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HomeMy WebLinkAbout10-20-21 F&A Committee Packet 1 OTAY WATER DISTRICT FINANCE AND ADMINISTRATION COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS BY TELECONFERENCE 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA WEDNESDAY October 20, 2021 12:00 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURIS- DICTION INCLUDING AN ITEM ON TODAY'S AGENDA This meeting is being held via teleconference. Members of the public may submit their comments on agendized and non-agendized items by either of the following two meth- ods: a) If you wish to provide public comment directly - that is, live during the “Public Participation” portion of the meeting - please complete and submit a Request to Speak Form via email to BoardSecretary@otaywater.gov before the start of the meeting. Your request to speak will be acknowledged during the “Public Partic- ipation” portion of the meeting when the Board will hear your comment. When called to speak, please state your Name and the City in which you reside. You will be provided three minutes to speak. The Board is not permitted to enter in- to a dialogue with the speaker during this time. OR b) If you wish to have your comment read to the Board during the “Public Partici- pation” portion of the meeting, please email your comment to BoardSecre- tary@otaywater.gov at least thirty minutes prior to the start of the meeting, and it will be read aloud during the “Public Participation” portion of the meeting. Please provide your Name and the City in which you reside, with your com- ment. Your comment must not take more than three minutes to read. The Board is not permitted to respond to written public comment during this time. 2 The District’s meeting is live streamed. Information on how to watch and listen to the District’s meeting can be found at this link: https://otaywater.gov/board-of- directors/agenda-and-minutes/committee-meetings/ DISCUSSION ITEMS 3. ADOPT RESOLUTION NO. 4402 REQUIRED FOR A GRANT FUNDING APPLICATION SUBMITTED TO THE UNITED STATES BUREAU OF RECLAMATION’S WATERSMART: WATER AND ENERGY EFFICIENCY GRANT FUNDING PROGRAM FOR FISCAL YEAR 2022 (CAREY/COBURN-BOYD) [5 minutes] 4. APPROVE THE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2021 (DYCHITAN) [5 minutes] 5. AUTHORIZE A TWO-YEAR FIXED AGREEMENT AND (3) THREE ONE-YEAR OPTIONS WITH NATURESCAPE SERVICES, INC., FOR LANDSCAPE MAINTENANCE SERVICES IN AN AMOUNT NOT-TO-EXCEED $617,724.00 (PAYNE) [5 minutes] 6. AUTHORIZE A TWO-YEAR FIXED AGREEMENT, PLUS (3) THREE ONE-YEAR OPTIONS WITH AZTEC JANITORIAL SERVICES, FOR JANITORIAL SERVICES IN AN AMOUNT NOT-TO-EXCEED $525,181.20 (PAYNE) [5 minutes] 7. ADJOURNMENT BOARD MEMBERS ATTENDING: Mark Robak, Chair Jose Lopez All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis- trict’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available by contacting the District Secretary at (619) 670-2253. If you have any disability which would require accommodation in order to enable you to par- ticipate in this meeting, please call the District Secretary at 670-2253 at least 24 hours prior to the meeting. Certification of Posting I certify that on October 15, 2021 I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 3 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on October 15, 2021. /s/ Tita Ramos-Krogman, District Secretary STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 3, 2021 SUBMITTED BY: Andrea Carey, Customer Service Manager Lisa Coburn-Boyd, Environmental Compliance Specialist PROJECT NO: DIV. NO.All APPROVED BY: Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: Adopt Resolution No. 4402 as Required for a Grant Funding Application for the United States Bureau of Reclamation’s WaterSMART: Water and Energy Efficiency Grant Project Funding for Fiscal Year 2022 GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Resolution No. 4402 (Attachment B) required for a grant funding application to be submitted to the United States Bureau of Reclamation’s WaterSMART: Water and Energy Efficiency Grant (WEEG) funding program for Fiscal Year 2022. Resolution No. 4402 verifies that the Otay Water District (District) General Manager (GM) is authorized to review the application and execute the agreement that provides for the District to provide the minimum 50% funding match, and that District staff will meet all deadlines for entering into the grant agreement for the District’s Phase One Advanced Meter Infrastructure (AMI) and Customer Engagement Portal Project. COMMITTEE ACTION: Please see Attachment A. PURPOSE: The Board’s adoption of Resolution No. 4402 is a requirement for an application that will be submitted by District staff, no later than AGENDA ITEM 3 2 the submittal deadline of November 3, 2021, for grant funds through the United States Bureau of Reclamation’s WaterSMART: WEEG funding program for Fiscal Year 2022. The Resolution verifies that the District GM is authorized to enter into an agreement with the United States Bureau of Reclamation (USBR), and review and support the application. It also commits the District to providing the minimum 50% funding match specified in the funding plan for the application and that District staff will work with USBR to meet all deadlines for entering into the grant agreement. Although the application will be submitted on or before the due date of November 3, 2021, the required Board Resolution can be provided up to 30 days after submittal of the application. ANALYSIS: In October 2021, District staff worked with an as-needed project funding consultant, Hoch Consulting, to complete a grant application for the Phase One AMI and Customer Engagement Portal Project for submittal to the USBR’s WaterSMART: WEEG funding program opportunity for Fiscal Year 2022. The Phase One AMI and Customer Engagement Portal Project (Phase One Project) will enhance the District’s existing meter program. In 2016, the District began an Automated Meter Reading (AMR) Change Out CIP to change out aging AMR registers for all ¾”-2” meters. From 2016-2020, all District ¾”-2” meters had a register replacement. To take advantage of warranty pricing, approximately 18,000 registers were replaced with existing 3G technology which only allows meters to be read by a meter reader driving by the meter and picking up the read via a transponder in the register. However, a larger percentage (approximately 32,000) were upgraded to 4G technology, which permits reads by both driving by the meter and AMI. AMI allows the meters to automatically upload meter reads to data collectors located on District facilities and is relayed directly to the office. AMI uses radio-based technology to read water meters, and this eliminates the need for deploying a vehicle to collect the meter reads. Currently, the District reads all meters via drive-by on a monthly basis as it does not have infrastructure in place to read meters via AMI. In June 2021, District staff met with Master Meter to discuss the installation of AMI throughout the District. Master Meter produced a propagation study and, based on the results, the General Manager recommends that District staff move forward with the installation of AMI throughout the District’s service area. The Phase One Project, which is the scope of work in the current WEEG grant application, will result in the ability to remotely read approximately 24,000 meters (45% of the District’s total meter count). The work to be 3 completed in this phase will consist of the installation of two base stations and seven repeaters at existing District locations, as well as the implementation of a customer engagement portal. A customer engagement portal will allow customers whose meters are included in the first phase to see their reads in real-time, get analytics on their usage as it compares to others in the District, and sign up for various alerts such as high usage or leak notifications. The Phase One Project will begin in July 2022 with substantial completion by December 2023. The cost of this first phase is approximately $400,000.00. If awarded, the USBR would supply 50% of the money needed with the District committed to supply the remainder. Funds for AMI installation have been included in the current six-year Capital Improvement Program (CIP). Additional costs for software licensing or a customer portal will be budgeted in the Fiscal Year 2023 and 2024 Operating Budgets. The District intends to apply again to this program for additional funding of future phases of the project. FISCAL IMPACT: Joseph Beachem, Chief Financial Officer The adoption of Resolution No. 4402 commits the District to providing the minimum 50% funding match specified in the funding plan application if the grant is awarded to the District by USBR. AMI installation is included in the current six-year CIP budget, customer engagement and software fees will be included in the proposed Fiscal Year 2023 and 2024 Operating Budgets. STRATEGIC GOAL: This project supports the District’s Mission Statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices." LEGAL IMPACT: None. Attachments: Attachment A – Committee Action Attachment B – Resolution No. 4402 ATTACHMENT A SUBJECT/PROJECT: Adopt Resolution No. 4402 as Required for a Grant Funding Application for the United States Bureau of Reclamation’s WaterSMART: Water and Energy Efficiency Grant Project Funding for Fiscal Year 2022 COMMITTEE ACTION: The Finance & Administration Committee (Committee) reviewed this item at a meeting held on October 20, 2021. The Committee supported Staff's recommendation. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a Committee approved item or modified to reflect any discussion or changes as directed from the Committee prior to presentation to the full Board. RESOLUTION NO. 4402 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AUTHORIZING WATERSMART: WATER AND ENERGY EFFICIENCY GRANT FOR FISCAL YEAR 2022 WHEREAS, the United States Bureau of Reclamation (USBR) is soliciting applications for authorized projects for WaterSMART: Water and Energy Efficiency Grant (Program) funding for Fiscal Year 2022 per Funding Opportunity Announcement No. R22AS00023; and WHEREAS, the Otay Water District has 52,000 active water meters in the system and desires to implement a project to convert a portion of the meters to Advanced Meter Infrastructure; and WHEREAS, The Otay Water District has prepared and submitted a grant application under this Program for Fiscal Year 2022 with an application due date of November 3, 2021; and WHERAS, USBR has directed applicants to include in its application an official resolution adopted by the applicant’s board of directors or governing body verifying 1) the identity of the official with legal authority to enter into an agreement, 2) the board of directors, governing body, or appropriate official who has reviewed and supports the application submitted, 3) the capability of the applicant to provide the amount of funding and/or in-kind contributions specified in the Attachment B funding plan, 4) that the applicant will work with USBR to meet established deadlines for entering into a grant or cooperative agreement. NOW, THEREFORE, BE IT RESOLVED as follows: 1. The General Manager or his designee is authorized to submit an application to the United States Bureau of Reclamation (USBR) to obtain a WaterSMART: Water and Energy Efficiency Grant (Program) funding for Fiscal Year 2022 per Funding Opportunity Announcement No. R22AS00023; and 2. The General Manager has reviewed and supports the application submitted on or about the 3rd day of November 2021; and 3. The Otay Water District is able to provide the minimum 50% funding match specified in the funding plan for the application; and 4. The Otay Water District’s Customer Service Manager is hereby authorized and directed to prepare the necessary data, conduct investigations, and facilitate the filing such application. 5. The General Manager is authorized to execute a grant agreement with the USBR in association with this application process. 6. The Otay Water District will work with the USBR to meet established deadlines required for entering into a cooperative agreement to obtain the aforementioned grant funding. PASSED, APPROVED, AND ADOPTED by the Board of Directors of the Otay Water District at a regular board meeting held this 3rd day of November 2021, by the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: ________________________ President ATTEST: ________________________ District Secretary STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 3, 2021 SUBMITTED BY: Marissa Dychitan Senior Accountant PROJECT: DIV. NO. All APPROVED BY: Eid Fakhouri, Finance Manager Kevin Koeppen, Assistant Chief of Finance Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: Approve the Audited Financial Statements for the Fiscal Year Ended June 30, 2021 GENERAL MANAGER'S RECOMMENDATION: That the Board approve the Audited Financial Statements (Attachment B)including the Independent Auditors' unqualified opinion, for the fiscal year ended June 30, 2021. COMMITTEE ACTION: See Attachment A. PURPOSE: To inform the Board of the significant financial events which occurred during the fiscal year ended June 30, 2021, as reflected in the audited financial statements. ANALYSIS: Teaman, Ramirez & Smith, Inc., performed the audit and found that, in all material respects, the financial statements correctly represent AGENDA ITEM 4 2 the District's financial position. They found no material errors in the financial records or statements (Attachment D). Total Assets: Total assets increased by $11.9 million or 2.16% during Fiscal Year 2021, to $562.8 million, due to increases in cash and cash equivalents, accounts receivable, and improved operating results which were partially offset by depreciation. Deferred Outflows & Deferred Inflows: Deferred outflows increased by 3.4 million or 74.77% in Fiscal Year 2021 due primarily to the $1.2 million advance payment to CalPERS and an increase in differences between expected and actuarial experience in Other Post Employee Benefits (OPEB). Deferred inflows decreased by $2.2 million or 60.87% due to the amortization of the positive differences between expected and actuarial experience in Pension and OPEB. Total Liabilities & Net Positions: Total liabilities decreased by approximately $0.3 million from the previous fiscal year to $164.0 million. The decrease is attributable to the annual debt payment of $5.0 million partially offset by increases in the Net Pension and Net OPEB liabilities. The net position increased by $17.8 million or 4.59% to $405.3 million as of June 30, 2021. Capital Contributions: Capital contributions for Fiscal Year 2021 were $11.8 million. Capital contributions consist of developers contributing $7.8 million in capacity fees and $3.2 million in contributed fixed assets; and Caltrans contributes $0.3 million in reimbursements for utility relocations. Ratepayers also paid $0.5 million in availability fees, which are considered a part of capital contributions. Results of Operations: Operating revenues increased by $11.2 million or 11.68%, mainly due to increased water rates and sales volume due to below-average rainfall. The cost of water sales increased by $4.3 million or 6.90% due to increased unit purchase costs and water deliveries. 