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HomeMy WebLinkAboutFY 2009 Comprehensive Annual Financial Report  Comprehensive Annual Financial Report Fiscal Year Ended June 30,2009 Prepared by: Finance Department Spring Valley, California Table of Contents Introductory Section Letter of Transmittal……………………………………………………………………. 1 Organization Chart……………………………………………………………………… 9 List of Principal Officials……………………………………………………………….. 10 GFOA Certificate of Achievement……………………………………………………… 11 Financial Section Independent Auditors’ Report………………………………………………………….. 13 Management’s Discussion & Analysis…………………………………………………... 15 Basic Financial Statements: Statements of Net Assets………………………………………………………………. 23 Statements of Revenues, Expenses, and Changes in Net Assets………………………. 25 Statements of Cash Flows………………………………………………………………. 26 Notes to Financial Statements…………………………………………………………... 28 Required Supplementary Information: Schedule of Funding Progress for PERS………………………………………………... 49 Schedule of Funding Progress for DPHP……………………………………………...... 49 Statistical Section Net Assets by Component……………………………………………………………… 52 Changes in Net Assets…………………………………………………………………... 53 Operating Revenues by Source…………………………………………………………. 54 Operating Expenses by Function……………………………………………………….. 55 Non-Operating Revenues by Source…………………………………………………… 56 Non-Operating Expenses by Function………………………………………………… 57 Assessed Valuation of Taxable Property within the District………………………… 58 Water Purchases, Production, and Sales……………………………………………...… 59 Meter Sales by Type……………………………………………………………………. 60 Number of Customers by Service Type………………………………………………… 61 Property Tax Levies and Collections…………………………………………………… 62 Water and Sewer Rates…………………………………………………………………. 63 Ten Largest Customers…………………………………………………………………. 65 Ratios of Outstanding Debt by Type……………………………………………………. 66 Pledged Revenue Coverage…………………………………………………………….. 67 Ratios of General Bonded Debt Outstanding…………………………………………… 68 Computation of Direct and Overlapping Bonded Debt……………………………..… 69 Principal Employers…………………………..………………………………………... 70 Demographic and Economic Statistics………………………………………………….. 71 Number of Employees by Function…………………………………………………….. 72 Active Meters by Size………………………………………………………………..… 73 Operating and Capital Indicators……………………………………………………….. 74 ~ Introductory -.   October 10, 2009 Honorable Board of Directors Otay Water District I am pleased to present the Otay Water District’s (the “District”) Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2009. This report was prepared by the District’s Finance Department following guidelines set forth by the Government Accounting Standards Board (GASB) and generally accepted accounting principles (GAAP). Responsibility for both the accuracy of the data presented, and the completeness and fairness of the presentation, including all disclosures, rests with District management. We believe the data, as presented, is accurate in all material respects and that it is presented in a manner that provides a fair representation of the financial position and results of operation of the District. Included are all disclosures we believe necessary to enhance your understanding of the financial condition of the District. GAAP requires that management provide a narrative introduction, overview, and analysis, to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A), which should be read in conjunction with this report. The District’s MD&A can be found immediately following the Independent Auditors’ Report. The District’s financial statements have been audited by Diehl, Evans & Company, LLP, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the District for the fiscal year ended June 30, 2009, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was reasonable basis for rendering an unqualified opinion that the District’s financial statements for the fiscal year ended June 30, 2009, are fairly presented in conformity with GAAP. The Independent Auditors’ Report is presented as the first component of the financial section of this report. REPORTING ENTITY The District is a publicly-owned water and sewer agency, authorized on January 27, 1956 as a California special district by the State Legislature, with an entitlement to import water under the provisions of the Municipal Water District Act of 1911. Its ordinances, policies, taxes, and rates for service are set by five Directors, elected by voters in their respective divisions, to serve staggered four-year terms on its Governing Board. The District is a “revenue neutral” public 1 agency, meaning that each end-user pays only their fair share of the District’s costs of water acquisitions and the construction, operation and maintenance, betterment, and renewal and replacement of the public water and sewer facilities. The General Manager reports directly to the Board of Directors and, through two Assistant General Managers and the District management, oversees day-to-day operations. One Assistant General Manager oversees the departments of Administrative Services, Finance, Information Technology and Strategic Planning, while the other oversees the Water Operations and Engineering departments. These and other lines of reporting are shown on the organization chart on page 9. Over the last 53 years, the District has grown from a handful of customers and two employees to become an organization operating a network with more than 923 miles of pipelines, 42 operational reservoirs, a reclaimed water facility, and one of the largest recycled water distribution networks in San Diego County. The character of the service area has also changed from predominantly dry-land farming and cattle ranching, to businesses, high-tech industries, and large master-planned communities. Today the District provides water service to nearly 47,125 potable and 683 recycled customers within approximately 125.5 square miles of southeastern San Diego County. All of the potable water sold to customers is purchased from the San Diego County Water Authority (CWA). Much of this water is purchased from the region’s water importer, the Metropolitan Water District of Southern California (MWD). The District also has begun purchasing raw water from CWA and having it treated by the neighboring Helix Water District, at their Levy Water Treatment Plant. This action has brought regional water treatment closer to our customers and reduced dependence on water treatment located outside of San Diego proper. The District also owns and operates a wastewater collection and recycling system to provide public sewer service to approximately 4,640 homes and businesses within portions of the communities of La Mesa, Rancho San Diego, El Cajon, Jamul, and Spring Valley. Wastewater collected is conveyed to the District’s Ralph W. Chapman Water Recycling Facility (RWCWRF), which is capable of reclaiming wastewater at a rate of 1.3 million gallons per day. The District also purchases up to 6 million gallons per day of recycled water from the City of San Diego’s South Bay Reclamation Plant. Recycled water from these two sources is used to irrigate golf courses, schools, public parks, roadway landscapes, and various other approved uses in eastern Chula Vista. The use of recycled water reduces dependency on imported supplies and provides a local supply, thereby diversifying District resources. 2 Balanced Scorecard MISSION, CURRENT ECONOMIC CONDITIONS, AND OUTLOOK The mission of the District is to provide customers with the best quality water, wastewater, and recycled water service in a professional, effective, and efficient manner. As in past years, we again face several key challenges. These challenges include: an economy in recession and continuing instability in the financial markets; ongoing home foreclosures; reduced rainfall throughout the Southwest; water shortages brought about by legal action to reduce water deliveries from the Sacramento – San Joaquin Bay Delta; and the higher cost of imported water. Given these uncertain times, the District must find the best solutions that balance the many expectations placed on it by its customers. Meeting our customers’ expectations requires dedication, a commitment to continuous improvement, and the innovative use of technologies and resources. While overall growth in San Diego County has slowed over the last three years, population within the District’s service area continues to increase albeit at a much reduced rate. As of July 2009, it is estimated that the District served 195,000 residents. The San Diego Association of Governments (SANDAG), the regional planning agency, has estimated the District’s growth will continue for a decade or more. The District projects an ultimate customer population of 277,000 residents. BUDGET SUMMARY The District’s Fiscal Year 2009 budget is $113 million, with operating expenditures of $75.7 million and capital expenditures of $37.3 million. The District’s goal is to provide the most effective and efficient service possible while maintaining affordability of the water supply for the community. The Otay Water District’s operating expenditures consist of three major sectors: potable water, recycled water, and sewer, totaling $75,716,500 for Fiscal Year 2010. Revenues from potable and recycled water are projected to be $64,077,000, about $8.5 million (15.3%) more than Fiscal Year 2009. Water sales volumes are expected to decrease as a result of the slowing economy and expanded efforts to promote water conservation, however, rate increases are essential to offset the higher cost of water. Sewer revenues are projected to be $2,244,800, about $99,500 more than Fiscal Year 2009, because of necessary rate increases. The remaining revenue of $9.4 million comes from special fees and assessments and miscellaneous income. Significant aspects of the Operating Budget are: • A balanced budget meeting the goals of the Strategic Plan. • An updated six-year Rate Model to ensure sound financial planning and reserve levels. • Unprecedented water supply rate increases of 21.1% from MWD and 18.1% from CWA because of the high cost of supply programs, higher energy and higher operating costs. • Implemented rate increases in potable, recycled water, and sewer. This included pass- through rate increases from CWA, and County of San Diego. • Expanded residential, landscape, and commercial water conservation programs. 3 • In response to the economic slowdown, the District has again reduced staffing levels from 169 full time equivalents to 166. It also cut operating expenditures by $793,100 due to program funding changes and other discretionary spending cuts. • Of San Diego County’s 23 water agencies, Otay’s water rate is the eighth-lowest and below the county-wide average. The 2009-2010 Capital Improvement Budget (CIP) consists of 87 projects and a budget of $37.3 million. The budget emphasizes long-term planning for on-going programs while functioning within fiscal constraints and population growth. This year’s CIP budget was increased by $10.5 million, compared to last year’s projection, due to new water supply projects. BUDGETING CONTROLS The District views the budget as an essential tool for proper financial management. The budget is developed with input from the various departments of the organization and is adopted prior to the start of each fiscal year. It is designed and presented for the general needs of the District, its staff, and customers. It is a comprehensive and balanced financial plan that features District services, resources and their allocation, financial policies, and other useful information to allow the users to gain a general understanding of the District’s financial status and future. Monthly comparison reports of budget to actual are prepared and distributed along with variance explanations to all department heads, with top level information provided to the Board at the monthly board meetings. STRATEGIC PLAN The primary way to achieve our objectives is to improve all aspects of our core business processes. The main tool we will continue to use is the Strategic Business Plan. The District adopted its first Strategic Plan in 2003, and has updated it every three years. It is reviewed quarterly by management and semi-annually by the Board. This year it was updated for the 2009 through 2011 timeframe. Efficiency improvements have become the new competitive advantage for utilities. As a result, the theme of the 2009 through 2011 Strategic