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Home My WebLink AboutFY 2017 Comprehensive Annual Financial Report Otay Water District Comprehensive Annual Financial Report for the Years Ended June 30, 2017 and 2016 BOARD OF DIRECTORS Mark Robak, Division 5 President Tim Smith, Division 1 Vice President Mitch Thompson, Division 2 Treasurer Gary Croucher, Division 3 Hector Gastelum, Division 4 DISTRICT FINANCIAL MANAGEMENT Mark Watton General Manager Joseph R. Beachem Chief Financial Officer Kevin Koeppen Assistant Chief of Finance PREPARED BY Finance Department Otay Water District, Spring Valley, California This page intentionally left blank Table of Contents Introductory Section Letter of Transmittal…………………………………………………………………………………………………………………… iii Organization Chart…………………………………………………………………………………………...……………………….. xi List of Principal Officials……………………………………………………………………………………………………………… xii GFOA Certificate of Achievement………………………………………………………………………………………………. xii Financial Section Independent Auditors’ Report………………………………………………………………………………………………..…. 1 Management’s Discussion & Analysis…………………………………………………...……………………………… 3 Basic Financial Statements: Statements of Net Position..……………………………………………………………………………………………….…. 13 Statements of Revenues, Expenses, and Changes in Net Position…………..………………. 15 Statements of Cash Flows……………………………………………………………….……………………………………… 16 Notes to Financial Statements……………………………………………………………………………………………... 18 Required Supplementary Information: Schedule of Funding Progress for DPHP……………………………………………...…………………………… 61 Schedule of Changes in the Net Pension Liability and Related Ratios……………………… 62 Schedule of Plan Contributions……………………………………………………………………………………………. 63 Statistical Section Net Position by Component………………………………………………………………………………………………….. 66 Changes in Net Position………………………………………………………………..…………………………………………. 67 Operating Revenues by Source…………………………………………………………………………………………….. 68 Operating Expenses by Function………………………………………………………..………………………………… 69 Non-Operating Revenues by Source…………………………………………………………………………………… 70 Non-Operating Expenses by Function……………………………………………………………………………… 71 Assessed Valuation of Taxable Property within the District………………………………………… 72 Water Purchases, Production, and Sales……………………………………………...………………………….… 73 Meter Sales by Type…………………………………………………………………….……………………………………………. 74 Number of Customers by Service Type……………………………………………………………………………….. 75 Property Tax Levies and Collections…………………………………………………………………………………….. 76 Water Fixed Rates ……….………………………………………………………………………………………………………….…. 77 Water Variable Rates…….…………………………………………………………………………………………………………... 78 Sewer Variable and Fixed Rates…….………………………………………………………………………..…………….. 79 Ten Largest Customers…………………………………………………………………………………………………………….. 80 Ratios of Outstanding Debt by Type…………………………………………………….……………………………….. 81 Pledged Revenue Coverage………………………………………………………………………………………………….... 82 Ratios of General Bonded Debt Outstanding…………………………………………………………………...… 83 Computation of Direct and Overlapping Bonded Debt………………………………………………… 84 Principal Employers…………………………..………………………………………......................................................... 86 Demographic and Economic Statistics……………………………………………………………………………….. 87 Number of Employees by Function………………………………………………………………………………………. 88 Active Meters by Size………………………………………………………………..………………………………………………. 89 Operating and Capital Indicators…………………………………………………………………………………………... 90 i This page intentionally left blank ii October 18, 2017 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, 2017. 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 the accuracy of the data presented and the completeness and fairness of the presentation, including all disclosures, rests with the District’s 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 the District’s operations. 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 Teaman, Ramirez & Smith, Inc. 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, 2017, 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. In the independent auditors’ opinion, the following financial statements present fairly, in all material respects, the respective financial position of the District as of June 30, 2017 and are 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 iii 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 agency which does not operate at a profit. The District also performs cost of service studies to ensure that each end-user pays only their fair share of the District’s costs of water acquisitions, construction, operation, maintenance, betterment, renewal, and replacement of the public water and sewer facilities. The General Manager reports directly to the Board of Directors and, through the four District Chiefs, oversees day-to-day operations of Administrative Services, Finance, Water Operations, and Engineering. These and other lines of reporting are shown on the organization chart on page xi. Over the last 60 years, the District has grown from a handful of customers and two employees to become an organization operating a network of more than 919 miles of pipelines, 44 operational reservoirs, a recycled water facility, and one of the largest recycled water distribution networks in the State of California. 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 approximately 49,596 potable and 730 recycled customers within 125 square miles of the southeastern San Diego metropolitan area. The District purchases all potable water sold to its customers from the San Diego County Water Authority (CWA). The CWA purchases much of this water from the region’s main water importer; the Metropolitan Water District of Southern California (MWD), and the Imperial Irrigation District. Beginning in December 2015, a new desalination plant, the Claude “Bud” Lewis Carlsbad Desalination Plant, began delivering water to the region. The District also entered into an agreement to purchase treated water from CWA directly, and from the Helix Water District through a contract with CWA. These actions have brought regional water treatment closer to our customers and helped reduce dependence on water treatment facilities located outside of San Diego County. To deliver this locally treated water to customers the District constructed a 5.1-mile, 36-inch diameter pipeline in 2010. Drinking water delivered by this pipeline is stored in two 10 million gallon reservoirs. iv In addition to bringing water treatment closer to customers, this source of water diversifies the District’s supply and improves reliability. The District also owns and operates a wastewater collection and recycling system providing public sewer service to approximately 4,700 customer accounts 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, which is capable of recycling wastewater at a rate of 1.3 million gallons per day. The District also has the capability to purchase 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 eastern Chula Vista golf courses, schools, public parks, roadway landscapes, and various other approved uses per California Code of Regulations, Title 22. The use of recycled water reduces dependency on imported supplies and provides a local supply, thereby diversifying District resources. MISSION, CURRENT ECONOMIC CONDITIONS, AND OUTLOOK The mission of the District is to provide high quality and reliable water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner. During the last several years, the State of California has experienced below average rainfall. According to the United States Geological Survey, the State of California has been in a drought for more than five years. Fortunately, in 2017, California experienced above-average precipitation and snowpack. The majority of reservoirs are currently above historic average levels and most rivers, creeks, and lakes have been reported to be in good condition. On April 7, 2017, Governor Jerry Brown issued an executive order officially ending the drought state of emergency in most of California. The Governor also released the state’s long-term plan to better prepare the state for future droughts and make conservation a way of life in California. On April 26, 2017, the State Water Resources Control Board (SWRCB) rescinded the conservation mandates but continued the water- use reporting requirements and prohibitions against wasteful practices. As part of the Governor’s mandate, the SWRCB adopted Resolution No. 2016-0029, which allowed individual suppliers to self- certify there would be no supply shortfall assuming three additional dry years. The District has consistently advocated for state policies and legislation that include supply development and water- use efficiency and continues to work with the CWA and other water agencies in San Diego County to advocate that the targets and measures in the Governor’s long-term framework support a balanced approach. With the certification of the Carlsbad Desalination Plant, additional water storage capacity, and upgraded conveyance systems, the San Diego region’s water agencies have the ability to provide sufficient water supplies to meet customer demands, assuring there would be no supply shortfall during three additional dry years. Additionally, the region experienced large water supply cost increases totaling more than 106.7% since 2007. Finally, the deterioration of the Sacramento–San Joaquin Bay-Delta -- the source of 30% of Southern California’s water supply -- and the uncertainty of v the California WaterFix Project, adds further ambiguity to the future cost and availability of water supplies. Fortunately, the District, as a member of the CWA, is well positioned for water coming from the Colorado River due to the Quantification Settlement Agreements and the development of the new desalination plant in Carlsbad. Growth in San Diego County has remained flat over the last six years, but is now expected to gradually improve. The District’s Public Services Division has seen improvements in recent years approving an average of 8 permits per month and selling 100 water meters during fiscal 2016-2017. The population within the District’s service area continues to increase, albeit at a reduced rate. As of July 2017, it is estimated that the District served approximately 223,754 residents. The San Diego Association of Governments (SANDAG), the regional planning agency, has estimated the District’s approximate growth will be 1.4% per year for the next decade. Using historical data and considering current economic conditions, staff has moderated this projection to a growth rate of 0.3% for FY2018. The District projects an ultimate customer population of 308,000 residents by 2050. STRATEGIC PLAN The Strategic Plan is the core document, which guides the District’s efforts to meet and positively adapt to change. The FY 2015-2018 Strategic Plan consisted of a two-phased approach. Phase 1 has been completed with the primary focus on developing key enterprise-wide projects – SCADA, Work Order/Asset Management, and Emergency Preparedness/NIMS. As of July 1, 2016 the District entered Phase 2 of the FY 2015-2018 Strategic Plan, where the focus is to build upon the system foundation, business process improvement, and facilities. Where rapid growth had been a significant focus in the early years of the District and in its earlier strategic plans, today it is primarily focused on managing long-term maintenance and replacement of infrastructure. The change is based on the recognition that as an organization matures, fewer resources are needed to support growth, but greater effort is required to maintain and upgrade infrastructure and assets. This is important because in this phase of its lifecycle, an organization derives income more from customer rates and less from developer fees. Therefore, the increased maintenance and replacement costs place increased pressure on customer rates. To balance the customer’s interest in minimizing rate increases while also maintaining an organization’s infrastructure, investments, and a strong financial position, the management team must place greater emphasis on internal efficiency and the development of technology assisted best practices. In effect, the organization must use investments in technology to do more with the same or fewer resources. From a water supply perspective, this means determining the optimum mix of water supply, treatment, and delivery solutions for customers. From a daily operating perspective, efficiency improvements have become the primary source of competitive advantage and cost optimization for utilities. vi Since its establishment, the District’s motto has been “Dedicated to Community Service”. From modest beginnings in 1956 through today, the District remains dedicated to providing outstanding service to the residents and businesses the District has the honor to serve. This serves as a great reminder as to why the District exists. BUDGETING CONTROLS The District views the budget as an essential tool for proper financial management and is adopted prior to the start of each fiscal year. The budget is developed by combining the District’s strategic objectives and measures with input from the various departments of the organization. By incorporating these strategic measures and objectives, the budget becomes a direct reflection of the District’s strategic plan. The budget is designed and presented for the general needs of the District, its staff, and its customers. It is a comprehensive and balanced financial plan that features District services, resources and their allocation, financial policies, strategic objectives, and other useful information that allows the users to gain a general understanding of the District’s financial status and future. To monitor the District’s performance monthly, comparison reports of budget to actual are prepared and distributed to all department heads, with top-level information provided to the Board at the monthly board meetings. BUDGET SUMMARY The District’s operating expenditures consist of three major sectors: potable water, recycled water, and sewer. The total budget is $98,248,200 for FY 2018. Revenues from potable and recycled water sales are projected to be $86,899,400, about $5,760,500 (7.1%) higher than the FY 2017 budget. Water sales volumes are expected to increase by 3.1% versus FY 2017. The MWD and CWA water supply rate increased by 3.9% due to the high cost of supply programs, higher energy costs, and increasing operating costs. District staff projects sewer revenues to be $2,869,400, approximately $49,500 less than the FY 2017. The remaining budgeted revenues of $8.4 million come from various special fees, assessments, and miscellaneous income. No overall water rate increase has been budgeted for January 1, 2018, while a 7.5% rate increase for sewer has been budgeted, effective January 1, 2018. The 2017-18 Capital Improvement Program (CIP) budget consists of 87 projects and a budget of $20.0 million. The budget emphasizes maintenance of existing infrastructure and long-term planning for ongoing programs to meet population growth while functioning within fiscal constraints. This year’s six-year CIP budget increased by $12.5 million, from $89.8 to $102.3, compared to last year’s projection, primarily due to the addition of the meter replacement project. The budget emphasizes long-term planning for on-going programs while functioning within fiscal constraints and population growth. vii THE FUTURE The District continues its commitment to diversify water resources, reducing dependence on traditional water supplies from the Colorado River and the Sacramento-San Joaquin Bay-Delta. The coming years will continue to pose challenges for those in California’s water community. With the conservation mandates ending in FY 2017, potable sales volumes increased 7% from FY 2016 levels. Regardless of the end of the drought emergency and the District meeting the state’s mandated conservation targets, the District’s customers were still seeing and hearing public campaigns promoting conservation and drought-related messages throughout the county from the CWA, the state, and MWD. Homeowners and businesses have also implemented conservation measures that are expected to generate permanent reductions in water use. As a result, the District expects sales volumes to recover 3% in FY 2018 due to the easing of conservation mandates, but remain 12% below 2015 levels due to ongoing conservation measures taken by customers. Additional remaining increases in sales volumes are expected to come from new customers. SAN DIEGO COUNTY WATER SUPPLY San Diego County imports about 85% of its water from the Colorado River and Northern California. Since these sources face legal and environmental constraints, the region has been exploring other ways to ensure an adequate water supply, including increased water recycling, incorporating water- use efficiency and conservation programs as a way of life, increased water storage, groundwater desalination, and seawater desalination. ROSARITO DESALINATION AND THE OTAY MESA CONVEYANCE AND DISINFECTION SYSTEM PROJECTS In light of the growing need for new potable water supplies in Mexico and San Diego County, the District is preparing for the future by leveraging its unique proximity to the U.S.-Mexico border to create a potential cross-border regional alternative to traditional water sources. The proposed Rosarito plant and the District’s Otay Mesa Conveyance and Disinfection System CIP Project could potentially provide a new drought-proof water supply to its customers. On May 16, 2017, the U.S. Department of State granted a presidential permit to allow the District to build a nearly four-mile long potable water pipeline that begins at the U.S.-Mexico border. This permit authorizes the District to “construct, connect, operate, and maintain cross-border water pipeline facilities for the importation of desalinated seawater at the International Boundary between the United States and Mexico in San Diego County, California.” Although purchasing and transporting water from Aguas de Rosarito’s desalination plant in Baja California, Mexico, is a component of the District’s water supply diversification efforts, the plant must first satisfy the water needs of Rosarito Beach and Tijuana. The Rosarito Desalination Project would produce 100 million gallons of water daily in two phases. The first phase, expected to be operational by late 2019 or early 2020, would make 50 million gallons or more of desalinated water available daily to the Tijuana/Rosarito region. The second phase, expected to be completed by 2024, would deliver up to an additional 50 million gallons daily, with viii 10% to 30% of that water potentially available to the District. In addition to the construction of a potable water pipeline on the U.S. side of the border, the project also includes a pump station and disinfection facility. This would be the first cross-border water supply project of its kind to import water to the U.S. from Mexico. The project has undergone environmental review as required by the California Environmental Quality Act and National Environmental Policy Act and has obtained a U.S. Fish and Wildlife biological permit. The District recognizes that such a project requires rigorous safeguards and review to ensure the protection of public health and has applied for a permit from the California Water Resources Control Board’s Division of Drinking Water to ensure that water imported from Mexico meets the same water quality drinking standards as water from regional lakes, from the Claude “Bud” Lewis Carlsbad Desalination Plant, and from the City of San Diego’s Pure Water Program. 