3 Non-Operating Revenues & Expenses: Non-operating revenues increased by $2.0 million or 18.30% for Fiscal Year 2021 due primarily to the $3.2 million settlement from Metropolitan Water District (MWD) partially offset by a decrease in investment income. Non-operating expenses decreased by $1.6 million or 23.40% due to decreases in the loss on capital asset retirement, interest expense, and CIP expenses that did not qualify as a capital expense. Conclusion: In summary, the overall audit process was a success, and the auditors found no material errors or misstatements in the District's financial statements. Additional Audit Correspondence: As a part of completing the audit engagement, Teaman, Ramirez and Smith, Inc., also provided the following letters summarizing their observations and conclusions concerning the District's overall financial processes: • Management Letter: The auditors did not identify any internal control deficiencies that they considered material weaknesses. (Attachment C). • Audit Committee Letter: This letter describes overall aspects of the audit, including audit principles, performance, dealings with management, and significant findings or issues. There were no transactions entered into by the District during the year for which there was a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. There were no disagreements with management concerning financial accounting, reporting, or auditing matters, and there were no significant difficulties in dealing with management in performing the audit. (Attachment D). • Report on Applying Agreed-Upon Procedures: A review of the District's investment portfolio at year-end and a sample of specific investment transactions completed throughout the fiscal year were performed. There were no exceptions to 4 compliance from the District's Investment Policy. (Attachment E). FISCAL IMPACT: None. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning, formalized financial policies, enhanced budget controls, fair pricing, debt planning, and improved financial reporting. LEGAL IMPACT: None. Attachments: A) Committee Action B) Audited Annual Financial Statements C) Management Letter D) Audit Committee Letter E) Report on Applying Agreed-Upon Procedures ATTACHMENT A SUBJECT/PROJECT: Approve the Audited Financial Statements for the Fiscal Year Ended June 30, 2021 COMMITTEE ACTION: NOTE: OTAY WATER DISTRICT FINANCIAL STATEMENTS WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Attachment B TABLE OF CONTENTS Years Ended June 30, 2021 and 2020 Page Number Independent Auditors’ Report 1 - 2 Management’s Discussion & Analysis 3 - 10 Basic Financial Statements: Statements of Net Position 11 - 12 Statements of Revenues, Expenses, and Changes in Net Position 13 Statements of Cash Flows 14 - 15 Notes to Financial Statements 16 - 55 Required Supplementary Information: Schedule of Changes in the Net OPEB Liability and Related Ratios 56 Schedule of Contributions 57 Schedule of Changes in the Net Pension Liability and Related Ratios 58 - 59 Schedule of Plan Contributions 60 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY INDEPENDENT AUDITORS' REPORT Board of Directors Otay Water District Spring Valley, California Report on the Financial Statements We have audited the accompanying financial statements of the Otay Water District (the “District”), as of and for the years ended June 30, 2021 and 2020, 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 Otay Water District as of June 30, 2021 and 2020, and the respective changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America, as well as the accounting systems prescribed by the California State Controller’s Office and California regulations governing Special Districts. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Emphasis of Matters As described in Note 1 to the basic financial statements, as of June 30, 2020, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. 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 56-60 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated ___, 2021, 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 the effectiveness of the District’s 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 ___, 2021 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 3 As the management of the Otay Water District (the "District"), we offer readers of the District's financial statements, this narrative overview, and an analysis of the District's financial performance during the fiscal year ending June 30, 2021. 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 present information on the District's assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as Total Net Position. Over time, increases or decreases in net positions may serve as a valuable indicator of whether the District's financial position is improving or weakening. The Statements of Revenues, Expenses, and Changes in Net Position present 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 present information on cash receipts and payments for the fiscal year. The Notes to the Financial Statements provides additional information essential to a complete understanding of the data supplied in 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 $405.3 million (net position). Of this amount, $60.7 million (unrestricted net position) may be used to meet the District’s ongoing obligations to residents and creditors. Total assets increased by $11.9 million or 2.16% during Fiscal Year 2021, to $562.8 million, due to increases in cash and cash equivalents and receivables which were partially offset by a decrease in capital assets from depreciation exceeding current year additions. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 4 In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the District's progress in funding its obligation to provide retirement benefits to its employees. Financial Analysis: As noted, net position may serve, over time, as a valuable 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 $405.3 million at the close of Fiscal Year 2021. The largest portion of the District's net position, $340.4 million (84%), reflects its investment in capital assets, plus unused debt proceeds, less any remaining outstanding debt used to acquire those capital assets. The District uses these capital assets to provide services to customers; consequently, these assets are not available for future spending. Although the District's investment in its capital assets is reported effectively as a resource, it should be noted that the resources needed to repay the debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 5 Statements of Net Position (In Millions of Dollars) 2021 2020 2019 Assets Current and Other Assets $ 111.2 $ 94.4 $ 89.7 Capital Assets 451.6 456.5 458.3 Total Assets 562.8 550.9 548.0 Deferred Outflows of Resources Deferred Actuarial Pension Costs 5.4 3.4 39.0 Deferred Actuarial OPEB Costs 2.5 1.1 2.2 Total Deferred Outflows of Resources 7.9 4.5 41.2 Liabilities Long-Term Debt Outstanding 106.2 112.0 114.3 Net Pension Liability 20.0 16.6 48.4 Net OPEB Liability 1.8 0.0 3.4 Other Liabilities 36.0 35.7 33.8 Total Liabilities 164.0 164.3 199.9 Deferred Inflows of Resources Deferred Actuarial Pension Costs 0.0 1.3 1.2 Deferred Actuarial OPEB Costs 1.4 2.3 0.5 Total Deferred Inflows of Resources 1.4 3.6 1.7 Net Position Net Investment in Capital Assets 340.4 345.2 354.6 Restricted for Debt Service 4.2 4.3 4.3 Unrestricted 60.7 38.0 28.7 Total Net Position $ 405.3 $ 387.5 $ 387.6 The District's operations and population are growing. Much of this expansion has occurred in the residential sector, particularly in multi-family dwellings and commercial areas. By 2045, the District's service area population is expected to increase by 21% to 272,350 residents. The District has created several future planning documents to ensure a reliable water supply and sewer system in the future, including the maintenance of current infrastructure. In FY 2021, the District's Capital Assets increased by $10.7 million before accumulated depreciation. (See Note 4 in the Notes to Financial Statements). The District also saw a decrease in long-term debt of $5.8 million (excluding current maturities) due to annual debt service payments (See Note 5 in the Notes to Financial Statements). DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 6 Deferred outflows of resources increased by $3.4 million in FY 2021 due to additional funding of $1.2 million to CalPERS, an increase of $1.0 million on the net difference between projected and actual earnings for the pension, a $1.0 million increase in the OPEB differences between expected and actual experience, and a $0.2 million increase in FY 2021 PERS Unfunded Actuarial Liability (UAL). The $36.7 million decrease of deferred outflows in FY 2020 was due to the $31.8 million additional funding to CalPERS and the $2.4 million decrease in FY 2020 PERS Unfunded Actuarial Liability (UAL). At the end of FY 2021, the District can report positive balances in all net position categories. This situation also applies to the prior two fiscal years. Statements of Revenues, Expenses, and Changes in Net Position (In Millions of Dollars) 2021 2020 2019 Water Sales $ 101.7 $ 90.4 $ 86.8 Wastewater Revenue 2.9 2.9 3.0 Connection and Other Fees 2.5 2.6 2.2 Non-operating Revenues 12.9 10.9 11.5 Total Revenues 120.0 106.8 103.5 Depreciation Expense 17.2 16.8 16.8 Other Operating Expenses 91.5 90.2 86.9 Non-operating Expenses 5.3 6.9 9.2 Total Expenses 114.0 113.9 112.9 Income (Loss) Before Capital Contributions 6.0 (7.1) (9.4) Capital Contributions 11.8 7.0 9.5 Change in Net Position 17.8 (0.1) 0.1 Beginning Net Position 387.5 387.6 387.5 Ending Net Position $ 405.3 $ 387.5 $ 387.6 Water Sales increased by $11.3 million and $3.6 million in FY 2021 and FY 2020, respectively, due to an increase in units sold, as a result of below-average rainfall, and higher water rates. Other Operating Expenses increased by $1.3 million and $3.3 million in FY 2021 and FY 2020, respectively, predominantly due to the increases in water units purchased as a result of increases in water sales volumes. The increase in FY 2021, is partially offset by the credit received from the City of San Diego as a result of a reduction in the contractual recycled water volumes due to the City’s plant being shut down. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 7 Specific planning and environmental study costs associated with capital projects do not qualify as capital costs under Generally Accepted Accounting Principles. These costs are included in the District's miscellaneous (non- operating) expenses. For FY 2021 and FY 2020, those expenses were $0.2 million and $0.4 million, respectively. Connection and Other Fees decreased by $0.1 million in FY 2021 and increased by $0.4 million in FY 2020. Capital Contributions increased by $4.8 million in FY 2021 due to high demand in the housing market and decreased by $2.5 million in FY 2020 due to the slowdown in housing development. Non-operating Revenues Non-operating Revenues by Major Source (In Millions of Dollars) 2021 2020 2019 Taxes and Assessments $ 5.3 $ 4.9 $ 4.7 Rents and Leases 1.6 1.5 1.4 Other Non-operating Revenue 6.0 4.5 5.5 Total Non-operating Revenues $ 12.9 $ 10.9 $ 11.6 The District's total non-operating revenues increased by $2.0 million in FY 2021 due primarily to the $3.2 million settlement from Metropolitan Water District (MWD) partially offset by a decrease in investment earnings. Total non-operating revenues decreased by $0.7 million in FY 2020 due primarily to decreases in investment earnings and transfer of capacity revenue from capital contribution to fund project expenditures that do not qualify as capital assets. Capital Assets and Debt Administration The District's capital assets (net of accumulated depreciation) as of June 30, 2021, totaled $451.6 million. Included in this amount is land, which is a non-depreciable asset. The District's net capital assets decreased by 1.07% and 0.39% in FY 2021 and FY 2020, respectively. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 8 Capital Assets (In Millions of Dollars) As indicated by the figures in the table above, most capital assets added during both fiscal years were related to the water and wastewater systems. Additionally, the majority of the cost of construction-in-progress is also associated with water systems. Additional information on the District's capital assets can be found in Note 4 of the Notes to Financial Statements. In November 2018, the District issued $32.4 million in Water Revenue Bonds, Series 2018 to provide funds for the construction of water storage, treatment, transmission facilities, and advance refunded $6.9 million of the 1996 Certificates of Participation. As of June 30, 2021, approximately $0.3 million of the 2018 Water Revenue Bond proceeds remain in Restricted Cash and Cash Equivalents. In December 2019, the District issued $3.1 million in Wastewater Revenue Bonds to fund specific capital improvements made to the District's wastewater system. As of June 30, 2020, all the bond proceeds were used to pay for the construction cost of the wastewater main replacement at Campo Road. On June 30, 2021, the District had $106.2 million in outstanding debt (net of $5.3 million of maturities occurring in FY 2022), which consisted of the following: General Obligation Bonds $ 0.7 Revenue Bonds 105.5 Total Long-Term Debt $ 106.2 Additional information on the District's long-term debt can be found in Note 5 of the Notes to Financial Statements. 2021 2020 2019 Land $ 14.4 $ 14.4 $ 14.4 Construction in Progress 25.8 24.7 33.2 Potable Water System 506.7 498.1 488.8 Recycled Water System 116.6 115.5 114.8 Wastewater System 59.1 59.1 48.5 Field Equipment 8.1 8.4 8.6 Buildings 19.6 19.5 19.2 Transportation Equipment 3.8 3.6 3.5 Communication Equipment 2.8 2.7 3.4 Office Equipment 16.3 16.5 16.8 Total Capital Assets 773.2 762.5 751.2 Less Accumulated Depreciation (321.6) (306.0) (292.9) Net Capital Assets $ 451.6 $ 456.5 $ 458.3 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 9 Fiscal Year 2021-2022 Budget Economic Factors The San Diego region imports 80% of its potable supply, therefore, factors such as local rainfall and weather conditions elsewhere in the western portion of the nation can affect the region. San Diego received below-average rainfall of 4.93 inches in FY 2021. The 10-year average of 9.00 inches for San Diego rainfall reflects the long-term drought conditions for our area. San Diego's rainfall average over 20 years is 9.01 inches; the 30-year average is 9.65 inches, and the 40-year average is 9.92 inches. While water sales peaked around 2008, conservation has permanently impacted volumes. Prolonged droughts have resulted in additional conservation, further impacting volumes. Below-average rainfall has led to potable water sales volume increasing by 10.7% in FY 2021, while above-average rainfall has led to potable water sales volume increasing by only 0.6% in FY 2020. The FY 2021 budget was prepared assuming that the pandemic would adversely impact potable and recycled water sales volumes by 12% and 15%, respectively. In FY 2021, the actual water volumes did not experience the pandemic-driven declines anticipated in the budget. Therefore, the FY 2022 budget was prepared assuming the water volumes would be consistent with actual historical volumes and excluding the adverse impacts included in the FY 2021 budget. The FY 2022 sales volume is anticipated to increase 15.0% compared to the previous year's budget and decrease 6.7% versus FY 2021 actual sales volume. The District continues to respond to the challenges presented by growth, State mandates, and the potential of drought by creating new opportunities and new organizational efficiencies. Utilizing and refining its Strategic Business Plan has captured the Board of Director's vision and united its staff in a joint mission. The District has achieved several significant accomplishments due to its successful adherence to its Strategic Business Plan. The District is poised to continue successfully providing an affordable, safe, and reliable water supply for the people of its service area, and set to reap the rewards of greater efficiencies and economies of scale. The District is currently at about 69% of its projected ultimate population, serving approximately 226,000 people. Long-term, this percentage should continue to increase as the District's service area develops and grows. By 2045, the District is projected to serve approximately 272,400 people, with an average daily demand of 46 million gallons per day (MGD) compared to the current average daily demand of 26.5 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 CWA contract. Also, the District has an emergency agreement with the City of San Diego to purchase water in the case of a shutdown of the primary 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, both parties can benefit by using another agency's excess capacity and diversifying local supply, thereby increasing reliability. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management’s Discussion and Analysis 10 Financial The District is budgeted to deliver approximately 27,002 acre-feet of potable water to 51,316 potable customer accounts during FY 2021-2022. Management feels that these projections are realistic after accounting for low growth, supply changes, conservation, and the economic impacts of COVID-19. A combination of factors, including weather patterns and the economic uncertainty brought about by the COVID-19 pandemic, have created challenges in developing projections for the current fiscal year. Unemployment is expected to fall by the end of the year. The housing market is expected to be high. An increase in consumer goods demand is expected due to the Federal government's assistance programs. District staff projects that the District will sell another 1,694 meters over the next six years, translating to 2,905 equivalent dwelling units (EDUs). This growth is estimated to increase sales volumes by an average of less than 1% per year over the next five years. While all these factors impact the region's water usage, people's water needs remain an underlying constant. Management is unaware of any other conditions that are likely to significantly impact 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, customers, creditors, and other interested parties. Questions concerning any of the information provided in the report or requests for additional information should be addressed to the District's Finance Department, 2554 Sweetwater Springs Blvd., Spring Valley, CA 91978-2004. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 2021 2020 ASSETS Current Assets: Cash and Cash Equivalents (Notes 1 and 2)84,818,274$ 65,089,488$ Board Designated Cash and Cash Equivalents (Notes 1 and 2)3,092,512 2,598,569 Restricted Cash and Cash Equivalents (Notes 1 and 2)816,218 6,077,597 Restricted Investments (Notes 1 and 2)3,666,097 3,740,520 Accounts Receivable, Net 14,840,937 13,420,104 Accrued Interest Receivable 144,169 260,735 Taxes and Availability Charges Receivable, Net 252,183 178,777 Restricted Taxes and Availability Charges Receivable, Net 21,170 75,263 Inventories 855,563 942,564 Prepaid Items and Other Receivables 2,710,237 2,003,970 Total Current Assets 111,217,360 94,387,587 Non-current Assets: Net OPEB Asset (Note 8)-20,021 Capital Assets (Note 4): Land 14,423,773 14,423,773 Construction in Progress 25,786,352 24,711,844 Capital Assets, Net of Depreciation 411,352,279 417,367,132 Total Capital Assets, Net of Depreciation 451,562,404 456,502,749 Total Non-current Assets 451,562,404 456,522,770 Total Assets 562,779,764 550,910,357 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)5,421,523 3,358,365 Deferred Actuarial OPEB Costs (Note 8)2,439,632 1,139,535 Total Deferred Outflows of Resources 7,861,155$ 4,497,900$ Continued STATEMENTS OF NET POSITION JUNE 30, 2021 AND 2020 The accompanying notes are an integral part of this statement. 11 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 2021 2020 LIABILITIES Current Liabilities: Current Maturities of Long-term Debt (Note 5)5,250,000$ 4,955,000$ Accounts Payable 14,735,726 16,224,117 Accrued Payroll Liabilities 910,173 811,521 Other Accrued Liabilities 4,985,693 4,644,505 Customer and Developer Deposits 4,480,951 3,673,975 Accrued Interest 1,722,189 1,790,955 Unearned Revenues -57,024 Liabilities Payable from Restricted Assets: Restricted Accrued Interest 19,000 28,067 Total Current Liabilities 32,103,732 32,185,164 Non-current Liabilities: Long-term Debt (Note 5): General Obligation Bonds 739,080 1,460,435 Revenue Bonds 105,484,807 110,487,562 Net Pension Liability 20,043,519 16,616,855 Net OPEB Liability 1,801,159 - Other Non-current Liabilities 3,793,011 3,550,571 Total Non-current Liabilities 131,861,576 132,115,423 Total Liabilities 163,965,308 164,300,587 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)-1,366,658 Deferred Actuarial OPEB Costs (Note 8)1,424,536 2,274,249 Total Deferred Inflows of Resources 1,424,536 3,640,907 NET POSITION Net Investment in Capital Assets 340,383,389 345,156,470 Restricted for Debt Service 4,187,443 4,261,399 Unrestricted 60,680,243 38,048,894 Total Net Position 405,251,075$ 387,466,763$ STATEMENTS OF NET POSITION - CONTINUED JUNE 30, 2021 AND 2020 The accompanying notes are an integral part of this statement. 12 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 2021 2020 OPERATING REVENUES Water Sales 101,742,970$ 90,435,148$ Wastewater Revenue 2,899,180 2,921,310 Connection and Other Fees 2,498,318 2,582,351 Total Operating Revenues 107,140,468 95,938,809 OPERATING EXPENSES Cost of Water Sales 66,889,570 62,573,257 Wastewater 2,633,413 2,439,117 Administrative and General 21,948,435 25,196,555 Depreciation 17,212,905 16,778,967 Total Operating Expenses 108,684,323 106,987,896 Operating Income (Loss)(1,543,855)(11,049,087) NON-OPERATING REVENUES (EXPENSES) Investment Earnings 254,668 1,784,834 Taxes and Assessments 5,251,540 4,939,950 Availability Charges 686,697 694,768 Gain (Loss) on Disposal of Capital Assets (159,734)(1,243,742) Rents and Leases 1,587,687 1,501,328 Miscellaneous Revenues 5,062,779 1,936,162 Donations (84,389)(121,600) Interest Expense (4,782,490)(4,953,987) Miscellaneous Expenses (241,379)(558,405) Total Non-operating Revenues (Expenses)7,575,379 3,979,308 Income (Loss) Before Capital Contributions 6,031,524 (7,069,779) Capital Contributions 11,752,788 6,941,932 Change in Net Position 17,784,312 (127,847) Total Net Position, Beginning 387,466,763 387,594,610 Total Net Position, Ending 405,251,075$ 387,466,763$ STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2021 AND 2020 The accompanying notes are an integral part of this statement. 13 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers 104,028,293$ 91,797,189$ Receipts from Connections and Other Fees 2,498,318 2,582,351 Receipts from Property Rents and Leases 1,587,687 1,501,328 Other Receipts 5,005,755 1,857,963 Payments to Suppliers (70,598,225)(64,513,739) Payments to Employees (22,630,352)(21,233,287) Other Payments (325,768)(680,005) Net Cash Provided By (Used For) Operating Activities 19,565,708 11,311,800 CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Receipts from Taxes and Assessments 5,170,067 4,890,815 Net Cash Provided By (Used For) Noncapital and Related Financing Activities 5,170,067 4,890,815 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Contributions 8,560,257 5,223,069 Proceeds from Sale of Capital Assets 24,748 139,965 Proceeds from Debt Related Taxes and Assessments 748,857 715,136 Proceeds from Long-Term Debt - 3,106,320 Principal Payments on Long-Term Debt (4,955,000)(4,725,000) Interest Payments and Fees (5,334,433)(5,472,280) Acquisition and Construction of Capital Assets (9,264,511)(14,637,213) Net Cash Provided By (Used For) Capital and Related Financing Activities (10,220,082)(15,650,003) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received on Investments 371,234 1,865,617 Proceeds from Sale and Maturities of Investments 170,315 25,918,767 Purchase of Investments (95,892)(7,709,647) Net Cash Provided By (Used For) Investing Activities 445,657 20,074,737 Net Increase (Decrease) in Cash and Cash Equivalents 14,961,350 20,627,349 Cash and Cash Equivalents - Beginning 73,765,654 53,138,305 Cash and Cash Equivalents - Ending 88,727,004$ 73,765,654$ Continued STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2021 AND 2020 The accompanying notes are an integral part of this statement.14 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 2021 2020 Reconciliation of Operating Income (Loss) to Net Cash Flows Provided By (Used For) Operating Activities: Operating Income (Loss)(1,543,855)$ (11,049,087)$ Adjustments to Reconcile Operating Income to Net Cash Provided By (Used For) Operating Activities: Depreciation 17,212,905 16,778,967 Receipts from Property Rents and Leases 1,587,687 1,501,328 Miscellaneous Revenues 5,005,755 1,857,963 Miscellaneous Expenses and Donations (325,768) (680,005) (Increase) Decrease in Accounts Receivable (1,420,833) (1,632,150) (Increase) Decrease in Inventory 87,001 (167,018) (Increase) Decrease in Prepaid Items and Other Receivables (706,267) (510,139) (Increase) Decrease in Net OPEB Asset 20,021 (20,021) (Increase) Decrease in Deferred Actuarial Pension Costs (2,063,158) 35,664,453 (Increase) Decrease in Deferred Actuarial OPEB Costs (1,300,097) 1,070,039 Increase (Decrease) in Accounts Payable (1,488,391) 2,162,293 Increase (Decrease) in Accrued Payroll and Related Expenses 98,652 172,274 Increase (Decrease) in Other Accrued Liabilities 341,188 (874,754) Increase (Decrease) in Customer and Developer Deposits 806,976 72,881 Increase (Decrease) in Other Non-current Liabilities 242,440 212,897 Increase (Decrease) in Net OPEB Liability 1,801,159 (3,415,025) Increase (Decrease) in Net Pension Liability 3,426,664 (31,772,051) Increase (Decrease) in Deferred Actuarial Pension Costs (1,366,658) 209,483 Increase (Decrease) in Deferred Actuarial OPEB Costs (849,713) 1,729,472 Net Cash Provided By (Used For) Operating Activities 19,565,708$ 11,311,800$ Schedule of Cash and Cash Equivalents: Current Assets: Cash and Cash Equivalents 84,818,274$ 65,089,488$ Board Designated Cash and Cash Equivalents 3,092,512 2,598,569 Restricted Cash and Cash Equivalents 816,218 6,077,597 Total Cash and Cash Equivalents 88,727,004$ 73,765,654$ Supplemental Disclosures Non-Cash Investing and Financing Activities Consisted of the Following: Contributed Capital for Water and Sewer System 3,192,531$ 1,718,863$ Change in Fair Value of Investments and Recognized Gains/Losses 360,636 (432,728) Amortization Related to Long-term Debt 474,110 474,340 STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED JUNE 30, 2021 AND 2020 The accompanying notes are an integral part of this statement.15 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 16 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 NOTE DESCRIPTION PAGE 1 Reporting Entity and Summary of Significant Accounting Policies..