Plan is to capitalize on the technology investments we have made and to utilize these technologies to continue to improve productivity and efficiency. The Strategic Plan also carries forth the District’s transformation from a growth-centric to a maintenance-based organization. Where capital and developer fees supported growth for many years, today we have become equally focused in managing long- term maintenance and replacement of our infrastructure. This necessary change is illustrated by the business maturity curve. During high growth, we focus on 4 achieving the macro targets of building and installing new infrastructure. In the future, however, fewer resources are needed to support slowing growth, but the effort to maintain and improve infrastructure and assets increases. In future years the District will also derive income more from rates and less from fees. Consequently, increased costs place pressure on rates more directly. Therefore, to balance the customer’s interest in minimizing rate increases while also maintaining its infrastructure investments and our strong financial position, the District will emphasize internal efficiency and development of technology assisted best practices. In effect, we will use our investments in technology to do more with the same or even fewer resources. The Future The coming years will continue to be challenging times for those in California’s water community. After years of record low precipitation that dramatically curtailed snow runoff from the Sierra Nevada Mountains, California’s governor declared an official statewide drought. Following the governor’s action, Southern California’s largest water wholesaler, MWD, announced a water supply alert across its six-county service area. It also urged all local jurisdictions to implement water conservation ordinances and to “significantly increase efforts” to conserve water. In addition to the governor’s declaration, federal court orders have curtailed water deliveries from Northern California due to environmental factors in the Sacramento-San Joaquin Bay Delta. Worsening environmental conditions in the Bay Delta now challenge Southern California’s ability to receive water from the State Water Project. A political stalemate in the state capital has also made finding compromise or addressing the environmental issues in the Bay Delta more difficult. These factors combined are driving higher costs for water across the state. Through foresight and its investments in recycled water, conservation, and a water rate structure that rewards conservation, the Otay Water District has thus far avoided having to require mandatory water conservation. Rather, the District has achieved its water conservation goals using voluntary measures. As you would expect, the planned water sales reductions have impacted price and will continue to affect the District’s finances. Staff continues working diligently to address the financial impacts of conservation as it prepares for the possibility of a severe water shortage and prolonged sales reductions. With these factors in mind, our success as an organization is vastly enhanced by the practices and policies put in place by the Board of Directors to ensure the strength and stability of the District as we move forward into uncertain times. We are fully confident that, with the policies and practices put in place by the Board, supported by dedicated and talented staff, we will Lake Oroville at 27% of Capacity – December 2008 5 achieve continued success as an organization and assure the well-being of the customers we serve. ACCOUNTING SYSTEM The Finance Department is responsible for providing financial services to the District, including financial accounting, reporting, payroll, accounts payable, investment of funds, billing and collection of water and wastewater charges, taxes, and other revenues. The District’s books and records are maintained on an enterprise basis, matching revenues against the costs of providing services. Revenues and expenses are recorded on the accrual basis in the period in which revenue is earned and expenses are incurred. INTERNAL CONTROLS Otay Water District operates within a system of internal controls established and continually reviewed by management. This provides reasonable assurance that assets are adequately safeguarded and transactions are recorded correctly according to District policies and procedures. When establishing or reviewing controls, management must consider the cost of the control and the value of the benefit derived from its utilization. Management normally maintains and implements all sensitive controls and those controls whose value adequately exceeds their cost. Management believes the District’s internal controls, procedures, and policies adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. In addition, the District maintains controls to provide for compliance with all finance related legal and contractual provisions. Management believes the activities reported within the presented Comprehensive Annual Financial Report (CAFR) comply with these finance related legal and contractual provisions, including bond covenants and fiduciary responsibilities. CASH MANAGEMENT During the year, available funds are invested in eligible securities, as required by law, and in accordance with the District’s own investment policy adopted by the Board of Directors. The investment objectives of the District, in order of priority, are: 1) to preserve the capital of the portfolio; 2) to maintain adequate liquidity to meet cash flow requirements; and 3) to obtain a reasonable rate of return without compromising the first two objectives. RISK MANAGEMENT In 2003, the District became a member of the Special District Risk Management Authority (SDRMA), a pool program which provides the District's coverage for property, auto, liability, health benefits, and workers’ compensation claims. During Fiscal Year 2008-2009, the District continued its proactive liability risk management role through careful monitoring of losses and designing and implementing programs to minimize risks and losses. In addition, the District’s Safety Committee analyzes workers’ compensation issues by monitoring work conditions, and organizing and implementing safety training programs to reduce employee exposure to hazards. 6 PENSION PLANS In addition to participating in Social Security, the District provides a defined benefit pension plan for its employees through the California Public Employees’ Retirement System (CalPERS). The District contributes a specified percentage of covered employees’ payroll, which is invested by CalPERS. Upon retirement, District employees are entitled to a specified retirement benefit. The plan is more fully described in Note 7 to the Financial Statements. OTHER POST-EMPLOYMENT BENEFITS (OPEB) The District provides other post-employment benefits (OPEB) as a part of the total compensation offered to attract and retain the services of qualified employees. OPEB includes healthcare and other forms of benefits (for example life insurance), in addition to the benefits provided from specific pension plans. During Fiscal Year 2007-2008 the District elected to set up an OPEB trust fund with CalPERS and pre-funded $5.6 million of its net OPEB obligations, approximately half of the actuarial accrued liability, as of the latest actuarial projection, dated June 30, 2007. The District has also designated an additional $5.8 million to allow for significant funding of the remaining obligations. For additional information see Note 8 to the Financial Statements. AWARDS AND ACKNOWLEDGMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Otay Water District for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2008. This was the fifth consecutive year that the District has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government agency must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The District also received a Distinguished Budget Presentation Award from the GFOA for the District’s Operating and Capital Budget for Fiscal Year beginning July 1, 2008, as well as two awards from the CSMFO for Excellence in Operating Budgeting and Excellence in Capital Budgeting. These prestigious awards recognize conformance with the highest standards for preparation of state and local government financial reports. The American Society of Civil Engineers (ASCE) presented Otay Water District and Infrastructure 7 Engineering Corporation the 2008 Outstanding Civil Engineering Project for Water Supply/Waste Water Treatment & Reuse for the 640 Reservoirs. Additionally, the Construction Management Association of America (CMAA) presented Otay Water District the 2009 Project Achievement Award for the 640-1 and 640-2 Reservoirs to recognize outstanding achievement in the practice of construction management. The Otay Water District’s Information Technology and Strategic Planning Department was awarded the Best of California, Leadership and Excellence Award for 2008 from the Center for Digital Government, and the Excellence in IT Practices Award from the Municipal Information Systems Association of California (MISAC). I would like to thank all of the staff involved for their efforts in preparing this Comprehensive Annual Financial Report, and for their hard work to ensure a successful outcome. I would also like to thank the firm of Diehl, Evans & Company, LLC, for their professional work and opinion. To the Board of Directors, staff and I acknowledge and appreciate their continued support and direction in achieving excellence in financial management. ___________________________ Mark Watton, General Manager 8 GENERAL MANAGER BOARD OF DIRECTORS Assistant General Manager Engineering Planning Water  Operations Water System  Operations Assistant General Manager Information  Technology and  Strategic Planning IT Applications Finance Controller  and  Budgetary Administrative  Services Human Resources Organization Chart Citizens and  Customers GENERAL MANAGER BOARD OF DIRECTORS Assistant General Manager Engineering Planning Design Water  Resources Public  Services Construction Survey Environmental Water  Operations Water System  Operations Utility  Maintenance/  Construction Collection/  Treatment/  Recycle  Operations Assistant General Manager Information  Technology and  Strategic Planning IT Applications IT Operations GIS Finance Controller  and  Budgetary  Services Treasury  and  Accounting  Services Customer  Service Payroll and  Accounts  Payable Administrative  Services Human Resources Purchasing and      Facilities Safety and Risk  Administration Water  Conservation Organization Chart Citizens and  Customers 9 Board of Directors     Listed from Left to Right Larry Breitfelder - Division 1 Jose Lopez – Vice President, Division 4 Jaime Bonilla – Treasurer, Division 2 Mark Robak - Division 5 Gary Croucher - President, Division 3 District Financial Management Mark Watton - General Manager German Alvarez - Assistant General Manager, Finance and Administration Manny Magaña - Assistant General Manager, Engineering and Operations Joseph R. Beachem - Chief Financial Officer List of Principal Officials   Fiscal Year 2008‐2009 10 Award  11 Certificate of Achievement for Excellence in Financial Reporting Presented 10 Otay Water District California For tts Comprehensive AnnuaJ Finon<iol Rcporl ror the: Fiscal Yar Ended June 30, 2008 A Cnnne.t1e or Ac'*"tmcm ror £).«11nxc ua Financial Rtpon~ 11 ptdcnled by 11111 Oowmmcnt F-..cc Offlcm: AJ.oc-ia1iort o(lhe U11itcd Swrt and c.n.d.lto ~tUIIIIUaftdpublctf!l)io)'tt~t systemt "<hoee~w-~MUll fmanelal ,_,. (CAFR<) aclua>c ohe lup..t .,•ndM'dl• so~ 8(cor.m• .. and (11\li'M:tllf'q'OftUI& .. Executive Du·eclor ~ Financial   OTHER OFFICES AT: 613 W. VALLEY PARKWAY, SUITE 330 5 CORPORATE PARK, SUITE 100 ESCONDIDO, CALIFORNIA 92025-2598 IRVINE, CALIFORNIA 92606-5165 (760) 741-3141 • FAX (760) 741-9890 (949)-399-0600 • FAX (949) 399-0610 A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 2965 ROOSEVELT STREET CARLSBAD, CALIFORNIA 92008-2389 (760) 729-2343 • FAX (760) 729-2234 www.diehlevans.com October 10, 2009 INDEPENDENT AUDITORS' REPORT Board of Directors Otay Water District Spring Valley, California We have audited the accompanying basic financial statements of Otay Water District as of and for the year ended June 30, 2009, as listed in the table of contents. These basic financial statements are the responsibility of the Otay Water District’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The basic financial statements of Otay Water District as of June 30, 2008, were audited by other auditors whose report dated October 24, 2008, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the State Controller’s Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the Otay Water District as of June 30, 2009, and the results of its operations and cash flows for the year then ended in conformity 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 State regulations governing Special Districts. The Management’s Discussion and Analysis and the other required supplementary information identified in the accompanying table of contents are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the District’s basic financial statements. The Introductory and Statistical Sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Introductory and Statistical Sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. 