percent 43% 57% 52% 58%
Normal Cost 642 684 699 722
Pay-As-You-Go Cost 756 868 1,045 1,076
October 11, 2013 22
RESULTS
Estimated Actuarial Gains & Losses
(Amounts in 000’s)
Actuarial Gains & Losses NC% AAL
6/30/11 Actuarial Accrued Liability 5.2% $18,289
6/30/13 Expected Actuarial Accrued Liability 5.2% 20,725
Experience Losses (Gains)
Actual versus expected premiums (0.2%) (750)
Demographic & other 0.0% 142
Assumption Changes
Projected mortality improvement 0.3% 912
Surviving spouse coverage for new retirees 0.0% 302
Fiscal year medical trend 0.3% 1,274
Retirement rates 0.2% 142
Dental Participation 0.0% 86
Preretirement survivor benefit 0.0% 58
Total Changes 0.6% 2,166
6/30/13 Actuarial Accrued Liability 5.8% 22,891
October 11, 2013 23
RESULTS
Annual Required Contribution (ARC)
(Amounts in 000’s)
Annual Required
Contribution
6/30/11 Valuation 6/30/13 Valuation
2011/12 2012/13 2013/14 2014/15
Discount Rate 7.25% 7.25% 7.25% 7.25%
ARC - $
Normal Cost $ 642 $ 662 $ 699 $ 722
UAAL Amortization 662 625 739 691
Total ARC 1,304 1,287 1,439 1,413
Projected Payroll 12,429 12,833 11,969 12,358
ARC - %
Normal Cost 5.2% 5.2% 5.8% 5.8%
UAAL Amortization 5.3% 4.9% 6.2% 5.6%
Total ARC % 10.5% 10.0% 12.0% 11.4%
UAAL Amortization Years 26 25 24 23
October 11, 2013 24
RESULTS
Benefit Payment Projection
(Amounts in 000’s)
Cash Subsidy
Fiscal
Year
Current
Actives
Current
Retirees
Total
Cash
Implied
Subsidy
Total
Payment
2013/14 $ 5 $ 923 $ 929 $ 116 $ 1,045
2014/15 19 939 958 118 1,076
2015/16 37 969 1,006 123 1,129
2016/17 60 998 1,058 130 1,188
2017/18 89 1,015 1,104 125 1,229
2018/19 136 1,028 1,165 125 1,290
2019/20 195 1,029 1,225 124 1,349
2020/21 259 1,032 1,291 122 1,413
2021/22 338 1,018 1,356 120 1,476
2022/23 433 1,009 1,442 137 1,579
October 11, 2013 25
RESULTS
Actuarial Obligations
June 30, 2013 - 7.25% Discount Rate
(Amounts in 000’s)
Actuarial Obligations
Cash
Subsidy
Implied
Subsidy Total
Present Value of Benefits
Actives $15,069 $1,534 $16,603
Retirees 12,404 655 13,059
Total 27,473 2,189 29,662
Actuarial Accrued Liability
Actives 8,912 919 9,832
Retirees 12,404 655 13,059
Total 21,316 1,574 22,891
Actuarial Value of Assets7 11,017 813 11,831
Unfunded Actuarial Accrued Liability 10,299 761 11,060
Normal Cost 637 62 699
Pay-As-You-Go Cost 929 116 1,045
7 Allocated in proportion to the Actuarial Accrued Liability for this illustration.
October 11, 2013 26
RESULTS
Annual Required Contribution (ARC)
2013/14 Fiscal Year - 7.25% Discount Rate
(Amounts in 000’s)
Annual Required
Contribution
Cash
Subsidy
Implied
Subsidy Total
ARC - $
Normal Cost $ 637 $ 62 $ 699
UAAL Amortization 688 51 739
Total ARC 1,326 113 1,439
Projected Payroll 11,969 11,969 11,969
ARC - %
Normal Cost 5.3% 0.5% 5.8%
UAAL Amortization 5.8% 0.4% 6.2%
Total ARC 11.1% 0.9% 12.0%
October 11, 2013 27
RESULTS
Actuarial Obligations
June 30, 2013 - 7.25% Discount Rate
(Amounts in 000’s)
Actuarial Obligations Unrepresented Represented Total
PVB
Actives $5,576 $11,028 $16,603