……….. 17 - 24 2 Cash and Investments………………………………………………………... 24 - 29 3 Fair Value Measurements…………………………………………..………... 29 - 30 4 Capital Assets…………………………………………………..……………. 31 - 32 5 Long-Term Debt………………………………………………….…………. 33 - 38 6 Net Position………………………………………………………………….. 38 7 Defined Benefit Pension Plan……………………………………………….. 38 - 45 8 Other Post Employment Benefits………………………..…………............... 45 - 50 9 Commitments and Contingencies……………………………………………. 50 - 51 10 Risk Management……………………………………………………………. 52 11 Segment Information………………………………………………..……….. 52 - 55 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 17 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 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 wastewater 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. On March 3, 2021, the Otay Service Corporation was dissolved by the District. The District formed the Financing Authority on March 3, 2010 under the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code. The Financing Authority was formed to assist the District in the financing of public capital improvements. The financial statements present the District and its component units. The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority of the component unit’s board, or because the component units will provide a financial benefit or impose a financial burden on the District. The District has accounted for the Service Corporation and Financing Authority as “blended” component units. Despite being legally separate, the Service Corporation and Financing Authority are so intertwined with the District that they are in substance, part of the District’s operations. Accordingly, the balances and transactions of these component units are reported within the funds of the District. Separate financial statements are not issued for the Service Corporation and the Financing Authority. B) Measurement Focus, Basis of Accounting and Financial Statement Presentation Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. The accompanying financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or noncurrent) associated with these activities are included on the Statements of Net Position. The Statements of Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The District reports its activities as an enterprise fund, which is used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the District is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 18 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting financial reporting purposes. Net position of the District is classified into three components: (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. These classifications are defined as follows: Net Investment in Capital Assets This component of net position consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of notes or borrowing that are attributable to the acquisition of the assets, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of the net investment in capital assets. Restricted Net Position This component of net position consists of net position with constrained use through external constraints imposed by creditors (such as through debt covenants), grantors, contributions, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of net position that do not meet the definition of “net investment in capital assets” or “restricted net position”. The District distinguishes operating revenues and expenses from those revenues and expenses that are non-operating. Operating revenues are those revenues that are generated by water sales and wastewater services while operating expenses pertain directly to the furnishing of those services. Non-operating revenues and expenses are those revenues and expenses generated that are not associated with the normal business of supplying water and wastewater treatment services. The District recognizes revenues from water sales, wastewater revenues, and meter fees as they are earned. Taxes and assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego, net of allowance for delinquencies of $30,373 at June 30, 2021 and $28,227 at June 30, 2020. Additionally, capacity fee contributions received which are related to specific operating expenses are offset against those expenses and included in Cost of Water Sales in the Statements of Revenues and Expenses and Changes in Net Position. Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position, a flow assumption must be made about the order in which the resources are considered to be applied. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 19 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued 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 as of June 30, 2021 Governmental Accounting Standard Board Statement No. 84 In January of 2017, GASB issued Statement No. 84, Fiduciary Activities. This Statement was issued to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes. This Statement establishes the criteria for identifying fiduciary activities which should be reported in a fiduciary fund in the basic financial statements. The fiduciary funds that should be reported, if applicable: a) pensions trust funds, b) investment trust funds, c) private purpose trust funds, d) custodial funds. Statement No. 84 is effective for reporting periods beginning after December 15, 2018. Due to the COVID-19 pandemic, GASB No. 95 delayed the implementation of this GASB Statement by one year for reporting periods beginning after December 15, 2019. Currently, this Statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 90 In August of 2018, GASB issued Statement No. 90, Majority Equity Interests, an amendment of GASB Statements No. 14 and No. 61. This Statement was issued to improve the consistency and comparability of reporting a government's majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. This Statement defines a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government's holding of the equity interest meets the definition of an investment. A majority equity interest that meets the definition of an investment should be measured using the equity method, unless it is held by a special- purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or permanent fund. Those governments and funds should measure the majority equity interest at fair value. Statement No. 90 is effective for fiscal years beginning after December 15, 2018. Due to the COVID-19 pandemic, GASB No. 95 delayed the implementation of this Statement by one year for reporting periods beginning after December 15, 2019. Currently, this Statement has no effect on the District’s financial statements. Implemented as of June 30, 2020 Governmental Accounting Standard Board Statement No. 95 In May of 2020, GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. The objective of this statement is to provide temporary relief to governments and other stakeholders in light of the COVID-19 pandemic by postponing the effective dates of certain provisions in Statements and Implementation Guides which are as follows: DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 20 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 1)REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C)New Accounting Pronouncements - Continued Implemented as of June 30, 2020 - Continued Governmental Accounting Standard Board Statement No. 95 - Continued a.GASB Statement 83 - Reporting periods beginning after June 15, 2019. b.GASB Statement 84 and Implementation Guide 2019-2 - Reporting periods beginning after December 15, 2019. c.GASB Statement 87 and Implementation Guide 2019-3 - Fiscal years beginning after June 15, 2021, and all reporting periods thereafter. d.GASB Statement 88 - Reporting periods beginning after June 15, 2019. e.GASB Statement 89 - Reporting periods beginning after December 15, 2020. f.GASB Statement 90 - Reporting periods beginning after December 15, 2019. g.GASB Statement 91 - Reporting periods beginning after December 15, 2021. h.GASB Statement 92, paragraphs 6 and 7 - Fiscal years beginning after June 15, 2021. i.GASB Statement 92, paragraphs 8, 9, and 12 - Reporting periods beginning after June 15, 2021. j.GASB Statement 92, paragraph 10 - Government acquisitions occurring in reporting periods beginning after June 15, 2021. k.GASB Statement 93, paragraphs 13 and 14 - Fiscal years beginning after June 15, 2021, and all reporting periods thereafter. l.Implementation Guide 2017-3, Questions 4.484 and 4.491 - The first reporting period in which the measurement date of the (collective) net OPEB liability is on or after June 15, 2019. m.Implementation Guide 2017-3, Questions 4.85, 4.103, 4.108, 4.109, 4.225, 4.239, 4.244, 4.245, and 5.1-5.4 - Actuarial valuations as of December 15, 2018, or later. n.Implementation Guide 2018-1 - Reporting periods beginning after June 15, 2019. o.Implementation Guide 2019-1- Reporting periods beginning after June 15, 2020. GASB Statement No. 95 is effective immediately. The District has elected to delay certain provisions in the GASB Statements as allowed by GASB Statement No. 95. GASB Statements Nos. 83, 88 and 89 were implemented by the District in fiscal year 2019. Pending Accounting Standards GASB has issued the following statements which impact the District’s financial reporting requirements in the future: i.GASB Statement 87 - “Leases”, effective for fiscal years beginning after June 15, 2021*. ii.GASB Statement 91 - “Conduit Debt Obligations”, effective for fiscal years beginning after December 15, 2021*. iii.GASB Statement 92 - “Omnibus 2020”, effective for reporting periods beginning after June 15, 2021*. iv.GASB Statement 93 - “Replacement of Interbank Offered Rates”, effective for reporting periods beginning after June 15, 2021*. v.GASB Statement 94 - “Public-Private and Public-Public Partnerships and Availability Payment Arrangements”, effective for reporting periods beginning after June 15, 2022. vi.GASB Statement 96 - “Subscription-Based Information Technology Arrangements”, effective for reporting periods beginning after June 15, 2022. vii.GASB Statement 97 - “Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans”, effective for reporting periods beginning after June 15, 2021. *These GASB Statements original effective dates were postponed by GASB Statement No. 95. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 21 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 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 qualify for reporting in this category, deferred actuarial pension costs and deferred actuarial OPEB costs are items that are deferred and recognized as an outflow of resources in the period the amounts become available. 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 two items that qualify for reporting in this category. Accordingly, the items, deferred actuarial pension costs and deferred actuarial OPEB costs, 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 Prepaid Items Inventory consists primarily of materials used in the construction and maintenance of the water and wastewater system and is valued at weighted average cost. Both inventory and prepaid items 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 and overhead. Repairs, maintenance, and minor replacements of property are charged to expense. Donated assets are capitalized at their acquisition value on the date contributed. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 22 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 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 Wastewater System 25-50 Years I) Other Non-current Liabilities For compensated absences, 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, 2021 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 3,246,272 $ 1,657,775 $ 1,394,886 $ 3,509,161 $ 350,916 Customer Credits 272,282 5,840 - 278,122 - Reimbursement Agreements 356,644 - - 356,644 - Total $ 3,875,198 $ 1,663,615 $ 1,394,886 $ 4,143,927 $ 350,916 Current portion is reflected in accrued payroll liabilities and remainder in other non-current liabilities on the Statements of Net Position. June 30, 2020 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 3,011,855 $ 1,644,010 $ 1,409,593 $ 3,246,272 $ 324,627 Customer Credits 270,360 1,922 - 272,282 - Reimbursement Agreements 356,644 - - 356,644 - Total $ 3,638,859 $ 1,645,932 $ 1,409,593 $ 3,875,198 $ 324,627 Current portion is reflected in accrued payroll liabilities and remainder in other non-current liabilities on the Statements of Net Position. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 23 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued J) Classification of Liabilities Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be funded from restricted assets. K) Allowance for Doubtful Accounts The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that the accounts will be uncollectible. Uncollectible accounts are determined by the allowance method based upon prior experience and management’s assessment of the collectability of existing specific accounts. The allowance for doubtful accounts was $342,527 for 2021 and $201,152 for 2020. 