1 *PHILIP H. HOLTKAMP, CPA *THOMAS M. PERLOWSKI, CPA *HARVEY J. SCHROEDER, CPA KENNETH R. AMES, CPA WILLIAM C. PENTZ, CPA MICHAEL R. LUDIN, CPA CRAIG W. SPRAKER, CPA NITIN P. PATEL, CPA ROBERT J. CALLANAN, CPA * A PROFESSIONAL CORPORATION 13 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, 2009. 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 $460.3 million (net assets). Of this amount, $69.9 million (unrestricted net assets) may be used to meet the District’s ongoing obligations to citizens and creditors. • The District’s total net assets increased by $3.5 million. This is primarily attributable to capital contributions of $7.0 million during the fiscal year. 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 Assets, 2) Statement of Revenues, Expenses and Changes in Net Assets, 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 Assets presents information on all of the District’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets 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 Assets presents information showing how the District’s net assets changed during the most recent fiscal year. All changes in net assets 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. 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 earlier, net assets may serve over time as a useful indicator of an entity’s financial position. In the case of the District, assets exceeded liabilities by $460.3 million at the close of the most recent fiscal year. By far the largest portion of the District’s net assets, $382.4 million (83%), reflects its investment in capital assets, less any related debt used to acquire those assets that is still outstanding. 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 net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.   Management’s Discussion and Analysis  15 Statements of Net Assets (In Millions of Dollars) 2009 2008 2007 Assets Current and Other Assets $ 96.8 $ 106.2 $ 122.1 Capital Assets 454.1 446.7 424.3 Total Assets 550.9 552.9 546.4 Liabilities Long-term Debt Outstanding 69.1 71.6 74.2 Other Liabilities 21.5 24.5 25.2 Total Liabilities 90.6 96.1 99.4 Net Assets Invested in Capital Assets Net of Related Debt 382.4 372.7 374.6 Restricted for OPEB Restricted for Debt Service 6.2 1.8 5.6 3.8 0.0 2.1 Unrestricted 69.9 74.7 70.3 Total Net Assets $ 460.3 $ 456.8 $ 447.0 At the end of FY-2009 the District is able to report positive balances in all categories of net assets. This situation also held true for the prior two fiscal years. In FY-2009 total Net Assets increased approximately $3.5 million, to $460.3 million, as compared to FY-2008 when Net Assets increased by over $9.8 million. 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 Assets 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. The decrease in Current and Other Assets of $15.9 million in FY-2008 corresponds with the increase in Capital Assets of $22.4 million (net of accumulated depreciation), due to the District’s substantial Capital Improvement Plan (CIP), which was financed in part by the issuance of $42 million in Certificates of Participation (COPS-2007). (See Note 5 in the Notes to Financial Statements). In FY-2009 use of the COPS-2007 funds to finance the CIP program continued, contributing to the increase in Capital Assets of $7.4 million. The use of the COPS-2007 funds is also reflected in the decrease of Current and Other Assets of $9.4 million. (See Note 3 in the Notes to Financial Statements). Management’s Discussion and Analysis  16 Statements of Revenues, Expenses, and Changes in Net Assets (In Millions of Dollars) 2009 2008 2007 Water Sales $ 52.4 $ 50.8 $ 48.6 Wastewater Revenue 2.2 2.4 2.6 Connection and Other Fees 2.5 2.5 2.1 Non-operating Revenues 14.0 13.6 11.1 Total Revenues 71.1 69.3 64.4 Depreciation Expense 12.5 13.0 10.8 Other Operating Expense 59.0 58.5 53.9 Non-operating Expense 3.1 2.9 1.3 Total Expenses 74.6 74.4 66.0 Loss Before Capital Contributions (3.5)(5.1)(1.6) Capital Contributions 7.0 14.9 26.5 Change in Net Assets 3.5 9.8 24.9 Beginning Net Assets 456.8 447.0 422.1 Ending Net Assets $ 460.3 $ 456.8 $ 447.0 Water Sales increased by $2.2 million in FY-2008 and $1.6 million in FY-2009, mainly due to reduced rainfall during both years as well as rate increases in both years. Growth also had a partial impact, with new water meter sales of 220 and 158 meters respectively. Despite a prolonged reduction in market rates of return, Non-operating Revenues increased by $2.5 million in FY-2008 and an additional $0.4 million in FY-2008, due to the increased level of investments from the COPS- 2007, increased property tax revenues, and healthcare reimbursements from CalPERS for other post employment benefits (OPEB). (See Note 8 in the Notes to Financial Statements). Depreciation Expense increased by $2.2 million in FY-2008, due to a comprehensive review and write-off of long-term fixed assets that were obsolete and/or no longer serviceable. Other Operating Expense increased by approximately $4.6 million in FY-2008 and another $0.5 million in FY-2009 as a result of the cost of the additional water sold each year, as well as increases in outside services and higher pension costs. Non-operating Expense increased $1.6 million in FY-2008 and an additional $0.2 million in FY-2009 due to increased interest expense from the COPS-2007. Capital Contributions were $26.5 million in FY-2007 due to the completion of several developer construction projects. However, because of the nationwide housing mortgage crisis throughout the last 2 years, developers have either slowed-down or totally stopped work on as many projects as possible until economic conditions improve and the demand for growth returns, resulting in a decrease in Capital Contributions of $11.6 million in FY-2008 and $7.9 million in FY-2009. Management’s Discussion and Analysis  17 Management’s Discussion and Analysis  Capital Assets and Debt Administration Capital Assets. The District’s capital assets as of June 30, 2009, totaled $454.1 million (net of accumulated depreciation). Included in this amount is land. The total increase in the District’s capital assets was 5.3% for FY-2008 and 1.7% in FY- 2009. Capital Assets (In Millions of Dollars) 2009 2008 2007 Land $ 13.4 $ 13.0 $ 13.0 Construction in Progress 18.3 42.3 40.3 Water System 403.1 365.6 356.6 Recycled Water System 96.8 93.0 73.5 Sewer System 37.2 36.7 37.7 Buildings 18.2 17.6 17.6 Field Equipment 9.5 9.5 9.3 Transportation Equipment 3.3 3.1 3.1 Communication Equipment 0.8 0.7 0.6 Office Equipment 17.4 16.8 15.8 618.0 598.3 567.5 Less Accumulated Depreciation (163.9) (151.6) (143.2) Net Capital Assets $ 454.1 $ 446.7 $ 424.3 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. Long-term Debt. At June 30, 2009, the District had $79.1 million in outstanding debt which consisted of the following: General Obligation Bonds $ 7.3 Certificates of Participation 61.5 Notes Payable 0.3 Total Long-term Debt $ 69.1 Additional information on the District’s long-term debt can be found in Note 5 of the Notes to Financial Statements. 18 Management’s Discussion and Analysis  Fiscal Year 2009-2010 Budget Economic Factors Growth in the San Diego area has slowed over the last 2 years, and demand for housing is reflected in a similarly reduced pace. Water sales volumes are expected to decrease as a result of the slowing economy and expanded efforts to promote water conservation, however, rate increases are essential to offset the higher cost of water. Ultimately, the District is projected to serve approximately 277,000 people, with an average daily demand of 56 million gallons per day (MGD). The District currently provides water service to about 70% of its total projected population, serving approximately 195,000 people. Long-term, this percentage should continue to increase as the District's service area continues to develop and grow. The District is projected to deliver approximately 33,300 acre-feet of water to 47,125 potable customer accounts during Fiscal Year 2009-2010. Management feels that these projections are very realistic after accounting for low growth, supply changes, and a focus on conservation. Current economic conditions throughout America have created an unprecedented uncertainty for business and economic projections in the current fiscal year. The nationwide housing mortgage crisis has resulted in hundreds of foreclosures throughout the District. Additionally, the crisis in the banking and financial industry has begun to have a ripple effect of employee layoffs across a wide swath of the business community. 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. However, as housing patterns change throughout the District, people’s need for water remains an underlying constant. Financial The coming years will continue to be challenging times for those in California’s water community. After years of record low precipitation that dramatically curtailed snow runoff from the Sierra Nevada Mountains, California’s governor declared an official statewide drought. Following the governor’s action, Southern California’s largest water wholesaler announced a water supply alert across its six-county service area. It also urged all local jurisdictions to implement water conservation ordinances and to “significantly increase efforts” to conserve water. In addition to the drought, federal court orders have curtailed water deliveries from Northern California due to environmental factors in the Sacramento-San Joaquin Bay Delta. Worsening environmental conditions in the Bay Delta now challenge Southern California’s ability to receive water from the State Water Project. A political stalemate in the state capital has also made finding compromise or addressing the environmental issues in the Bay Delta more difficult. These factors combined are driving higher costs for water across the state. Through foresight and its investments in drought-proof recycled water, conservation, and a water rate structure that rewards conservation, the Otay Water District has thus far avoided having to require mandatory water conservation. Rather, the District has achieved its water conservation goals using voluntary measures. As you would expect, the planned water sales reductions have impacted price and will continue to affect the District’s finances. Staff continues working diligently on developing new water supplies as it addresses the financial impacts of conservation, preparing for the possibility of a severe water shortage and prolonged sales reductions. Management is unaware of any other conditions that could have a significant past, present, or future impact on the District’s current financial position, net assets 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. 