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 revenues are earned and expenses are incurred. INTERNAL CONTROLS The District operates within a system of internal controls established and periodically 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 also consider the cost of the control and the value of the benefit derived from its utilization. Management 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 comply with these finance related legal and contractual provisions including bond covenants and fiduciary responsibilities. 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 for the fiscal year ended June 30, 2016. To earn a Certificate of Achievement, a government agency must publish an easily readable and efficiently ix x Organization Chart District Position Count— (135 Positions) Citizens and Customers Board of Directors Safety and Security Administration Assistant General Manager General Manager (6) Purchasing and Facilities Controller and Budgetary Services Treasury and Accounting Services Customer Service Meter Maintenance Water System Operations Utility Maintenance/ Construction Water Resources, Planning, Design and Environmental Services Administrative Services (23) Human Resources Information Technology and Strategic Planning Finance (31) Geographic Information System Public Services and Field Services Engineering (24) Water Operations (51) xi List of Principal Officials Mark Robak President Division 5 Tim Smith Vice President Division 1 Mitch Thompson Treasurer Division 2 Gary Croucher Division 3 Board of Directors The Otay Water District is a revenue- neutral public agency established in accordance with the California Water Code. This not-for-profit status means Otay has no private shareholders, pays no dividends and therefore does not report to, nor answer to the California Public Utilities Commission. The District does, however, answer to the public through a five-member Board of Directors. Each Director is elected by voters within their respective division boundaries to represent the public's interest with regard to rates for service, taxes, policies, ordinances, and other matters related to the management and operation of the Otay Water District. Directors serve four- year alternating terms on the Board. Hector Gastelum Division 4 Mission Statement To provide high quality and reliable water and wastewater services to the customers of the Otay Water district, in a professional, effective and efficient manner. xii GFOA CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Otay Water District for its CAFR for the fiscal year ended June 30, 2016. This is the thirteenth year that the District has achieved this prestigious award. In order to be awarded a Certificate of Achievement, the District had to publish an easily readable and comprehensive report. This report must satisfy both Generally Accepted Accounting Principles (GAAP) and applicable legal requirements. This award is valid for a period of one year only. We believe our current CAFR continues to meet the Certificate of Achievement Program’s requirements, and will be submitting it to GFOA to determine its eligibility for another certificate. xiii This page intentionally left blank xiv INDEPENDENT AUDITORS' REPORT Board of Directors Otay Water District Spring Valley, California Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Otay Water District (the “District”), as of and for the years ended June 30, 2017 and 2016, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and the State Controller’s Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Otay Water District as of June 30, 2017 and 2016, and the respective changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America, as well as the accounting systems prescribed by the California State Controller’s Office and California regulations governing Special Districts. Richard A. Teaman, CPA David M. Ramirez, CPA Javier H. Carrillo, CPA Bryan P. Daugherty, CPA Joshua J. Calhoun, CPA 4201 Brockton Avenue Suite 100 Riverside CA 92501 951.274.9500 TEL 951.274.7828 FAX www.trscpas.com 1 Emphasis of Matter As described in Note 2 to the basic financial statements, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 82, Pension Issues - An Amendment of GASB No. 67, No. 68, and No. 72. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and required supplementary information on pages 3-10 and 61-63 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District’s basic financial statements. The introductory section and statistical section are presented for purposes of additional analysis and are not 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 do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 18, 2017, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance. Riverside, California October 18, 2017 2 Management’s Discussion and Analysis As management of the Otay Water District (the “District”), we offer readers of the District’s financial statements, this narrative overview, and analysis of the District’s financial performance during the fiscal year ending June 30, 2017. Please read it in conjunction with the District’s financial statements that follow Management’s Discussion and Analysis. All amounts, unless otherwise indicated, are expressed in millions of dollars. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements, which are comprised of the following: (1) Statements of Net Position, (2) Statements of Revenues, Expenses, and Changes in Net Position, (3) Statements of Cash Flows, and (4) Notes to the Financial Statements. This report also contains other supplementary information in addition to the basic financial statements. The Statements of Net Position presents information on all of the District’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net positions may serve as a useful indicator of whether the financial position of the District is improving or weakening. The Statements of Revenues, Expenses and Changes in Net Position presents information showing how the District’s net position changed during the most recent fiscal year. All changes in net positions are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). The Statements of Cash Flows presents information on cash receipts and payments for the fiscal year. The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data supplied in each of the specific financial statements listed above. Financial Highlights  The assets and deferred outflows of resources of the District exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $401.2 million (net position). Of this amount, $45.9 million (unrestricted net position) may be used to meet the District’s ongoing obligations to citizens and creditors. The overall net positions remains relatively unchanged.  Total assets decreased by $3.3 million or .58% during Fiscal Year 2017, to $563.1 million, due primarily to depreciation offset by investments in capital infrastructure, contributions, and improved operating results. 3 Management’s Discussion and Analysis In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the District’s progress in funding its obligation to provide pension benefits to its employees. Financial Analysis: As noted, net position may serve, over time, as a useful indicator of an entity’s financial position. In the case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $401.2 million at the close of the most recent fiscal year. By far, the largest portion of the District’s net position, $351.0 million (87%), reflects its investment in capital assets, less any remaining outstanding debt used to acquire those assets. The District uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the District’s investment in its capital assets is reported effectively as a resource, it should be noted that the resources needed to repay the debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. 4 Management’s Discussion and Analysis Statements of Net Position (In Millions of Dollars) 2017 2016 2015 Assets Current and Other Assets $ 112.9 $ 112.4 $ 109.7 Capital Assets 450.2 454.0 459.2 Total Assets 563.1 566.4 568.9 Deferred Outflows of Resources Deferred Amount on Refunding 0.2 1.3 0.0 Deferred Contributions to Pension Plan 10.7 7.0 3.6 Total Deferred Outflows of Resources 10.9 8.3 3.6 Liabilities Long-Term Debt Outstanding 95.6 99.8 101.5 Net Pension Liability 45.2 40.1 38.7 Other Liabilities 28.2 27.8 24.9 Total Liabilities 169.0 167.7 165.1 Deferred Inflows of Resources Deferred Actuarial Pension Costs 3.8 5.7 5.0 Total Deferred Inflows of Resources 3.8 5.7 5.0 Net Position Net Investment in Capital Assets 351.0 351.6 354.0 Restricted for Debt Service 4.3 4.4 4.6 Unrestricted 45.9 45.3 43.8 Total Net Position $ 401.2 $ 401.3 $ 402.4 The District’s operations and population continue to grow, albeit at slower rates than the housing boom years. Much of this growth has and will continue to occur in the residential sector, especially in the area of multi-family dwellings, as well as in the commercial area. The District still has available land to develop unlike other parts of the County, as well as low unemployment and job creation, which has spurred the development in the service area. In FY 2017, the District’s Capital Assets increased by $9.5 million before accumulated depreciation. (See Note 4 in the Notes to Financial Statements). The District also saw a decrease in Long-Term Debt of $4.2 million due to the annual payments of long-term debt (See Note 5 in the Notes to Financial Statements). Certain planning and environmental study costs associated with capital projects such as the Otay Mesa Desalination and Recycled CIP Projects due to the Permanent Moratorium in Otay Mesa do not qualify as capital costs under Generally Accepted Accounting Principles and are included in the miscellaneous (non- 5 Management’s Discussion and Analysis operating) expenses of the District. For FY 2017 and FY 2016 those expenses were $2.3 million and $1.4 million, respectively. At the end of FY 2017 the District is able to report positive balances in all categories of net position. This situation also held true for the prior two fiscal years. Statements of Revenues, Expenses, and Changes in Net Position (In Millions of Dollars) 2017 2016 2015 Water Sales $ 83.7 $ 73.9 $ 79.1 Wastewater Revenue 3.0 3.2 3.1 Connection and Other Fees 1.8 1.8 1.7 Non-operating Revenues 10.1 8.9 8.9 Total Revenues 98.6 87.8 92.8 Depreciation Expense 17.8 16.5 16.2 Other Operating Expenses 78.8 73.2 75.7 Non-operating Expenses 7.7 6.2 6.0 Total Expenses 104.3 95.9 97.9 Loss Before Capital Contributions (5.7) (8.1) (5.1) Capital Contributions 5.6 7.0 3.1 Change in Net Position (0.1) (1.1) (2.0) Beginning Net Position, As Previously Stated 401.3 402.4 444.8 Prior Period Adjustment 0.0 0.0 (40.4) Beginning Net Position, As Restated 401.3 402.4 404.4 Ending Net Position $ 401.2 $ 401.3 $ 402.4 Water Sales increased by $9.8 million in FY 2017 and decreased by $5.2 million in FY 2016. The increase in FY 2017 was due to both increases in units sold and water rates. The increases in unit sales is largely due to the elimination of water use restrictions in FY 2017. The decrease in FY 2016 was mainly due to decreases in units sold as a result of the drought conditions and usage restrictions. The financial impact related to the reduction in unit sales was partially offset by increases in rates. Other Operating Expenses increased by $5.6 million in FY 2017 and decreased by $2.5 million in FY 2016 predominantly due to the increase and decrease in Cost of Water Sales brought about by the increase and decrease in units purchased in FY 2017 and FY 2016 respectively. 6 Management’s Discussion and Analysis Connection and Other Fees revenues remains the same in FY 2017 and increased by $0.1 million in FY 2016. Capital Contributions decreased by $1.4 million in FY 2017 and increased by $3.9 million in FY 2016. The decrease is mainly due to decrease in Grants and reimbursement from Caltrans in FY 2017. Non-operating Revenues Non-operating Revenues by Major Source (In Millions of Dollars) 2017 2016 2015 Taxes and Assessments $ 4.1 $ 4.0 $ 3.8 Rents and Leases 1.4 1.3 1.2 Other Non-operating Revenue 4.6 3.6 3.9 Total Non-operating Revenues $ 10.1 $ 8.9 $ 8.9 The District’s total non-operating revenues increased by $1.2 million in FY 2017 and remained the same in FY 2016. The increase in FY 2017 was primarily due to the transfer of $1.8 million capacity revenue from capital contribution to fund a portion of the CIP projects that did not qualify as capital expenditures and were included in the miscellaneous expense. Capital Assets and Debt Administration The District’s capital assets (net of accumulated depreciation) as of June 30, 2017, totaled $450.2 million. Included in this amount is land. The District’s net capital assets decreased by .84% for FY 2017 and 1.1% for FY 2016. 7 Management’s Discussion and Analysis Capital Assets (In Millions of Dollars) 2017 2016 2015 Land $ 14.4 $ 14.1 $ 13.7 Construction in Progress 14.2 12.5 15.1 Water System 483.8 476.6 468.7 Recycled Water System 112.3 111.8 110.5 Sewer System 44.5 42.8 42.0 Field Equipment 9.0 9.1 8.7 Buildings 20.6 20.6 19.0 Transportation Equipment 3.3 3.4 3.4 Communication Equipment 3.4 3.3 3.1 Office Equipment 17.6 19.4 18.2 723.1 713.6 702.4 Less Accumulated Depreciation (272.9) (259.6) (243.2) Net Capital Assets $ 450.2 $ 454.0 $ 459.2 As indicated by figures in the table above, the majority of capital assets added during both fiscal years were related to the potable and sewer systems. In addition, the majority of the cost of construction-in-progress is also related to water systems. Additional information on the District’s capital assets can be found in Note 4 of the Notes to Financial Statements. At June 30, 2017, the District had $95.6 million in outstanding debt (net of $3.8 million of maturities occurring in FY 2018), which consisted of the following: General Obligation Bonds $ 3.5 Certificates of Participation 7.6 Revenue Bonds 84.5 Total Long-Term Debt $ 95.6 In May 2016, the District issued $33.4 million of 2016 Water Revenue Refunding Bonds for an advance refunding of its 2007 Certificates of Participation, which will be called on September 1, 2017. Excluding costs of issuance the District received $36.6 million in proceeds, including a $3.6 million premium, to fund the $34.8 million of outstanding principal and $1.8 million of remaining interest payments. In accordance with GASB Nos. 23 and 65, the remaining interest payments of $0.2 million in FY 2017 and $1.3 million in FY 2016 is reflected as a deferred outflow of resources on the Statements of Net Position. Additional information on the District’s long-term debt can be found in Note 5 of the Notes to Financial Statements. 8 Management’s Discussion and Analysis Prior Period Adjustment The Governmental Accounting Standards Board (GASB) issued Statement No. 68, “Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27”, and No. 71 “Pension Transitions for Contributions Made Subsequent to the Measurement Date-an amendment of GASB No. 68” for periods beginning after June 15, 2014. The District implemented these standards in FY 2015. The result of the implementation of these standards was to decrease the net position at July 1, 2014 by $40.4 million which consists of net pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense. Fiscal Year 2017-2018 Budget Economic Factors The San Diego region imports 84% of its potable supply so factors such as local rainfall as well as weather conditions elsewhere in the western portion of the nation can affect the region. San Diego received more than normal rainfall in FY 2017, and the District anticipates an average rainfall pattern in the coming years. Water sales have declined for the District by nearly 30% in the last ten years. This was driven by many factors including the economic downturn caused by the great recession, increases in the price of imported water, and most recently the State mandated cuts in potable water use due to the prolonged statewide drought. The conservation mandates by the State ended in FY 2017 because of record rain and snowfall. Customers will still see messages to conserve water as this has become a way of life in California. The District expects sales volume to recover 3% in FY 2018, but remain 12% below FY 2015 levels due to ongoing conservation efforts. Decreases in water sales revenue have been offset by the corresponding decreases in water purchase expense, as well as reductions in District managed costs such as reduced employee count and internal cost cuts, achieved through automation and streamlining of processes. Should further loss in water sales continue due to limited supplies or mandated cuts, the District’s actions will be commensurate with the magnitude of the reduction. The District continues to respond to the challenges presented by growth and the ongoing conservation efforts by creating new opportunities and new organizational efficiencies. By utilizing and continuing to refine its Strategic Business Plan, it has captured the Board of Director’s vision and united its staff in a common mission. The District has achieved a number of significant accomplishments based on its successful adherence to its Strategic Business Plan. The District is not only poised to continue successfully providing an affordable, safe, and reliable water supply for the people of its service area, but is set to reap the rewards of greater efficiencies and economies of scale. The District is currently at about 73% of its projected ultimate population, serving approximately 224,000 people. Long-term, this percentage should continue to increase as the District's service area continues to develop and grow. By 2050, the District is projected to serve approximately 308,000 people, with an average 9 Management’s Discussion and Analysis daily demand of 41 million gallons per day (MGD). Currently, the District services the needs of this growing population by purchasing water from the San Diego County Water Authority (CWA), who in turn purchases its water from the Metropolitan Water District (MWD) and the Imperial Irrigation District (IID). Otay takes delivery of the water through several connections of large diameter pipelines owned and operated by CWA. The District currently receives treated water from CWA directly and from the Helix Water District via a contract with CWA. In addition, the District has an emergency agreement with the City of San Diego to purchase water in the case of a shutdown of the main treated water source. The City of San Diego also has a long-term contract with the District to provide recycled water for landscape and irrigation usage. Through innovative agreements like these, benefits can be achieved by both parties by using excess capacity of another agency, and diversifying local supply, thereby increasing reliability. Financial The District is budgeted to deliver approximately 25,600 acre-feet of potable water to 49,761 potable customer accounts during FY 2017-2018. Management feels that these projections are realistic after accounting for low growth, supply changes, and a focus on conservation. A combination of factors, including the drought and economic uncertainty, have created challenges in developing projections for the current fiscal year. Both unemployment and levels of distressed activity in the commercial and residential resale market have improved from their economic crisis peaks. However, while unemployment has recovered, housing starts remain significantly below the levels of the boom years from 2001 to 2005. The negative impacts to the District of the economic indicators and conservation are partially offset by growth as the District’s commercial and residential permits have shown slow and steady improvement from previous lows. While all of these factors impact the region’s water usage, people’s need for water remains an underlying constant. Staff continues working diligently on developing new water supplies as they work through the financial impacts of conservation and the modest economic turnaround. Management is unaware of any other conditions that could have a significant impact on the District’s current financial position, net position, or operating results. Contacting the District’s Financial Management This financial report is designed to provide a general overview of the Otay Water District’s finances for the Board of Directors, citizens, creditors, and other interested parties. Questions concerning any of the information provided in the report or requests for additional information should be addressed to the District’s Finance Department, 2554 Sweetwater Springs Blvd., Spring Valley, CA 91978-2004. 