Retirees n/a n/a 13,059
Total n/a n/a 29,662
AAL
Actives 3,764 6,068 9,832
Retirees n/a n/a 13,059
Total n/a n/a 22,891
AVA n/a n/a 11,831
UAAL n/a n/a 11,060
Normal Cost 220 479 699
PayGo Cost n/a n/a 1,045
October 11, 2013 28
RESULTS
Annual Required Contribution (ARC)
2013/14 Fiscal Year - 7.25% Discount Rate
(Amounts in 000’s)
Annual Required Contribution Unrepresented Represented Total
ARC - $
Normal Cost $ 220 $ 479 $ 699
UAAL Amortization n/a n/a 739
ARC n/a n/a 1,439
Projected Payroll 4,458 7,511 11,969
ARC - %
Normal Cost 4.9% 6.4% 5.8%
UAAL Amortization n/a n/a 6.2%
ARC n/a n/a 12.0%
October 11, 2013 29
RESULTS
Estimated Net Obligation (NOO)
Estimated Net OPEB Obligation (Asset)
(Amounts in 000’s)
CAFR
2011/12
Estimate
2012/13
Estimate
2013/14
Estimate
2014/15
Discount Rate 7.25% 7.25% 7.25% 7.25%
NOO (Asset) at Beginning of Year $(7,416) $(8,322) $ (9,277) $(10,307)
Annual OPEB Cost
Annual Required Contribution 1,304 1,287 1,439 1,413
Interest on NOO (538) (603) (673) (747)
NOO Adjustment 473 543 620 707
Annual OPEB Cost 1,239 1,227 1,386 1,374
Contributions8
Benefit Payments Outside of Trust (750) (809) (861) (958)
Implied Subsidy Benefit Payments (91) (86) (116) (118)
Trust Funding (1,304) (1,287) (1,439) (1,413)
Total Contributions (2,145) (2,182) (2,415) (2,489)
NOO (Asset) at End of Year (8,322) (9,277) (10,307) (11,422)
NOO Amortization Years 26 25 24 23
NOO Amortization Factor 15.69 15.33 14.96 14.57
8 Estimated contributions for years after 2011/12, including PEMHCA administration expenses. Estimated items other than the
ARC must be revised when actual contributions are known.
October 11, 2013 30
RESULTS
Full ARC Funding Projection - 7.25% Discount Rate
(Amounts in 000’s)
Fiscal
Year
End
Begin
Year
NOO ARC AOC
District Contribution9
BOY
UAAL
BOY
AVA
Fund%
Dist
Pmts
Trust
Funding
Cash
Pmts
IS
Pmts
Total
Contr
2014 $(9,277) $1,439 $1,386 $861 $1,439 $2,299 $116 $2,415 $11,060 52%
2015 (10,307) 1,413 1,374 958 1,413 2,371 118 2,489 10,075 58%
2016 (11,422) 1,379 1,357 1,006 1,379 2,385 123 2,508 8,968 65%
2017 (12,573) 1,336 1,339 1,058 1,336 2,394 130 2,524 7,789 71%
2018 (13,758) 1,286 1,322 1,104 1,286 2,390 125 2,515 6,534 77%
2019 (14,951) 1,227 1,306 1,165 1,227 2,392 125 2,517 5,224 83%
2020 (16,162) 1,158 1,290 1,225 1,158 2,383 124 2,507 3,844 88%
2021 (17,378) 1,076 1,277 1,291 1,076 2,367 122 2,489 2,401 93%
2022 (18,591) 982 1,266 1,356 982 2,338 120 2,458 897 97%
2023 (19,782) 872 1,259 1,442 872 2,314 137 2,451 (656) 102%
9 Assumes District contributes full ARC to trust and additionally pays cash and implied subsidy benefit payments from District
assets, except for 2013/14 when ARC plus expected cash benefit payments exceed District budgeted cash amount. For
2013/14, assumes District pays a portion of cash benefit payments from trust in order to not exceed budgeted cash amount.
October 11, 2013 31
RESULTS
2011 Benefit Changes - Effect on 2013/14 Normal Cost - 7.25% Discount Rate
(Amounts in 000’s)