19 Basic Financial Statements 2009 2008 ASSETS Current Assets: Cash and cash equivalents (Notes 1 and 2)50,823,237$ 23,351,911$ Restricted cash and cash equivalents (Notes 1 and 2)1,760,631 3,753,983 Investments (Note 2)26,169,080 60,682,507 Accounts receivable, net 8,029,609 7,689,720 Accrued interest receivable 319,186 715,900 Taxes and availability charges receivable, net 413,000 362,976 Restricted taxes and availability charges receivable, net 190,151 174,219 Inventories 816,865 711,240 Prepaid expenses and other current assets 976,045 1,908,028 Total Current Assets 89,497,804 99,350,484 Noncurrent Assets: Restricted Assets: Net OPEB asset (Note 8)6,204,876 5,649,008 Statements of Net Assets June 30, 2009 and 2008 Total Restricted Assets 6,204,876 5,649,008 Deferred bond issuance costs (Note 4)1,142,762 1,240,166 Capital Assets (Note 3): Land 13,402,840 13,025,364 Construction in progress 18,280,278 42,338,220 Capital assets, net of depreciation 422,369,157 391,350,813 Total capital assets, net of depreciaton 454,052,275 446,714,397 Total Non-current Assets 461,399,913 453,603,571 Total Assets 550,897,717 552,954,055 See accompanying independent auditors' report and notes to financial statements. Statements of Net Assets June 30, 2009 and 2008 23 2009 2008 LIABILITIES Current Liabilities: Current maturities of long-term debt (Note 5)2,521,772 2,445,214 Accounts payable 11,565,953 13,705,566 Accrued payroll liabilities 2,548,731 2,491,182 Other accrued liabilities 444,875 1,615,403 Customer deposits 2,806,990 2,719,331 Accrued interest 706,934 720,545 Liabilities Payable From Restricted Assets: Restricted Accrued interest 153,270 166,096 Total Current Liabilities 20,748,525 23,863,337 Noncurrent Liabilities: Long-term debt (Note 5): General Obligation Bonds 7,291,575 7,678,302 Certificates of Participation 61,468,693 63,192,774 Notes Payable 359,744 701,516 Statements of Net Assets June 30, 2009 and 2008 Other non-current liabilities 684,309 690,709 Total Noncurrent Liabilities 69,804,321 72,263,301 Total Liabilities 90,552,846 96,126,638 NET ASSETS Invested in capital assets, net of related debt 382,410,491 372,696,591 Restricted for net OPEB asset 6,204,876 5,649,008 Restricted for debt service 1,797,512 3,762,106 Unrestricted 69,931,992 74,719,712 Total Net Assets 460,344,871$ 456,827,417$ See accompanying independent auditors' report and notes to financial statements. Statements of Net Assets June 30, 2009 and 2008 24 2009 2008 OPERATING REVENUES Water sales 52,428,648$ 50,808,825$ Wastewater revenue 2,182,429 2,386,285 Connection and other fees 2,492,234 2,519,735 Total Operating Revenues 57,103,311 55,714,845 OPERATING EXPENSES Cost of water sales 37,252,482 35,296,002 Wastewater 1,890,804 2,009,876 Administrative and general 19,888,161 21,127,922 Depreciation 12,475,714 13,040,572 Total Operating Expenses 71,507,161 71,474,372 Operating Income (Loss)(14,403,850) (15,759,527) NON-OPERATING REVENUES (EXPENSES) Investment income 2,252,335 4,538,791 Taxes and assessments 4,586,823 4,591,023 Statements of Revenues, Expenses and Changes in Net Assets for the years ended June 30, 2009 and 2008 Availability charges 625,065 744,722 Gain on sale of capital assets 5,206 15,243 Miscellaneous revenues 6,569,644 3,676,963 Donations (95,270)(80,541) Interest expense (1,340,110) (2,601,252) Miscellaneous expenses (1,671,597) (261,492) Total Nonoperating Revenues (Expenses)10,932,096 10,623,457 Income (Loss) Before Capital Contributions (3,471,754) (5,136,070) Capital Contributions 6,989,208 14,941,962 Changes in Net Assets 3,517,454 9,805,892 Total Net Assets, Beginning 456,827,417 447,021,525 Total Net Assets, Ending 460,344,871$ 456,827,417$ See accompanying independent auditors' report and notes to financial statements. 25 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 54,358,847$ 54,276,851$ Receipts from connections and other fees 2,492,234 2,520,417 Other receipts 5,538,973 1,797,869 Payments to suppliers (43,072,805) (41,996,845) Payments to employees (18,947,144) (23,670,840) Other payments (1,545,211) (135,104) Net Cash Provided (Used) by Operating Activities (1,175,106) (7,207,652) CASH FLOWS FROM NON-CAPITAL AND RELATED FINANCING ACTIVITIES Receipts from taxes and assessments 4,520,867 4,497,682 Receipts from property rents and leases 1,070,881 977,313 Net amounts paid for acquisition and maintenance of demonstration garden (95,270) (80,541) Net Cash Provided (Used) by Non-capital and Related Financing Activities 5,496,478 5,394,454 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital contributions 4,014,110 6,807,761 Pdf lfitlt 5 206 15 243 Statements of Cash Flows for the years ended June 30, 2009 and 2008 Proceeds from sale of capital assets 5,206 15,243 Proceeds from debt related taxes and assessments 625,065 744,722 Principal payments on long-term debt (2,445,214) (1,519,048) Interest payments and fees (1,366,547) (2,597,498) Acquisition and construction of capital assets (16,838,494) (27,359,800) Net Cash Provided (Used) by Capital and Related Financing Activities (16,005,874) (23,908,620) CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 2,494,196 5,381,971 Proceeds from sale and maturities of investments 70,703,937 88,909,995 Purchase of investments (36,035,657) (60,704,100) Net Cash Provided (Used) by Investing Activities 37,162,476 33,587,866 Net Increase (Decrease) in Cash and cash equivalents 25,477,974 7,866,048 Cash and cash equivalents, Beginning 27,105,894 19,239,846 Cash and cash equivalents, Ending 52,583,868$ 27,105,894$ See accompanying independent auditors' report and notes to financial statements. Statements of Cash Flows for the years ended June 30, 2009 and 2008 26 2009 2008 Reconciliation of operating income (loss) to net cash flows provided (used) by operating activities: Operating income (loss)(14,403,850)$ (15,759,527)$ Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation 12,475,714 13,040,572 Miscellaneous revenues 5,538,973 2,712,869 Miscellaneous expenses (1,545,211) (135,104) (Increase) decrease in accounts receivable (339,889) 985,738 (Increase) decrease in inventory (105,625) (77,543) (Increase) decrease in net OPEB asset (555,868) (5,649,008) (Increase) decrease in prepaid expenses and other current assets 931,983 (743,728) Increase (decrease) in accounts payable (2,139,613) (1,717,456) Increase (decrease) in accrued payroll and related expenses 57,549 220,224 Increase (decrease) in other accrued liabilities (1,170,528) 18,390 Increase (decrease) in customer deposits 87,659 96,685 Increase (decrease) in prepaid capacity fees (6,400) (199,764) Net Cash Provided (Used) By Operating Activities (1,175,106)$ (7,207,652)$ Schedule of Cash and Cash Equivalents: Statements of Cash Flows for the years ended June 30, 2009 and 2008 Schedule of Cash and Cash Equivalents: Current assets: Cash and cash equivalents 50,823,237$ 23,351,911$ Restricted cash and cash equivalents 1,760,631 3,753,983 Total Cash and Cash Equivalents 52,583,868$ 27,105,894$ Supplemental Disclosures: Non-cash Investing and Financing Activities Consisted of the Following: Contributed Capital for Water and Sewer System 2,975,098$ 8,134,201$ Change in Fair Value of Investments and Recognized Gains/Losses 21,613 109,847 Amortization Related to Long-Term Debt 126,387 126,387 See accompanying independent auditors' report and notes to financial statements. 27 NOTE DESCRIPTION PAGE 1 Reporting Entity and Summary of Significant Accounting Policies..… 29 2 Cash and Investments…………………………………………..……... 32 3 Capital Assets…………………………………………………..……... 35 4 Other Non-current Assets…………………………………………….. 36 5 Long-Term Debt………………………………………………….…… 36 6 Net Assets…………………………………………………………….. 39 7 Defined Benefit Pension Plan………………………………………….39 8 Other Post Employment Benefits………………………..…………..... 41 9 Water Conservation Authority………………………………………... 43 10 Commitments and Contingencies…………………………………….. 44 11 Risk Management…………………………………………………….. 44 12 Interest Expense……………………………………………………..... 45 Required Supplementary Information: 1 Schedule of Funding Progress for PERS………………………………49 2 Schedule of Funding Progress for DPHP……………………………...49 Notes to Financial Statements  years ended June 30, 2009 and 2008  28 See independent auditors’ report. 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Reporting Entity Otay Water District (the “District”) is a public entity established in 1956 pursuant to the Municipal Water District Law of 1911 (Section 711 et. Seq. of the California Water Code) for the purpose of providing water and sewer services to the properties in the District. The District is governed by a Board of Directors consisting of five directors elected by geographical divisions based on District population for a four-year alternating term. B) Measurement Focus, Basis of Accounting and Financial Statement Presentation 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. 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. Revenues and expenses are recognized on the accrual basis. Revenues are recognized in the accounting period in which they are earned and expenses are recognized in the period incurred, regardless of when the related cash flow takes place. Net assets of the District are classified into three components: (1) invested in capital assets, net of related debt, (2) restricted net assets, and (3) unrestricted net assets. These classifications are defined as follows: Invested in Capital Assets, Net of Related Debt This component of net assets 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, net of related debt. Restricted Net Assets This component of net assets consists of constraints placed on net asset 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 Assets This component of net asset consists of net assets that do not meet the definition of “invested in capital assets, net of related debt” or “restricted net assets.” 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 $67,017 and $59,688 at June 30, 2009 and 2008, respectively. Notes to Financial Statements  years ended June 30, 2009 and 2008  29 See independent auditors’ report. 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued 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 Assets. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed. The District has elected under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Activities That Use Proprietary Fund Accounting, to apply all GASB pronouncements as well as any applicable pronouncements of the Financial Accounting Standards Board (FASB), the Accounting Principles Board (APB), or any Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they contradict or conflict with GASB pronouncements. C) 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. D) Investments The District’s investments are stated at fair value, except for short-term investments, which are reported at cost, which approximates fair value. Investments in governmental investment pools are reported on the fair value per share, of the pool’s underlying portfolio. E) 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. F) 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, 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 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. Notes to Financial Statements  years ended June 30, 2009 and 2008  30 See independent auditors’ report. 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued F) Capital Assets - Continued 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 G) Compensated Absences In accordance with GASB Statement No. 16, a liability is recorded for unused vacation and sick leave balances since the employees’ entitlement to these balances are attributable to services already rendered and it is probable that virtually all of these balances will be liquidated by either paid time-off or payment upon termination or retirement. H) Restricted Assets and Liabilities Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be funded from restricted assets. I) 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 were $17,531 and $9,253 for 2009 and 2008 respectively. J) 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. K) 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. L) 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, 2009 and 2008  31 See independent auditors’ report. 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 Assets: Current Assets Cash and cash equivalents $ 50,823,237 Investments 26,169,080 Noncurrent restricted: Restricted Cash and cash equivalents 1,760,631 Total Cash and Investments $ 78,752,948 Cash and Investments consist of the following: Cash on hand $ 2,800 Deposits with financial institutions 5,701,125 Investments 73,049,023 Total Cash and Investments $ 78,752,948 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, 2009 and 2008  32 See independent auditors’ report. 