10 11 This page intentionally left blank 12 2017 2016 ASSETS Current Assets: Cash and Cash Equivalents (Notes 1 and 2)17,427,875$ 21,122,543$ Restricted Cash and Cash Equivalents (Notes 1 and 2)50,204 8,208 Investments (Note 2)38,401,158 36,806,704 Board Designated Investments (Note 2)24,743,895 23,876,678 Restricted Investments (Notes 1 and 2)4,256,520 4,394,093 Accounts Receivable, Net 12,372,840 11,116,393 Accrued Interest Receivable 216,011 157,620 Taxes and Availability Charges Receivable, Net 222,092 341,651 Restricted Taxes and Availability Charges Receivable, Net 34,375 32,173 Inventories 737,185 722,225 Prepaid Items and Other Receivables 962,019 1,309,335 Total Current Assets 99,424,174 99,887,623 Non-current Assets: Net OPEB Asset (Note 8)13,555,636 12,519,549 Capital Assets (Note 4): Land 14,389,187 14,085,251 Construction in Progress 14,201,511 12,541,701 Capital Assets, Net of Depreciation 421,606,252 427,341,594 Total Capital Assets, Net of Depreciation 450,196,950 453,968,546 Total Non-current Assets 463,752,586 466,488,095 Total Assets 563,176,760 566,375,718 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)10,681,129 7,001,426 Deferred Amount on Refunding 191,428 1,339,997 Total Deferred Outflows of Resources 10,872,557$ 8,341,423$ Continued STATEMENTS OF NET POSITION June 30, 2017 and 2016 The accompanying notes are an integral part of these statements. 13 2017 2016 LIABILITIES Current Liabilities: Current Maturities of Long-term Debt (Note 5)3,820,000$ 3,920,000$ Accounts Payable 11,544,414 11,497,728 Accrued Payroll Liabilities 785,496 574,037 Other Accrued Liabilities 3,771,503 3,813,262 Customer and Developer Deposits 3,451,690 3,313,631 Accrued Interest 1,417,440 1,197,113 Unearned Revenues 305,560 421,800.00 Liabilities Payable from Restricted Assets: Restricted Accrued Interest 53,267 59,604 Total Current Liabilities 25,149,370 24,797,175 Non-current Liabilities: Long-term Debt (Note 5): General Obligation Bonds 3,474,498 4,095,853 Certificates of Participation 7,592,548 8,191,803 Revenue Bonds 84,519,618 87,483,686 Net Pension Liability 45,249,444 40,143,128 Other Non-current Liabilities 3,074,313 3,040,648 Total Non-current Liabilities 143,910,421 142,955,118 Total Liabilities 169,059,791 167,752,293 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)3,802,537 5,677,071 Total Deferred Inflows of Resources 3,802,537 5,677,071 NET POSITION Net Investment in Capital Assets 350,981,714 351,617,201 Restricted for Debt Service 4,306,724 4,402,301 Unrestricted 45,898,551 45,268,275 Total Net Position 401,186,989$ 401,287,777$ Statements of Net Position - continued June 30, 2017 and 2016 The accompanying notes are an integral part of these statements. 14 2017 2016 OPERATING REVENUES Water Sales 83,720,150$ 73,940,200$ Wastewater Revenue 2,983,495 3,175,300 Connection and Other Fees 1,777,609 1,760,807 Total Operating Revenues 88,481,254 78,876,307 OPERATING EXPENSES Cost of Water Sales 56,882,487 51,826,046 Wastewater 1,964,855 2,051,913 Administrative and General 19,991,542 19,318,247 Depreciation 17,785,497 16,473,337 Total Operating Expenses 96,624,381 89,669,543 Operating Income (Loss)(8,143,127) (10,793,236) NON-OPERATING REVENUES (EXPENSES) Investment Earnings 408,754 758,004 Taxes and Assessments 4,114,583 3,966,593 Availability Charges 729,325 616,591 Gain (Loss) on Sale of Capital Assets (605,536) 46,423 Rents and Leases 1,375,305 1,281,150 Miscellaneous Revenues 4,107,558 2,228,200 Donations (125,742) (120,722) Interest Expense (5,069,767) (4,603,093) Miscellaneous Expenses (2,463,060) (1,485,778) Total Non-operating Revenues (Expenses)2,471,420 2,687,368 Income (Loss) Before Capital Contributions (5,671,707) (8,105,868) Capital Contributions 5,570,919 6,971,319 Change in Net Position (100,788) (1,134,549) Total Net Position, Beginning 401,287,777 402,422,326 Total Net Position, Ending 401,186,989$ 401,287,777$ For the Years Ended June 30, 2017 and 2016 Statements of Revenues, Expenses, and Changes in Net Position The accompanying notes are an integral part of these statements. 15 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers 85,585,257$ 77,072,615$ Receipts from Connections and Other Fees 1,777,609 1,760,807 Other Receipts 3,991,318 2,650,000 Payments to Suppliers (57,754,567) (52,065,783) Payments to Employees (21,985,918) (22,197,793) Other Payments (2,462,313) (1,505,690) Net Cash Provided By (Used For) Operating Activities 9,151,386 5,714,156 CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Receipts from Taxes and Assessments 4,231,939 3,945,795 Receipts from Property Rents and Leases 1,249,563 1,160,428 Net Cash Provided By (Used For) Noncapital and Related Financing Activities 5,481,502 5,106,223 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Contributions 1,653,484 5,122,137 Proceeds from Sale of Capital Assets 8,507 60,925 Proceeds from Debt Related Taxes and Assessments 729,325 616,591 Deposit to Escrow Account for Advance Refunding - (36,099,997) Proceeds from Long-Term Debt - 37,015,950 Principal Payments on Long-Term Debt (3,920,000) (3,690,000) Interest Payments and Fees (4,254,214) (4,951,802) Acquisition and Construction of Capital Assets (10,528,927) (9,415,809) Net Cash Provided By (Used For) Capital and Related Financing Activities (16,311,825) (11,342,005) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received on Investments 350,363 697,675 Proceeds from Sale and Maturities of Investments 35,603,790 65,385,175 Purchase of Investments (37,927,888) (67,646,067) Net Cash Provided By (Used For) Investing Activities (1,973,735) (1,563,217) Net Increase (Decrease) in Cash and Cash Equivalents (3,652,672) (2,084,843) Cash and Cash Equivalents - Beginning 21,130,751 23,215,594 Cash and Cash Equivalents - Ending 17,478,079$ 21,130,751$ Continued Statements of Cash Flows For the Years Ended June 30, 2017 and 2016 The accompanying notes are an integral part of these statements. 16 2017 2016 Reconciliation of Operating Income (Loss) to Net Cash Flows Provided By (Used For) Operating Activities: Operating Income (Loss)(8,143,127)$ (10,793,236)$ Adjustments to Reconcile Operating Income to Net Cash Provided By (Used For) Operating Activities: Depreciation 17,785,497 16,473,337 Miscellaneous Revenues 3,991,318 2,650,000 Miscellaneous Expenses (2,462,313) (1,505,690) (Increase) Decrease in Accounts Receivable (1,256,447) (1,129,343) (Increase) Decrease in Inventory (14,960) 84,783 (Increase) Decrease in Net OPEB Asset (1,036,087) (1,047,163) (Increase) Decrease in Prepaid Items and Other Receivables 347,316 (320,453) (Increase) Decrease in Deferred Actuarial Pension Costs (3,679,703) (2,716,700) Increase (Decrease) in Accounts Payable 46,686 1,718,251 Increase (Decrease) in Accrued Payroll and Related Expenses 211,459 (483,939) Increase (Decrease) in Other Accrued Liabilities (41,759) 170,751 Increase (Decrease) in Customer and Developer Deposits 138,059 1,086,458 Increase (Decrease) in Prepaid Capacity Fees 33,665 107,317 Increase (Decrease) in Net Pension Liability 5,106,316 1,419,783 Increase (Decrease) in Deferred Actuarial Pension Costs (1,874,534) Net Cash Provided By (Used For) Operating Activities 9,151,386$ 5,714,156$ Schedule of Cash and Cash Equivalents: Current Assets: Cash and Cash Equivalents 17,427,875$ 21,122,543$ Restricted Cash and Cash Equivalents 50,204 8,208 Total Cash and Cash Equivalents 17,478,079$ 21,130,751$ Supplemental Disclosures Non-Cash Investing and Financing Activities Consisted of the Following: Contributed Capital for Water and Sewer System 3,917,435$ 1,849,182$ Change in Fair Value of Investments and Recognized Gains/Losses 414,578 60,177 Amortization Related to Long-term Debt 364,678 191,428 Statements of Cash Flows - continued For the Years ended June 30, 2017 and 2016 The accompanying notes are an integral part of these statements. 17 Notes to Financial Statements NOTE DESCRIPTION PAGE 1 Reporting Entity and Summary of Significant Accounting Policies..……….. 19 2 Cash and Investments………………………………………………………………………………………….. 27 3 Fair Value Measurements…………………………………………..………………………………………. 32 4 Capital Assets…………………………………………………..………………………………………………………. 34 5 Long-Term Debt………………………………………………….…………………………………………………... 36 6 Net Position………………………………………………………………………………………………………………. 42 7 Defined Benefit Pension Plan………………………………………………………………………….….. 42 8 Other Post Employment Benefits………………………..………….......................................... 50 9 Water Conservation Authority………………………………………............................................. 52 10 Commitments and Contingencies…………………………………………………………….………. 53 11 Risk Management……………………………………………………………………………………………….…. 54 12 Interest Expense……………………………………………………......................................................... 55 13 Segment Information…………………………………………………………………………………..……….. 55 18 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Reporting Entity The reporting entity Otay Water District (the “District”) includes the accounts of the District, Otay Service Corporation (the “Corporation”) and the Otay Water District Financing Authority (the “Financing Authority”). The Otay Water District (the “District”) is a public entity established in 1956 pursuant to the Municipal Water District Law of 1911 (Section 711 et. Seq. of the California Water Code) for the purpose of providing water and sewer services to the properties in the District. The District is governed by a Board of Directors consisting of five directors elected by geographical divisions based on District population for a four-year alternating term. The District formed the Otay Service Corporation on June 21, 1993, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. The Service Corporation was formed to assist the District in the financing of public capital improvements. The District formed the Financing Authority on March 3, 2010 under the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code. The Financing Authority was formed to assist the District in the financing of public capital improvements. The financial statements present the District and its component units. The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority of the component unit’s board, or because the component units will provide a financial benefit or impose a financial burden on the District. The District has accounted for the Service Corporation and Financing Authority as “blended” component units. Despite being legally separate, the Service Corporation and Financing Authority are so intertwined with the District that they are in substance, part of the District’s operations. Accordingly, the balances and transactions of these component units are reported within the funds of the District. Separate financial statements are not issued for the Service Corporation and the Financing Authority. B) Measurement Focus, Basis of Accounting and Financial Statement Presentation Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. The accompanying financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or noncurrent) associated with these activities are included on the Statements of Net Position. The Statements of Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The District reports its activities as an enterprise fund, which is used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the 19 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation– Continued District is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting financial reporting purposes. Net position of the District is classified into three components: (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. These classifications are defined as follows: Net Investment in Capital Assets This component of net position consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of notes or borrowing that are attributable to the acquisition of the assets, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of the net investment in capital assets. Restricted Net Position This component of net position consists of net position with constrained use through external constraints imposed by creditors (such as through debt covenants), grantors, contributions, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of net position that do not meet the definition of “net investment in capital assets” or “restricted net position”. The District distinguishes operating revenues and expenses from those revenues and expenses that are non-operating. Operating revenues are those revenues that are generated by water sales and wastewater services while operating expenses pertain directly to the furnishing of those services. Non-operating revenues and expenses are those revenues and expenses generated that are not associated with the normal business of supplying water and wastewater treatment services. The District recognizes revenues from water sales, wastewater revenues, and meter fees as they are earned. Taxes and assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego, net of allowance for delinquencies of $28,496 at June 30, 2017 and $41,536 at June 30, 2016. Additionally, capacity fee contributions received which are related to specific operating expenses are offset against those expenses and included in Cost of Water Sales in the Statements of Revenues, Expenses, and Changes in Net Position. Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted 20 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s practice to consider restricted - net position to have been depleted before unrestricted - net position is applied, however it is at the Board’s discretion. C) New Accounting Pronouncements Implemented Governmental Accounting Standard Board Statement No. 74 In June of 2015, GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This Statement was issued to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) for making decisions and assessing accountability. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2016. Currently, this statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 77 In August of 2015, GASB issued Statement No. 77, Tax Abatement Disclosures. This Statement is intended to provide financial statement users needed information about certain limitations on a government’s ability to raise resources and for financial reporting purposes requires disclosure on tax abatement information about (1) a reporting government’s own tax abatement agreements and (2) those that are entered into by other governments that reduce the reporting government’s tax revenues. Statement No. 77 is effective for periods beginning after December 15, 2015. It is believed that the implementation of this Statement will not have a material effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 78 In December of 2015, GASB issued Statement No. 78, Pensions Provided Through Certain Multiple- Employer Defined Benefit Pension Plans. This statement addresses a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used 21 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Implemented - Continued Governmental Accounting Standard Board Statement No. 78 - Continued to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and 3) has no predominant state or local governmental employer. This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The requirements of this Statement are effective for reporting periods beginning after December 15, 2015. Currently, this statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 80 In January of 2016, GASB issued Statement No. 80, Blending Requirements for Certain Component Units – An Amendment of GASB Statement No. 14. This statement was issued to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016. Currently, this statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 82 In March of 2016, GASB issued Statement No. 82, Pension Issues – An Amendment of GASB Statements No. 67, No. 68, and No. 73. This statement was issued to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. Prior to the issuance of this Statement, Statements 67 and 68 required presentation of covered payroll, which is the payroll of employees that are provided with pensions through the pension plan, and ratios that use that measure, in schedules of required supplementary information. This Statement amends Statements 67 and 68 to instead require the presentation of covered payroll, defined as the payroll on which contributions to a pension plan are based, and 22 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Implemented - Continued Governmental Accounting Standard Board Statement No. 82 - Continued ratios that use that measure. This Statement also clarifies the term deviation used in Actuarial Standards of Practice and payments made by the employer to satisfy contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. The District has implemented GASB No. 82 which is reflected on the District’s financial statements. Pending Accounting Standards GASB has issued the following statements which impact the District’s financial reporting requirements in the future: i. GASB 75 – “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions”, effective for fiscal years beginning after June 15, 2017. ii. GASB 81– “Irrevocable Split Interest Agreements”, effective for fiscal years ending after December 15, 2016. iii. GASB 83 – “Certain Asset Retirement Obligations”, effective for fiscal years beginning after June 15, 2018. iv. GASB 84 – “Fiduciary Activities”, effective for fiscal years beginning after December 15, 2018. v. GASB 85 – “Omnibus 2017”, effective for fiscal years beginning after June 15, 2017. vi. GASB 86 – “Certain Debt Extinguishment Issues”, effective for fiscal years beginning after June 15, 2017. vii. GASB 87 – “Leases”, effective for fiscal years beginning after December 15, 2019. D) Deferred Outflows / Inflows of Resources In addition to assets, the statements of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has two items that qualifies for reporting in this category, deferred accrued pension costs are items that are deferred and recognized as an outflow of resources in the period the amounts become available. Additionally, the category, deferred amount on refunding, which resulted from the difference in the carrying value of refunded debt and its reacquisition price. This amount is shown as deferred and amortized over the shorter of the life of the refunded or refunding debt. 23 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued D) Deferred Outflows / Inflows of Resources - Continued In addition to liabilities, the statements of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The District has only one item that qualifies for reporting in this category. Accordingly, the item, deferred actuarial pension cost, are deferred and recognized as an inflow of resources in the period that the amounts become available. E) Statements of Cash Flows For purposes of the Statements of Cash Flows, the District considers all highly liquid investments (including restricted assets) with a maturity period, at purchase, of three months or less to be cash equivalents. F) Investments Investments are stated at their fair value, which represents the quoted or stated market value. Investments that are not traded on a market, such as investments in external pools, are valued based on the stated fair value as represented by the external pool. All investments are stated at their fair value, the District has not elected to report certain investments at amortized costs. G) Inventory and Prepaids Inventory consists primarily of materials used in the construction and maintenance of the water and sewer system and is valued at weighted average cost. Both inventory and prepaids use the consumption method whereby they are reported as an asset and expensed as they are consumed. H) Capital Assets Capital assets are recorded at cost, where historical records are available, and at an estimated historical cost where no historical records exist. Infrastructure assets in excess of $20,000 and other capital assets in excess of $10,000 are capitalized if they have an expected useful life of two years or more. The District will also capitalize individual purchases under the capitalization threshold if they are part of a new capital program. The cost of purchased and self-constructed additions to utility plant and major replacements of property are capitalized. Costs include materials, direct labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, overhead, and interest incurred during the construction period. Repairs, maintenance, and minor replacements of property are charged to expense. Donated assets are capitalized at their acquisition value on the date contributed. The District capitalizes interest on construction projects up to the point in time that the project is substantially completed. Capitalized interest for fiscal years ending June 30, 2017 of $181,582 and 2016 of $274,429 is included in the cost of water system assets and is depreciated on the straight-line basis over the estimated useful lives of such assets. 24 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued H) 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 2-7 Years Office Equipment 2-10 Years Recycled Water System 50-75 Years Sewer System 25-50 Years I) Compensated Absences It is the District’s policy to record vested or accumulated vacation and sick leave as an expense and liability as benefits accrue to employees. June 30, 2017 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 2,634,850 $ 2,846,634 $ 2,747,784 $ 2,733,700 $ 273,370 Current portion is reflected in Accrued Payroll Liabilities and remainder in other non-current liabilities on the Statements of Net Position. June 30, 2016 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 2,530,192 $ 2,805,394 $ 2,700,736 $ 2,634,850 $ 263,485 Current portion is reflected in Accrued Payroll Liabilities and remainder in other non-current liabilities on the Statements of Net Position. J) Classification of Liabilities Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be funded from restricted assets. K) Allowance for Doubtful Accounts The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that the accounts will be uncollectible. Uncollectible accounts are determined by the allowance method based upon prior experience and management’s assessment of the collectibility of existing specific accounts. The allowance for doubtful accounts was $154,581 for 2017 and $170,887 for 2016. 25 Notes to Financial Statements Years Ended June 30, 2017 and 2016 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued L) Property Taxes Tax levies are limited to 1% of full market value (at time of purchase) which results in a tax rate of $1.00 per $100 assessed valuation, under the provisions of Proposition 13. Tax rates for voter- approved indebtedness are excluded from this limitation. The County of San Diego (the “County”) bills and collects property taxes on behalf of the District. The County’s tax calendar year is July 1 to June 30. Property taxes attach as a lien on property on January 1. Taxes are levied on July 1 and are payable in two equal installments on November 1 and February 1, and become delinquent after December 10 and April 10, respectively. M) Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District’s California Public Employees’ Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. N) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. O) Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 26 Notes to Financial Statements Years Ended June 30, 2017 and 2016 2) CASH AND INVESTMENTS The primary goals of the District’s Investment Policy are to assure compliance with all Federal, State, and Local laws governing the investment of funds under the control of the organization, protect the principal of investments entrusted, and generate income under the parameters of such policies. Cash and Investments are classified in the accompanying financial statements as follows: Statements of Net Position: 2017 2016 Cash and Cash Equivalents $ 17,427,875 $ 21,122,543 Restricted Cash and Cash Equivalents 50,204 8,208 Investments 38,401,158 36,806,704 Board Designated Investments 24,743,895 23,876,678 Restricted Investments 4,256,520 4,394,093 Total Cash and Investments $ 84,879,652 $ 86,208,226 Cash and Investments consist of the following: 2017 2016 Cash on Hand $ 2,950 $ 2,950 Deposits with Financial Institutions 1,112,650 1,485,808 Investments 83,764,052 84,719,468 Total Cash and Investments $ 84,879,652 $ 86,208,226 Investments Authorized by the California Government Code and the District’s Investment Policy The table below identifies the investment types that are authorized for the District by the California Government Code (or the District’s Investment Policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District’s Investment Policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District’s Investment Policy. Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity Of Portfolio 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 10% None Commercial Paper 270 days 10% 10% Money Market Mutual Funds N/A 10% 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. (1) 27 Notes to Financial Statements Years Ended June 30, 2017 and 2016 2) CASH AND INVESTMENTS - Continued Investments Authorized by Debt Agreements Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District’s Investment Policy. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the District manages its exposure to interest rates risk is by purchasing investments with shorter durations than the maximum allowable under the District investment policy and by timing cash flows from maturities, so that a portion of the portfolio is maturing or coming close to maturity evenly over time, as necessary, to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the District’s investments to market interest rate fluctuations are provided by the following tables that show the distribution of the District’s investments by maturity as of June 30, 2017 and 2016. June 30, 2017 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 67,349,620 $ 9,979,720 $27,850,900 $29,519,000 $ - Local Agency Investment Fund (LAIF) 12,276,228 12,276,228 - - - San Diego County Pool 4,088,000 4,088,000 - - - Money Market Funds 50,204 50,204 - - - Total $ 83,764,052 $ 26,394,152 $27,850,900 $29,519,000 $ - June 30, 2016 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 64,993,625 $ 10,005,920 $17,207,568 $37,780,137 $ - Local Agency Investment Fund (LAIF) 6,331,635 6,331,635 - - - San Diego County Pool 13,386,000 13,386,000 - - - Money Market Funds 8,208 8,208 - - - Total $ 84,719,468 $ 29,731,763 $17,207,568 $37,780,137 $ - 28 Notes to Financial Statements Years Ended June 30, 2017 and 2016 2) CASH AND INVESTMENTS - Continued Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code or the District’s Investment Policy, or debt agreements, and the Moody’s ratings as of June 30, 2017 and 2016. June 30, 2017 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 67,349,620 N/A $67,349,620 $ - $ - $ - Local Agency Investment Fund (LAIF) 12,276,228 N/A - - - 12,276,228 San Diego County Pool 4,088,000 N/A - - - 4,088,000 Money Market Funds 50,204 N/A - - 50,204 - Total $ 83,764,052 $ 67,349,620 $ - $ 50,204 $16,364,228 June 30, 2016 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 64,993,625 N/A $64,993,625 $ - $ - $ - Local Agency Investment Fund (LAIF) 6,331,635 N/A - - - 6,331,635 San Diego County Pool 13,386,000 N/A - - - 13,386,000 Money Market Funds 8,208 N/A - - 8,208 - Total $ 84,719,468 $ 64,993,625 $ - $ 8,208 $19,717,635 Concentration of Credit Risk The investment policy of the District contains various limitations on the amounts that can be invested in any one type or group of investments and in any issuer, beyond that stipulated by the California Government Code, Sections 53600 through 53692. Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total District investments as of June 30, 2017 and 2016 are as follows: June 30, 2017 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 15,927,740 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 13,930,280 Federal National Mortgage Association U.S. Government Sponsored Entities $ 23,578,680 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 11,914,080 29 Notes to Financial Statements Years Ended June 30, 2017 and 2016 2) CASH AND INVESTMENTS - Continued Concentration of Credit Risk - Continued June 30, 2016 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 13,221,648 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 26,023,080 Federal National Mortgage Association U.S. Government Sponsored Entities $ 11,740,057 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 14,008,840 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local government units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2017, $2,207,200 and as of June 30, 2016, $1,403,394 of the District’s deposits with financial institutions in excess of federal depository insurance limits were held in collateralized accounts. Local Agency Investment Fund (LAIF) The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the District’s investment in this pool is reported in the accompanying financial statements at amounts based upon District’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost-basis. The LAIF is a special fund of the California State Treasury through which local governments may pool investments. The District may invest up to $65,000,000 in the fund. Investments in LAIF are highly liquid, as deposits can be converted to cash within twenty-four hours without loss of interest. Investments with LAIF are secured by the full faith and credit of the State of California. The yield of LAIF for the quarter ended June 30, 2017 and 2016 was 0.92% and 0.51%, respectively. The estimated amortized cost and fair value of the LAIF pool at June 30, 2017 was $77,539,216,146 and $75,442,588,513 at June 30, 2016. The 30 Notes to Financial Statements Years Ended June 30, 2017 and 2016 2) CASH AND INVESTMENTS - Continued Local Agency Investment Fund (LAIF) - Continued District’s share of the pool at June 30, 2017 was approximately 0.0158 and June 30, 2016 was approximately 0.0084%. San Diego County Pooled Fund The San Diego County Pooled Investment Fund (SDCPIF) is pooled investment fund program governed by the County of San Diego Board of Supervisors, and administered by the County of San Diego Treasurers and Tax Collector. Investments in SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty, which are determined on an amortized cash basis, the same as the fair value of the District’s position in the pool. The County of San Diego’s bank deposits are either federally insured or collateralized in accordance with the California Government Code. Pool detail is included in the County of San Diego Comprehensive Annual Financial Report (CAFR). Copies of the CAFR may be obtained from the County of San Diego Auditor-Controller’s Office - 1600 Pacific Coast Highway, San Diego California 92101. Restricted Cash and Cash Equivalents 2017 2016 Debt Service: Water Revenue Bond Series 2010A $ 13,845 $ 2,264 Water Revenue Bond Series 2010B 36,359 5,944 Total $ 50,204 $ 8,208 Board Designated Investments Investments are Board restricted for the cost of the following District projects: 2017 2016 New Water Supply $ 622,723 $ 487,059 Replacement 24,121,172 23,389,619 Total $ 24,743,895 $ 23,876,678 Restricted Investments 2017 2016 Debt Service: General Obligation Bond ID No. 27-2009 $ 551,400 $ 657,076 Water Revenue Bond Series 2010A 1,021,760 1,030,556 Water Revenue Bond Series 2010B 2,683,360 2,706,461 Total $ 4,256,520 $ 4,394,093 31 Notes to Financial Statements Years Ended June 30, 2017 and 2016 3) FAIR VALUE MEASUREMENTS Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurements and Application, provides the framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value with Level 1 given the highest priority and Level 3 the lowest priority. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the organization has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following: a. Quoted prices for similar assets or liabilities in active markets. b. Quoted prices for identical or similar assets or liabilities in markets that are not active. c. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level 3 inputs are unobservable inputs for the asset or liability. Fair value of assets measured on a recurring basis at June 30, 2017, are as follows: Significant Other Observable Inputs June 30, 2017 Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 67,349,620 $ 67,349,620 $ - Local Agency Investment Fund (LAIF) 12,276,228 - 12,276,228 San Diego County Pool 4,088,000 - 4,088,000 Money Market Funds 50,204 50,204 - Total $ 83,764,052 $ 67,399,824 $ 16,364,228 32 Notes to Financial Statements Years Ended June 30, 2017 and 2016 3) FAIR VALUE MEASUREMENTS - Continued Fair value of assets measured on a recurring basis at June 30, 2016, are as follows: Significant Other Observable Inputs June 30, 2016 Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 64,993,625 $ 64,993,625 $ - Local Agency Investment Fund (LAIF) 6,331,635 - 6,331,635 San Diego County Pool 13,386,000 - 13,386,000 Money Market Funds 8,208 8,208 - Total $ 84,719,468 $ 65,001,833 $ 19,717,635 Investments classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. Uncategorized investments do not fall under the fair value hierarchy as there is no active market for the investments. 33 Notes to Financial Statements Years Ended June 30, 2017 and 2016 4) CAPITAL ASSETS The following is a summary of changes in Capital Assets for the year ended June 30, 2017: Beginning Ending Balance Additions Deletions Adjustments (1) Balance Capital Assets, Not Depreciated Land $ 14,085,251 $ 303,936 $ - $ - $ 14,389,187 Construction in Progress 12,541,701 10,502,297 (8,842,487) - 14,201,511 Total Capital Assets Not Depreciated 26,626,952 10,806,233 (8,842,487) - 28,590,698 Capital Assets, Being Depreciated Infrastructure 631,201,238 10,874,045 (1,384,141) (49,540) 640,641,602 Field Equipment 9,123,178 672,982 (1,203,861) 396,321 8,988,620 Buildings 20,574,350 328,324 (326,549) - 20,576,125 Transportation Equipment 3,437,794 227,545 (31,560) (346,781) 3,286,998 Communication Equipment 3,283,251 264,362 (176,572) - 3,371,041 Office Equipment 19,355,538 451,069 (2,186,023) - 17,620,584 Total Capital Assets Being Depreciated 686,975,349 12,818,327 (5,308,706) - 694,484,970 Less Accumulated Depreciation: Infrastructure 220,794,506 15,198,502 (697,049) (15,137) 235,280,822 Field Equipment 7,667,659 438,346 (1,203,861) 134,748 7,036,892 Buildings 9,303,722 553,998 (260,737) - 9,596,983 Transportation Equipment 2,589,264 170,113 (31,560) (119,611) 2,608,206 Communication Equipment 2,577,906 225,912 (176,572) - 2,627,246 Office Equipment 16,700,698 1,198,626 (2,170,755) - 15,728,569 Total Accumulated Depreciation 259,633,755 17,785,497 (4,540,534) - 272,878,718 Total Capital Assets Being Depreciated, Net 427,341,594 (4,967,170) (768,172) - 421,606,252 Total Capital Assets, Net $ 453,968,546 $ 5,839,063 $ (9,610,659) $ - $ 450,196,950 (1) Adjustments are related to recategorization of capital assets during the fiscal year. Depreciation expense for the year ended June 30, 2017 was $17,785,497. 