Employee Group Unrepresented Represented Grand
Total Membership Date < 2013 ≥ 2013 Total < 2013 ≥ 2013 Total
CalPERS Member Contrib
Current Member Contrib %10 8.00% 8.00% 8.75% 8.75%
Prior Member Contrib % 1.00%1.00% 1.00% 1.00%
Add’l Member Contrib % 7.00% 7.00% 7.75% 7.75%
Projected Payroll 2013/14 $4,458 $0 $4,458 $7,238 $273 $7,511 $11,969
Add’l Member Contrib $ 312 0 312 561 21 582 894
Add’l Member Contrib % 7.00% 7.75% 7.47%
OPEB Normal Cost
Current Plan NC $ 220 479 699
Prior Plan NC $ 30 53 83
Additional NC $ 190 426 616
Projected Payroll 2013/14 4,458 7,511 11,969
Additional NC % 4.27% 5.67% 5.15%
CalPERS - OPEB $ 122 156 278
CalPERS - OPEB % 2.73% 2.08% 2.32%
10 CalPERS Normal cost for new members for 2013 is 6.75% of pay.
October 11, 2013 32
RESULTS
2011 Plan Change Results - Employee Group Allocation Methodology
Estimated allocation of 2013/14 ARC to unrepresented and represented employee
groups:
Employee group information for retirees not available
6/30/13 retiree actuarial accrued liability allocated in proportion to 6/30/13 number
of unrepresented and represented active employees
6/30/13 actuarial value of assets allocated in proportion to 6/30/13 allocated total
actuarial accrued liability
Allocated unfunded actuarial accrued liability used to allocate amortization
component of 2013/14 ARC
Estimated plan change assets:
2011/12 and 2012/13 ARCs allocated to employee groups in proportion to 2013/14
allocated ARC
2011/12 and 2012/13 allocated ARCs accumulated with estimated actual market
value return
Estimated plan change assets determined on a market value basis
October 11, 2013 33
RESULTS
Actuarial Obligations for 2011 Plan Change
June 30, 2013 - 7.25% Discount Rate
(Amounts in 000’s)
Actuarial Obligations
Prior
Plan
New Plan
Change
Current
Plan
Actuarial Accrued Liability
Actives $ 2,925 $ 6,907 $ 9,832
Retirees 13,059 0 13,059
Total 15,984 6,907 22,891
Actuarial Value of Assets 9,722 2,109 11,831
Unfunded Actuarial Accrued Liability 6,262 4,798 11,060
ARC 2013/14
Normal Cost 83 616 699
UAAL Amortization 419 321 739
Total ARC 502 937 1,439
October 11, 2013 34
RESULTS
Projection of CalPERS Savings vs OPEB ARC Increase
24-Year Amortization of UAAL - 7.25% Discount Rate
(Amounts in 000’s)
Fiscal
Year
End
CalPERS
Contribution
Savings11
OPEB
ARC
Increase
Annual
Savings
Cumulative
Savings
Present
Value
Cumulative
Savings
2014 $ 894 $ 937 $ (43) $ (43) $ (41)
2019 1,049 1,099 (50) (277) (225)
2024 1,231 1,290 (59) (552) (377)
2029 1,445 1,513 (69) (875) (502)
2034 1,695 1,776 (81) (1,254) (606)
2039 1,989 1,370 619 (295) (448)
2044 2,334 1,608 726 3,114 16
2049 2,739 1,887 852 7,115 400
2054 3,214 2,214 1,000 11,809 717
2059 3,771 2,598 1,173 17,316 979
2064 4,425 3,048 1,377 23,779 1,196
11 Additional 7.00% of pay CalPERS member contribution for unrepresented employees and additional 7.75% of pay CalPERS
member contribution for represented employees. Aggregate payroll assumed to increase 3.25% per year.
October 11, 2013 35
RESULTS
0
1,000
2,000
3,000
4,000
5,000
6,000
2014201820232028203320382043 2048 2053 2058 2063 2068
Th
o
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Fiscal Year Ending
Chart A -All Employees
CalPERS Savings vs OPEB ARC Increase
24-Year UAAL Amortization
PERS Member Contribution Savings
OPEB Normal Cost Increase
OPEB ARC Increase
October 11, 2013 36
RESULTS
0
1,000
2,000
3,000
4,000
5,000
6,000
2014 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068
Th
o
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s
a
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d
s
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D
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Fiscal Year Ending
Chart B -All Employees
CalPERS Savings vs OPEB ARC Increase
30-Year UAAL Amortization
PERS Member Contribution Savings
OPEB Normal Cost Increase
OPEB ARC Increase
October 11, 2013 37
RESULTS
Actuarial Obligations - Unrepresented
June 30, 2013 - 7.25% Discount Rate
(Amounts in 000’s)
Actuarial Obligations
Prior
Plan
New Plan
Change
Current
Plan
Actuarial Accrued Liability
Actives $ 1,385 $ 2,379 $ 3,764
Retirees 3,432 0 3,432
Total 4,817 2,379 7,196
Actuarial Value of Assets 3,056 663 3,719
Unfunded Actuarial Accrued Liability 1,761 1,716 3,477
ARC 2013/14
Normal Cost 30 190 220
UAAL Amortization 118 115 232
Total ARC 148 305 452
October 11, 2013 38
RESULTS
Projection of CalPERS Savings vs OPEB ARC Increase - Unrepresented
24-Year Amortization of UAAL - 7.25% Discount Rate
(Amounts in 000’s)
Fiscal
Year
End
CalPERS
Contribution
Savings12
OPEB
ARC
Increase
Annual
Savings
Cumulative
Savings
Present
Value
Cumulative
Savings
2014 $ 312 $ 305 $ 7 $ 7 $ 7
2019 366 358 9 48 39
2024 430 420 10 96 65
2029 504 492 12 152 87
2034 592 578 14 217 105
2039 694 423 272 796 207
2044 815 496 319 2,292 411
2049 956 582 374 4,048 579
2054 1,122 683 439 6,107 718
2059 1,316 801 515 8,524 833
2064 1,544 940 604 11,360 929
12 Additional 7.00% of pay CalPERS member contribution for unrepresented employees. Aggregate payroll assumed to
increase 3.25% per year.