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 is provided by the following table that shows the distribution of the District’s investments by maturity: 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $22,048,400 $ - $22,048,400 $ - $ - Local Agency Investment Fund (LAIF) 7,489,943 7,489,943 - - - Corporate Medium-Term Notes 4,120,680 - 4,120,680 - - San Diego County Pool 39,390,000 39,390,000 - - - Total $73,049,023 $46,879,943 $26,169,080 $ - $ - Remaining Maturity (in Months) 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 actual rating as of year end for each investment type. Minimum Legal Not Investment Type Rating AAA AA Rated U.S. Government Sponsored Entities $22,048,400 N/A $22,048,400 $ - $ - Local Agency Investment Fund (LAIF) 7,489,943 N/A - - 7,489,943 Corporate Medium-Term Notes 4,120,680 A 2,061,960 2,058,720 - San Diego County Pool 39,390,000 N/A - - 39,390,000 Total $73,049,023 $24,110,360 $ 2,058,720 $46,879,943 Rating as of Year End Notes to Financial Statements  years ended June 30, 2009 and 2008 33 See independent auditors’ report. 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 on 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 are as follows: 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, 2009, $2,454,830 of the District’s deposits with financial institutions in excess of federal depository insurance limits were held in collateralized accounts. Local Agency Investment Fund (LAIF) The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the District’s investment in this pool is reported in the accompanying financial statements at amounts based upon District’s pro- rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost-basis. San Diego County Pooled Fund As permitted by its Investment Policy, the District has placed funds with the San Diego County Pooled Fund. The pool may invest some of their portfolios in derivatives. Detailed information on derivative investments held by this pool is not readily available. Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 5,996,260 Federal Home Loan Mortgage Corp Federal National Mortgage Association U.S. Government Sponsored Entities U.S. Government Sponsored Entities $ 4,022,100 $ 10,033,780 Notes to Financial Statements  years ended June 30, 2009 and 2008  34 See independent auditors’ report. 2) CASH AND INVESTMENTS - Continued Collateral for Deposits All cash and Certificates of Deposit are 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 $250,000 by the FDIC. 3) CAPITAL ASSETS The following is a summary of changes in Capital Assets for the year ended June 30, 2009: Beginning Balance Additions Deletions Ending Balance Capital Assets, Not Depreciated: Land 13,025,364$ 377,476$ -$ 13,402,840$ Construction in Progress 42,338,220 19,496,000 (43,553,942) 18,280,278 Total Capital Assets Not Depreciated 55,363,584 19,873,476 (43,553,942) 31,683,118 Capital Assets, Being Depreciated: Infrastructure 495,249,373 42,051,766 (112,745) 537,188,394 Field Equipment 9,430,276 43,295 - 9,473,571 Buildings 17,636,124 529,403 - 18,165,527 Transportation Equipment 3,102,661 194,636 (12,658) 3,284,639 Communication Equipment 689,954 97,404 - 787,358 Office Equipment 16,825,593 577,554 - 17,403,147 Total Capital Assets Being Depreciated 542,933,981 43,494,058 (125,403) 586,302,636 Less Accumulated Depreciation: Infrastructure 125,132,713 10,562,504 (112,745) 135,582,472 Field Equipment 8,714,039 249,920 - 8,963,959 Buildings 5,637,685 453,236 - 6,090,921 Transportation Equipment 2,559,141 109,383 (12,658) 2,655,866 Communication Equipment 369,564 40,641 - 410,205 Office Equipment 9,170,026 1,060,030 - 10,230,056 Total Accumulated Depreciation 151,583,168 12,475,714 (125,403) 163,933,479 Total Capital Assets Being Depreciated, Net 391,350,813 31,018,344 - 422,369,157 Total Capital Assets, Net 446,714,397$ 50,891,820$ (43,553,942)$ 454,052,275$ Depreciation expense for the years ended June 30, 2009 and 2008 was $12,475,714 and $13,040,572, respectively. Notes to Financial Statements  years ended June 30, 2009 and 2008  35 See independent auditors’ report. 4) OTHER NON-CURRENT ASSETS Deferred bond issue costs totaled $1,142,762 and $1,198,791, net of accumulated amortization of $296,309 and $240,279 as of June 30, 2009 and 2008, respectively. The costs are amortized on the straight-line method based on the estimated term of the related bond debt. Amortization expense of $56,030 for the years ended June 30, 2009 and 2008 is included in miscellaneous non-operating expenses. 5) LONG-TERM DEBT Long-term liabilities for the year ended June 30, 2009 are as follows: Beginning Balance Additions Deletions Ending Balance Due Within One Year General Obligation Bonds: Improvement District No. 27 $ 8,810,000 $ - $ 415,000 $ 8,395,000 $ 435,000 Unamortized Bond Discount (103,556) - (7,397) (96,159) - Deferred Amount on Refunding (613,142) - (40,876) (572,266) - Net General Obligation Bonds 8,093,302 - 366,727 7,726,575 435,000 Certificates of Participation: 1996 Certificates of Participation 12,500,000 - 400,000 12,100,000 400,000 2004 Certificates of Participation 10,835,000 - 515,000 10,320,000 530,000 2007 Certificates of Participation 42,000,000 - 785,000 41,215,000 815,000 1996 COPS Unamortized Discount (14,158) - (745) (13,413) - 2007 COPS Unamortized Discount (259,263) - (9,044) (250,219) - 2004 COPS Unamortized Premium 17,665 - 1,165 16,500 - 2004 COPS Deferred Amount on Refunding (186,470) - (12,295) (174,175)- Net Certificates of Participation 64,892,774 - 1,679,081 63,213,693 1,745,000 Notes Payable: State Water Resource Control Board 1,031,730 - 330,214 701,516 341,772 Total Long-Term Liabilities $ 74,017,806 $ - $2,376,022 $ 71,641,784 $2,521,772 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. 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. Notes to Financial Statements  years ended June 30, 2009 and 2008  36 See independent auditors’ report. 5) LONG-TERM DEBT - Continued The refunding resulted in a deferred amount of $1,021,903, which is being amortized over the remaining life of the refunded debt. Amortization for the years ended June 30, 2009 and 2008 was $40,876 for each year and is included in miscellaneous non-operating expenses. As of June 30, 2009 and 2008, the amortized deferred amount of refunding is $572,266, and $613,142, respectively. The 1998 General Obligation Bonds have interest rates from 4.5% to 5% with maturities through Fiscal Year 2023. Future debt service requirements for the bonds are as follows: For the Year Ended June 30, Principal Interest 2010 $ 435,000 $ 402,705 2011 455,000 382,235 2012 475,000 360,608 2013 495,000 337,565 2014 520,000 312,945 2015-2019 3,015,000 1,141,353 2020-2023 3,000,000 309,250 $ 8,395,000 $ 3,246,661 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 interest rate at June 30, 2009 was 0.25%. 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. 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 $445,000 to $895,000 from September 1, 2005 through September 1, 2023; bearing interest at 3% to 4.625%. Notes to Financial Statements  years ended June 30, 2009 and 2008  37 See independent auditors’ report. 5) LONG-TERM DEBT - Continued Certificates of Participation (COPS) - Continued 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 Principal Interest 2010 $ 400,000 $ 29,417 $ 530,000 $ 402,634 $ 815,000 $ 1,686,410 2011 400,000 28,417 545,000 386,236 850,000 1,655,395 2012 400,000 27,417 565,000 368,607 885,000 1,622,864 2013 500,000 26,208 580,000 349,566 920,000 1,589,020 2014 500,000 24,958 600,000 328,906 955,000 1,553,864 2015-2019 3,000,000 103,500 3,375,000 1,271,613 5,375,000 7,187,979 2020-2024 3,900,000 59,875 4,125,000 482,422 6,515,000 6,031,444 2025-2029 3,000,000 9,250 - - 7,995,000 4,538,196 2030-2034 - - - - 9,875,000 2,644,028 2035-2037 - - - - 7,030,000 470,094 $ 12,100,000 $ 309,042 $ 10,320,000 $ 3,589,984 $ 41,215,000 $ 28,979,294 1996 COPS 2004 COPS 2007 COPS * Variable Rate - Interest reflected at June 30, 2009 at a rate of 0.25%. The three 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. Note Payable In December 1990, the District entered into a 3.5% note payable to the State Water Resources Control Board. This note is unsecured and payable in annual installments of $366,325 including principal and interest from 1992 through 2010. The total amount outstanding at June 30, 2009 and aggregate maturities of the note for the fiscal years subsequent to June 30, 2009, are as follows: For the Year Ended June 30, Principal Interest 2010 $ 341,772 $ 24,553 2011 353,734 12,591 2012 6,010 1 $ 701,516 $ 37,145 Notes to Financial Statements  years ended June 30, 2009 and 2008  38 See independent auditors’ report. 6) NET ASSETS Designated Net Assets In addition to the restricted net assets, a portion of the unrestricted net assets have been designated by the Board of Directors for the following purposes as of June 30, 2009 and 2008: 2009 2008 Designated Betterment $ 2,969,722 $ 804,769 Expansion Reserve 18,569,610 11,966,501 Replacement Reserve 26,388,812 31,785,910 Insurance Reserve 8,436,721 10,458,191 Total $ 56,364,865 $ 55,015,371 7) 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 members in the Plan are required to contribute 8% of their annual covered salary. The District has elected to contribute 7% on behalf of its employees. The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. 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, 2009 was 19.369%. 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, 2009 and 2008  39 See independent auditors’ report. 7) DEFINED BENEFIT PENSION PLAN - Continued Annual Pension Costs For the fiscal year ended June 30, 2009, the District’s annual pension cost and actual contribution was $2,150,579. The required contribution for the fiscal year ended June 30, 2009 was determined as part of the June 30, 2006 actuarial valuation. The following is a summary of the actuarial assumptions and methods: Valuation Date June 30, 2006 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Average Remaining Period 21 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 3.25% 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 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 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 6/30/09 $ 2,150,579 100%$ 0 6/30/08 $ 2,252,601 100%$ 0 6/30/07 $ 1,925,758 100%$ 0 Funded Status and Funding Progress As of June 30, 2007, the most recent actuarial valuation date, the plan was 75.6% funded. The actuarial accrued liability (AAL) for benefits was $59,412,116, and the actuarial value of assets was $44,910,326, resulting in an unfunded actuarial accrued liability (UAAL) of $14,501,790. The covered payroll (annual payroll of active employees covered by the plan) was $10,663,440, and the ratio of the UAAL to the covered payroll was 136.0%. 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, 2009 and 2008  40 See independent auditors’ report. 8) OTHER POST EMPLOYMENT BENEFITS Plan Description The District’s defined benefit postemployment healthcare plan, (DPHP), provides medical benefits to eligible retired District employees and beneficiaries. DPHP is part of the Public Agency portion of the California Employers’ Retiree Benefit Trust Fund (CERBT), an agent multiple-employer plan administered by California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements is established by State statute within the Public Employees’ Retirement Law. DPHP 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 The contribution requirements of plan members and the District are established and may be amended by the Board of Directors. DPHP members receiving benefits contribute based on their selected plan options of EPO, Silver or Gold and if they are located outside the State of California. Contributions by plan members range from $0 to $95 per month for coverage to age 65, and from $0 to $62 per month, respectively, thereafter. Annual OPEB Cost and Net OPEB Obligation/Asset The District’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis is projected to cover the normal annual cost. Any unfunded actuarial liability (or funding excess) is amortized over a period not to exceed thirty years. The current ARC rate is 7.7% of the annual covered payroll. The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation/asset: 2009 2008 Annual Required Contribution (ARC) 873,000$ 846,000$ Interest on net OPEB asset (437,798) - Adjustment to Annual Required Contribution (ARC) 489,999 - Annual OPEB cost (expense) 925,201 846,000 Contributions made 1,481,069 6,495,008 Increase in net OPEB asset (555,868) (5,649,008) Net OPEB asset - beginning of year (5,649,008) - Net OPEB asset - end of year (6,204,876)$ (5,649,008)$ For 2009, in addition to the ARC, the District contributed an implied subsidy (healthcare premium payments for retirees to Special District Risk Management Authority (SDRMA) ) in the amount of $608,069, which is included in the $1,481,069 of contributions shown above. For 2008 this amount was $649,008, which is included in the $6,495,008 of contributions shown above. Notes to Financial Statements  years ended June 30, 2009 and 2008  41 See independent auditors’ report. 