34 Notes to Financial Statements Years Ended June 30, 2017 and 2016 4) CAPITAL ASSETS - Continued The following is a summary of changes in Capital Assets for the year ended June 30, 2016: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated Land $ 13,714,963 $ 370,418 $ (130) $ 14,085,251 Construction in Progress 15,106,336 9,127,008 (11,691,643) 12,541,701 Total Capital Assets Not Depreciated 28,821,299 9,497,426 (11,691,773) 26,626,952 Capital Assets, Being Depreciated Infrastructure 621,338,227 9,880,756 (17,745) 631,201,238 Field Equipment 8,720,188 500,562 (97,572) 9,123,178 Buildings 18,992,652 1,592,991 (11,293) 20,574,350 Transportation Equipment 3,398,370 127,517 (88,093) 3,437,794 Communication Equipment 3,097,068 221,871 (35,688) 3,283,251 Office Equipment 18,223,444 1,135,511 (3,417) 19,355,538 Total Capital Assets Being Depreciated 673,769,949 13,459,208 (253,808) 686,975,349 Less Accumulated Depreciation: Infrastructure 206,825,493 13,972,386 (3,373) 220,794,506 Field Equipment 7,569,568 195,663 (97,572) 7,667,659 Buildings 8,841,448 473,567 (11,293) 9,303,722 Transportation Equipment 2,443,598 233,759 (88,093) 2,589,264 Communication Equipment 2,219,957 393,637 (35,688) 2,577,906 Office Equipment 15,499,790 1,204,325 (3,417) 16,700,698 Total Accumulated Depreciation 243,399,854 16,473,337 (239,436) 259,633,755 Total Capital Assets Being Depreciated, Net 430,370,095 (3,014,129) (14,372) 427,341,594 Total Capital Assets, Net $ 459,191,394 $ 6,483,297 $ (11,706,145) $ 453,968,546 Depreciation expense for the year ended June 30, 2016 was $16,473,337. 35 Notes to Financial Statements Years Ended June 30, 2017 and 2016 5) LONG-TERM DEBT Long-term liabilities for the year ended June 30, 2017 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 - 2009 $ 4,580,000 $ - $ 585,000 $ 3,995,000 $ 605,000 Unamortized Bond Premium 100,853 - 16,355 84,498 - Net General Obligation Bonds 4,680,853 - 601,355 4,079,498 605,000 Certificates of Participation: 1996 Certificates of Participation 8,800,000 - 600,000 8,200,000 600,000 1996 COPS Unamortized Discount (8,197) - (745) (7,452) - Net Certificates of Participation 8,791,803 - 599,255 8,192,548 600,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 9,720,000 - 900,000 8,820,000 940,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 5,855,000 - 635,000 5,220,000 660,000 2016 Water Revenue Refunding Bonds 33,385,000 - 1,200,000 32,185,000 1,015,000 2010 Series A Unamortized Premium 613,813 - 74,402 539,411 - 2013 Bonds Unamortized Premium 688,683 - 96,095 592,588 - 2016 Bonds Unamortized Premium 3,601,190 - 178,571 3,422,619 - Net Revenue Bonds 90,218,686 - 3,084,068 87,134,618 2,615,000 Total Long-Term Liabilities $ 103,691,342 $ - $ 4,284,678 $ 99,406,664 $ 3,820,000 36 Notes to Financial Statements Years Ended June 30, 2017 and 2016 5) LONG-TERM DEBT - Continued Long-term liabilities for the year ended June 30, 2016 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 - 2009 $ 5,150,000 $ - $ 570,000 $ 4,580,000 $ 585,000 Unamortized Bond Premium 117,208 - 16,355 100,853 - Net General Obligation Bonds 5,267,208 - 586,355 4,680,853 585,000 Certificates of Participation: 1996 Certificates of Participation 9,400,000 - 600,000 8,800,000 600,000 2007 Certificates of Participation 35,795,000 - 35,795,000 - - 1996 COPS Unamortized Discount (8,942) - (745) (8,197) - 2007 COPS Unamortized Discount (195,955) - (195,955) - - Net Certificates of Participation 44,990,103 - 36,198,300 8,791,803 600,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 10,590,000 - 870,000 9,720,000 900,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 6,470,000 - 615,000 5,855,000 635,000 2016 Water Revenue Refunding Bonds - 33,385,000 - 33,385,000 1,200,000 2010 Series A Unamortized Premium 688,215 - 74,402 613,813 - 2013 Bonds Unamortized Premium 784,778 - 96,095 688,683 - 2016 Bonds Unamortized Premium - 3,630,950 29,760 3,601,190 - Net Revenue Bonds 54,887,993 37,015,950 1,685,257 90,218,686 2,735,000 Total Long-Term Liabilities $105,145,304 $37,015,950 $ 38,469,912 $103,691,342 $ 3,920,000 General Obligation Bonds In June 1998, the District issued $11,835,000 of General Obligation Refunding Bonds. The proceeds of this issue, together with other lawfully available monies, were to be used to establish an irrevocable escrow to advance refund and defease in their entirety the District’s previous outstanding General Obligation Bond issue. In November 2009, the District issued $7,780,000 of General Obligation Refunding Bonds Improvement District No. 27-2009 to refund the 1998 issue. The proceeds from the bond issue were $7,989,884, which included an original issue premium of $209,884. An amount of $7,824,647, which consisted of unpaid principal and accrued interest, was deposited into an escrow fund. Pursuant to an optional redemption clause in the 1998 bonds, the District was able to redeem the 1998 bonds, without premium at any time after September 1, 2009. On December 15, 2009 the 1998 bonds were refunded. 37 Notes to Financial Statements Years Ended June 30, 2017 and 2016 5) LONG-TERM DEBT - Continued General Obligation Bonds - Continued These bonds are general obligations of Improvement District No. 27 (ID 27) of the District. The Board of Directors has the power and is obligated to levy annual ad valorem taxes without limitation, as to rate or amount for payment of the bonds and the interest upon all property which is within ID 27 and subject to taxation. The General Obligation Bonds are payable from District-wide tax revenues. The Board may utilize other sources for servicing the bond debt and interest. The Improvement District No. 27-2009 General Obligation Refunding Bonds have interest rates from 3.00% to 4.00% with maturities through FY 2023. Future debt service requirements for the bonds are as follows: For the Year Ended June 30, Principal Interest 2018 $ 605,000 $ 147,700 2019 635,000 122,900 2020 650,000 97,200 2021 680,000 70,600 2022 705,000 42,900 2023 720,000 14,400 $ 3,995,000 $ 495,700 Certificates of Participation (COPS) In June 1996, COPS with face value of $15,400,000 were sold by the Otay Service Corporation to finance the cost of design, acquisition, and construction of certain capital improvements. An installment purchase agreement between the District, as Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. The installment payments are to be paid from taxes and net revenues, as described in the installment agreement. The certificates bear interest at a variable weekly rate not to exceed 12%. The variable interest rate is tied to the 30-day LIBOR index and the Securities Industry and Financial Markets Association (SIFMA) index. An irrevocable letter of credit facility is necessary to market the District’s variable rate debt. This facility is with Union Bank and covers the outstanding principal and interest. The facility expires on June 29, 2020. The interest rate at June 30, 2017 was 0.90%. The installment payments are to be paid annually at $350,000 to $1,100,000 from September 1, 1996 through September 1, 2026. In March 2007, Revenue Certificates of Participation (COPS) with face value of $42,000,000 were sold by the Otay Service Corporation to improve the District’s water storage system and distribution facilities. An installment purchase agreement between the District, as a Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. The installment payments are to be paid from taxes and net revenues, as described in the installment agreement. The certificates are due in annual installments of $785,000 to $2,445,000 from September 1, 2007 through September 1, 2036; bearing interest at 3.7% to 4.47%. On May 1, 2016 the 2007 COPS was refunded. 38 Notes to Financial Statements Years Ended June 30, 2017 and 2016 5) LONG-TERM DEBT – Continued Certificates of Participation (COPS) – Continued There is no aggregate reserve requirement for the COPS. Future debt service requirements for the certificates are as follows: For the Year 1996 COPS Ended June 30, Principal Interest (1) 2018 $ 600,000 $ 38,500 2019 700,000 35,083 2020 700,000 31,583 2021 700,000 28,083 2022 800,000 24,167 2023-2027 4,700,000 54,417 $ 8,200,000 $ 211,833 (1) Variable Rate - Interest reflected at June 30, 2017 at a rate of 0.90%. The COPS debt issue contain various covenants and restrictions, principally that the District fix, prescribe, revise and collect rates, fees and charges for the Water System which will at lease sufficient to yield, during each fiscal year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal year ended June 30, 2017. Defeased Certificate of Participation (COPS) In May 2016, the March 2007 COPS were refunded with the issuance of the 2016 Water Revenue Refunding Bonds. Proceeds of $36,577,898, which consisted of unpaid principal and accrued interest, were used to establish an irrevocable escrow to advance refund and defease in their entirety the District’s 2007 COPS. Pursuant to an optional redemption clause in the 2007 COPS, the District will be able to redeem the 2007 bonds, without premium at any time after September 1, 2017. As a result, the 2007 COPS are considered to be defeased and the liability of those bonds has been removed from long-term liabilities. The outstanding balance at June 30, 2017 was $34,760,000. Water Revenue Bonds In April 2010, Water Revenue Bonds with a face value of $50,195,000 were sold by the Otay Water District Financing Authority to provide funds for the construction of water storage and transmission facilities. The bond issue consisted of two series; Water Revenue Bonds, Series 2010A (Non-AMT Tax Exempt) with a face value of $13,840,000 plus a $1,078,824 original issue premium, and Water Revenue Bonds, Series 2010B (Taxable Build America Bonds) with a face value of $36,255,000. The Series 2010A bonds are due in annual installments of $785,000 to $1,295,000 from September 1, 2012 through September 1, 2025; bearing interest at 2% to 5.25%. The Series 2010B bonds are due in annual installments of $1,365,000 to $3,505,000 from September 1, 2026 through September 1, 2040; bearing interest at 6.377% to 6.577%. 39 Notes to Financial Statements Years Ended June 30, 2017 and 2016 5) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued Interest on both Series is payable on September 1, 2010 and semiannually thereafter on March 1st and September 1st of each year until maturity or earlier redemption. The installment payments are to be made from Taxes and Net Revenues of the Water System as described in the installment purchase agreement, on parity with the payments required to be made by the District for the 1996 Certificates of Participation described above and the 2013 and 2016 Water Revenue Refunding Bonds described below. The proceeds of the bonds will be used to fund the project described above as well as to fund reserve funds of $1,030,688 (Series 2010A) and $2,707,418 (Series 2010B). $542,666 was used to fund various costs of issuance. The original issue premium is being amortized over the 14 year life of the Series 2010A bonds. Amortization for the year ending June 30, 2017 was $74,402 and is included in interest expense. The unamortized premium at June 30, 2017 is $539,411 and June 30, 2016 was $613,813. The 2010 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe, revise and collection rates, fees and charges for the Water System which will at lease sufficient to yield, during each fiscal year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal year ended June 30, 2017. In June 2013, the 2013 Water Revenue Refunding Bonds were issued to defease the 2004 Refunding Certificates of Participation. The bonds were issued with a face value of $7,735,000 plus a $984,975 original issue premium. The bonds are due in annual installments of $660,000 to $835,000 from September 1, 2013 through September 1, 2023; bearing interest at 1% to 4%. The installment payments are to be made from Taxes and Net Revenues of the Water System, on parity with the payments required to be made by the District for the 1996, and 2007 Certificates of Participation and the 2010A and 2010B described above. The original issue premium is being amortized over the 11 year life of the Series 2013 bonds. Amortization for the year ending June 30, 2017 was $96,095 and is included in interest expense. The unamortized premium at June 30, 2017 is $592,588 and June 30, 2016 was $688,683. In May 2016, Water Revenue Refunding Bonds were issued to defease the 2007 Revenue Certificates of Participation. The bonds are due in annual installments of $1,200,000 to $2,235,000 from September 1, 2016 through September 1, 2036; bearing interest of 2% to 5%. The bonds were issued with a face value of $33,385,000 plus $3,630,950 original issue premium. The savings between the cash flow required to service, the old debt and the cash flow required to service the new debt is $5,664,140 and represent an economic gain on refunding of $4,538,175. The original issue premium is being amortized over the 20 year life of the Series 2016 bonds. Amortization for the year ending June 30, 2017 was $178,571 and is included in interest expense. The unamortized premium at June 30, 2017 is $3,422,619 and at June 30, 2016 was $3,601,190. 40 Notes to Financial Statements Years Ended June 30, 2017 and 2016 5) LONG-TERM DEBT – Continued Water Revenue Bonds – Continued The total amount outstanding at June 30, 2017 and aggregate maturities of the revenue bonds for the fiscal years subsequent to June 30, 2017, are as follows: For the Year 2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B Ended June 30, Principal Interest Principal Interest 2018 $ 940,000 $ 406,288 $ - $ 2,371,868 2019 975,000 367,988 - 2,371,868 2020 1,015,000 323,112 - 2,371,868 2021 1,065,000 271,112 - 2,371,868 2022 1,120,000 216,487 2,371,868 2023-2027 3,705,000 291,969 2,815,000 11,682,540 2028-2032 - - 8,760,000 9,631,794 2033-2037 - - 12,005,000 6,275,281 2038-2042 - - 12,775,000 1,747,345 $ 8,820,000 $ 1,876,956 $ 36,355,000 $ 41,196,300 For the Year 2013 Water Revenue Refunding Bonds 2016 Water Revenue Refunding Bonds Ended June 30, Principal Interest Principal Interest 2018 $ 660,000 $ 195,600 $ 1,015,000 $ 1,214,806 2019 685,000 168,700 1,045,000 1,173,456 2020 715,000 140,700 1,100,000 1,119,831 2021 745,000 111,500 1,155,000 1,063,456 2022 775,000 81,100 1,215,000 1,004,206 2023-2027 1,640,000 66,200 7,120,000 4,014,907 2028-2032 - - 8,955,000 2,238,719 2033-2037 - - 10,580,000 761,972 $ 5,220,000 $ 763,800 $ 32,185,000 $ 12,591,353 Revenues Pledged The District has pledged a portion of future water sales revenues to repay its Water Revenue Bonds and Certificates of Participation. Total principal and interest remaining on the water revenue bonds and certificates of participation is $147,420,242 payable through fiscal year 2042. For the current year, principal and interest paid by the water sales revenues were $3,335,000 and $4,082,446, respectively. 41 Notes to Financial Statements Years Ended June 30, 2017 and 2016 6) NET POSITION Designations of Net Position In addition to the restricted net position, a portion of unrestricted net position, have been designated by the Board of Directors for the following purposes as of June 30, 2017 and 2016: 2017 2016 Designated Betterment $ 2,564,335 $ 2,081,586 Replacement Reserve 22,353,996 32,508,472 Designated New Supply Fund 100,751 64,711 Employee Benefits Reserve 188,381 135,933 Total $ 25,207,463 $ 34,790,702 7) DEFINED BENEFIT PENSION PLAN A) General Information about the Pension Plans Plan Descriptions All qualified permanent and probationary employees are eligible to participate in the District’s Plan, agent multiple-employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and District resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for the plan are applied as specified by the Public Employees’ Retirement Law. 42 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued A) General Information about the Pension Plans - Continued Benefits Provided - Continued The Plans’ provisions and benefits in effect at June 30, 2017 and 2016, are summarized as follows: Prior to On or After Hire Date January 1, 2013 January 1, 2013 Benefit Formula 2.7% at 55 2% at 62 Benefit Vesting Schedule 5 years service 5 years service Benefit Payments Monthly for life Monthly for life Retirement Age 50 - 55 52 - 67 Monthly Benefits, as a % of Eligible Compensation 2.0% to 2.7% 1.0% to 2.5% Required Employee Contribution Rates 8% 6.25% Required Employer Contribution Rates 20.869% - 25.435% 25.435% - 32.631% Employees Covered The following employees were covered by the benefit terms for the Plan: 2017 2016 Inactive Employees or Beneficiaries Currently Receiving Benefits 174 169 Inactive Employees Entitled to But Not Yet Receiving Benefits 140 138 Active Employees 137 138 Total 451 445 Contributions Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. B) Net Pension Liability The District’s net pension liability for the Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2016, using the annual actuarial valuation as of June 30, 2015 rolled forward to June 30, 2016 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown on the following page: 43 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Actuarial Assumptions The total pension liabilities in the June 30, 2015 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2015 Measurement Date June 30, 2016 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Payroll Growth 3.0% Projected Salary Increase 3.3% - 14.2% (1) Investment Rate of Return 7.5% (2) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2015 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the CalPERS website. The total pension liabilities in the June 30, 2014 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2014 Measurement Date June 30, 2015 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Payroll Growth 3.0% Projected Salary Increase 3.3% - 14.2% (1) Investment Rate of Return 7.5% (2) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2014 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the CalPERS website. 44 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Discount Rate The discount rate used to measure the total pension liability was 7.65% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.65% discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65% will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrator expense. The 7.50% investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65%. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above the rounded down to the nearest one quarter of one percent. 45 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Discount Rate - Continued The following table reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. Asset Class New Strategic Allocation Real Return Years 1 - 10 (a) Real Return Years 11+ (b) Global Equity 51.0% 5.25% 5.71% Global Fixed Income 20.0% 0.99% 2.43% Inflation Sensitive 6.0% 0.45% 3.36% Private Equity 10.0% 6.83% 6.95% Real Estate 10.0% 4.50% 5.13% Infrastructure and Forestland 2.0% 4.50% 5.09% Liquidity 1.0% -0.55% -1.05% Total 100% (a) An expected inflation of 2.5% used for this period. (b) An expected inflation of 3.0% used for this period. C) Changes in the Net Position Liability The changes in the Net Position Liability for the Plan for June 30, 2017: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $114,283,338 $ 74,140,210 $ 40,143,128 Changes in the Year: Service Cost 2,298,617 - 2,298,617 Interest on the Total Pension Liability 8,575,275 - 8,575,275 Changes in Benefit Terms - - - Differences Between Actual and Expected Experience (613,440) - (613,440) Changes in Assumptions - - - Contribution - Employer - 3,819,770 (3,819,770) Contribution - Employee - 1,010,337 (1,010,337) Net Investment Income - 369,214 (369,214) Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,448,218) - Administrative Expense - (45,185) 45,185 Net Changes 4,812,234 (294,082) 5,106,316 Ending Balance $119,095,572 $ 73,846,128 $ 45,249,444 46 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Position Liability The changes in the Net Position Liability for the Plan for June 30, 2016: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $112,069,436 $ 73,346,091 $ 38,723,345 Changes in the Year: Service Cost 2,250,860 - 2,250,860 Interest on the Total Pension Liability 8,229,312 - 8,229,312 Changes in Benefit Terms - - - Differences Between Actual and Expected Experience (981,200) - (981,200) Changes in Assumptions (1,996,819) - (1,996,819) Contribution - Employer - 3,557,098 (3,557,098) Contribution - Employee - 1,007,023 (1,007,023) Net Investment Income - 1,601,760 (1,601,760) Benefit Payments, Including Refunds of Employee Contributions (5,288,251) (5,288,251) - Administrative Expense - (83,511) 83,511 Net Changes 2,213,902 794,119 1,419,783 Ending Balance $114,283,338 $ 74,140,210 $ 40,143,128 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the District for the Plan, calculated using the discount rate for the Plan, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: 2017 2016 1% Decrease 6.65% 6.65% Net Pension Liability $ 60,824,149 $ 55,289,674 Current Discount Rate 7.65% 7.65% Net Pension Liability $ 45,249,444 $ 40,143,128 1% Increase 8.65% 8.65% Net Pension Liability $ 32,314,666 $ 27,584,842 Note: In a decision by CalPERS in December 2016, the discount rate will be lowered over the next three fiscal years as follows: FY 2017-2018 7.375% FY 2018-2019 7.25% FY 2019-2020 7.00% 47 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Position Liability - Continued Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2017, the District recognized pension expense of $3,682,561. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following services: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 4,130,482 $ - Differences between actual and expected experience - (698,864) Changes in assumptions - (619,703) Net differences between projected and actual earnings on pension plan investments 6,550,647 (2,483,970) Total $ 10,681,129 $ (3,802,537) $4,130,482 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Year Ended Outflow/(Inflows) June 30 of Resources 2017 $ (550,942) 2018 417,089 2019 1,834,343 2020 1,047,620 2021 - Thereafter - 48 Notes to Financial Statements Years Ended June 30, 2017 and 2016 7) DEFINED BENEFIT PENSION PLAN - Continued D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions - Continued For the year ended June 30, 2016, the District recognized pension expense of $2,557,616. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following services: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 3,854,533 $ - Differences between actual and expected experience - (642,855) Changes in assumptions - (1,308,261) Net differences between projected and actual earnings on pension plan investments 3,146,893 (3,725,955) Total $ 7,001,426 $ (5,677,071) $3,854,533 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Year Ended Outflow/(Inflows) June 30 of Resources 2017 $ (1,482,165) 2018 (1,379,475) 2019 (455,262) 2020 786,724 2021 - Thereafter - E) Payable to the Pension Plan At June 30, 2017, the District reported a payable of $80,021 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2017 and $61,904 for June 30, 2016 reflected in the accrued payroll liabilities on the Statements of Net Position. 49 Notes to Financial Statements Years Ended June 30, 2017 and 2016 8) OTHER POST EMPLOYMENT BENEFITS Plan Description The District’s defined benefit postemployment healthcare plan, (DPHP), provides medical benefits to eligible retired District employees and beneficiaries. DPHP is part of the Public Agency portion of the California Employers’ Retiree Benefit Trust Fund (CERBT), an agent multiple-employer plan administered by California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for participating public employers within the State of California. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814. Prior to the plan agreements signed in 2011, the eligibility in the plan was broken into 3 tiers, employees hired before January 1, 1981, employees hired on or after January 1, 1981 but before July 1, 1993 and employees hired on or after July 1, 1993. Board members elected before January 1, 1995 are also eligible for the plan. Eligibility also includes age and years of service requirements which vary by tier. Benefits include up to 100% medical and/or dental premiums for life for the retiree for Tier I, II or III employees, and up to 100% spouse premium until death of retiree or age 65 whichever is greater and dependent premium up to age 19 depending on the tier. Subsequent to the agreements in 2011 and 2012 all employees are eligible for the plan after 20 years of consecutive service and unrepresented employees hired before January 1, 2013 are eligible after 15 years. Survivor benefits are covered beyond Medicare. Funding Policy The contribution requirements of plan members and the District are established and may be amended by the Board of Directors. Effective January 1, 2013, represented employees hired prior to January 1, 2013 or hired on or after January 1, 2013 from another public agency that has reciprocity without having a break in service of more than six months, contribute .75% of covered salaries. In addition, unrepresented and represented employees hired on or after January 1, 2013, and do not have reciprocity from another public agency, contribute 1.75% and 2.5% of covered salaries, respectively. DPHP members receiving benefits contribute based on their selected plan options of EPO, HMO or PPO and whether they are outside the State of California. Contributions by plan members range from $0 to $196 per month for coverage to age 65, and from $0 to $202 per month, respectively, thereafter. Annual OPEB Cost and Net OPEB Obligation/Asset The District’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal annual cost. Any unfunded actuarial liability (or funding excess) is amortized over a period not to exceed thirty years. The current ARC rate is 8.9% of the annual covered payroll. 50 Notes to Financial Statements Years Ended June 30, 2017 and 2016 8) OTHER POST EMPLOYMENT BENEFITS - Continued Annual OPEB Cost and Net OPEB Obligation/Asset - Continued The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation/assets: 2017 2016 Annual Required Contribution (ARC) $ 1,245,000 $ 1,239,000 Interest on Net OPEB Asset (907,667) (831,748) Adjustment to Annual Required Contribution (ARC) 911,000 810,000 Annual OPEB Cost (Expense) 1,248,333 1,217,252 Contributions Made 2,284,420 2,264,415 Increase in Net OPEB Asset (1,036,087) (1,047,163) Net OPEB Asset - Beginning of Year (12,519,549) (11,472,386) Net OPEB Asset - End of Year $ (13,555,636) $ (12,519,549) For 2017, in addition to the ARC, the District contributed cash benefit payments outside the trust (healthcare premium payments for retirees) to Special District Risk Management Authority (SDRMA) in the amount of $919,420, which is included in the $2,284,420 of contributions shown above. For 2016, this amount was $909,415, which is included in the $2,264,415 of contributions shown above. The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation/asset for the fiscal years 2017, 2016 and 2015 were as follows: THREE-YEAR TREND INFORMATION FOR CERBT Fiscal Annual OPEB Percentage of Net OPEB Year Cost (AOC) OPEB Cost Contributed Obligation 6/30/17 $ 1,248,333 183% $ (13,555,636) 6/30/16 $ 1,217,252 186% $ (12,519,549) 6/30/15 $ 1,373,063 179% $ (11,472,386) Funded Status and Funding Progress The funded status of the plan as of June 30, 2015, the most recent actuarial valuation date, was as follows: Actuarial Accrued Liability (AAL) $ 23,689,000 Actuarial Value of Plan Assets $ 16,920,000 Unfunded Actuarial Accrued Liability (UAAL) $ 6,769,000 Funded Ratio (Actuarial Value of Plan Assets/AAL) 71.42% Covered Payroll (Active Plan Members) $ 13,080,000 UAAL as a Percentage of Covered Payroll 51.75% 51 Notes to Financial Statements Years Ended June 30, 2017 and 2016 8) OTHER POST EMPLOYMENT BENEFITS - Continued Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following is a summary of the actuarial assumptions and methods: Valuation Date June 30, 2015 Actuarial Cost Method Entry Age Normal Cost Method Amortization Method Level Percent of Payroll Remaining Amortization Period 23-Year Fixed (Closed) Period as of the Valuation Date Asset Valuation Method 5-Year Smoothed Market Actuarial Assumptions: Investment Rate of Return 7.25% (Net of Administrative Expenses) Projected Salary Increase 3.25% Inflation 3.00% Individual Salary Growth CalPERS 1997-2007 Experience Study Healthcare Cost Trend Rate Medical: 10% per annum graded down in approximately one-half percent increments to an ultimate rate of 5%. Dental: 4% per annum. 9) WATER CONSERVATION AUTHORITY In 1999 the District formed the Water Conservation Garden Authority (the “Authority”), a Joint Powers Authority, with other local entities to construct, maintain and operate a xeriscape demonstration garden in the furtherance of water conservation. The authority is a non-profit public charity organization and is exempt from income taxes. During the years ended June 30, 2017 and 2016, the District contributed $125,742 and $120,722, respectively, for the development, construction and operation costs of the xeriscape demonstration garden. 52 Notes to Financial Statements Years Ended June 30, 2017 and 2016 9) WATER CONSERVATION AUTHORITY - Continued A summary of the Authority’s June 30, 2016 audited financial statement is as follows (latest report available): Assets $ 1,316,319 Liabilities 0 Net Assets $ 1,316,319 Revenues, Gains and Other Support $ 500,000 Expenses 569,995 Changes in Net Assets $ (69,995) 10) COMMITMENTS AND CONTINGENCIES Construction Commitments The District had committed to capital projects under construction with an estimated cost to complete of $9,520,486 at June 30, 2017. Litigation Certain claims, suits and complaints arising in the ordinary course of operation have been filed or are pending against the District. In the opinion of the staff and counsel, all such matters are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involved such amounts, as would not have significant effect on the financial position or results of operations of the District if disposed of unfavorably. Refundable Terminal Storage Fees The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee in order to provide the District with the funds necessary to build additional storage capacity. The agreement further allows the developers to relinquish all or a portion of such water storage capacity. If the District grants to another property owner the relinquished storage capacity, the District shall refund to the applicable developer $746 per equivalent dwelling unit (EDU). There were 17,867 EDUs that were subject to this agreement. At June 30, 2017, 1,750 EDUs had been relinquished and refunded, 15,086 EDUs had been connected, and 1,031 EDUs have neither been relinquished nor connected. At June 30, 2016, 1,750 EDUs had been relinquished and refunded, 15,083 EDUs had been connected, and 1,034 EDUs have neither been relinquished nor connected. Developer Agreements The District has entered into various Developer Agreements with developers towards the expansion of District facilities. The developers agree to make certain improvements and after the completion of the projects the District agrees to reimburse such improvements with a maximum reimbursement amount for each developer. Contractually, the District does not incur a liability for the work until the work is accepted by the District. As of June 30, 2017, none of the outstanding developer agreements had been accepted. 53 Notes to Financial Statements Years Ended June 30, 2017 and 2016 11) RISK MANAGEMENT General Liability The District is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omissions, and natural disasters. Beginning in July 2003, the District began participation in an insurance pool through the Special District Risk Management Authority (SDRMA). SDRMA is a not-for- profit public agency formed under California Government Code Sections 6500 et. Seq. SDRMA is governed by a board composed of members from participating agencies. The mission of SDRMA is to provide renewable, efficiently priced risk financing and risk management services through a financially sound pool. The District pays an annual premium for commercial insurance covering general liability, excess liability, property, automobile, public employee dishonesty, and various other claims. Accordingly, the District retains no risk of loss. Separate financial statements of SDRMA may be obtained at Special District Risk Management Authority, 1112 “I” Street, Suite 300, Sacramento, CA 95814. General and Auto Liability, Public Officials’ Errors and Omissions and Employment Practices Liability: Total risk financing limits of $10 million combined single limit at $10 million per occurrence, subject to the following deductibles:  $5,000 per occurrence for third party general liability property damage;  $1,000 per occurrence for third party auto liability property damage;  50% co-insurance of cost expended by SDRMA, in excess of $10,000 up to $50,000, per occurrence, as respects any employment practices claim or suit arising in whole or any part out of any action involving discipline, demotion, reassignment or termination of any employee of the member. Employee Dishonesty Coverage: Total of $1,000,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and Theft, Disappearance and Destruction coverage’s effective July 1, 2016. Property Loss: Replacement cost, for property on file, if replaced, and if not replaced within two years after the loss, paid on an actual cash value basis, to a combined total of $1 billion per occurrence, subject to a $1,000 deductible per occurrence, effective July 1, 2016. Boiler and Machinery: Replacement cost up to $100 million per occurrence, subject to a $1,000 deductible, effective July 1, 2016. Public Officials Personal Liability: $500,000 each occurrence, with an annual aggregate of $500,000 per each elected/appointed official to which this coverage applies, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage’s, deductible of $500 per claim, effective July 1, 2016. Comprehensive and Collision: On selected vehicles, with deductibles of $500/$1,000, as elected; ACV limits; fully self-funded by SDRMA; Policy No. LCA - SDRMA – 2015-16, effective July 1, 2016. 54 Notes to Financial Statements Years Ended June 30, 2017 and 2016 11) RISK MANAGEMENT – Continued General Liability - Continued Workers’ Compensation Coverage and Employer’s Liability: Statutory limits per occurrence for Workers’ Compensation and $5.0 million for Employer’s Liability Coverage, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage, effective July 1, 2016. Health Insurance Beginning in January 2008, the District began providing health insurance through SDRMA covering all of its employees, retirees, and other dependents. SDRMA is a pooled medical program, administered in conjunction with the California State Association of Counties (CSAC). Adequacy of Protection During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. 12) INTEREST EXPENSE Interest expense for the years ended June 30, 2017 and 2016 is as follows: 2017 2016 Amount Expensed $ 5,069,767 $ 4,603,093 Amount Capitalized as a Cost of Construction Projects 181,582 274,429 Total Interest $ 5,251,349 $ 4,877,522 13) SEGMENT INFORMATION During the June 30, 2011 fiscal year, the District issued Revenue Bonds to finance certain capital improvements. While water and wastewater services are accounted for jointly in these financial statements, the investors in the Revenue Bonds rely solely on the revenues of the water services for repayment. 