October 11, 2013 39
RESULTS
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2014 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068
Th
o
u
s
a
n
d
s
o
f
D
o
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a
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Fiscal Year Ending
Chart A - Unrepresented Employees
CalPERS Savings vs OPEB ARC Increase
24-Year UAAL Amortization
PERS Member Contribution Savings
OPEB Normal Cost Increase
OPEB ARC Increase
October 11, 2013 40
RESULTS
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October 11, 2013 41
RESULTS
Actuarial Obligations - Represented
June 30, 2013 - 7.25% Discount Rate
(Amounts in 000’s)
Actuarial Obligations
Prior
Plan
New Plan
Change
Current
Plan
Actuarial Accrued Liability
Actives $ 1,540 $ 4,528 $ 6,068
Retirees 9,627 0 9,627
Total 11,167 4,528 15,695
Actuarial Value of Assets 6,666 1,446 8,112
Unfunded Actuarial Accrued Liability 4,501 3,082 7,583
ARC 2013/14
Normal Cost 53 426 479
UAAL Amortization 301 206 507
Total ARC 354 632 986
October 11, 2013 42
RESULTS
Projection of CalPERS Savings vs OPEB ARC Increase - Represented
24-Year Amortization of UAAL - 7.25% Discount Rate
(Amounts in 000’s)
Fiscal
Year
End
CalPERS
Contribution
Savings13
OPEB
ARC
Increase
Annual
Savings
Cumulative
Savings
Present
Value
Cumulative
Savings
2014 $ 582 $ 632 $ (50) $ (50) $ (48)
2019 683 742 (59) (325) (264)
2024 801 870 (69) (648) (442)
2029 940 1,021 (81) (1,027) (589)
2034 1,104 1,198 (95) (1,472) (711)
2039 1,295 948 347 (1,091) (655)
2044 1,520 1,112 407 822 (395)
2049 1,783 1,305 478 3,067 (179)
2054 2,092 1,531 561 5,701 (1)
2059 2,455 1,797 658 8,792 146
2064 2,881 2,108 773 12,419 268
13 Additional 7.75% of pay CalPERS member contribution for represented employees. Aggregate payroll assumed to increase
3.25% per year.
October 11, 2013 43
RESULTS
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2014 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068
Th
o
u
s
a
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d
s
o
f
D
o
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a
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s
Fiscal Year Ending
Chart A - Represented Employees
CalPERS Savings vs OPEB ARC Increase
24-Year UAAL Amortization
PERS Member Contribution Savings
OPEB Normal Cost Increase
OPEB ARC Increase
October 11, 2013 44
RESULTS
Projection of Estimated CalPERS Savings vs OPEB ARC Increase
Increase in 2013/14 OPEB ARC due to 2011 plan changes exceeds expected additional
2013/14 CalPERS member contributions by $43,000:
$7,000 cost savings for unrepresented employees
$50,000 cost increase for represented employees
Additional CalPERS member contributions projected to exceed additional OPEB ARC
for all employees after 24-year UAAL amortization period (Chart A - All Employees)
Present value of difference between OPEB ARC increase and additional CalPERS
member contributions as of June 30, 2013 is greater than zero after a 30-year period
(i.e., including 30 years in the present value calculation)
UAAL amortization period would be 30 years for additional CalPERS member
contribution to equal OPEB ARC during UAAL amortization period (Chart B - All
Employees)
Represented member contribution would need to increase 0.65% of pay for the
additional CalPERS member contributions to equal the additional OPEB cost during
the 24-year amortization period
If new plan allocated assets were $2,750,000 rather than $2,109,000, expected
additional CalPERS member contributions would equal the additional OPEB plan cost
during the 24-year amortization period
October 11, 2013 45
BARTEL ASSOCIATES OPEB DATABASE
50% of 90% of
results results
are are
within within
this this
range range
50th Percentile
5th Percentile
Bartel Associates GASB 45 OPEB Database
Sample Percentile Graph
95th Percentile
75th Percentile
25th Percentile
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Pe
r
c
e
n
t
o
f
P
a
y
October 11, 2013 46
BARTEL ASSOCIATES OPEB DATABASE
NC ARC
95th Percentile 10.7% 30.7%
75th Percentile 6.6% 18.7%
50th Percentile 3.1% 8.0%
25th Percentile 1.2% 3.2%
5th Percentile 0.6% 1.4%
Percent of Pay 5.8% 12.0%
Percentile 70% 60%
Miscellaneous
Discount Rate = 7.25%, Average Amortization Period = 24.0 Years
0%
5%
10%
15%
20%