8) OTHER POST EMPLOYMENT BENEFITS - Continued 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 2009, 2008 and 2007 were as follows: THREE-YEAR TREND INFORMATION FOR CERBT Fiscal Annual OPEB Percentage of Net OPEB Year Cost (AOC)OPEB Cost Contributed Asset 6/30/09 $ 925,201 100% $(6,204,876) 6/30/08 $ 846,000 100% $(5,649,008) 6/30/07 *** *The information for 6/30/2007 is unavailable. GASB 45 was implemented in fiscal year 2008. Funded Status and Funding Progress The funded status of the plan as of June 30, 2007, the most recent actuarial valuation date, was as follows: Actuarial Accrued Liability (AAL)$ 11,408,000 Actuarial Value of Plan Assets $0 Unfunded Actuarial Accrued Liability (UAAL)$ 11,408,000 Funded Ratio (Actuarial Value of PlanAssets/AAL) 0% Covered Payroll (Active Plan Members)$ 10,951,000 UAAL as a Percentage of Covered Payroll 104.2% 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, 2009 and 2008  42 See independent auditors’ report. 8) 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, 2007 Actuarial Cost Method Entry Age Normal Cost Method Amortization Method Level Percent of Payroll Remaining Amortization Period 30 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 3.25% Inflation 3.00% Individual Salary Growth CalPERS 1997-2002 Experience Study 9) 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, 2009 and 2008, the District contributed $95,270 and $80,541, respectively, for the development, construction and operation costs of the xeriscape demonstration garden. A summary of the Authority’s June 30, 2008 audited financial statement is as follows (latest report available): Assets $ 2,513,701 Liabilities 77,469 Revenues, Gains and Other Support 782,019 Changes in Net Assets (23,115) Notes to Financial Statements  years ended June 30, 2009 and 2008  43 See independent auditors’ report. 10) COMMITMENTS AND CONTINGENCIES Construction Commitments The District had committed to capital projects under construction with an estimated cost to complete of $1,088,300 at June 30, 2009. Litigation Certain claims, suits and complaints arising in the ordinary course of operation have been filed or are pending against the District. In the opinion of the staff and counsel, all such matters are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involved such amounts, as would not have significant effect on the financial position or results of operations of the District if disposed of unfavorably. Refundable Terminal Storage Fees The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee in order to provide the District with the funds necessary to build additional storage capacity. The agreement further allows the developers to relinquish all or a portion of such water storage capacity. If the District grants to another property owner the relinquished storage capacity, the District shall refund to the applicable developer $746 per equivalent dwelling unit (EDU). There were 17,867 EDUs that were subject to this agreement. At June 30, 2008, 1,750 EDUs had been relinquished and refunded, 14,622 EDUs had been connected, and 1,495 EDUs have neither been relinquished nor connected. At June 30, 2009, 1,750 EDUs had been relinquished and refunded, 14,662 EDUs had been connected, and 1,455 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, 2009, none of the 3 outstanding developer agreements had been accepted, however it is anticipated that the District will be liable for an amount not to exceed $20,300 at the point of acceptance. Accordingly, the District did not accrue a liability as of year end. 11) RISK MANAGEMENT General Liability The District is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omissions, and natural disasters. Beginning in July 2003, the District began participation in an insurance pool through the Special District Risk Management Authority (SDRMA). SDRMA is a not-for-profit public agency formed under California Government Code Sections 6500 et. Seq. SDRMA is governed by a board composed of members from participating agencies. The mission of SDRMA is to provide renewable, efficiently priced risk financing and risk management services through a financially sound pool. The District pays an annual premium for commercial insurance covering general liability, excess liability, property, automobile, public employee dishonesty, and various other claims. Coverage limits range up to $1 billion. 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. Workers’ Compensation Through SDRMA, the District is insured up to $200,000,000 for Statutory Workers’ Compensation and $5,000,000 for Employers’ Liability coverage with no deductible. SDRMA currently has a pool of 336 agencies in the Workers’ Compensation Program. Notes to Financial Statements  years ended June 30, 2009 and 2008  44 See independent auditors’ report. 11) RISK MANAGEMENT - Continued Health Insurance Previously the District maintained a self-insurance program for health claims. Beginning in January 2008, the District began providing health insurance through SDRMA covering all of its employees, retirees, and other dependents. Prior estimated accrued claims outstanding at June 30, 2008 amounted to $137,029, and all remaining claims were paid as of December 31, 2008. 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. 12) INTEREST EXPENSE Interest expense for the years ended June 30, 2009 and 2008, is as follows: 2009 2008 Amount Expensed $ 1,340,110 $ 2,601,252 Amount Capitalized as a Cost of Construction Projects 1,353,153 373,282 Total Interest $ 2,693,263 $ 2,974,534 Notes to Financial Statements  years ended June 30, 2009 and 2008  45 Required Supplementary Information Top and Bottom Photos Courtesy of Garden Retreat Design See independent auditors’ report. 1) 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] 6/30/07 Miscellaneous $ 44,910,326 $ 59,412,116 $ 14,501,790 75.6%$ 10,663,440 136.0% 6/30/06 Miscellaneous $ 40,321,483 $ 54,228,041 $ 13,906,558 74.4%$ 10,470,766 132.8% 6/30/05 Miscellaneous $ 36,029,595 $ 50,249,943 $ 14,220,348 71.7%$ 10,005,158 142.1% 2) 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] 6/30/07 Miscellaneous $ 0 $ 11,408,000 $ 11,408,000 0%$ 10,951,000 104.2% 6/30/06 Miscellaneous * * *** * *GASB 45 was implemented in fiscal year 2008. The information for the 2006 year is unavailable. Required Supplementary Information  years ended June 30, 2009 and 2008  49 ~ Statistical   The Statistical Schedule is part of understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health. Contents Page Financial Trends 5522 These schedules contain trend information to help the reader understand how the District’s financial performance and well-being have changed over time. Revenue Capacity 5588 These schedules contain information to help the reader assess the factors affecting the District’s ability to generate its water, reclaimed, and sewer sales as well as property and sales taxes. Debt 6666 These schedules present information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt in the future. Demographic and Economic Information 7700 These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place and to help make comparisons over time and with other governments. Operating Information 7722 These schedules contain information about the District’s operation and resources to help the reader understand how the District’s financial information relates to the services the District provides and the activities it performs. Sources Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports of the relevant year. The District implemented GASB Statement 34 in 2001; schedules presenting government-wide information include information beginning in that year. Statistical Schedules  51 Invested in Fiscal Capital Assets Total Year Net of Related Debt Restricted Unrestricted Net Assets 2009 382,410,491$ 8,002,388$ 69,931,992$ 460,344,871$ 2008 372,696,591 9,411,114 74,719,712 456,827,417 2007 374,667,591 2,071,307 70,282,627 447,021,525 2006 361,590,845 2,408,473 58,066,009 422,065,327 2005 325,676,089 16,188,364 69,224,020 411,088,473 2004 291,863,666 23,853,441 67,244,139 382,961,246 2003 269,579,907 40,945,837 49,828,535 360,354,279 2002 245,290,752 46,866,439 45,580,508 337,737,699 2001 (1) 237,230,807 42,923,480 41,854,311 322,008,598 Net Assets by Component Last Ten Fiscal Years $ $460,000,000 TOTAL NET ASSETS (1) As recommended by GASB 44, this schedule provides data retroactive to the year GASB 34 was implemented. The District implemented GASB 34 in Fiscal Year 2002 and presented comparative data for Fiscal Year 2001. Accordingly, the last nine fiscal years are presented. Source: Otay Water District $300,000,000 $320,000,000 $340,000,000 $360,000,000 $380,000,000 $400,000,000 $420,000,000 $440,000,000 $460,000,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year TOTAL NET ASSETS 52 Total Non-Operating Income (Loss) Change Fiscal Operating Operating Operating Revenues/ Before Capital Capital in Net Year Revenues Expenses Income (Expenses) Contributions Contributions Assets 2009 57,103,311$ 71,507,161$ (14,403,850)$ 10,932,096$ (3,471,754)$ 6,989,208$ 3,517,454$ 2008 55,714,845 71,474,372 (15,759,527) 10,623,457 (5,136,070) 14,941,962 9,805,892 2007 53,250,481 64,651,050 (11,400,569) 9,793,692 (1,606,877) 26,563,075 24,956,198 2006 47,861,088 59,528,094 (11,667,006) 7,242,280 (4,424,726) 15,401,580 10,976,854 2005 43,335,915 56,449,475 (13,113,560) 6,271,482 (6,842,078) 34,969,305 28,127,227 2004 41,539,293 51,516,096 (9,976,803) 3,484,492 (6,492,311) 29,099,278 22,606,967 2003 36,961,980 46,143,486 (9,181,506) 4,517,049 (4,664,457) 22,616,580 17,952,123 2002 37,312,385 43,509,038 (6,196,653) 6,193,303 (3,350) 15,732,451 15,729,101 2001 (1) 22,598,438 40,203,049 (17,604,611) 10,526,110 (7,078,501) 30,209,604 23,131,103 Changes in Net Assets Last Ten Fiscal Years CHANGES IN NET ASSETS (1) As recommended by GASB 44, this schedule provides data retroactive to the year GASB 34 was implemented. The District implemented GASB 34 in Fiscal Year 2002 and presented comparative data for Fiscal Year 2001. Accordingly, the last nine fiscal years are presented. Source: Otay Water District $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year CHANGES IN NET ASSETS 53 Fiscal Wastewater Connection and Percent Year Water Sales Revenue Other Fees Total Change 2009 52,428,648$ 2,182,429$ 2,492,234$ 57,103,311$ 2.5% 2008 50,808,825 2,386,285 2,519,735 55,714,845 4.6% 2007 48,605,606 2,604,431 2,040,444 53,250,481 11.3% 2006 43,755,610 2,331,094 1,774,384 47,861,088 10.4% 2005 39,348,056 2,018,596 1,969,263 43,335,915 4.3% 2004 39,044,712 1,774,366 720,215 41,539,293 12.4% 2003 34,621,890 1,648,227 691,863 36,961,980 -0.9% 2002 34,980,289 2,031,855 300,241 37,312,385 65.1% 2001 20,645,462 (1) 1,578,581 374,395 22,598,437 -31.5% 2000 30,928,092 1,742,537 333,389 33,004,018 24.2% Operating Revenues by Source Last Ten Fiscal Years TOTAL OPERATING REVENUES (1) During the year ended June 30, 2001, the District's Board authorized three separate potable water rebates totaling $9,700,089. The rebates were accounted for as a reduction of Water Sales. Source: Otay Water District $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year TOTAL OPERATING REVENUES 54 Administrative Percent Year Water Sales Wastewater and General Depreciation Total Change 2009 37,252,482$ 1,890,804$ 19,888,161$ 12,475,714$ 71,507,161$ 0.05% 2008 35,296,002 2,009,876 21,127,922 13,040,572 71,474,372 10.6% 2007 33,994,841 1,508,672 18,418,441 10,729,096 64,651,050 8.6% 2006 32,043,395 1,899,957 15,477,287 10,107,455 59,528,094 5.5% 2005 30,127,087 2,050,643 13,747,611 10,524,134 56,449,475 9.6% 2004 27,899,376 2,446,603 11,081,599 10,088,518 51,516,096 11.6% 2003 24,477,487 2,548,881 9,310,381 9,806,737 46,143,486 6.1% 2002 23,070,355 2,404,720 8,388,045 9,645,918 43,509,038 8.2% 2001 20,998,534 2,447,034 8,014,245 8,743,236 40,203,049 9.5% 2000 19,416,956 1,833,775 7,444,505 8,023,280 36,718,516 11.5% Operating Expenses by Function Last Ten Fiscal Years Source: Otay Water District $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year OPERATING EXPENSES Depreciation Administrative and General Wastewater Cost of Water Sales 55 Fiscal Investment Taxes and Availability Percent Year Income Assessments Charges Miscellaneous Total Change 2009 2,252,335$ 4,586,823$ 625,065$ 6,574,850$ 14,039,073$ 3.5% 2008 4,538,791 4,591,023 744,722 3,692,206 13,566,742 22.3% 2007 4,416,342 4,151,956 715,664 1,811,619 11,095,581 29.7% 2006 3,188,645 2,779,635 609,099 1,978,632 8,556,011 4.1% 2005 2,052,292 2,326,526 556,590 3,285,128 (1) 8,220,536 15.5% 2004 1,097,449 3,071,685 1,132,278 1,816,967 7,118,379 -10.8% 2003 2,578,231 2,600,411 1,069,750 1,731,384 7,979,776 -12.4% 2002 4,466,383 2,381,170 1,052,222 1,207,920 9,107,695 -31.8% 2001 7,606,185 3,054,917 1,116,084 1,568,874 13,346,060 24.7% 2000 5,088,516 3,164,910 949,612 1,499,818 10,702,856 5.6% Non‐Operating Revenues by Source Last Ten Fiscal Years (1) The District sold capital assets during Fiscal Year 2005 which resulted in a gain of $2,196,655. Source: Otay Water District 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year TOTAL NON-OPERATING REVENUES 56 Fiscal Interest Percent Year Donations (1)Expense Miscellaneous Total Change 2009 95,270$ 1,340,110$ 1,671,597$ 3,106,977$ 5.6% 2008 80,541 2,601,252 261,492 2,943,285 126.1% 2007 80,000 950,479 271,410 1,301,889 -0.9% 2006 75,000 959,225 279,506 1,313,731 -32.6% 2005 61,411 1,327,844 559,799 1,949,054 -46.4% 2004 59,220 1,252,307 2,322,360 3,633,887 4.9% 2003 68,756 947,099 2,446,872 3,462,727 18.8% 2002 131,225 1,503,063 1,280,104 2,914,392 3.3% 2001 145,500 1,543,336 1,131,114 2,819,950 -6.8% 2000 184,507 1,540,592 1,301,961 3,027,060 -31.0% Non‐Operating Expenses by Function Last Ten Fiscal Years (1) Donations are contributions to the Water Conservation Authority formed in 1999. See Note 9 in the Notes to Financial Statements for more information. Source: Otay Water District $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year NON-OPERATING EXPENSES Miscellaneous Interest Expense Donations 57 Fiscal Percent Year Secured Unsecured Total Change 2009 26,269,630,081$ 482,465,611$ 26,752,095,692$ 3.28% 2008 25,333,821,005 568,975,196 25,902,796,201 14.19% 2007 22,166,251,649 518,441,943 22,684,693,592 15.94% 2006 19,204,029,184 361,636,280 19,565,665,464 19.13% 2005 16,121,465,817 301,937,884 16,423,403,701 16.23% 2004 13,833,852,366 296,691,701 14,130,544,067 16.50% 2003 11,786,410,218 343,253,933 12,129,664,151 15.63% 2002 10,239,985,732 249,933,698 10,489,919,430 16.67% 2001 8,767,643,482 223,676,433 8,991,319,915 9.33% 2000 7,809,527,552 414,404,800 8,223,932,352 15.61%       Assessed Valuation of Taxable Property within the District       Last Ten Fiscal Years ASSESSED VALUATION OF PROPERTY Source: County of San Diego Auditor and Controller $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 In T h o u s a n d s . . Fiscal Year ASSESSED VALUATION OF PROPERTY 58 Fiscal Year Purchases Sales Production Purchases Sales 2009 15,233,498 14,923,843 367,461 1,593,621 1,991,737 2008 16,572,271 15,575,662 538,227 1,566,148 2,001,137 2007 18,255,735 16,059,464 550,206 284,499 (2) 1,920,287 2006 17,972,146 14,723,988 537,400 - 1,722,057 2005 16,412,711 13,708,001 501,114 - 1,447,020 2004 18,424,007 14,711,176 568,589 - 1,492,453 2003 16,486,502 13,613,885 486,739 - 1,109,691 2002 17,084,537 13,723,241 471,581 - 1,000,007 2001 14,521,902 12,057,399 418,873 - 674,670 2000 14,801,644 12,023,682 408,636 - 564,843 Per 100 Cubic Feet Potable Water (1)Recycled Water (1) Per 100 Cubic Feet Water Purchases, Production, and Sales Last Ten Fiscal Years 20,000,000 POTABLE WATER PURCHASES AND RECYCLED WATER PRODUCTION (1) Rates are not presented on this schedule because the District has multiple water rates for various meter sizes and cannot represent rates in a meaningful manner with a weighted average rate. See Water and Sewer rates on page 63 for meter sizes and their corresponding water rates. (2) The District entered into an agreement with the City of San Diego and began purchasing recycled water from their South Bay Water Reclamation Plant in 2007. Source: Otay Water District 0 5,000,000 10,000,000 15,000,000 20,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Hu n d r e d C u . F t . …. Fiscal Year POTABLE WATER PURCHASES AND RECYCLED WATER PRODUCTION Recycled Water Purchases Recycled Water Production Potable Water Purchases 59 Fiscal Year Potable Recycled Total 2009 113 44 157 2008 224 22 246 2007 563 85 648 2006 788 47 835 2005 1,406 95 1,501 2004 2,125 64 2,189 2003 1,782 123 1,905 2002 2,308 33 2,341 2001 2,667 43 2,710 2000 2,485 78 2,563 Meter Sales by Type Last Ten Fiscal Years METER SALES Source: Otay Water District - 500 1,000 1,500 2,000 2,500 3,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year METER SALES Recycled Meter Sales Potable Meter Sales 60 Fiscal Year Potable Recycled Sewer Total 2009 47,689 671 4,638 52,998 2008 47,591 626 4,627 52,844 2007 47,461 588 4,567 52,616 2006 46,851 558 4,571 51,980 2005 46,042 483 4,570 51,095 2004 44,583 348 4,548 49,479 2003 42,438 312 4,510 47,260 2002 40,732 189 4,342 45,263 2001 38,502 128 4,240 42,870 2000 36,005 106 4,199 40,310 Number of Customers by Service Type Last Ten Fiscal Years NUMBER OF CUSTOMERS Source: Otay Water District 0 20,000 40,000 60,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year NUMBER OF CUSTOMERS Potable Recycled Sewer 61 LEVIES (1) Fiscal 1% Property Special Total Total Net Percent Year Tax Assessments Levies Collections (1)Receivable Collected 2009 3,490,148 2,606,993 6,097,142 5,643,544 453,598 93% 2008 3,202,880 2,627,518 5,830,398 5,754,836 75,563 99% 2007 2,775,882 2,465,497 5,241,379 5,263,367 (21,988) 100% 2006 1,420,049 2,519,927 3,939,976 3,935,983 3,993 100% 2005 1,173,319 2,430,267 3,603,586 3,455,852 147,734 96% 2004 1,844,604 2,442,356 4,286,961 4,108,581 178,380 96% 2003 1,541,362 2,246,865 3,788,227 3,721,776 66,451 98% 2002 1,314,354 2,305,191 3,619,545 3,558,105 61,440 98% 2001 1,134,675 3,171,206 4,305,882 4,176,331 129,551 97% 2000 997,055 3,321,696 4,318,751 4,053,482 265,269 94% Property Tax Levies and Collections Last Ten Fiscal Years 2000 997,055 3,321,696 4,318,751 4,053,482 265,269 94% (1) Levies and collections include Current Secured, Current Unsecured, and Supplemental Homeowners Exemptions. Source: Otay Water District $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year LEVIES AND COLLECTIONS Levies Collections 62 Base Rate (Meter Size)2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Residential 3/4"13.83$ 12.30$ 11.30$ 10.25$ 10.25$ 10.25$ 10.25$ 10.25$ 10.25$ 10.25$ 1"17.56 19.80 18.15 16.50 16.50 16.50 16.50 16.50 16.50 16.50 1.5"26.90 51.95 35.75 32.50 32.50 32.50 32.50 32.50 32.50 32.50 Non-Residential & Others 3/4"13.83 24.00 22.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 1"17.56 36.95 33.90 30.80 30.80 30.80 30.80 30.80 30.80 30.80 1.5"26.90 51.95 47.50 43.30 43.30 43.30 43.30 43.30 43.30 43.30 2"38.10 64.95 59.60 54.20 54.20 54.20 54.20 54.20 54.20 54.20 3"67.98 104.55 95.90 87.20 87.20 87.20 87.20 87.20 87.20 87.20 4"101.59 119.70 109.80 99.80 99.80 99.80 99.80 99.80 99.80 99.80 6"194.96 239.20 219.45 199.50 199.50 199.50 199.50 199.50 199.50 199.50 8"307.00 10"437.71 456.60 418.90 380.50 380.50 380.50 380.50 380.50 380.50 380.50 Fire Services All Types 28.55 25.40 23.30 21.20 21.20 21.20 21.20 21.20 21.20 21.20 Usage Rate Residential: Tier 1 (1-5)1.12$ 1.12$ 1.08$ 1.05$ 1.01$ 1.01$ 1.01$ 1.01$ 1.01$ 1.01$ Tier 2 (6-10)1.74 1.85 1.78 1.73 1.67 1.67 1.67 1.67 1.67 1.67 Tier 3 (11-35)2.26 2.01 1.94 1.88 1.81 1.81 1.81 1.81 1.81 1.81 Tier 4 (36+)3.48 2.94 2.83 2.75 2.65 2.13 2.13 2.13 2.13 2.13 Tier 5 (51+) (1)- - - - - 2.65 2.65 2.65 2.65 2.65 Master Meter: Tier 1 (1-5)1.72 1.85 1.78 1.73 1.67 1.78 1.78 1.78 1.78 1.78 Tier 2 (6-25)2.23 2.01 1.94 1.88 1.81 - - - - - Tier 3 (16+)3.43 2.94 2.83 2.75 2.65 - - - - - Water and Sewer Fixed Rates Last Ten Fiscal Years Publicly-Owned - 2.06 1.99 1.93 1.86 1.86 1.86 1.86 1.86 1.86 Commercial & Others (2)- 1.98 1.91 1.85 1.78 1.78 1.78 1.78 1.78 1.78 Public Agency & Commercial (3) Tier 1 1.84 - - - - - - - - - Tier 2 1.88 - - - - - - - - - Tier 3 1.91 - - - - - - - - - Landscape, Agricultural & Construction (3) Tier 1 2.50 - - - - - - - - - Tier 2 2.55 - - - - - - - - - Tier 3 2.60 - - - - - - - - - Recycled (Commercial)- 1.67$ 1.65$ 1.57$ 1.51$ 1.51$ 1.51$ 1.51$ 1.51$ 1.51$ Recycled (Publicly-Owned)- 1.75 1.73 1.65 1.59 1.59 1.59 1.59 1.59 1.59 Recycled (3) Tier 1 2.13 - - - - - - - - - Tier 2 2.17 - - - - - - - - - Tier 3 2.21 - - - - - - - - - Sewer Rates 34.79$ 33.26$ 32.70$ 30.90$ 26.90$ 23.35$ 20.95$ 20.95$ 20.95$ 20.95$ Note: Above rates do not include Infrastructure Access Charge, a pass-through charge from CWA and MWD. (1) Effective January 2005, Tier 5 has been eliminated and replaced by Tier 4 (36+). (2) Others include landscaping, agricultural, and temporary meters. Agricultural customers under Interim Agricultural Water Program (IAWP) shall receive a $0.33 discount per hundred cubic feet (HCF) (3) Effective January 2009, with the new rate structure, Public Agency & Commercial rates were combined as well as the recycled Commercial & Publicly owned (see next page for details). Source: Otay Water District 63 Tier 1 (1-101)1.84$ Tier 1 (1-7,965)1.84$ Tier 2 (102-720)1.88 Tier 2 (7,966-21,761)1.88 Tier 3 (721+)1.91 Tier 3 (21,762+)1.91 Landscape, Agricultural & Construction 3/4" to 1" Meters Tier 1 (1-47)2.50$ Tier 1 (1-651)2.50$ Tier 2 (48-164)2.55 Tier 2 (652-4,064)2.55 Tier 3 (165+)2.60 Tier 3 (4,065+)2.60 Tier 1 (1-136)2.50$ Tier 2 (137-415)2.55 Tier 3 (416+)2.60 Tier 1 (1-45)2.13$ Tier 1 (1-159)2.13$ Tier 2 (46-136)2.17 Tier 2 (160-465)2.17 Tier 3 (137+)2.21 Tier 3 (466+)2.21 Tier 1 (1-400)2.13$ Tier 1 (1-7,955)2.13$ Tier 2 (401-1,005)2.17 Tier 2 (7,956-17,550)2.17 Tier 3 (1,006+)2.21 Tier 3 (17,551+)2.21 Landscape, Agricultural & Construction 10" Meters & above Landscape, Agricultural & Construction 3" + Meters Recycled 3/4" to 1" Meters Recycled 3" to 4" Meters Recycled 3" to 4" Meters Recycled 1.5" to 2" Meters Water and Sewer Rates Last Ten Fiscal Years Fiscal Year 2009 Public Agency & Commercial Recycled Landscape, Agricultural & Construction 1.5" to 2" Meters Less than 10" Meters Source: Otay Water District 64 FISCAL YEAR 2009 Annual % of Business Type Revenues Water Sales 1. City Of Chula Vista Publicly Owned 2,083,668$ 4.0% 2. Otay River Const/Southbay Expressway Construction (Potable, Temporary)1,044,277 2.0% 3. County Of San Diego Publicly Owned 1,023,342 2.0% 4. State Of California Publicly Owned 864,858 1.6% 5. Eastlake III Community Assoc Construction (Potable, Temporary)539,324 1.0% 6. Sweetwater School District Publicly Owned 477,150 0.9% 7. Eastlake Country Club Irrigation (Reclaimed, Permanent)458,259 0.9% 8. Steele Canyon Irrigation (Potable, Permanent)370,516 0.7% 9. Salt Creek Partners LLC Irrigation (Reclaimed, Permanent)357,528 0.7% 10. Chula Vista School District Publicly Owned 329,847 0.6% Total (10 Largest)7,548,770$ 14.4% Other Customers 44,879,878$ 85.6% Total Water Sales 52,428,648$ 100.0% FISCAL YEAR 2004 (1) Annual % of Business Type Revenues Water Sales Ten Largest Customers Current Year and Nine Years Ago Customer Name Customer Name 1. City of Chula Vista Publicly Owned 1,127,011$ 2.9% 2. State of California Publicly Owned 849,140 2.2% 3. County of San Diego Publicly Owned 725,507 1.9% 4. Steele Canyon Irrigation (Potable Permanent)526,582 1.3% 5. Eastlake III Business/Irrigation (Reclaimed)419,942 1.1% 6. Singing Hills Residential/Irrigation (Potable Permanent)390,720 1.0% 7. McMillin Construction (Potable Temporary)377,591 1.0% 8. Eastlake Country Club Irrigation (Reclaimed Permanent)325,036 0.8% 9. California Bank & Trust Irrigation (Reclaimed Permanent)243,689 0.6% 10. Sweetwater School District School/Irrigation (Reclaimed Publicly Owned)224,054 0.6% Total (10 Largest)5,209,273$ 13.3% Other Customers 33,835,439$ 86.7% Total Water Sales 39,044,712$ 100.0% (1) Because the District did not begin tracking its ten largest customers until Fiscal Year 2004, data for nine years ago is not available. Accordingly, the current fiscal year and Fiscal Year 2004 are presented. Source: Otay Water District 65 As a Share Fiscal Population GO Capital Per of Personal Year Estimate Bond COPS Notes Leases Total Capita Income (1) 2009 195,000 7,726,575$ $63,213,693 701,516 - 71,641,784$ 367.39 0.80% 