55 Notes to Financial Statements Years Ended June 30, 2017 and 2016 13) SEGMENT INFORMATION - Continued Summary financial information for the water services is presented for June 30, 2017: Condensed Statement of Net Position June 30, 2017 Water Services ASSETS Cash and Investments $ 76,498,144 Accounts Receivable 12,196,393 Other Current Asset 2,137,382 Capital Assets 428,761,526 Other Assets 13,088,537 Total Assets 532,681,982 DEFERRED OUTFLOWS OF RESOURCES Deferred Amount of Refunding 191,428 Deferred Actuarial Pension Costs 10,230,653 Total Deferred Outflows of Resources 10,422,081 LIABILITIES Accounts Payable 11,461,508 Other Miscellaneous Liabilities 4,301,290 Other Current Liabilities 9,047,957 General Obligation Bonds 3,474,498 Certificates of Participation 7,592,548 Revenue Bonds 84,519,618 Net Pension Liability 43,181,320 Other Non-current Liabilities 3,074,313 Total Liabilities 166,653,052 DEFERRED INFLOWS OFRESOURCES Deferred Actuarial Pension Costs 3,638,714 Total Deferred Inflows of Resources 3,638,714 NET POSITION Net Investment in Capital Assets 329,546,290 Restricted for Debt Service 4,306,724 Unrestricted 38,959,283 Total Net Position $ 372,812,297 56 Notes to Financial Statements Years Ended June 30, 2017 and 2016 13) SEGMENT INFORMATION - Continued Condensed Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2017 Water Services Operating Revenues Water Sales $ 83,720,150 Connection and Other Fees 1,776,557 Total Operating Revenues 85,496,707 Operating Expenses Cost of Water Sales 56,882,487 Administrative and General 20,034,652 Depreciation 16,723,248 Total Operating Expenses 93,640,387 Operating Income (Loss) (8,143,680) Non-operating Revenues (Expenses) Investment Earnings 358,684 Taxes and Assessments 4,098,267 Availability Charges 638,357 Gain (Loss) on Sale of Capital Assets (605,536) Rents and Leases 1,375,305 Miscellaneous Revenues 3,323,595 Donations (125,742) Interest Expense (5,069,767) Miscellaneous Expenses (2,447,969) Total Non-operating Revenues (Expenses) 1,545,194 Income (Loss) Before Capital Contributions (6,598,486) Capital Contributions 5,490,495 Change in Net Position (1,107,991) Total Net Position, Beginning 373,920,288 Total Net Position, Ending $ 372,812,297 57 Notes to Financial Statements Years Ended June 30, 2017 and 2016 13) SEGMENT INFORMATION - Continued Condensed Statement of Cash Flows For the Year Ended June 30, 2017 Water Services Net Cash Provided/(Used) by: Operating Activities $ 7,757,465 Non-capital and Related Financing Activities 5,481,502 Capital and Related Financing Activities (14,867,834) Investing Activities (2,023,805) Net Increase (Decrease) in Cash and Cash Equivalents (3,652,672) Cash and Cash Equivalents, Beginning 21,130,751 Cash and Cash Equivalents, Ending $ 17,478,079 58 Required Supplementary Information 59 This page intentionally left blank 60 Schedule of Funding Progress for DPHP Years Ended June 30, 2017 and 2016 Actuarial Accrued UAAL as a Actuarial Actuarial Liability Unfunded Percentage of Valuation Value of (AAL) Entry AAL Funded Covered Covered Date Assets Age (UAAL) Ratio Payroll Payroll (A) (B) (B - A) (A/B) (C) [(B-A)/C] 6/30/15 Miscellaneous $ 16,920,000 $ 23,689,000 $ 6,769,000 71.42% $ 13,080,000 51.75% 6/30/13 Miscellaneous $ 11,831,000 $ 22,891,000 $ 11,060,000 51.68% $ 11,969,000 92.41% 6/30/11 Miscellaneous $ 7,893,000 $ 18,289,000 $ 10,396,000 43.16% $ 12,429,000 83.64% 61 Schedule of Changes in the Net Pension Liability and Related Ratios (1) Measurement period 2015-16 (FY 2016-2017) was the third year of implementation; therefore, only three years are shown. (2) Historical information is required only for measurement periods for which GASB 68 is applicable. Notes to Schedule: Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2015. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes of Assumptions: For the 2017 fiscal year, there were no changes. For the 2016 fiscal year, amounts reported reflect an adjustment of the discount rate from 7.5% (net of administrative expense) to 7.65% (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5% discount rate. Measurement Period (2) 2015-2016 2014-2015 2013-2014 TOTAL PENSION LIABILITY Service Cost $ 2,298,617 $ 2,250,860 $ 2,330,709 Interest 8,575,275 8,229,312 7,907,915 Changes of Benefit Terms - - - Changes of Assumptions - (1,996,819) - Difference Between Expected and Actual Experience (613,440) (981,200) - Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,288,251) (4,885,406) Net Change in Total Pension Liability 4,812,234 2,213,902 5,353,218 Total Pension Liability - Beginning 114,283,338 112,069,436 106,716,218 Total Pension Liability - Ending (a) $ 119,095,572 $ 114,283,338 $ 112,069,436 PLAN FIDUCIARY NET POSITION Contributions - Employer $ 3,819,770 $ 3,557,098 $ 3,137,174 Contributions - Employee 1,010,337 1,007,023 1,074,954 Net Investment Income 369,214 1,601,760 10,874,999 Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,288,251) (4,885,406) Administrative Expense (45,185) (83,511) - Other Changes in Fiduciary Net Position - - - Net Change in Fiduciary Net Position (294,082) 794,119 10,201,721 Plan Fiduciary Net Position - Beginning 74,140,210 73,346,091 63,144,370 Plan Fiduciary Net Position - Ending (b) $ 73,846,128 $ 74,140,210 $ 73,346,091 Plan Net Pension Liability/(Asset) - Ending (a) - (b) $ 45,249,444 $ 40,143,128 $ 38,723,345 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 62.01% 64.87% 65.45% Covered Payroll $ 12,767,963 $ 12,451,513 $ 12,276,578 Plan Net Pension Liability/(Asset) as a Percentage of Covered Payroll 354.40% 322.40% 315.42% Last 10 Years (1) 62 Schedule of Plan Contributions (1) Years Ended June 30, 2017 and 2016 (1) Historical information is required only for measurement periods for which GASB 68 is applicable. (2) Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions toward their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. (3) Payroll from prior year $12,451,513 was assumed to increase by the 3.00% payroll growth assumption. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for FY 2015-16 were from the June 30, 2013 public agency valuations. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details see June 30, 2013 Funding Valuation Report Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2013 Funding Valuation Report Inflation 2.75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007 Mortality The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Fiscal Year 2016-17 Fiscal Year 2014-15 Fiscal Year 2013-14 Actuarially Determined Contribution (2) $ 3,819,770 $ 3,557,098 $ 3,137,174 Contributions in Relation to the Actuarially Determined Contribution (2) (3,819,770) (3,557,098) (3,137,174) Contribution Deficiency (Excess) $ - $ - $ - Covered Payroll (3) $12,767,963 $12,451,513 $12,276,578 Contributions as a Percentage of Covered Payroll (3) 29.92% 28.55% 25.55% 63 This page intentionally left blank 64 Statistical Schedules The Statistical Schedule is part of understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health. Contents Page Financial Trends 66 These schedules contain trend information to help the reader understand how the District’s financial performance and well-being have changed over time. Revenue Capacity 72 These schedules contain information to help the reader assess the factors affecting the District’s ability to generate its potable and recycled water, and sewer sales as well as property and sales taxes. Debt 81 These schedules present information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt. Demographic and Economic Information 86 These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place and to help make comparisons over time and with other governments. Operating Information 88 These schedules contain information about the District’s operation and resources to help the reader understand how the District’s financial information relates to the services the District provides and the activities it performs. Sources Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports of the relevant year. The District implemented GASB Statement 34 in 2001; schedules presenting government-wide information include information beginning in that year. 65 Fiscal Net Investment Total Year in Capital Assets Restricted Unrestricted Net Position 2017 350,981,714$ 4,306,724$ 45,898,551$ 401,186,989$ 2016 351,617,201 4,402,301 45,268,275 401,287,777 2015 354,046,090 4,658,306 43,717,930 402,422,326 (1) 2014 357,912,154 3,855,673 83,039,993 444,807,820 2013 376,549,168 4,612,890 67,071,849 448,233,907 2012 381,725,015 4,715,904 67,701,068 454,141,987 2011 377,656,762 4,915,555 74,627,563 457,199,880 2010 375,953,042 5,192,111 80,204,428 461,349,581 2009 382,410,491 1,797,512 76,136,868 460,344,871 2008 372,696,591 9,411,114 74,719,712 456,827,417 (1) For Fiscal Year ending June 30, 2015, the $42.4 million decrease of Total Net Position is primarily due to the implementation of Governmental Accounting Standards Board (GASB) Statements No. 68 "Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27" and No. 71 "Pension Transitions for Contributions Made Subsequent to the Measurement Date-an amendment of GASB No. 68". Implementations of these standards resulted in a decrease of Net Position at July 1, 2014 by $40.4 million. Source: Otay Water District Net Position by Component - Last Ten Fiscal Years $360,000 $380,000 $400,000 $420,000 $440,000 $460,000 $480,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Net Positon, in Thousands ($) 66 Total Operating Non-Operating Income/ (Loss) Changes Fiscal Operating Operating Income/ Revenues/ Before Capital Capital in Net Year Revenues Expenses (Loss) (Expenses)Contributions Contributions Position 2017 88,481,254$ 96,624,381$ (8,143,127)$ 2,471,420$ (5,671,707)$ 5,570,919$ (100,788)$ 2016 78,876,307 89,669,543 (10,793,236) 2,687,368 (8,105,868) 6,971,319 (1,134,549) 2015 83,865,407 91,863,728 (7,998,321) 2,965,607 (5,032,714) 3,081,894 (1,950,820) 2014 86,025,573 92,567,023 (6,541,450) (277,057) (6,818,507) 3,392,420 (3,426,087) 2013 76,881,388 87,335,338 (10,453,950) 1,770,738 (8,683,212) 2,775,132 (5,908,080) 2012 68,400,349 81,795,466 (13,395,117) 3,511,327 (9,883,790) 6,825,897 (3,057,893) 2011 63,204,216 77,266,228 (14,062,012) 4,452,825 (9,609,187) 7,866,190 (1,742,997) 2010 60,686,681 73,126,342 (12,439,661) 5,937,575 (6,502,086) 8,839,892 2,337,806 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 Source: Otay Water District Changes in Net Position - Last Ten Fiscal Years -$6,000 -$4,000 -$2,000 $0 $2,000 $4,000 $6,000 $8,000 $10,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Changes in Net Position, in Thousands ($) 67 Fiscal Connection and Percent Year Water Sales Wastewater Other Fees Total Change 2017 83,720,150$ 2,983,495$ 1,777,609$ 88,481,254$ 12.2% 2016 73,940,200 3,175,300 1,760,807 78,876,307 -5.9% 2015 79,135,000 3,044,158 1,686,249 83,865,407 -2.5% 2014 81,287,164 2,791,523 1,946,886 86,025,573 11.9% 2013 72,187,081 2,625,087 2,069,220 76,881,388 12.4% 2012 63,830,272 2,400,313 2,169,764 68,400,349 8.2% 2011 58,293,184 2,396,385 2,514,647 63,204,216 4.1% 2010 56,249,816 2,299,585 2,137,280 60,686,681 6.3% 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% Source: Otay Water District Operating Revenues by Source - Last Ten Fiscal Years $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Operating Revenues, in Thousands ($) 68 Fiscal Cost of Administrative Percent Year Water Sales Wastewater and General Depreciation Total Change 2017 56,882,487$ 1,964,855$ 19,991,542$ 17,785,497$ 96,624,381$ 7.8% 2016 51,826,046 2,051,913 19,318,247 16,473,337 89,669,543 -2.4% 2015 54,364,884 1,866,711 19,437,141 16,194,992 91,863,728 -0.8% 2014 56,068,147 1,834,465 18,608,603 16,055,808 92,567,023 6.0% 2013 50,600,551 1,638,354 18,550,811 16,545,622 87,335,338 6.8% 2012 46,106,403 2,547,929 17,926,430 15,214,704 81,795,466 5.9% 2011 42,029,819 2,592,823 18,763,380 13,880,206 77,266,228 5.7% 2010 39,338,495 2,169,988 18,320,362 13,297,497 73,126,342 2.3% 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% Source: Otay Water District Operating Expenses by Function - Last Ten Fiscal Years $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Operating Expenses, in Thousands ($) Cost of Water Sales Wastewater Administrative and General Depreciation 69 Fiscal Investment Taxes and Availability Rents and Percent Year Earnings Assessments Charges Leases Miscellaneous Total Change 2017 408,754$ 4,114,583$ 729,325$ 1,375,305$ 4,107,558$ (2)10,735,525$ 20.7% 2016 758,004 3,966,593 616,591 1,281,150 2,274,623 8,896,961 -0.6% 2015 656,925 3,856,276 685,555 1,232,920 2,521,078 8,952,754 15.2% 2014 522,286 3,537,162 729,961 1,317,736 1,661,992 7,769,137 -0.2% 2013 22,155 3,545,595 707,881 1,276,914 2,233,804 7,786,349 -14.9% 2012 436,596 3,502,155 696,863 1,222,060 3,288,111 9,145,785 4.4% 2011 854,440 3,895,938 653,012 1,185,573 2,174,690 8,763,653 0.2% 2010 1,323,844 3,973,328 670,784 1,083,988 1,693,942 8,745,886 -37.7% 2009 2,252,335 4,586,823 625,065 1,029,506 5,545,344 (1)14,039,073 3.5% 2008 4,538,791 4,591,023 744,722 962,929 2,729,277 13,566,742 22.3% (1) The District received a large, one-time legal settlement as a member of a class action lawsuit in FY 2009. (2) Miscellaneous revenue includes $1.8 million of capacity fee drawdown from contributed capital. Source: Otay Water District Non-Operating Revenues by Source - Last Ten Fiscal Years $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Non-Operating Revenues, in Thousands ($) 70 Fiscal Interest Percent Year Donations (1)Expense Miscellaneous Total Change 2017 125,742$ 5,069,767$ 3,068,596$ (4)8,264,105$ 33.1% 2016 120,722 4,603,093 1,485,778 6,209,593 3.7% 2015 117,462 4,545,530 1,324,155 5,987,147 -25.6% 2014 119,687 4,872,060 3,054,447 (3)8,046,194 33.8% 2013 120,684 3,977,538 1,917,389 6,015,611 6.8% 2012 121,617 3,899,927 1,612,914 (2)5,634,458 35.6% 2011 120,648 3,877,531 158,337 4,156,516 48.0% 2010 100,240 2,404,530 303,541 2,808,311 -9.6% 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% (1) Donations are contributions to the Water Conservation Authority formed in 1999. See Note 9 in the Notes to Financial Statements for more information. (2) Miscellaneous expense includes $1.4 million of non-capitalizable expenses with corresponding miscellaneous revenues. In prior years these expenses and revenues were presented, net of revenue, in miscellaneous revenues. (3) Miscellaneous expense includes $2.3 million of non-capitalizable expenses which were partially funded by capacity revenue. (4) Miscellaneous expense includes $1.8 million of non-capitalizable expenses which were primarily funded by capacity revenue. Source: Otay Water District Non-Operating Expenses by Function - Last Ten Fiscal Years - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Non-Operating Expenses, in Thousands ($) Miscellaneous Interest Expense Donations 71 Fiscal Total Direct Year Real Personal Total Tax Rate 2017 27,060,627,238$ 538,359,438$ 27,598,986,676$ 1.00% 2016 25,506,243,489 551,455,064 26,057,698,553 1.00% 2015 24,109,906,912 572,400,598 24,682,307,510 1.00% 2014 22,739,584,104 564,518,965 23,304,103,069 1.00% 2013 22,253,255,369 583,080,854 22,836,336,223 1.00% 2012 22,556,489,450 588,978,085 23,145,467,535 1.00% 2011 22,997,752,952 521,424,896 23,519,177,848 1.00% 2010 23,671,616,006 527,200,694 24,198,816,700 1.00% 2009 26,269,630,081 482,465,611 26,752,095,692 1.00% 2008 25,333,821,005 568,975,196 25,902,796,201 1.00% Source: County of San Diego Auditor and Controller Last Ten Fiscal Years Assessed Valuation of Taxable Property within the District - $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Assessed Valuation of Property, In Thousands ($) 72 Fiscal Year Purchases Sales Production Purchases Sales 2017 11,762,115 11,251,664 242,800 1,386,600 1,625,790 2016 11,108,105 10,475,379 439,650 1,163,117 1,591,677 2015 13,198,201 12,744,425 443,090 1,447,737 1,841,956 2014 14,554,049 13,720,119 503,120 1,664,630 2,068,330 2013 13,888,496 13,189,042 486,610 1,415,610 1,878,950 2012 13,304,444 12,510,894 285,190 1,381,300 1,652,833 2011 13,007,365 12,363,608 461,060 1,293,310 1,676,775 2010 13,580,004 12,749,799 449,771 1,250,873 1,774,563 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 (1) Rates are not presented on this schedule because the District has multiple water rates for various meter sizes and customer classes and cannot represent rates in a meaningful manner with a weighted average rate. See Water and Sewer rates on pages 77-79 for meter sizes and their corresponding water rates. Source: Otay Water District Per 100 Cubic Feet Water Purchases, Production, and Sales - Last Ten Fiscal Years Recycled Water (1) Per 100 Cubic Feet Potable Water (1) 0 50,000 100,000 150,000 200,000 2008 2009 2010 2011 2012 2013 2014 2015 2015 2016 2017 Recycled Purchases Recycled Production Potable Purchases Water Purchases, Productions, and Sales, in Hundred Cubic Feet (HCF) 73 Fiscal Year Total (1) 2017 109 9 118 2016 116 4 120 2015 138 8 146 2014 195 3 198 2013 305 5 310 2012 457 24 481 2011 283 9 292 2010 288 17 305 2009 113 44 157 2008 224 22 246 (1) Meters may not be activated in the year sold. Source: Otay Water District Meter Sales by Type - Last Ten Fiscal Years Potable Recycled 0 200 400 600 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Meter Sales by Type Recycled Potable 74 Fiscal Year Potable Recycled Sewer Total 2017 49,502 721 4,683 54,906 2016 49,425 708 4,677 54,810 2015 49,308 705 4,679 54,692 2014 49,148 702 4,657 54,507 2013 48,962 704 4,655 54,321 2012 48,665 696 4,655 54,016 2011 48,154 685 4,655 53,494 2010 47,845 683 4,646 53,174 2009 47,689 671 4,638 52,998 2008 47,593 626 4,627 52,846 Source: Otay Water District Number of Customers by Service Type - Last Ten Fiscal Years 5,000 15,000 25,000 35,000 45,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Number of Customers by Service Type Sewer Recycled Potable 75 Fiscal Year 1% Property Tax Special Assessments Total Levies Total Collections (1) End of the Year Percent Collected 2017 3,539,836 1,999,480 5,539,316 5,532,395 100% 2016 3,367,615 1,998,874 5,366,489 5,127,563 96% 2015 3,276,296 2,012,420 5,288,716 5,071,336 96% 2014 3,032,618 2,096,409 5,129,027 4,885,718 95% 2013 3,014,180 2,139,415 5,153,595 4,790,286 93% 2012 3,115,841 2,108,269 5,224,110 4,809,293 92% 2011 3,156,446 2,497,117 5,653,563 5,199,833 92% 2010 3,622,861 2,179,270 5,802,131 5,272,728 91% 2009 3,661,961 2,455,211 6,117,172 5,591,554 91% 2008 3,437,810 2,561,574 5,999,384 5,612,821 94% (1) Levies and collections include Current Secured, Current Unsecured, and Supplemental Homeowners Exemptions. Source: Otay Water District Property Tax Levies and Collections - Last Ten Fiscal Years $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Levies and Collections, in Thousands ($) Levy Collections 76 Fixed Rates 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 System Fee by Meter Size Residential 3/4"15.91$ 18.91$ 19.39$ 16.19$ 16.74$ 14.58$ 14.58$ 14.58$ 13.83$ 12.30$ 1"22.47 26.71 27.39 22.87 21.26 18.52 18.52 18.52 17.56 19.80 1.5"38.88 46.22 47.40 39.58 32.57 28.37 28.37 28.37 26.90 51.95 Non-Residential & Others 3/4"15.91 18.91 19.39 16.19 16.74 14.58 14.58 14.58 13.83 24.00 1"22.47 26.71 27.39 22.87 21.26 18.52 18.52 18.52 17.56 36.95 1.5"38.88 46.22 47.40 39.58 32.57 28.37 28.37 28.37 26.90 51.95 2"58.55 69.61 71.39 59.62 46.13 40.18 40.18 40.18 38.10 64.95 3"111.04 132.02 135.41 113.08 82.29 71.68 71.68 71.68 67.98 104.55 4"170.10 202.24 207.43 173.22 122.99 107.13 107.13 107.13 101.59 119.70 6"334.18 397.31 407.50 340.29 236.02 205.59 205.59 205.59 194.96 239.20 8"531.05 631.37 647.56 540.76 371.64 323.73 323.73 323.73 307.00 - 10"760.72 904.44 927.63 774.64 529.88 461.57 461.57 461.57 437.71 456.60 CWA and MWD Pass-through charges by Meter Size Residential 3/4"15.00 16.84 13.67 14.45 13.28 14.01 11.82 9.77 4.33 3.85 1"27.84 31.24 25.35 26.79 22.12 23.33 19.69 16.28 6.91 6.15 1.5"62.96 70.66 57.35 60.61 44.31 46.74 39.44 32.61 13.04 11.60 Non-Residential & Others 3/4"15.00 16.84 13.67 14.45 13.28 14.01 11.82 9.77 4.33 3.85 1"27.84 31.24 25.35 26.79 22.12 23.33 19.69 16.28 6.91 6.15 1.5"62.96 70.66 57.35 60.61 44.31 46.74 39.44 32.61 13.04 11.60 2"107.08 120.17 97.53 103.08 70.85 74.74 63.07 