25%
30%
35%
Pe
r
c
e
n
t
o
f
P
a
y
Bartel Associates GASB 45 OPEB Database
Normal Cost & Annual Required Contribution
October 11, 2013 47
BARTEL ASSOCIATES OPEB DATABASE
Miscellaneous
95th Percentile 274%
75th Percentile 168%
50th Percentile 78%
25th Percentile 27%
5th Percentile 9%
Percent of Pay 191%
Percentile 83%
Discount Rate = 7.25%
0%
50%
100%
150%
200%
250%
300%
Pe
r
c
e
n
t
o
f
P
a
y
Bartel Associates GASB 45 OPEB Database
Actuarial Accrued Liability
October 11, 2013 48
OTHER ISSUES
GASB Accounting Rules
Pension Accounting:
GASB 68, Accounting for Employers, approved June 25, 2012
Replaces GASB 27
Effective 2014/15
Major Issues:
Unfunded liability on balance sheet
Expense calculation disconnected from contribution calculation
Discount rate is municipal bond rate when assets not sufficient to pay benefits
Immediate recognition of AAL for plan changes
Deferred recognition of changes in AAL for gains and losses and assumption changes
over active and inactive members’ average future working lifetime
Deferral of investment gains and losses over 5 years
Disclosure of asset allocation and expected real rates of return for each asset class
Entry age normal cost method
OPEB Accounting:
Exposure draft expected April 2014
Final statement expected June 2015
October 11, 2013 49
NEXT STEPS
Next Steps
Final valuation results
CERBT actuarial forms
Next Valuation
6/30/15 if no significant changes
Review discount rate
October 11, 2013 50
EXHIBITS
Topic Page
Premiums E-1
Participant Statistics E-4
Actuarial Assumptions E-14
Actuarial Methods E-28
GASB 45 Summary E-30
October 11, 2013 E-1
PREMIUMS
2011 Healthcare Monthly Premiums
Non-Medicare Eligible Medicare Eligible
Healthcare Plan Single 2-Party Family Single 2-Party Family
EPO $559.08 $1,118.18 $1,453.64 n/a n/a n/a
EPO (OOS) 640.62 1,281.24 1,665.61 n/a n/a n/a
Gold PPO 480.16 960.32 1,248.43 $384.48 $768.96 $1,203.08
Gold PPO (OOS) 550.18 1,100.37 1,430.47 384.48 768.96 1,203.08
HMO 15 540.46 1,082.05 1,406.32 n/a n/a n/a
Dental (self-insured) 41.11 98.65 151.10 41.11 98.65 151.10
2011 Life Insurance Monthly Premiums
Participant Premium
Employee 19¢ per $1,000
Spouse 60¢ per $1,000
October 11, 2013 E-2
PREMIUMS
2012 Healthcare Monthly Premiums
Non-Medicare Eligible Medicare Eligible
Healthcare Plan Single 2-Party Family Single 2-Party Family
EPO $608.28 $1,216.58 $1,581.55 n/a n/a n/a
EPO (OOS) 697.00 1,393.98 1,812.16 n/a n/a n/a
Gold PPO 520.14 1,040.31 1,352.41 $416.51 $833.00 $1,303.28
Gold PPO (OOS) 596.02 1,192.03 1,549.63 416.51 833.00 1,303.28
HMO 15 588.69 1,178.59 1,531.79 n/a n/a n/a
Dental (self-insured) 41.11 98.65 151.10 41.11 98.65 151.10
2012 Life Insurance Monthly Premiums
Participant Premium
Employee 19¢ per $1,000
Spouse 60¢ per $1,000
October 11, 2013 E-3
PREMIUMS
2013 Healthcare Monthly Premiums
Non-Medicare Eligible Medicare Eligible
Healthcare Plan Single 2-Party Family Single 2-Party Family
EPO $675.69 $1,351.38 $1,757.40 n/a n/a n/a
EPO (OOS) 774.67 1,548.33 2,012.93 n/a n/a n/a
Gold PPO 577.72 1,155.44 1,502.88 $462.58 $925.16 $1,448.34
Gold PPO (OOS) 662.56 1,324.11 1,722.05 462.58 925.16 1,448.34
HMO 15 623.17 1,248.36 1,622.06 n/a n/a n/a
Dental (self-insured) 41.11 98.65 151.10 41.11 98.65 151.10
2013 Life Insurance Monthly Premiums
Participant Premium
Employee 19¢ per $1,000
Spouse 60¢ per $1,000
October 11, 2013 E-4
PREMIUMS
2014 Healthcare Monthly Premiums
Non-Medicare Eligible Medicare Eligible
Healthcare Plan Single 2-Party Family Single 2-Party Family
EPO $702.78 $1,404.54 $1,826.82 n/a n/a n/a
EPO (OOS) 805.80 1,609.56 2,093.04 n/a n/a n/a
Gold PPO 600.78 1,201.56 1,562.64 $483.48 $965.94 $1,512.66
Gold PPO (OOS) 688.50 1,375.98 1,789.08 483.48 965.94 1,512.66
HMO 15 721.14 1,444.32 1,876.80 n/a n/a n/a
Dental (self-insured) 41.11 98.65 151.10 41.11 98.65 151.10
2014 Life Insurance Monthly Premiums
Participant Premium
Employee 19¢ per $1,000
Spouse 60¢ per $1,000
October 11, 2013 E-5
PREMIUMS
Monthly Premium Increases
2011 to 2014
Actual Increases
Non-Medicare Eligible Medicare Eligible
Healthcare Plan Single 2-Party Family Single 2-Party Family
EPO 25.7% 25.6% 25.7% n/a n/a n/a
EPO (OOS) 25.8% 25.6% 25.7% n/a n/a n/a
Gold PPO 25.1% 25.1% 25.2% 25.7% 25.6% 25.7%
Gold PPO (OOS) 25.1% 25.0% 25.1% 25.7% 25.6% 25.7%