2008 191,500 8,093,302 64,892,774 1,031,730 - 74,017,806 386.52 0.85% 2007 190,000 8,445,029 65,851,790 1,350,778 - 75,647,597 398.15 0.89% 2006 189,000 8,776,755 24,909,352 1,659,037 51,589 35,396,733 187.28 0.44% 2005 186,000 9,093,482 25,653,607 1,956,871 100,666 36,804,626 197.87 0.49% 2004 180,000 9,395,209 25,666,312 2,244,633 147,343 37,453,497 208.07 0.54% 2003 176,000 9,681,937 26,298,239 2,522,665 191,742 38,694,583 219.86 0.62% 2002 166,000 9,953,664 26,915,166 2,791,295 - 39,660,125 238.92 0.69% 2001 156,000 10,210,392 27,517,093 3,050,841 - 40,778,326 261.40 0.77% 2000 147,000 10,452,118 28,004,021 3,301,610 - 41,757,749 284.07 0.87% Ratios of Outstanding Debt by Type Last Ten Fiscal Years (1) See the Demographics and Economic Statistics schedule on page 71 for personal income data. Because per capita personal income data was not available for 2009 the percentages for 2009 were calculated using per capita personal income for 2008. Source: Otay Water District $0 $100 $200 $300 $400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year OUTSTANDING DEBT PER CAPITA 66 Adjusted Net Revenue (4) Fiscal Adjusted Operating Available for Debt Service Requirements Coverage Year Revenue (1)Expense (2)Debt Service Principal Interest Total Factor (3) 2009 63,739,773$ 57,076,567$ 6,663,207 $1,700,000 $2,342,048 4,042,048 165% 2008 63,732,275 56,420,286 7,311,989 800,000 2,567,884 3,367,884 217% 2007 69,442,301 52,413,282 17,029,019 790,000 1,513,834 2,303,834 739% 2006 58,572,428 47,520,682 11,051,746 745,000 917,790 1,662,790 665% 2005 56,597,040 43,936,109 12,660,931 650,000 869,715 1,519,715 833% 2004 57,195,289 38,980,975 18,214,314 635,000 891,796 1,526,796 1,193% 2003 53,077,164 33,787,868 19,289,296 620,000 908,416 1,528,416 1,262% 2002 51,604,999 31,904,402 19,700,597 605,000 987,467 1,592,467 1,237% 2001 51,547,298 29,012,779 22,534,519 490,000 1,181,032 1,671,032 1,349% 2000 46,922,341 26,861,461 20,060,880 480,000 1,252,054 1,732,054 1,158% Pledged Revenue Coverage Last Ten Fiscal Years (1) Adjusted revenues exclude sewer revenues and taxes collected for Improvement District 27 and are inclusive of capacity fees. (2) Adjusted operating expenses exclude sewer expenses and depreciation expense. (3) The District's bond covenants require a minimum coverage factor of 120%. (4) Pledge debt are Certificate of Participation (COPS). Source : Otay Water District 0% 200% 400% 600% 800% 1000% 1200% 1400% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year PLEDGED REVENUE COVERAGE 67 Net Bonded Net Debt to Net Bonded Fiscal Population Assessed Bonded Assessed Debt Per Year Estimate Valuation Debt Valuation Capita 2009 195,000 26,752,095,692$ $7,726,575 0.03%39.62 2008 191,500 25,902,796,201 8,093,302 0.03%42.26 2007 190,000 22,684,693,592 8,449,025 0.04%44.47 2006 189,000 19,565,665,464 8,776,755 0.04%46.44 2005 186,000 16,423,403,701 9,093,482 0.06%48.89 2004 180,000 14,130,544,067 9,395,209 0.07%52.20 2003 176,000 12,129,664,151 9,681,937 0.08%55.01 2002 166,000 10,489,919,430 9,953,664 0.09%59.96 2001 156,000 8,991,319,915 10,210,392 0.11%65.45 2000 147,000 8,223,932,352 10,452,118 0.13%71.10      Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years 000 7,000 8, 3,93 ,35 0, 5 , 8 0. 3%7.0 Source: Otay Water District 0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12% 0.14% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year BONDED DEBT RATIOS 68 2008-09 Assessed Valuation:26,752,095,692$ Redevelopment Incremental Valuation:269,718,571 Adjusted Assessed Valuation:26,482,377,121$ Total Debt District’s Share of OVERLAPPING TAX AND ASSESSMENT DEBT:6/30/2009 % Applicable (1) Debt 6/30/09 Metropolitan Water District 293,425,000$ 1.433%4,204,780$ Otay Municipal Water District Improvement District No. 27 8,395,000 100.000 8,395,000 Grossmont-Cuyamaca Community College District 201,618,898 13.266 34,811,519 Southwestern Community College District 84,254,962 48.183 40,596,568 Grossmont Union High School District 312,910,000 17.823 55,769,949 Sweetwater Union High School District 347,829,415 56.402 196,182,747 Chula Vista City School District 81,050,000 65.891 53,404,656 San Ysidro School District 88,702,104 53.932 47,838,819 Other School Districts 2,327,877,505 Various 40,529,014 City of San Diego 6,315,000 1.091 68,897 Grossmont Healthcare District 85,627,074 15.739 13,476,845 City of Chula Vista Community Facilities District 240,100,000 100 240,100,000 Chula Vista City School District Community Facilities Districts 6,790,000 100 6,790,000 Sweetwater Union High School District Community Facilities Districts 198,030,108 2.523-100 183,822,710 City 1915 Act Bonds (Estimate)62,221,323 37.539-100 51,641,235 California Statewide Communities Development Authority San Diego County/ Venture Community Center Assessment District 1,131,727 100 1,131,772 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 978,764,511$ DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations 462,405,000$ 7.412% 34,273,459$ San Diego County Pension Obligations 986,677,916 7.412 73,132,567 San Diego Superintendent of Schools Certificates of Participation 16,395,000 7.412 1,215,197 Otay Water District Certificates of Participation 63,635,000 100.000 63,635,000 Grossmont and Southwestern Community College District General Fund Obligations 3,595,000 17.266 & 48.183 1,146,302 Grossmont Union High School District Certificates of Participation 1,470,000 17.823 261,998 Sweetwater Union High School District Certificates of Participation 12,810,000 56.402 7,225,096 Chula Vista City School District Certificates of Participation 128,975,000 65.891 84,982,917 San Ysidro School District Certificates of Participation 37 455 000 53 932 20 200 231 Computation of Direct and Overlapping Bonded Debt June 30, 2009 San Ysidro School District Certificates of Participation 37,455,000 53.932 20,200,231 Other School District Certificates of Participation 17,490,000 Various 4,607,033 City of Chula Vista Certificates of Participation 130,580,000 74.306 97,028,775 City of Chula Vista Pension Obligations 7,000,000 74.306 5,201,420 City of San Diego General Fund Obligations 434,290,000 1.091 4,738,104 San Miguel Consolidated Fire Protection District Certificates of Participation 7,565,000 56.700 4,289,355 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT 401,937,454$ Less: Otay Water District Certificates of Participation (self-supporting)63,635,000 Sweetwater Union High School District supported by investment fund Qualified Zone Academy Bonds 2,820,100 San Ysidro School District supported by investment fund Qualified Zone Academy Bonds 2,696,600 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT 332,785,754$ GROSS COMBINED TOTAL DEBT (2)1,380,701,955$ NET COMBINED TOTAL DEBT 1,311,550,265$ (1) Percentage of overlapping agency's assessed valuation located within boundaries of the district. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2008-09 Assessed Valuation: Total Gross Overlapping Tax and Assessment Debt 3.66% Ratios to Adjusted Assessed Valuation: Gross Combined Direct Debt ($63,635,000)0.24% Net Combined Direct Debt 0.00% Gross Combined Total Debt 5.21% Net Combined Total Debt 4.95% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/09: $0 Source: California Municipal Statistics, Inc. and Otay Water District 69 2009 2000 % of Total % of Total County County Employer Employees Rank Employment Employees Rank Employment Federal Government 41,600 1 2.94% 42,900 1 3.26% State of California 41,600 2 2.94% 35,800 2 2.72% University of California, San Diego 29,337 3 2.07% 21,817 3 1.66% County of San Diego 16,505 4 1.17% 17,900 4 1.36% San Diego Unified School District 14,555 5 1.03% 12,784 5 0.97% Sharp Healthcare 14,400 6 1.02% 10,780 7 0.82% Scripps Health 12,622 7 0.89% 7,950 11 0.60% City of San Diego 11,087 8 0.78% 11,500 6 0.87% Qualcomm, Inc.9,859 9 0.70% 7,000 9 0.53% Kaiser Permanente 7,618 10 0.54%-- United States Postal Service 5,787 -0.41% 7,011 8 0.53% Principal Employers Current Year and Nine Years Ago United States Postal Service 5,787 0.41%7,011 8 0.53% Total 204,970 14.49% 175,442 13.34% Source: California Labor Market Info, County of San Diego, and San Diego Business Journal 70 Personal Per Capita Income Personal Unemployment Year Population (in 000'S)Income Rate 2009 3,173,407 n/a (1)n/a (1)10.20% 2008 3,001,072 143,783,000 45,728 6.00% 2007 2,959,734 131,499,657 44,830 4.60% 2006 2,948,362 126,193,721 42,801 4.20% 2005 2,941,658 118,792,540 40,383 4.50% 2004 2,938,822 113,003,044 38,452 5.10% 2003 2,932,802 104,630,453 35,676 5.70% 2002 2,908,091 100,655,726 34,612 5.30% 2001 2,870,023 97,009,480 33,801 4.30% 2000 2,825,752 92,654,006 32,789 4.30% Demographic and Economic Statistics Last Ten Fiscal Years (1) Information for Fiscal Year 2009 was not available at the time of this report. Source: County of San Diego,San Diego County Water Authority 3.00% 3.50% 4.00% 4.50% 5.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year UNEMPLOYMENT RATE 71 Department 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 General Manager 6 6 6 6 6 4 4 3 6 8 Finance 37 36 35 34 34 33 32 32 33 33 Operations/Maintenance 70 71 71 72 71 70 70 71 73 74 Engineering 23 27 31 15 13 33 31 24 27 32 Administrative Services 20 20 19 19 20 21 24 16 19 14 IT and Strategic Planning 13 13 13 12 11 10 10 6 6 7 Development Services (1) - - - 17 17 - - - - - Total 169 173 175 175 172 171 171 152 164 168 Number of Employees by Function                                         Last Ten Fiscal Years 170 175 180 TOTAL EMPLOYEES (1) Development Services was broken out from the Engineering and Planning Department in FY 2005 and then re-combined in FY 2007. Source : Otay Water District 125 130 135 140 145 150 155 160 165 170 175 180 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year TOTAL EMPLOYEES 72 Meter Size 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 3/4"43 641 43 551 43 544 43 070 42 420 41 069 39 138 37 178 35 014 32 672 Active Meters by Size Last Ten Fiscal Years 3/4" 43,641 43,551 43,544 43,070 42,420 41,069 39,138 37,178 35,014 32,672 1" 1,804 1,747 1,618 1,514 1,364 1,220 1,132 1,110 1,079 1,041 1-1/2" 1,309 1,275 1,242 1,199 1,147 1,037 918 889 837 806 2" 1,299 1,283 1,262 1,242 1,199 1,168 1,140 1,124 1,084 1,059 3"75 76 76 69 67 66 61 57 50 43 4"202 258 275 277 289 329 308 526 496 431 6"21 19 24 27 27 27 27 40 35 34 Others 9 10 7 11 12 15 26 35 35 25 Total 48,360 48,219 48,048 47,409 46,525 44,931 42,750 40,959 38,630 36,111 % Change 0.3% 0.4% 1.3% 1.9% 3.5% 5.1% 4.4% 6.0% 7.0% 8.3% Increase 141 171 639 884 1,594 2,181 1,791 2,329 2,519 2,766 ACTIVE METERS 40,000 45,000 50,000 ACTIVE METERS 25,000 30,000 35,000 40,000 45,000 50,000 ACTIVE METERS 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year ACTIVE METERS Source: Otay Water District 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year ACTIVE METERS 73 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Water System Service Area (Square Miles) 125.5 125.5 125.5 125.5 125.5 125.5 125.5 125.5 125.5 125.5 Miles of Potable Water Main 736 722 680 663 623 609 594 576 554 539 Number of Operational Storage Reservoirs in Service 38 36 37 37 36 37 37 38 37 37 Water Storage Capacity (in Acre-Feet)655.5 605.5 601.7 601.7 582.4 585.4 582.3 587.5 538.4 538.4 Total Water Connections (No. of Meters in Service)48,522 48,376 47,615 47,409 46,525 44,931 42,750 40,959 38,630 36,111 Number of Pump Stations 24 24 24 22 21 21 21 21 20 20 Number of Potable Water Valves 19,192 19,131 18,721 18,042 17,696 16,204 15,830 15,073 14,296 13,519 Sewer System Miles of Sewer Lines 90.0 88.0 86.2 86.2 85.9 85.4 84.8 83.5 82.9 82.1 Number of Treatment Plants 1 1 1 1 1 1 1 1 1 1 Treatment Plant Capacity (Million Gallons per Day)1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 Total Flows for Fiscal Year 2009 (in Million Gallons)483 503 514 528 506 479 463 455 452 442 Operating and Capital Indicators                                               Last Ten Fiscal Years Recycled System Miles of Recycled Water Mains 97.0 93.0 83.0 77.6 76.4 70.7 60.6 49.2 40.3 37.7 Number of Pumping Facilities 3 3 3 2 2 2 2 1 1 1 Number of Acre-Feet Storage 133.2 135.0 134.1 97.3 97.3 97.3 97.3 86.9 86.9 86.9 Number of Recycled Water Valves 1,338 1,314 1,245 1,189 1,155 1,097 948 730 588 542 Source : Otay Water District 0 100 200 300 400 500 600 700 800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Mi l e s .. Fiscal Year MILES OF POTABLE WATER MAINS 74