52.15 22.54 20.05 3"227.75 255.60 207.44 219.23 141.71 149.48 126.14 104.30 41.53 36.95 4"364.72 409.32 332.20 351.09 221.43 233.58 197.17 162.98 70.98 63.15 6"746.59 837.89 680.02 718.69 442.80 467.09 394.17 325.92 129.82 115.50 8"1,205.65 1,353.09 1,098.15 1,160.59 708.53 747.39 630.71 521.51 374.62 - 10"1,735.39 1,947.62 1,580.67 1,670.55 1,015.06 1,070.74 903.58 749.61 538.52 300.30 Fire Services All Types 30.11 30.11 30.11 28.55 25.40 Less than 3 inch 20.77 24.69 25.32 21.14 34.57 4 inch and higher 27.98 33.27 34.12 28.49 34.57 Source: Otay Water District Water Fixed Rates - Last Ten Fiscal Years 77 Usage Rate (1)2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Tier 1 2.53$ 2.13$ 1.95$ 1.86$ 1.73$ 1.58$ 1.49$ 1.35$ 1.12$ 1.12$ Tier 2 3.95 3.32 3.04 2.90 2.69 2.45 2.31 2.10 1.74 1.85 Tier 3 5.13 4.32 3.95 3.77 3.50 3.19 3.00 2.73 2.26 2.01 Tier 4 7.90 6.65 6.08 5.80 5.39 4.92 4.63 4.21 3.48 2.94 Tier 1 3.90 3.28 3.00 2.86 2.66 2.43 2.29 2.08 1.72 1.85 Tier 2 5.05 4.25 3.89 3.71 3.45 3.15 2.97 2.70 2.23 2.01 Tier 3 7.80 6.56 6.00 5.73 5.32 4.85 4.57 4.15 3.43 2.94 Publicly-Owned (2)2.06 Commercial & Others (3)1.98 Government Fee (2)0.41 0.37 0.32 0.31 0.29 0.29 0.29 0.29 0.29 0.28 Tier 1 4.17 3.51 3.21 3.06 2.84 2.59 2.44 2.22 1.84 Tier 2 4.23 3.56 3.26 3.14 2.92 2.66 2.50 2.27 1.88 Tier 3 4.30 3.62 3.31 3.19 2.96 2.70 2.54 2.31 1.91 Tier 1 5.68 4.78 4.37 4.17 3.87 3.53 3.32 3.02 2.50 Tier 2 5.74 4.83 4.42 4.25 3.95 3.60 3.39 3.08 2.55 Tier 3 5.81 4.89 4.47 4.32 4.01 3.66 3.45 3.14 2.60 Recycled (Commercial)1.67 Recycled (Publicly-Owned) (2)1.75 Tier 1 4.85 4.08 3.73 3.56 3.31 3.02 2.84 2.58 2.13 Tier 2 4.92 4.14 3.79 3.61 3.35 3.06 2.88 2.62 2.17 Tier 3 4.99 4.20 3.84 3.68 3.42 3.12 2.94 2.67 2.21 Energy Pumping Fee Per 100 cubic feet (4)0.044 0.072 0.050 0.048 0.042 0.045 0.044 0.038 0.034 0.034 (1) Effective 2009, all non-residential customers are charged based on a tiered rate system in which the water rates are based on meter size and amount of water units consumed each month. (2) An additional $.41 per unit was charged to governmental customers in lieu of tax revenues. (3) Others include agricultural and temporary meters. (4) Water customers are charged an energy pumping charge based on the quantity of water used and the elevation to which the water has been lifted to provide service. The energy pumping charge is the rate of $.044 per 100 cubic feet of water for each 100 feet of lift above the base elevation of 450 feet. All water customers are in one of twenty-nine zones based on elevation. Source: Otay Water District Water Variable Rates - Last Ten Fiscal Years Recycled Public Agency & Commercial Landscape, Agricultural & Construction Master Meter Residential 78 Description 2017 2016 2015 2014 2013** 2012 2011 2010 2009 2008* 1 Unit 2.58$ 2.46$ 2.46$ 2.46$ 2.35$ 1.77$ 1.67$ 1.56$ 1.47$ 1.41$ Low Strength 2.58 2.46 2.46 2.46 2.35 Medium Strength 3.70 3.53 3.53 3.53 3.37 High Strength 5.90 5.63 5.63 5.63 5.37 Sewer Rate Per ASU 41.75 39.39 36.88 34.79 33.26 3/4"15.89 27.07 15.89 15.89 14.38 12.26 11.57 10.80 10.20 9.75 1"15.89 27.07 15.89 15.89 14.38 17.88 16.87 15.75 14.90 14.25 3/4"28.37 27.07 27.07 27.07 25.83 1"41.80 39.86 39.86 39.86 38.03 1.5"75.27 71.82 71.82 71.82 68.53 2"115.46 110.17 110.17 110.17 105.12 3"209.24 199.66 199.66 199.66 190.52 4"343.23 327.51 327.51 327.51 312.51 6"678.18 647.12 647.12 647.12 617.48 8"1,080.14 1,030.67 1,030.67 1,030.67 983.46 10"1,549.07 1,478.12 1,478.12 1,478.12 1,410.42 Calculation of Monthly Residential Sewer Billing: *Bill calculation prior to calendar year 2008: Sewer Rate per ASU (9) Bill calculation beginning calendar year 2008: (Winter Average (8) x .85 (2) x Usage Fee) + Fixed Fee (7) Calculation of Monthly Non-Residential Sewer Billing: Footnotes: (1) Flow in gallons per day (Flow) is calculated using monthly readings from account's water meter. (2) Flow is reduced by 15% to reflect that not all water purchased is disposed of into the public sewer system. (3) Flow is divided by 250 gallons per day to convert it into terms of residential equivalence. (4) Strength factors for business customers are categorized as low, medium or high strength. (5) The average annual usage is defined as the units of water billed from January-December of previous year. (6) The usage fee is based on the commercial account's strength factor as shown on the usage fee table as being either Low, Medium, or High. (7) The fixed rate is based on the size of the water meter. (8) The winter average for a residential customer is defined as the units of water billed from January-April of the previous calendar year divided by the number of months of service. (9) The ASU (assigned service unit) is then multiplied by the district-wide sewer rate. Source: Otay Water District **Bill calculation prior to calendar year 2012: ((Flow in gallons per day (1) x .85 (2)/250 (3))) x Strength Factor (4) Bill calculation beginning calendar year 2013: ((Average Annual Usage (5) x .85 (2)/250 (3) x Usage Fee (6))) + Fixed Fee (7) Residential Non-Residential Residential Sewer Variable and Fixed Rates - Last Ten Fiscal Years Non-Residential Fixed Rates Usage Fee 79 Customer Customer Annual % of Water Name Type Revenues Sales 1. City of Chula Vista Publicly Owned 3,620,279$ 4.3% 2. State of California Publicly Owned 950,739 1.1% 3. Eastlake III Community Commercial 901,399 1.1% 4. County of San Diego Publicly Owned 864,096 1.0% 5. Homefed Otay Land II, LLC Commercial 692,260 0.8% 6. Chula Vista School District Publicly Owned 604,169 0.7% 7. EastLake Country Club Commercial 505,967 0.6% 8. Steele Canyon Golf Club LLC Commercial 474,689 0.6% 9. Sweetwater School District Publicly Owned 408,549 0.5% 10. Windingwalk Master Association Commercial 403,636 0.5% Total Top Ten Customers 9,425,783$ 11.2% Other Customers 74,294,367 88.8% Total Water Sales 83,720,150$ 100.0% Customer Customer Annual % of Water Name Type Revenues Sales 1. City of Chula Vista Publicly Owned 1,934,992$ 3.8% 2. State of California Publicly Owned 961,095 1.9% 3. County of San Diego Publicly Owned 772,190 1.5% 4. Eastlake III Community Construction (Potable Temporary)602,122 1.2% 5. Eastlake Country Club Irrigation (Recycled Permanent)399,287 0.8% 6. Steele Canyon Irrigation (Recycled Permanent)359,162 0.7% 7. Salt Creek Partners LLC Irrigation (Recycled Permanent)349,322 0.7% 8. Eastlake Summit Master Metered 316,696 0.6% 9. Sweetwater School District Publicly Owned 294,320 0.6% 10. Otay Project LP Construction (Potable Temporary)271,068 0.5% Total Top Ten Customers 6,260,254$ 12.3% Other Customers 44,548,571 87.7% Total Water Sales 50,808,825$ 100.0% Source: Otay Water District Ten Largest Customers - Current Year and Nine Years Ago Fiscal Year 2017 Fiscal Year 2008 80 As a Share Fiscal Population GO Revenue Capital Per of Personal Year Estimate Bond COPS Bonds Notes Leases Total Capita Income(1) 2017 224,000 4,079,498$ 8,192,548$ 87,134,618$ -$ -$ 99,406,664$ 443.78$ 0.78% 2016 220,000 4,680,853 8,791,803 (3)90,218,686 - - 103,691,342 471.32 0.84% 2015 217,000 5,267,208 44,990,103 54,887,993 - - 105,145,304 484.54 0.90% 2014 213,000 5,833,563 46,475,314 56,508,490 - - 108,817,367 510.88 0.99% 2013 211,000 6,384,918 47,920,525 (2)58,158,987 - - 112,464,430 533.01 1.06% 2012 208,500 6,921,271 58,023,740 50,321,421 - - 115,266,432 552.84 1.14% 2011 206,500 6,803,577 59,715,531 51,180,822 6,010 - 117,705,940 570.00 1.19% 2010 206,000 7,283,127 61,489,612 51,255,224 359,744 - 120,387,707 584.41 1.28% 2009 195,000 7,726,575 63,213,693 - 701,516 - 71,641,784 367.39 0.83% 2008 191,500 8,093,302 64,892,774 - 1,031,730 - 74,017,806 386.52 0.85% (1) See the Demographics and Economic Statistics schedule on page 87 for personal income data. (2) 2004 COPS were refunded with the issuance of 2013 Water Revenue Refunding Bonds in June 2013. (3) 2007 COPS were refunded with the issuance of 2016 Water Revenue Refunding Bonds in May 2016. Source: Otay Water District Ratios of Outstanding Debt by Type - Last Ten Fiscal Years $0 $100 $200 $300 $400 $500 $600 $700 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Outstanding Debt, Per Capita 81 Adjusted Net Revenues Fiscal Adjusted Operating Available for Debt Service Requirements (4)Coverage Year Revenues (1)Expenses (2)Debt Service Principal Interest Total Factor (3) 2017 94,551,308$ 79,062,983$ 15,488,325$ 3,335,000$ 4,420,433$ 7,755,433$ 200% 2016 85,417,850 72,117,631 13,300,219 3,120,000 4,640,947 7,760,947 171% 2015 89,646,845 74,320,591 15,326,254 2,945,000 4,767,618 7,712,618 199% 2014 90,948,021 75,575,679 15,372,342 2,935,000 4,895,622 7,830,622 196% 2013 81,778,447 70,228,987 11,549,460 2,800,000 4,988,640 7,788,640 148% 2012 74,484,691 64,028,686 10,456,005 1,850,000 6,050,746 7,900,746 132% 2011 69,653,627 60,117,245 9,536,382 1,795,000 5,084,450 6,879,450 139% 2010 65,573,058 57,084,904 8,488,154 1,745,000 2,720,258 4,465,258 190% 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% (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 125%. (4) Pledge debts are Certificates of Participation (COPS) and Revenue Bonds. Source : Otay Water District Pledged Revenue Coverage - Last Ten Fiscal Years 00% 50% 100% 150% 200% 250% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Coverage Factor, in Percentage (%) Actual Ratio Minimum Ratio 82 Net Bonded Net Debt to Net Bonded Fiscal Population Assessed Bonded Assessed Debt Per Year Estimate Valuation Debt Valuation Capita 2017 224,000 27,598,986,676$ 4,079,498$ 0.01%18.21 2016 220,000 26,057,698,553 4,680,853 0.02%21.28 2015 217,000 24,682,307,510 5,267,208 0.02%24.27 2014 213,000 23,304,103,069 5,833,563 0.03%27.39 2013 211,000 22,836,336,223 6,384,918 0.03%30.26 2012 208,500 23,145,467,535 6,921,271 0.03%33.20 2011 206,500 23,519,177,848 6,803,577 0.03%32.95 2010 206,000 24,198,816,700 7,283,127 0.03%35.35 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 Source: Otay Water District Ratios of General Bonded Debt Outstanding - Last Ten Fiscal Years 0.00% 0.01% 0.02% 0.03% 0.04% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Bonded Debt Ratios, in Percentage (%) 83 Computation of Direct and Overlapping Bonded Debt June 30, 2017 2016-17 Assessed Valuation: $27,598,986,676 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Otay Water District Improvement District No. 27 Grossmont-Cuyamaca Community College District Southwestern Community College District Grossmont Union High School District Sweetwater Union High School District Chula Vista City School District and School Facilities Improvement District San Ysidro School District Other School Districts Grossmont Healthcare District City of Chula Vista Community Facilities District Sweetwater Union High School District Community Facilities Districts City 1915 Act Bonds California Statewide Communities Development Authority San Diego County / Venture Community Center Assessment District TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations San Diego County Pension Obligation Bonds San Diego Superintendent of Schools Certificates of Participation Otay Water District Grossmont and Southwestern Community College District General Fund Obligations Grossmont Union High School District Certificates of Participation Sweetwater Union High School District Certificates of Participation Chula Vista City School District Certificates of Participation San Ysidro School District Certificates of Participation Other School District Certificates of Participation City of Chula Vista Certificates of Participation City of San Diego General Fund Obligations San Miguel Consolidated Fire Protection District Certificates of Participation TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT Less: Otay Water District Revenue Certificate of Participation & Revenue Bonds (100% self-supporting) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT Total Debt District’s Share of 6/30/17 % Applicable (1) Debt 6/30/17 $ 74,905,000 1.066% $ 798,487 4,079,498 100. 4,079,498 231,455,364 15.214 35,213,619 326,088,676 41.073 133,934,402 554,893,365 15.599 86,557,816 391,939,739 49.018 192,121,021 132,330,000 61.487 & 24.793 50,696,902 127,867,132 49.647 63,482,195 4,393,044,780 Various 56,603,362 263,913,330 13.830 36,499,214 133,015,000 100. 133,015,000 90,380,607 10.894-100. 84,459,682 9,185,,000 100. 9,185,000 992,767 100. 992,767 $ 887,638,965 $ 291,180,000 5.907% $ 17,200,003 605,520,000 5.907 35,768,066 11,800,000 5.907 697,026 95,327,166 100. 95,327,166 1,680,000 15.214 & 41.073 485,741 340,000 15.599 53,037 43,565,000 49.018 21,354,692 158,000,000 61.487 97,149,460 41,219,715 49.647 20,464,352 24,105,000 Various 5,761,577 106,025,000 69.586 73,778,557 570,460,000 0.808 4,609,317 2,440,000 51.958 1,267,775 $ 373,916,769 95,327,166 $ 278,589,603 Continued 84 Computation of Direct and Overlapping Bonded Debt - continued OVERLAPPING TAX INCREMENT DEBT (Successor Agency): TOTAL GROSS DIRECT DEBT TOTAL NET DIRECT DEBT TOTAL OVERLAPPING DEBT COMBINED TOTAL DEBT Ratios to 2016-17 Assessed Valuation: Direct Debt ($4,079,498) ........................................................................... 0.01% Total Overlapping Tax and Assessment Debt .......................................... 3.22 % Combined Total Debt............................................................................................. 4.24% Ratios to Redevelopment Successor Agency Incremental Valuation ($301,877,394): Total Overlapping Tax Increment Debt ........................................................ 1.67% (1) The percentage of overlapping debt applicable to the district is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the water district divided by the overlapping district's total taxable assessed value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. (3) Excludes $95,327,166 certificates of participation and revenue bonds supported by water revenues and backed by a rate covenant. Source: California Municipal Statistics, Inc. and Otay Water District $29,315,000 17.181% $5,036,610 $99,406,664 $4,079,498 (3) $ 1,167,185,680 $ 1,171,180,680 (2) 85 2008 % of Total % of Total County County Employer Employees Rank Employment Employees Rank Employment UC San Diego 30,671 1 2.04% 24,790 4 1.71% Sharp HealthCare 17,809 2 1.19% 13,872 8 0.96% Scripps Health 14,863 3 0.99% 10,313 9 0.71% City of San Diego 11,347 4 0.76% 20,700 6 1.43% Kaiser Permanente 8,406 5 0.56% 7,386 10 0.51% UC San Diego Health System 7,438 6 0.50%- -- San Diego Community College District 5,902 7 0.39%- - - General Atomics Aeronautical Systems Inc 5,480 8 0.37%- - - Rady Children's Hospital-San Diego 5,129 9 0.34%- - - YMCA of San Diego County 5,102 10 0.34%- - - United States Navy (1)- --42,000 1 2.90% Federal Government (1)- --39,100 2 2.70% State of California (1)- --37,100 3 2.56% San Diego Unified School District (1)- --21,073 5 1.45% County of San Diego (1)- --18,900 7 1.30% Total 112,147 7.48% 235,234 16.23% Diego Unified School District, and County of San Diego declined to participate in the survey organized by the San Diego Business Journal. Source: Book of Lists, San Diego Business Journal. Principal Employers - Current Year and Nine Years Ago 2017 (1) For Fiscal Year ending June 30, 2017, the United States Navy, Federal Government, State of California, San 86 Personal Per Capita Fiscal Income Personal Unemployment Year Population (in 000'S)Income Rate 2017 (1) 3,378,000 192,107,000$ 57,085$ 4.37% 2016 3,340,000 183,056,000 56,400 4.86% 2015 3,275,500 177,300,000 54,100 5.75% 2014 3,212,300 172,900,000 54,000 7.11% 2013 3,182,100 161,100,000 50,288 7.40% 2012 3,143,429 154,200,000 48,674 9.30% 2011 3,140,069 149,600,000 47,776 10.40% 2010 3,095,313 137,525,000 45,627 10.50% 2009 3,173,407 134,696,000 44,412 10.20% 2008 3,001,072 143,783,000 45,728 6.00% (1) Forecast Source: SANDAG; Census 2010, California Department of Finance; LAEDC-Los Angeles Economic Development Corp. Demographic and Economic Statistics - Last Ten Fiscal Years 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Unemployment Rate, in Percentage (%) 87 Department 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 General Manager 6555 5 5 6 6 6 6 Finance 31323434 36 39 42 45 44 43 Operations/Maintenance 51 51 51 51 54 54 54 56 58 60 Engineering 24 24 24 25 24 26 26 26 28 31 Administrative Services 23 26 26 28 29 31 31 33 33 33 Total 135 138 140 143 148 155 159 166 169 173 Source : Otay Water District Number of Employees by Function - Last Ten Fiscal Years 125 130 135 140 145 150 155 160 165 170 175 180 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Employees 88 Meter Size 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 3/4" & 5/8" 44,423 44,413 44,395 44,375 44,354 44,376 44,065 43,815 43,641 43,551 1"2,800 2,756 2,674 2,557 2,412 2,099 1,881 1,815 1,804 1,747 1-1/2" 1,349 1,342 1,335 1,332 1,333 1,326 1,317 1,317 1,309 1,275 2"1,301 1,299 1,294 1,293 1,295 1,277 1,278 1,292 1,299 1,283 3"87 82 81 77 76 75 75 75 75 76 4"232 210 207 189 169 180 193 184 202 258 6"22 22 18 18 18 19 21 22 21 19 Others 9 9 9 9 9 9 9 8 9 10 Total 50,223 50,133 50,013 49,850 49,666 49,361 48,839 48,528 48,360 48,219 % Change 0.2% 0.2% 0.3% 0.4%0.6% 1.1% 0.6% 0.3% 0.3% 0.4% Increase 90 120 163 184 305 522 311 168 141 171 Source: Otay Water District Active Meters by Size - Last Ten Fiscal Years 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Active Meters by Size 89 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 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 727.0 727.0 727.0 726.0 725.0 724.0 723.0 723.0 722.0 722.0 40 40 40 40 40 40 40 40 38 36 Water Storage Capacity (in Acre-Feet) 672.0 672.0 668.0 668.0 667.8 670.8 673.8 663.8 655.5 605.5 Total Potable Water Connections (No. of Meters in Service)49,596 49,534 49,308 49,148 48,962 48,665 48,154 47,845 47,689 47,593 Number of Pump Stations 21 21 21 21 21 21 21 21 21 21 Number of Potable Water Valves 20,746 20,746 20,676 20,460 20,317 20,317 19,522 19,522 19,192 19,131 Sewer System Miles of Sewer Lines 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 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 (in Million Gallons)393 336 388 405 422 423 481 474 483 503 Recycled System Miles of Recycled Water Mains 104.0 104.0 104.0 102.0 99.0 99.0 98.0 98.0 97.0 93.0 Number of Pumping Facilities 3 3 3 3 3 3 3 3 3 3 Number of Operational Storage Reservoirs in Service 4 4 4 4 4 4 4 4 4 4 Number of Acre-Feet Storage 134.2 134.2 134.2 134.2 134.1 134.1 134.1 134.1 133.2 135.0 Total Recycled Water Connections 730 710 705 702 704 696 685 683 671 626 Number of Recycled Water Valves 1,497 1,497 1,492 1,473 1,430 1,430 1,380 1,380 1,338 1,314 Source: Otay Water District Operating and Capital Indicators - Last Ten Fiscal Years Number of Operational Storage Reservoirs in Service 550 600 650 700 750 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Potable Water Mains, in Miles 90