HMO 15 33.4% 33.5% 33.5% n/a n/a n/a
Dental (self-insured) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expected Increases
Non-Medicare Eligible Medicare Eligible
Healthcare Plan Single 2-Party Family Single 2-Party Family
Medical/Rx 29.5% 29.5% 29.5% 31.1% 31.1% 31.1%
Dental 12.5% 12.5% 12.5% 12.5% 12.5% 12.5%
October 11, 2013 E-6
PARTICIPANT STATISTICS
Medical Plan Participation
Non-Waived Participants
June 30, 2013
Retirees
Medical Plan Actives < 65 ≥ 65
EPO 50% 44% n/a
PPO 12% 53% 100%
HMO 38% 3% n/a
Total 100% 100% 100%
June 30, 2011
Retirees
Medical Plan Actives < 65 ≥ 65
EPO 63% 41% n/a
PPO 15% 56% 100%
HMO 22% 3% n/a
Total 100% 100% 100%
October 11, 2013 E-7
PARTICIPANT STATISTICS
Active Medical Coverage
Medical Plan Single 2-Party Family Waived Total
EPO 7 14 43 64
PPO 6 4 6 16
HMO 14 9 26 49
Waived14 8 8
Total 27 27 75 8 137
Election % 21% 21% 58%
Waived % 6%
14 2 are spouses of covered employees.
October 11, 2013 E-8
PARTICIPANT STATISTICS
Retiree Medical Coverage
Under Age 65
Medical Plan Single 2-Party Family Waived Total
EPO 4 10 1 15
PPO 4 13 1 18
HMO 1 1
Waived 0 0
Total 9 23 2 0 34
Election % 26% 68% 6%
Waived % 0%
October 11, 2013 E-9
PARTICIPANT STATISTICS
Retiree Medical Coverage
Over Age 65
Medical Plan Single 2-Party Family Waived Total
EPO n/a n/a n/a n/a
PPO 13 32 0 45
HMO n/a n/a n/a n/a
Waived 1 1
Total 13 32 0 1 46
Election % 29% 71% 0%
Waived % 2%
October 11, 2013 E-10
PARTICIPANT STATISTICS
Dental Coverage
Participant Group Single 2-Party Family Waived Total
Actives 30 34 73 137
Retirees < 65 6 18 10 34
Retirees > 65 12 28 6 46
October 11, 2013 E-11
PARTICIPANT STATISTICS
Actives by Age and Service
District Service
Age < 1 1-4 5-9 10-14 15-19 20-24 ≥ 25 Total
< 25
25-29 1 2 3
30-34 2 3 3 8
35-39 5 5 6 3 1 20
40-44 5 3 11 12 2 1 34
45-49 3 9 5 2 1 2 22
50-54 1 2 7 10 1 1 5 27
55-59 2 1 8 2 1 2 16
60-64 3 3 6
≥ 65 1 1
Total 15 18 50 35 7 5 7 137
October 11, 2013 E-12
PARTICIPANT STATISTICS
0
10
20
30
40
<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-65 ≥65
Nu
m
b
e
r
Age
Active Age Distribution
6/30/11 Valuation
6/30/13 Valuation
October 11, 2013 E-13
PARTICIPANT STATISTICS
0
10
20
30
40
50
60
0-4 5-9 10-14 15-19 20-24 >25
Nu
m
b
e
r
Service
Active Service Distribution
6/30/11 Valuation
6/30/13 Valuation
October 11, 2013 E-14
PARTICIPANT STATISTICS
Retiree Healthcare Coverage by Age Group
Age Single 2-Party Family Waived Total
Under 50
50-54 1 1
55-59 3 9 2 14
60-64 5 14 19
65-69 6 16 22
70-74 1 5 6
75-79 5 5
80-84 3 4 7
Over 85 3 2 1 6
Total 22 55 2 1 80
Average Age 69.6 68.1 56.5 89.6 68.5
< 65 Election % 26% 68% 6%
≥ 65 Election % 29% 71% 0%
Total Election % 28% 70% 2%
Waived % 1%
October 11, 2013 E-15
PARTICIPANT STATISTICS
0
5
10
15
20
25
<50 50-54 55-59 60-64 65-69 70-74 75-79 80-84 ≥85
Nu
m
b
e
r
Age
Retiree Age Distribution
6/30/11 Valuation
6/30/13 Valuation
October 11, 2013 E-16
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Valuation Date June 30, 2011
2011/12 & 2012/13 ARCs
ARC calculated as of
beginning of the year with
interest to end of year
June 30, 2013
2013/14 & 2014/15 ARCs
ARC calculated as of
beginning of the year with
interest to end of year
October 11, 2013 E-17
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Funding Policy Fund full ARC with CERBT
Fund #1
ARC plus benefit payments for
2011/12
Prefund full ARC with CERBT
Fund #1 plus budgeted benefit
payments from District assets
Portion of employees’
CalPERS member contribution
offsets District OPEB cost:
Hired < 1/1/13:
- Represented - .75% of
pay
- Unrepresented - None
Hired ≥ 1/1/13:
- Represented - 8.75% of
pay less CalPERS
member contribution
- Unrepresented - 8% of
pay less CalPERS
member contribution
Not reflected in valuation
October 11, 2013 E-18
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Discount Rate 7.25% - Full ARC funding with
CERBT #1
Includes 0.36% margin for
adverse deviation
7.61% is expected long-term
return
7.25% is at 55% confidence
level15
Same
General
Inflation
3% annually
Basis for aggregate payroll and
discount rate assumptions
Same
15 “55% Confidence Level” means that over the long-term 55% of the time net returns are expected to be greater than 7.25%
and 45% of the time net returns are expected to be less than 7.25%.
October 11, 2013 E-19
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Aggregate
Payroll
Increases
3.25% annually
Inflation plus 0.25%
For Normal Cost calculation
and UAAL amortization
Same
Merit Payroll
Increases
CalPERS 1997-2007
Experience Study
Added to aggregate payroll
increase assumption for
Normal Cost calculation
Same
CalPERS
Service
CalPERS service provided by
District
Same
October 11, 2013 E-20
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Medical Trend
Calendar
Year
Increase from Prior Year
Non-Medicare Medicare
All Plans
2011 Premiums 2012 9.5% 10.0%2013 9.0% 9.4%
2014 8.5% 8.9%2015 8.0% 8.3%2016 7.5% 7.8%
2017 7.0% 7.2%2018 6.5% 6.7%2019 6.0% 6.1%
2020 5.5% 5.6%2021+ 5.0% 5.0%
Calendar year premiums used
for following fiscal year
Calendar
Year
Increase from Prior Year
Non-Medicare Medicare
All Plans
2011 n/a2012 n/a2013 Premiums
2014 Premiums 2015 8.0% 8.3% 2016 7.5% 7.8%
2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1%
2020 5.5% 5.6% 2021+ 5.0% 5.0%
Calendar year premiums
prorated for fiscal year
Dental Trend 4.0% annually Same
October 11, 2013 E-21
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Claims Cost
Aging Factors
Relative relationship between
actual claims costs by age:
Age M F
<30 0.50 1.05
30-34 0.65 1.15
35-39 0.80 1.20
40-44 0.85 1.35
45-49 1.05 1.60
50-54 1.35 1.60
55-59 1.75 1.65
60-64 2.20 1.80
Same
Dental Claims
Cost
Premium x loss ratio
Employee - 90%
Spouse - 71%
Child - 71%
Premium x loss ratio
Employee - 91%
Spouse - 71%
Child - 71%
October 11, 2013 E-22
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Mortality,
Termination,
Disability
CalPERS 1997-2007
Experience Study
CalPERS 1997-2007
Experience Study
Mortality improvement
projection Scale AA. Sample
annual longevity increases:
Age Male Female
50 1.8% 1.7%
60 1.6% 0.5%
70 1.5% 0.5%
80 1.0% 0.7%
October 11, 2013 E-23
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
District Service
for Retirement
Hired < 1/1/81 - 5 years of
District service
Hired ≥ 1/1/81 & < 7/1/93 and
General Manager - Age plus
District service ≥ 70
Hired ≥ 7/1/93:
Unrepresented employees -
15 years of District service
Represented employees - 18
years of District
Hired < 1/1/81 - 5 years of
District service
Hired ≥ 1/1/81 & < 7/1/93 and
General Manager - Age plus
District service ≥ 70
Hired ≥ 7/1/93:
Unrepresented employees:
- Hired < 1/1/13 - 15 years
of District service
- Hired ≥ 1/1/13 - 20 years
of District service
Represented employees:
- 20 years of District service
- 5 years of District service
if employee does not have
15 or 20 years of service at
age 65
October 11, 2013 E-24
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Service
Retirement
CalPERS 1997-2007
Experience Study
CalPERS Benefit 2.7%@55
CalPERS Hire Age 35
Expected Retire Age 58.1
CalPERS 1997-2007
Experience Study16
CalPERS Misc ERA
CalPERS Hire Age 35
Hire < 1/1/13 2.7%@55 58.1
Hire ≥ 1/1/13
Classic Member 2.7%@55 58.1
New Member 2.0%@62 60.9
Hardship
Retirements
5% of employees eligible to
retire at ages 50 through 54
Same
Participation at
Retirement
Currently covered and waived
Medical - 100%
Dental - 80%
Currently covered and waived
Medical - 100%
Dental - 100%
16 Expected Retirement Ages (ERA) for new member formulas based on CalPERS retirement assumptions for its AB 340
(PEPRA) actuarial cost analysis.
October 11, 2013 E-25
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Medical Plan at
Retirement
Currently covered:
Current plan election until
Medicare eligible
PPO after Medicare eligible
Waived actives - PPO
Waived retirees - n/a
Same
Preretirement
Survivor
Benefit
Not included Included
Medicare
Eligibility
100% eligible for Medicare at
age 65
All Medicare eligibles will
elect Part B coverage
Same
October 11, 2013 E-26
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Marital Status
at Retirement
Actives
Married if currently elect 2-
party or family coverage
Waived - 80% married
Retirees - based on spouse
information if provided
Same
Spouse Age Actives - males 3 years older
than females
Retirees - males 3 years older
than females if spouse birth
date not provided
Same
October 11, 2013 E-27
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2011 Valuation June 30, 2013 Valuation
Spouse &
Dependent
Coverage at
Retirement
Spouse coverage:
100% elect CalPERS joint
and survivor annuity
Coverage assumption same
as retiree assumption
Family coverage:
Current actives -10% until
age 65 if assumed married
Current retirees - current
coverage until age 65
Same
October 11, 2013 E-28
ACTUARIAL METHODS
Method June 30, 2013 Valuation
Cost Method Entry Age Normal
Normal Cost is a level percentage of payroll
Actuarial Value of
Assets
Investment gains/losses spread over 5-year rolling period
Not less than 80% nor more than 120% of market value
Amortization Method Level percent of payroll
Amortization Period 30-year fixed (closed) period for initial UAAL as of
6/30/07 for 2007/08 ARC
24-year fixed (closed) period for UAAL as of 6/30/13 for
2013/14 ARC
Amortization period decreases by one year each fiscal
year
When amortization period reaches 15 years, new gains and
losses will be amortized over a rolling (open) 15-year
period and plan and assumption changes will be amortized
over fixed (closed) 20-year period
October 11, 2013 E-29
ACTUARIAL METHODS
Method June 30, 2013 Valuation
Life Insurance Valuation includes the discounted value and cost for
retiree life insurance premiums
Implied Subsidy Employer cost for allowing non-Medicare eligible retirees
to participate at active rates
Valuation includes an implied subsidy for medical but not
dental or life insurance
Future New Entrants Valuation Results – Closed group, no new hires
Projections – Simplified open group projection:
Actives - Total pay increased in accordance with
aggregate payroll assumption
Normal Cost - New hires assume to have same NC as a
percentage of pay as current actives
Retirees - no additional retirees from new hires over 10-
year projection period
October 11, 2013 E-30
GASB 45 SUMMARY
GASB 45
Accrual
Accounting
Project future employer-provided benefit cash flows for current active
employees and current retirees
Discount projected cash flow to valuation date using discount rate (assumed
return on assets used to pay benefits) and other actuarial assumptions to
determine present value of projected future benefits (PVB)
Allocate PVB to past, current, and future periods using the actuarial cost
method
Actuarial cost method used for this valuation is the Entry Age Normal Cost
method which determines Normal Cost as a level percentage of payroll (same
method used by CalPERS)
Normal Cost is amount allocated to current fiscal year
Actuarial Accrued Liability (AAL) is amount allocated to prior service with
employer
Unfunded AAL (UAAL) is AAL less plan assets pre-funded in a segregated
and restricted trust
PayGo Cost Cash subsidy is the pay-as-you-go employer benefit payments for retirees
Implied subsidy is the difference between the actual cost of retiree benefits
and retiree premiums subsidized by active employee premiums
October 11, 2013 E-31
GASB 45 SUMMARY
Present Value of Benefits
Present Value of Benefits
(With Plan Assets)
Unfunded
Actuarial Accrued
Future
Normal
Costs
Normal Cost
Assets
Present Value of Benefits
(Without Plan Assets)
Unfunded Actuarial
Accrued Liability
Future
Normal
Costs
Normal Cost
October 11, 2013 E-32
GASB 45 SUMMARY
Annual
Required
Contribution
(ARC)
“Required contribution” for the current period including:
Normal Cost
Amortization of:
- Initial UAAL
- AAL for plan, assumption, and method changes
- Experience gains/losses (difference between expected and actual)
- Contribution gains/losses (difference between ARC and contributions)
ARC in excess of pay-as-you-go costs not required to be funded
Net OPEB
Obligation
(NOO)
Net OPEB Obligation is the accumulated amounts expensed but not funded
Net OPEB Asset if amounts funded exceed those expensed
Annual OPEB
Cost (AOC)
Expense for the current period including:
ARC
Interest on NOO
Adjustment of NOO
NOO adjustment prevents double counting of expense since ARCs include an
amortization of prior contribution gains/losses previously expensed