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) Other Post-Employment Benefits (OPEB) For purposes of measuring the net OPEB liability, deferred outflows/inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the District’s plan (OPEB Plan) and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 24 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued N) Other Post-Employment Benefits (OPEB) - Continued Generally accepted accounting principles require that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: 2021 2020 Valuation Date June 30, 2020 June 30, 2019 Measurement Date June 30, 2020 June 30, 2019 Measurement Period July 1, 2019 to June 30, 2020 July 1, 2018 to June 30, 2019 O) 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. P) Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 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, remain sufficiently liquid to enable the District to meet all operating requirements and generate income under the parameters of such policies. Cash and Investments are classified in the accompanying financial statements as follows: 2021 2020 Statements of Net Position: Cash and Cash Equivalents $ 84,818,274 $ 65,089,488 Board Designated Cash and Cash Equivalents 3,092,512 2,598,569 Restricted Cash and Cash Equivalents 816,218 6,077,597 Restricted Investments 3,666,097 3,740,520 Total Cash and Investments $ 92,393,101 $ 77,506,174 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 25 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 2) CASH AND INVESTMENTS - Continued Cash and Investments consist of the following: 2021 2020 Cash on Hand $ 2,950 $ 2,950 Deposits with Financial Institutions 2,614,972 2,775,114 Investments 89,775,179 74,728,110 Total Cash and Investments $ 92,393,101 $ 77,506,174 Investments Authorized by the California Government Code and the District’s Investment Policy The table below identifies the investment types that are authorized for the District by the California Government Code (or the District’s Investment Policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District’s Investment Policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District’s Investment Policy. Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity Of Portfolio(1) In One Issuer U.S. Treasury Obligations 5 years 100% 100% U.S. Government Sponsored Entities 5 years 100% 100% Certificates of Deposit 5 years 15% 100% Corporate Medium-Term Notes 5 years 10% 2% Commercial Paper 270 days 10% 2% Money Market Mutual Funds N/A 10% 100% County Pooled Investment Funds N/A 100% N/A Local Agency Investment Fund (LAIF) N/A $75 Million N/A (1) Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. Investments Authorized by Debt Agreements Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District’s Investment Policy. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the District manages its exposure to interest rate risk is by purchasing investments with shorter durations than the maximum allowable under the District’s 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. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 26 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 2) CASH AND INVESTMENTS - Continued Disclosures Relating to Interest Rate Risk - Continued 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, 2021 and 2020. June 30, 2021 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 $ 3,666,097 $ 3,666,097 $ - $ - $ - Local Agency Investment Fund (LAIF) 29,610,369 29,610,369 - - - San Diego County Pool 56,420,000 56,420,000 - - - Money Market Funds 78,713 78,713 - - - Total $ 89,775,179 $ 89,775,179 $ - $ - $ - June 30, 2020 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 $ 3,740,520 $ - $ 3,740,520 $ - $ - Local Agency Investment Fund (LAIF) 65,748,989 65,748,989 - - - San Diego County Pool 5,155,000 5,155,000 - - - Money Market Funds 83,601 83,601 - - - Total $ 74,728,110 $ 70,987,590 $ 3,740,520 $ - $ - 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, 2021 and 2020. June 30, 2021 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 3,666,097 N/A $ 3,666,097 $ - $ - $ - Local Agency Investment Fund (LAIF) 29,610,369 N/A - - - 29,610,369 San Diego County Pool 56,420,000 N/A - - - 56,420,000 Money Market Funds 78,713 N/A - - 78,713 - Total $ 89,775,179 $ 3,666,097 $ - $ 78,713 $ 86,030,369 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 27 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 2) CASH AND INVESTMENTS - Continued Disclosures Relating to Credit Risk - Continued June 30, 2020 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 3,740,520 N/A $ 3,740,520 $ - $ - $ - Local Agency Investment Fund (LAIF) 65,748,989 N/A - - - 65,748,989 San Diego County Pool 5,155,000 N/A - - - 5,155,000 Money Market Funds 83,601 N/A - - 83,601 - Total $ 74,728,110 $ 3,740,520 $ - $ 83,601 $ 70,903,989 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. All the investments for fiscal years 2021 and 2020 and within the limitations of the District’s investment policy. The investments listed below disclose the concentration of risk within the District’s investment portfolio. 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, 2021 and 2020: June 30, 2021 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 3,666,097 June 30, 2020 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 3,740,520 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. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 28 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 2)CASH AND INVESTMENTS - Continued Custodial Credit Risk - Continued As of June 30, 2021, $2,375,382 and as of June 30, 2020, $2,937,575 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 $75,000,000 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 annualized yield of LAIF for the quarter ended June 30, 2021 was 0.33%. The estimated amortized cost and fair value of the LAIF pool at June 30, 2021 was $193,304,977,285 and $193,321,015,759. The District’s share of the pool at June 30, 2021 was approximately 0.01532%. The annualized yield of LAIF for the quarter ended June 30, 2020 was 1.47%. The estimated amortized cost and fair value of the LAIF pool at June 30, 2020 was $101,110,343,833 and $101,607,078,218. The District’s share of the pool at June 30, 2020 was approximately 0.05895%. San Diego County Pooled Fund The San Diego County Pooled Investment Fund (SDCPIF) is a pooled investment fund program governed by the County of San Diego Board of Supervisors, and administered by the County of San Diego Treasurer and Tax Collector. Investments in SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty, 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 (“Annual Report”). Copies of the Annual Report 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 2021 2020 Debt Service: General Obligation Bond ID No. 27-2009 $ 442,633 $ 437,278 Water Revenue Bond Series 2010A 23,102 24,452 Water Revenue Bond Series 2010B 55,611 59,149 Water Revenue Bond Series 2018 294,872 5,556,718 Total $ 816,218 $ 6,077,597 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 29 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 2)CASH AND INVESTMENTS - Continued Board Designated Cash and Investments Cash and investments are Board restricted for the cost of the following District projects: 2021 2020 Cash and Cash Equivalents: New Water Supply $ 3,092,512 $ 2,598,569 Total $ 3,092,512 $ 2,598,569 Restricted Investments 2021 2020 Debt Service: Water Revenue Bond Series 2010A $ 1,009,432 $ 1,029,924 Water Revenue Bond Series 2010B 2,656,665 2,710,596 Total $ 3,666,097 $ 3,740,520 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. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 30 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 3) FAIR VALUE MEASUREMENTS - Continued Fair value of assets measured on a recurring basis at June 30, 2021 and 2020, are as follows: June 30, 2021 Significant Other Observable Inputs Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 3,666,097 $ 3,666,097 $ - Local Agency Investment Fund (LAIF) 29,610,369 -29,610,369 San Diego County Pool 56,420,000 -56,420,000 Money Market Funds 78,713 78,713 - Total $ 89,775,179 $ 3,744,810 $ 86,030,369 June 30, 2020 Significant Other Observable Inputs Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 3,740,520 $ 3,740,520 $ - Local Agency Investment Fund (LAIF) 65,748,989 -65,748,989 San Diego County Pool 5,155,000 -5,155,000 Money Market Funds 83,601 83,601 - Total $ 74,728,110 $ 3,824,121 $ 70,903,989 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. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 31 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 4) CAPITAL ASSETS The following is a summary of changes in Capital Assets for the year ended June 30, 2021: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated: Land $ 14,423,773 $ -$-$ 14,423,773 Construction in Progress 24,711,844 9,264,511 (8,190,003) 25,786,352 Total Capital Assets, Not Depreciated 39,135,617 9,264,511 (8,190,003) 40,210,125 Capital Assets, Being Depreciated: Infrastructure 672,699,638 10,550,082 (795,764) 682,453,956 Field Equipment 8,398,722 35,777 (327,095) 8,107,404 Buildings 19,462,893 259,707 (140,800) 19,581,800 Transportation Equipment 3,616,452 280,694 (147,045) 3,750,101 Communication Equipment 2,703,459 73,706 - 2,777,165 Office Equipment 16,444,241 182,568 (312,871) 16,313,938 Total Capital Assets, Being Depreciated 723,325,405 11,382,534 (1,723,575) 732,984,364 Less Accumulated Depreciation: Infrastructure 270,267,410 15,458,219 (719,310) 285,006,319 Field Equipment 6,398,078 328,855 (327,095) 6,399,838 Buildings 9,440,450 549,332 (34,026) 9,955,756 Transportation Equipment 2,419,841 277,566 (147,045) 2,550,362 Communication Equipment 2,326,786 158,932 - 2,485,718 Office Equipment 15,105,708 440,001 (311,617) 15,234,092 Total Accumulated Depreciation 305,958,273 17,212,905 (1,539,093) 321,632,085 Total Capital Assets, Being Depreciated, Net 417,367,132 (5,830,371) (184,482) 411,352,279 Total Capital Assets, Net $ 456,502,749 $ 3,434,140 $ (8,374,485) $ 451,562,404 Depreciation expense for the year ended June 30, 2021 was $17,212,905. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 32 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 4)CAPITAL ASSETS - Continued The following is a summary of changes in Capital Assets for the year ended June 30, 2020: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated: Land $ 14,403,823 $ 19,950 $ - $ 14,423,773 Construction in Progress 33,149,164 14,637,214 (23,074,534) 24,711,844 Total Capital Assets, Not Depreciated 47,552,987 14,657,164 (23,074,534) 39,135,617 Capital Assets, Being Depreciated: Infrastructure 652,066,029 23,561,440 (2,927,831) 672,699,638 Field Equipment 8,572,710 208,646 (382,634) 8,398,722 Buildings 19,242,739 220,154 -19,462,893 Transportation Equipment 3,525,948 504,210 (413,706) 3,616,452 Communication Equipment 3,417,918 64,066 (778,525) 2,703,459 Office Equipment 16,781,571 219,347 (556,677) 16,444,241 Total Capital Assets, Being Depreciated 703,606,915 24,777,863 (5,059,373) 723,325,405 Less Accumulated Depreciation: Infrastructure 256,979,110 14,846,658 (1,558,358) 270,267,410 Field Equipment 6,385,742 394,970 (382,634) 6,398,078 Buildings 8,915,004 525,446 - 9,440,450 Transportation Equipment 2,588,003 242,050 (410,212) 2,419,841 Communication Equipment 2,915,093 190,218 (778,525) 2,326,786 Office Equipment 15,067,603 579,625 (541,520) 15,105,708 Total Accumulated Depreciation 292,850,555 16,778,967 (3,671,249) 305,958,273 Total Capital Assets, Being Depreciated, Net 410,756,360 7,998,896 (1,388,124) 417,367,132 Total Capital Assets, Net $ 458,309,347 $ 22,656,060 $ (24,462,658) $ 456,502,749 Depreciation expense for the year ended June 30, 2020 was $16,778,967. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 33 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 5)LONG-TERM DEBT Long-term liabilities for the year ended June 30, 2021 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 – 2009 $ 2,105,000 $ - $ 680,000 $ 1,425,000 $ 705,000 Unamortized Bond Premium 35,435 -16,355 19,080 - Net General Obligation Bonds 2,140,435 -696,355 1,444,080 705,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 5,890,000 - 1,065,000 4,825,000 1,120,000 2010 Water Revenue Bonds Series B 36,355,000 -- 36,355,000 - 2013 Water Revenue Refunding Bonds 3,160,000 - 745,000 2,415,000 775,000 2016 Water Revenue Refunding Bonds 29,025,000 -1,155,000 27,870,000 1,215,000 2018 Water Revenue Bonds 31,190,000 - 1,310,000 29,880,000 1,370,000 2019 Wastewater Revenue Bonds 3,120,000 -- 3,120,000 65,000 2010 Series A Unamortized Premium 316,207 -74,402 241,805 - 2013 Bonds Unamortized Premium 304,301 - 96,095 208,206 - 2016 Bonds Unamortized Premium 2,886,904 - 178,571 2,708,333 - 2018 Bonds Unamortized Premium 2,528,599 - 109,148 2,419,451 - 2019 Bonds Unamortized Discount (13,449) -(461)(12,988) - Net Revenue Bonds 114,762,562 -4,732,755 110,029,807 4,545,000 Total Long-Term Liabilities $ 116,902,997 $ - $ 5,429,110 $ 111,473,887 $ 5,250,000 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 34 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 5) LONG-TERM DEBT - Continued Long-term liabilities for the year ended June 30, 2020 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 – 2009 $ 2,755,000 $ - $ 650,000 $ 2,105,000 $ 680,000 Unamortized Bond Premium 51,789 - 16,354 35,435 - Net General Obligation Bonds 2,806,789 - 666,354 2,140,435 680,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 6,905,000 - 1,015,000 5,890,000 1,065,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 3,875,000 - 715,000 3,160,000 745,000 2016 Water Revenue Refunding Bonds 30,125,000 - 1,100,000 29,025,000 1,155,000 2018 Water Revenue Bonds 32,435,000 - 1,245,000 31,190,000 1,310,000 2019 Wastewater Revenue Bonds - 3,120,000 - 3,120,000 - 2010 Series A Unamortized Premium 390,609 - 74,402 316,207 - 2013 Bonds Unamortized Premium 400,396 - 96,095 304,301 - 2016 Bonds Unamortized Premium 3,065,476 - 178,572 2,886,904 - 2018 Bonds Unamortized Premium 2,637,747 - 109,148 2,528,599 - 2019 Bonds Unamortized Discount - (13,680) (231) (13,449) - Net Revenue Bonds 116,189,228 3,106,320 4,532,986 114,762,562 4,275,000 Total Long-Term Liabilities $ 118,996,017 $ 3,106,320 $ 5,199,340 $ 116,902,997 $ 4,955,000 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. These bonds are general obligations of Improvement District No. 27 (ID 27) of the District. The Board of Directors has the power and is obligated to levy annual ad valorem taxes without limitation, as to rate or amount for payment of the bonds and the interest upon all property which is within ID 27 and subject to taxation. The General Obligation Bonds are payable from District-wide tax revenues. The Board may utilize other sources for servicing the bond debt and interest. The Improvement District No. 27-2009 General Obligation Refunding Bonds have interest rates from 3.00% to 4.00% with maturities through Fiscal Year 2023. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 35 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 5) LONG-TERM DEBT - Continued General Obligation Bonds - Continued Future debt service requirements for the bonds are as follows: For the Year Ended June 30, Principal Interest 2022 $ 705,000 $ 42,900 2023 720,000 14,400 $ 1,425,000 $ 57,300 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 $36,355,000. The Series 2010A bonds are due in annual installments of $785,000 to $1,295,000 from September 1, 2012 through September 1, 2025; bearing interest at 2% to 5.25%. The Series 2010B bonds are due in annual installments of $1,365,000 to $3,505,000 from September 1, 2026 through September 1, 2040; bearing interest at 6.377% to 6.577%. Interest on both Series is payable on September 1, 2010 and semiannually thereafter on March 1st and September 1st of each year until maturity or earlier redemption. The installment payments are to be made from taxes and net revenues of the Water System as described in the installment purchase agreement, on parity with the payments required to be made by the District for the 2013, 2016 Water Revenue Refunding Bonds and 2018 Water Revenue Bonds described below. The proceeds of the bonds will be used to fund the project noted 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, 2021 was $74,402 and for June 30, 2020 was $74,402. The amortizations are included in interest expense. The unamortized premium at June 30, 2021 is $241,805 and at June 30, 2020 is $316,207. The 2010 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe, revise and collect rates, fees and charges for the Water System which will at least be 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 years ended June 30, 2021 and 2020. 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 2016 Water Revenue Refunding Bonds, the 2010A, 2010B and 2018 Water Revenue Bonds described above. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 36 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 5) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued The original issue premium is being amortized over the 11 year life of the Series 2013 bonds. Amortization for the year ending June 30, 2021 was $96,095 and for June 30, 2020 was $96,095. The amortizations are included in interest expense. The unamortized premium at June 30, 2021 is $208,206 and at June 30, 2020 is $304,301. 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, 2021 was $178,572 and for June 30, 2020 was $178,572. The amortizations are included in interest expense. The unamortized premium at June 30, 2021 is $2,708,333 and at June 30, 2020 is $2,886,904. In November 2018, Water Revenue Bonds were issued to provide funds for construction of water storage, treatment and transmission facilities and to refinance the 1996 Certificates of Participation. The bonds are due in annual installments of $775,000 to $1,915,000 from September 1, 2019 through September 1, 2043; bearing interest of 3% to 5%. The bonds were issued with a face value of $32,435,000 plus $2,710,512 original issue premium. The original issue premium is being amortized over the 25 year life of the Series 2018 bonds. Amortization for the year ending June 30, 2021 was $109,148 and for June 30, 2020 was $109,148. The amortization expense is included in interest expense. The unamortized premium at June 30, 2021 is $2,419,451 and at June 30, 2020 is $2,528,599. The total amount outstanding at June 30, 2021 and aggregate maturities of the revenue bonds for the fiscal years subsequent to June 30, 2021, are as follows: For the Year 2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B 2013 Water Revenue Refunding Bonds Ended June 30, Principal Interest Principal Interest Principal Interest 2022 $ 1,120,000 $ 216,488 $ - $ 2,371,868 $ 775,000 $ 81,100 2023 1,175,000 159,113 - 2,371,868 805,000 49,500 2024 1,235,000 98,862 - 2,371,868 835,000 16,700 2025 1,295,000 33,994 - 2,371,868 - - 2026 - - 1,365,000 2,328,345 - - 2027-2031 - - 8,235,000 10,175,654 - - 2032-2036 - - 11,265,000 7,040,514 - - 2037-2041 - - 15,490,000 2,676,839 - - $ 4,825,000 $ 508,457 $ 36,355,000 $ 31,708,824 $ 2,415,000 $ 147,300 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 37 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 5)LONG-TERM DEBT - Continued Water Revenue Bonds - Continued For the Year 2016 Water Revenue Refunding Bonds 2018 Water Revenue Refunding Bonds Ended June 30, Principal Interest Principal Interest 2022 $ 1,215,000 $ 1,004,206 $ 1,370,000 $ 1,294,038 2023 1,285,000 941,706 1,455,000 1,223,413 2024 1,350,000 875,831 1,650,000 1,145,787 2025 1,420,000 806,581 1,730,000 1,061,288 2026 1,495,000 733,706 1,820,000 972,537 2027-2031 8,570,000 2,582,407 6,355,000 3,774,062 2032-2036 10,300,000 1,041,841 6,750,000 2,392,838 2037-2041 2,235,000 33,525 6,190,000 1,106,456 2042-2044 - - 2,560,000 146,200 $ 27,870,000 $ 8,019,803 $ 29,880,000 $ 13,116,619 Wastewater Revenue Bonds In December 2019, Wastewater Revenue Bonds were issued to provide funds to pay for certain capital improvements to the District’s wastewater system. The bonds are due in annual installments of $65,000 to $160,000 from September 1, 2021 through September 1, 2049; bearing interest of 2% to 3.125%. The bonds were issued with a face value of $3,120,000 less a $13,680 original issue discount. The original issue discount is being amortized over the 50 year life of the Series 2019 bonds. Amortization for the year ending June 30, 2021 was $461 and June 30, 2020 was $231. The amortization expense is included in interest expense. The unamortized discount at June 20,2021 is $12,988 and at June 30, 2020 is $13,449. The 2019 Wastewater Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe, revise and collect rates, fees and charges for the Wastewater System which will at least be sufficient to yield, during each fiscal year, net revenues equal to one hundred fifteen percent (115%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal years ended June 30, 2021 and 2020. Future debt service requirements for the bonds are as follows: For the Year 2019 Wastewater Revenue Bonds Ended June 30, Principal Interest 2022 $ 65,000 $ 90,091 2023 70,000 88,741 2024 75,000 87,291 2025 75,000 85,416 2026 80,000 83,091 2027-2031 430,000 377,957 2032-2036 495,000 313,279 2037-2041 565,000 238,888 2042-2046 655,000 147,422 2047-2050 610,000 38,906 $ 3,120,000 $ 1,551,082 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 38 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 5) LONG-TERM DEBT - Continued Revenues Pledged The District has pledged a portion of future water sales revenues to repay its Water Revenue and Water Revenue Refunding Bonds. Total principal and interest remaining on the water revenue bonds and water revenue refunding bonds is $154,846,003 payable through fiscal year 2044. For June 30, 2021, principal and interest paid by the water sales revenues were $4,275,000 and $5,178,974, respectively. For June 30, 2020, principal and interest paid by the water sales revenues were $4,075,000 and $5,380,424, respectively. The District has pledged a portion of future wastewater sales revenues to repay its Wastewater Revenue Bonds. Total principal and interest remaining on the wastewater revenue bonds is $4,671,082 payable through fiscal year 2050. For June 30, 2021, principal and interest paid by the wastewater sales revenues were $0 and $90,741, respectively. For June 30, 2021, principal and interest paid by the wastewater sales revenues were $0 and $90,713, respectively. 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, 2021 and 2020: 2021 2020 Designated Betterment $ 2,507,060 $ 4,208,271 Replacement Reserve 34,145,548 25,545,931 Designated Expansion 1,293,846 2,262,219 Designated New Supply Fund 5,922 240,764 Employee Benefits Reserve 463,890 386,907 Total $ 38,416,266 $ 32,644,092 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. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 39 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7) DEFINED BENEFIT PENSION PLAN - Continued 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. The Plans’ provisions and benefits in effect at June 30, 2021 and 2020 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 2021 8.00% 7.00% 2020 8.00% 6.25% Required Employer Contribution Rates 2021 20.113% 20.113% 2020 40.689% 40.689% Employees Covered The following employees were covered by the benefit terms for the Plan: 2021 2020 Inactive Employees or Beneficiaries Currently Receiving Benefits 202 175 Inactive Employees Entitled to But Not Yet Receiving Benefits 128 140 Active Employees 134 134 Total 464 449 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 40 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7)DEFINED BENEFIT PENSION PLAN - Continued 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, 2020 and 2019, using the annual actuarial valuations as of June 30, 2019 and 2018, respectively, rolled forward to June 30, 2020 and 2019, respectively, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below: Actuarial Assumptions The total pension liabilities in the June 30, 2021 and 2020 actuarial valuations were determined using the following actuarial assumptions: 2021 2020 Valuation Date June 30, 2019 June 30, 2018 Measurement Date June 30, 2020 June 30, 2019 Actuarial Cost Method Entry-Age Normal Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.5% 2.5% Salaries Increases Varies(1) Varies(1) Mortality Rate Table CalPERS Membership Data(2) CalPERS Membership Data(2) Post Retirement Benefit Increase See Footnote(3) See Footnote(3) (1)Depending on age, service and type of employment. (2)The mortality table used was developed based on CalPERS-specific data. The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pe-retirement and Post- retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries. For more details on this table, please refer to the CalPERS Experience Study and Review of Actuarial Assumptions report form December 2017 that can be found on the CalPERS website. (3)The lesser of contract COLA or 2.5% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.5% thereafter. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 41 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7) DEFINED BENEFIT PENSION PLAN - Continued B)Net Pension Liability - Continued Discount Rate The discount rate used to measure the total pension liability at June 30, 2020 and 2019 measurement dates was 7.15% for the Plan. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Long-term Expected Rate of Return 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 (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ 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 equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The following table reflects the long-term expected real rate of return by asset class. Asset Class(a) Assumed Asset Allocation Real Return Years 1 - 10(b) Real Return Years 11+(c) 2020 2019 2020 2019 2020 2019 Global Equity 50.0% 50.0% 4.80% 4.80% 5.98% 5.98% Fixed Income 28.0% 28.0% 1.00% 1.00% 2.62% 2.62% Inflation Assets/Sensitive - - 0.77% 0.77% 1.81% 1.81% Private Equity 8.0% 8.0% 6.30% 6.30% 7.23% 7.23% Real Assets 13.0% 13.0% 3.75% 3.75% 4.93% 4.93% Liquidity 1.0% 1.0% - - -0.92% -0.92% Total 100% 100% (a) In the System’s Comprehensive Annual Financial Report, Fixed Income in included in Global Debt Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities. (b)An expected inflation of 2.00% used for this period. (c)An expected inflation of 2.92% used for this period. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 42 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7)DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Pension Liability The changes in the Net Pension Liability for the Plan for June 30, 2021: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $ 142,409,387 $ 125,792,532 $ 16,616,855 Changes in the Year: Service Cost 2,623,208 -2,623,208 Interest on the Total Pension Liability 10,043,778 -10,043,778 Changes in Benefit Terms - - - Changes in Assumptions - - - Differences Between Expected and Actual Experience 260,337 -260,337 Net Plan to Plan Resource Movement - - - Contributions - Employer -2,437,119 (2,437,119) Contributions - Employees -1,055,769 (1,055,769) Net Investment Income -6,185,108 (6,185,108) Benefit Payments, Including Refunds of Employee Contributions (7,017,816) (7,017,816)- Administrative Expense -(177,337)177,337 Other Miscellaneous Income/(Expense) --- Net Changes 5,909,507 2,482,843 3,426,664 Ending Balance $ 148,318,894 $ 128,275,375 $ 20,043,519 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 43 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Pension Liability - Continued The changes in the Net Pension Liability for the Plan for June 30, 2020: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $ 135,659,308 $ 87,270,402 $ 48,388,906 Changes in the Year: Service Cost 2,586,911 - 2,586,911 Interest on the Total Pension Liability 9,638,674 - 9,638,674 Changes in Benefit Terms - - - Changes in Assumptions - - - Differences Between Expected and Actual Experience 1,183,213 - 1,183,213 Net Plan to Plan Resource Movement - - - Contributions - Employer - 36,706,983 (36,706,983) Contributions - Employees - 1,019,255 (1,019,255) Net Investment Income - 7,516,686 (7,516,686) Benefit Payments, Including Refunds of Employee Contributions (6,658,719) (6,658,719) - Administrative Expense - (62,278) 62,278 Other Miscellaneous Income/(Expense) - 203 (203) Net Changes 6,750,079 38,522,130 (31,772,051) Ending Balance $ 142,409,387 $ 125,792,532 $ 16,616,855 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: 2021 2020 1% Decrease 6.15% 6.15% Net Pension Liability $ 38,999,382 $ 35,122,134 Current Discount Rate 7.15% 7.15% Net Pension Liability $ 20,043,519 $ 16,616,855 1% Increase 8.15% 8.15% Net Pension Liability $ 4,253,474 $ 1,228,256 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 44 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Pension 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 years ended June 30, 2021 and 2020, the District recognized pension expense of $3,962,800 and $6,567,636. At June 30, 2021 and 2020, 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 2021 2020 2021 2020 Pension contributions subsequent to measurement date $ 3,965,952 $ 2,465,751 $ - $ - Differences between actual and expected experience 501,977 892,614 - - Changes in assumptions - - - (375,038) Net difference between projected and actual earnings on pension plan investments 953,594 - - (991,620) Total $ 5,421,523 $ 3,358,365 $ - $ (1,366,658) For fiscal year 2020, $2,465,751 reported as deferred outflows of resources related to contributions subsequent to the measurement date was recognized as a reduction of the net pension liability during the year ended June 30, 2021. For fiscal year 2021, $3,965,952 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, 2022. 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 2022 $ 104,548 2023 323,029 2024 495,413 2025 532,581 2026 - Thereafter - DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 45 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 7)DEFINED BENEFIT PENSION PLAN - Continued E)Payable to the Pension Plan At June 30, 2021 and 2020, the District reported a payable of $91,450 and $72,881, respectively, for the outstanding amount of contributions to the pension plan required for the years ended June 30, 2021 and 2020. These payables are reflected in the accrued payroll liabilities on the Statements of Net Position. 8)OTHER POST EMPLOYMENT BENEFITS (OPEB) 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. Employees Covered As of June 30, 2020 and 2019 actuarial valuations, the following current and former employees were covered by the benefit terms under the Plan: 2020 2019 Active employees 1 3 3 1 3 3 Inactive employees or beneficiaries currently receiving benefits 76 76 Inactive employees entitled to, but not yet receiving benefits - - Total 209 209 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 46 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 8)OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Contributions The annual contribution is based on the actuarially determined contribution. For the fiscal years ended June 30, 2021 and 2020, the District’s cash contributions were $807,867 and $1,011,358, respectively, in payments to the trust. Net OPEB Liability The District’s net OPEB liability was measured as of June 30, 2020 and 2019 and the total OPEB liability used to calculate the net OPEB liability was determined by actuarial valuations dated June 30, 2020 and 2019 based on the following actuarial methods and assumptions: Actuarial Assumptions Discount Rate 7.00% Inflation 2.75% Salary Increases 2.75% plus merit Investment Rate of Return 7.00% Mortality Rate(1) Derived using CalPERS Membership Data for all funds Pre-Retirement Turnover(2) Derived using CalPERS Membership Data for all funds Healthcare Trend Rate 6.00% PPO decreasing to 5.00% PPO Notes: (1) Pre-retirement mortality information was derived from data collected during 1997 to 2011 CalPERS Experience Study dated January 2014 and post-retirement mortality information was derived from the 2007 to 2011 CalPERS Experience Study. The Experience Study Reports may be access on the CalPERS website www.calpers.ca.gov under Forms and Publications. (2) The pre-retirement turnover information was developed based on CalPERS specific data. For more details, please refer to the 2007 to 2011 Experience Study Report. The Experience Study Report may be accessed on the CalPERS website www.calpers.ca.gov under Forms and Publications. The long-term expected rate of return on OPEB 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 OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the OPEB plan’s target asset are summarized in the following table for the June 30, 2020 and 2019 actuarial valuations: DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 47 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Long-term Target Expected Real Asset Class Allocation Rate of Return 2020 2019 2020 2019 Global Equity 59.0% 59.0% 5.5% 5.5% Global Fixed Income 25.0% 25.0% 2.35% 2.35% TIPS 5.0% 5.0% 1.50% 1.50% Commodities 3.0% 3.0% 1.75% 1.75% REITs 8.0% 8.0% 3.65% 3.65% Total 100% 100% Discount Rate The discount rate used to measure the total OPEB liability was 7.00% for the June 30, 2020 and 2019 actuarial valuations. The projection of cash flows used to determine the discount rate assumed that District contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projects benefit payments to determine the total OPEB liability. Changes in the OPEB Liability (Asset) The changes in the net OPEB liability (asset) for the Plan are as follows: June 30, 2021 Increase (Decrease) Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability/(Asset) (c) = (a) - (b) Balance at June 30, 2020 (Valuation Date June 30, 2019) $ 27,177,329 $ 27,197,350 $ (20,021) Changes Recognized for the Measurement Period: Service Cost 735,529 - 735,529 Interest 1,915,358 - 1,915,358 Differences between expected and actual experience 1,151,927 - 1,151,927 Changes of Assumptions - - - Contributions - Employer - 1,011,358 (1,011,358) Net Investment Income - 983,790 (983,790) Benefit Payments (1,120,146) (1,120,146) - Administrative Expenses - (13,514) 13,514 Other Expenses - - - Net Changes 2,682,668 861,488 1,821,180 Balance at June 30, 2021 (Measurement Date June 30, 2020) $ 29,859,997 $ 28,058,838 $ 1,801,159 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 48 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Changes in the OPEB Liability (Asset) - Continued June 30, 2020 Increase (Decrease) Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability/(Asset) (c) = (a) - (b) Balance at June 30, 2019 (Valuation Date June 30, 2018) $ 27,964,563 $ 24,549,538 $ 3,415,025 Changes Recognized for the Measurement Period: Service Cost 757,725 - 757,725 Interest 1,970,613 - 1,970,613 Differences between expected and actual experience (2,029,118) - (2,029,118) Changes of Assumptions (345,110) - (345,110) Contributions - Employer - 2,206,363 (2,206,363) Net Investment Income - 1,595,092 (1,595,092) Benefit Payments (1,141,344) (1,141,344) - Administrative Expenses - (12,299) 12,299 Other Expenses - - - Net Changes (787,234) 2,647,812 (3,435,046) Balance at June 30, 2020 (Measurement Date June 30, 2019) $ 27,177,329 $ 27,197,350 $ (20,021) Sensitivity of the Net OPEB Liability (Asset) to Changes in the Discount Rate The following presents the net OPEB liability (asset) of the District if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate, for the measurement periods ended June 30, 2020 and 2019: 1% Decrease Current Discount Rate 1% Increase 2021 Net OPEB Liability (Asset) $ 6,374,570 $ 1,801,159 $ (1,912,135) (2020 Measurement Period) 2020 Net OPEB Liability (Asset) $ 4,124,269 $ (20,021) $ (3,385,633) (2019 Measurement Period) DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 49 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 8)OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Sensitivity of the Net OPEB Liability to Changes in the Health Care Cost Trend Rates The following presents the net OPEB liability of the District if it were calculated using health care cost trend rates that are one percentage point lower or one percentage point higher than the current rate, for measurement periods ended June 30, 2020 and 2019: 1% Decrease (5.00% HMO/5.00% PPO Decreasing to 4.00% HMO/4.00% PPO) Current Healthcare Cost Trend Rates (6.00% HMO/6.0% PPO Decreasing to 5.00% HMO/5.00% PPO) 1% Increase (7.00% HMO/7.00% PPO Decreasing to 6.00% HMO/6.00% PPO) 2021 Net OPEB Liability (Asset) $ (2,525,323) $ 1,801,159 $ 7,256,118 (2020 Measurement Period) 2020 Net OPEB Liability (Asset) $ (3,730,121) $ (20,021) $ 4,639,466 (2019 Measurement Period) OPEB Plan Fiduciary Net Position CERBT issues a publicly available financial report that may be obtained from the California Public Employees Retirement System Executive Office, 400 P Street, Sacramento, California 95814. Recognition of Deferred Outflows and Deferred Inflows of Resources Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense systematically over time. Amounts are first recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future OPEB expense. The recognition period differs depending on the source of the gain or loss: Net difference between projected and actual earnings on OPEB plan investments 5 years All other amounts Expected average remaining service lifetime (EARSL) DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 50 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the fiscal years ended June 30, 2021 and 2020, the District recognized OPEB expense of $(660,336) and $(692,893), respectively. As of fiscal years ended June 30, 2021 and 2020, the District reported deferred outflows of resources related to OPEB from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources 2021 2020 2021 2020 OPEB contributions subsequent to measurement date $ 807,867 $ 1,011,358 $ - $ - Differences between expected and actual experience 1,007,936 - (1,217,470) (1,623,294) Changes in assumptions - - (207,066) (276,088) Net difference between projected and actual earnings on OPEB plan investments 623,829 128,177 - (374,867) Total $ 2,439,632 $ 1,139,535 $ (1,424,536) $ (2,274,249) The $807,867 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2021 measurement date will be recognized as a reduction of the net OPEB liability during the fiscal year ending June 30, 2022. Other amounts reported as deferred outflows of resources related to OPEB will be recognized as expense as follows: Deferred Year Ended Outflow/(Inflows) June 30, of Resources 2022 (285,559) 2023 (150,694) 2024 (115,645) 2025 327,155 2026 143,991 Thereafter 287,981 9) COMMITMENTS AND CONTINGENCIES Construction Commitments The District had committed to capital projects under construction with an estimated cost to complete of $2,912,364 and $2,706,350 at June 30, 2021 and 2020, respectively. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 51 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 9)COMMITMENTS AND CONTINGENCIES - Continued 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, most of those 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. There is one potential case, see below, that could have a significant effect on the District’s financial position. The District is involved in a class action lawsuit regarding its single-family residential tiered water rates between July 2014 and current which were based on industry standard cost-of-service studies. Although the District believes no significant damages are involved, there is an uncertainty, due to recent cases, on the likelihood of a favorable decision to the District. The amount of potential loss is currently unavailable due to the complex nature of the case and the uncertainty of the outcome. 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, 2021, 1,750 EDUs had been relinquished and refunded, 15,091 EDUs had been connected, and 1,026 EDUs have neither been relinquished nor connected. At June 30, 2020, 1,750 EDUs had been relinquished and refunded, 15,088 EDUs had been connected, and 1,029 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, 2021 and 2020, none of the outstanding developer agreements had been accepted. COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The pandemic continued subsequent to year end with certain restrictions required by the Governor of California, as well as local governments, which may affect revenue sources and also caused subsequent stock market volatility. The duration of the pandemic and the future impact of COVID-19 on the District’s operational and financial performance is uncertain at this time. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 52 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 10)RISK MANAGEMENT General Liability and Property 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 2020, the District began participation as a member in an insurance pool through the Association of California Water Agencies Joint Powers Insurance Authority (ACWA JPIA). ACWA JPIA is a not-for- profit public agency formed under California Government Code Sections 6500 et. Seq. ACWA JPIA is governed by a board composed of members from participating agencies. The District pays an annual premium for commercial insurance covering general liability, excess liability, property, automobile, public employee dishonesty, and various other claims. Separate financial statements of ACWA JPIA may be obtained at ACWA JPIA 2100 Professional Drive, Roseville, CA 95661-3700. General and Auto Liability, Public Officials’ Errors and Omissions and Employment Practices Liability: Total limits of $5 million combined single limit at $5 million per occurrence, with excess aggregate coverage at $50 million subject to the following deductibles: $50,000 per occurrence for third party general liability property damage; $50,000 per occurrence for third party auto liability property damage; Employee Dishonesty Coverage: Total of $1,000,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and Theft and Faithful Performance of Duty effective July 1, 2020. Property Loss: Replacement cost, for property on file, paid on an actual cash value basis, to a combined total of $500 million per occurrence, subject to a $1,000 deductible per occurrence, effective July 1, 2020. Boiler and Machinery: Replacement cost up to $100 million per occurrence, subject to a $1,000 deductible, effective July 1, 2020. Comprehensive and Collision: Deductibles of $1,000, as elected; ACV limits; fully self-funded by ACWA, effective July 1, 2020. Workers’ Compensation Coverage and Employer’s Liability: Statutory limits per occurrence for Workers’ Compensation and $2.0 million for Employer’s Liability Coverage, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage, effective July 1, 2020. Cyber Coverage: $5,000,000 Annual Aggregate Limit of Liability for each Insured/Member for Information Security & Privacy Liability. Policy includes $50,000 deductible per claim. 11) SEGMENT INFORMATION The District has issued Water and Wastewater Revenue Bonds in the current and previous fiscal years to finance certain capital improvements. While water and wastewater services are accounted for jointly in these financial statements, the investors in the Water Revenue Bonds rely solely on the revenues of the water services for repayment and the Wastewater Revenue Bonds solely on the revenues of the wastewater services for repayment. DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 53 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 11) SEGMENT INFORMATION - Continued Summary financial information for the water and wastewater services is presented for June 30, 2021 and 2020: Condensed Statements of Net Position June 30, 2021 and 2020 Water Services Wastewater Services 2021 2020 2021 2020 ASSETS Cash and Investments $ 87,912,162 $ 73,048,806 $ 4,480,939 $ 4,457,368 Accounts Receivable, Net 14,646,890 13,244,367 194,047 175,737 Other Current Assets 3,914,774 3,365,177 68,548 96,132 Net OPEB Asset -19,191 -830 Capital Assets 422,067,977 426,126,556 29,494,427 30,376,193 Total Assets 528,541,803 515,804,097 34,237,961 35,106,260 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs 5,310,729 3,306,371 110,794 51,994 Deferred Actuarial OPEB Costs 2,357,742 1,094,697 81,890 44,838 Total Deferred Outflows of Resources 7,668,471 4,401,068 192,684 96,832 LIABILITIES Accounts Payable 14,666,147 16,040,522 69,579 183,595 Other Miscellaneous Liabilities 5,163,174 4,970,208 732,692 485,818 Other Current Liabilities 11,376,893 10,474,774 95,247 30,247 General Obligation Bonds 739,080 1,460,435 - - Revenue Bonds 102,442,795 107,381,011 3,042,012 3,106,551 Net Pension Liability 19,518,744 16,194,242 524,775 422,613 Net OPEB Liability 1,750,085 -51,074 - Other Non-current Liabilities 3,793,011 3,550,571 - - Total Liabilities 159,449,929 160,071,763 4,515,379 4,228,824 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs -1,323,207 -43,451 Deferred Actuarial OPEB Costs 1,365,120 2,190,616 59,416 83,633 Total Deferred Inflows of Resources 1,365,120 3,513,823 59,416 127,084 NET POSITION Net Investment in Capital Assets 313,995,974 317,886,828 26,387,415 27,269,642 Restricted for Debt Service 4,187,443 4,261,399 - - Unrestricted 57,211,808 34,471,352 3,468,435 3,577,542 Total Net Position $ 375,395,225 $ 356,619,579 $ 29,855,850 $ 30,847,184 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 54 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 11) SEGMENT INFORMATION - Continued Condensed Statements of Revenues, Expenses and Changes in Net Position For the Years Ended June 30, 2021 and 2020 Water Services Wastewater Services 2021 2020 2021 2020 Operating Revenues Water Sales $ 101,742,970 $ 90,435,148 $ - $ - Wastewater Revenue - - 2,899,180 2,921,310 Connection and Other Fees 2,495,491 2,570,891 2,827 11,460 Total Operating Revenues 104,238,461 93,006,039 2,902,007 2,932,770 Operating Expenses Cost of Water Sales 66,889,570 62,573,257 - - Wastewater - - 2,633,413 2,439,117 Administrative and General 21,948,435 25,196,555 - - Depreciation 16,076,720 15,886,575 1,136,185 892,392 Total Operating Expenses 104,914,725 103,656,387 3,769,598 3,331,509 Operating Income (Loss) (676,264) (10,650,348) (867,591) (398,739) Non-operating Revenues (Expenses) Investment Earnings 246,906 1,734,364 7,762 50,470 Taxes and Assessments 5,249,898 4,939,950 1,642 - Availability Charges 634,887 645,996 51,810 48,772 Gain (Loss) on Sale of Capital Assets (159,734) (1,243,742) - - Rents and Leases 1,587,687 1,501,328 - - Miscellaneous Revenues 5,057,827 1,750,411 4,952 185,751 Donations (84,389) (121,600) - - Interest Expense (4,695,529) (4,903,602) (86,961) (50,385) Miscellaneous Expenses (197,587) (453,971) (43,792) (104,434) Total Non-operating Revenues (Expenses) 7,639,966 3,849,134 (64,587) 130,174 Income (Loss) Before Capital Contributions and Transfers 6,963,702 (6,801,214) (932,178) (268,565) Capital Contributions 11,644,043 6,825,909 108,745 116,023 Transfers In (Out) 167,901 193,829 (167,901) (193,829) Change in Net Position 18,775,646 218,524 (991,334) (346,371) Total Net Position, Beginning 356,619,579 356,401,055 30,847,184 31,193,555 Total Net Position, Ending $ 375,395,225 $ 356,619,579 $ 29,855,850 $ 30,847,184 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 55 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 and 2020 11) SEGMENT INFORMATION - Continued Condensed Statements of Cash Flows For the Years Ended June 30, 2021 and 2020 Water Services Wastewater Services 2021 2020 2021 2020 Net Cash Provided/(Used) by: Operating Activities $ 19,202,814 $ 10,725,595 $ 362,894 $ 586,205 Non-capital and Related Financing Activities 5,286,158 5,035,871 (116,091) (145,056) Capital and Related Financing Activities (9,989,088) (17,036,778) (230,994) 1,386,775 Investing Activities 437,895 17,445,293 7,762 2,629,444 Net Increase (Decrease) in Cash and Cash Equivalents 14,937,779 16,169,981 23,571 4,457,368 Cash and Cash Equivalents, Beginning 69,308,286 53,138,305 4,457,368 - Cash and Cash Equivalents, Ending $ 84,246,065 $ 69,308,286 $ 4,480,939 $ 4,457,368 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY CREQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 56 Schedule of Changes in the Net OPEB Liability and Related Ratios for Measurement Periods Ended June 30, Measurement Period 2020 2019 2018 2017 Total OPEB Liability Service Cost $ 735,529 $ 757,725 $ 735,655 $ 687,528 Interest on the Total OPEB Liability 1,915,358 1,970,613 1,864,967 1,764,343 Actual and Expected Experience Difference 1,151,927 (2,029,118) - - Changes in Assumptions -(345,110)- - Changes in Benefit Terms -- - - Benefit Payments (1,120,146) (1,141,344) (1,085,586) (1,039,420) Net Change in Total OPEB Liability 2,682,668 (787,234) 1,515,036 1,412,451 Total OPEB Liability - Beginning 27,177,329 27,964,563 26,449,527 25,037,076 Total OPEB Liability - Ending (a) $ 29,859,997 $ 27,177,329 $ 27,964,563 $ 26,449,527 Plan Fiduciary Net Position Contributions - Employer $ 1,011,358 $ 2,206,363 $ 2,202,004 $ 2,284,420 Net Investment Income 983,790 1,595,092 1,734,626 2,011,985 Benefit Payments (1,120,146) (1,141,344) (1,085,586) (1,039,420) Administrative Expenses (13,514) (12,299) (11,784) (10,167) Other Expenses - - (28,757) - Net Change in Plan Fiduciary Net Position 861,488 2,647,812 2,810,503 3,246,818 Plan Fiduciary Net Position - Beginning 27,197,350 24,549,538 21,739,035 18,492,217 Plan Fiduciary Net Position - Ending (b) $ 28,058,838 $ 27,197,350 $ 24,549,538 $ 21,739,035 Net OPEB Liability/(Asset) - Ending (a)-(b) $ 1,801,159 $ (20,021) $ 3,415,025 $ 4,710,492 Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 94.0% 100.1% 87.8% 82.2% Covered-Employee Payroll $ 13,538,959 $ 13,176,602 $ 12,677,000 $ 12,513,000 Net OPEB Liability/(Asset) as a Percentage of Covered- Employee Payroll 13.3% -0.2%26.9% 37.6% Notes to Schedule: Historical information is required only for measurement periods for which GASB 75 is applicable. Future years’ information will be displayed up to 10 years as information becomes available. Contributions are determined by an actuarial valuation based on eligible participants’ estimated medical and dental benefits. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 57 Schedule of Contributions Last Ten Fiscal Years’ Actuarially Contributions as a Determined Contributions in Percentage of Fiscal Contribution Relation to the Contribution Covered-Employee Covered-Employee Year (ADC) ADC Deficiency (Excess) Payroll Payroll 2018 $ 1,116,418 $ (2,202,004) $ (1,085,586) $ 12,677,000 17.37% 2019 $ 1,149,911 $ (2,206,363) $ (1,056,452) $ 13,176,602 16.74% 2020 $ 1,011,358 $ (1,011,358) $ -$ 13,538,959 7.47% 2021 $ 807,867 $ (807,867) $ - $13,917,932 5.80% Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2021 were from the June 30, 2020 actuarial valuation. Also note, that some of the data from prior years were updated with the most current available information. Methods and assumptions used to determine contributions: Actuarial Cost Method Entry Age Normal Amortization Method/Period Level percent of payroll over a closed rolling 15-year period Asset Valuation Method Market value Inflation 2.75% Payroll Growth 2.75% plus merit Investment Rate of Return 7.00% per annum Healthcare Cost-trend Rates 6.00% HMO/6.00% PPO decreasing to 5.00% HMO/5.00% PPO Retirement Age Tier 1 employees - 2.7% at 55 and Tier 2 employees - 2.0% at 62. The probabilities of Retirement are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Mortality Pre-retirement mortality and post-retirement mortality probability based on CalPERS Experience Study with mortality improvements using Mortality Improvement Scale MP2018. Historical information is required only for measurement periods for which GASB 75 is applicable. Future years’ information will be displayed up to 10 years as information becomes available. Contributions are determined by an actuarial valuation based on eligible participants’ medical and dental benefits. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 58 Schedule of Changes in the Net Pension Liability and Related Ratios Last 10 Years1 Measurement Period2 2019-2020 2018-2019 2017-2018 2016-2017 TOTAL PENSION LIABILITY Service Cost $ 2,623,208 $ 2,586,911 $ 2,528,271 $ 2,556,902 Interest 10,043,778 9,638,674 9,168,092 8,836,284 Changes of Benefit Terms - - - - Changes of Assumptions - - (1,312,634) 7,308,486 Difference Between Expected and Actual Experience 260,337 1,183,213 461,917 (1,208,593) Benefit Payments, Including Refunds of Employee Contributions (7,017,816) (6,658,719) (5,995,949) (5,779,040) Net Change in Total Pension Liability 5,909,507 6,750,079 4,849,697 11,714,039 Total Pension Liability - Beginning 142,409,387 135,659,308 130,809,611 119,095,572 Total Pension Liability - Ending (a) $ 148,318,894 $ 142,409,387 $ 135,659,308 $ 130,809,611 PLAN FIDUCIARY NET POSITION Net Plan to Plan Resource Movement $ -$- $ (203) $- Contributions - Employer 2,437,119 36,706,983 4,441,517 4,105,810 Contributions - Employee 1,055,769 1,019,255 1,015,008 1,014,329 Net Investment Income 6,185,108 7,516,686 6,949,676 8,149,097 Benefit Payments, Including Refunds of Employee Contributions (7,017,816) (6,658,719) (5,995,949) (5,779,040) Administrative Expense (177,337) (62,278) (126,575) (109,029) Other Changes in Fiduciary Net Position -203 (240,367) - Net Change in Fiduciary Net Position 2,482,843 38,522,130 6,043,107 7,381,167 Plan Fiduciary Net Position - Beginning 125,792,532 87,270,402 81,227,295 73,846,128 Plan Fiduciary Net Position - Ending (b) $ 128,275,375 $ 125,792,532 $ 87,270,402 $ 81,227,295 Plan Net Pension Liability/(Asset) - Ending (a) - (b) $ 20,043,519 $ 16,616,855 $ 48,388,906 $ 49,582,316 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 86.49% 88.33% 64.33% 62.10% Covered Payroll $ 13,383,715 $ 12,892,655 $ 12,969,485 $ 12,829,415 Plan Net Pension Liability/(Asset) as a Percentage of Covered Payroll 149,76% 128.89% 373.10% 386.47% Continued 1 Measurement period 2019-20 (fiscal year 2020-2021) was the seventh year of implementation; therefore, only seven 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, 2016. 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 2021, 2020, 2019 and 2017 fiscal years, there were no changes. For the 2018 fiscal year, the accounting discount rate reduced from 7.65% to 7.15%. For the 2016 fiscal year, amounts reported reflect an adjustment the discount rate of 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. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 59 N Schedule of Changes in the Net Pension Liability and Related Ratios - Continued Last 10 Years1 DED JUNE 30, 2020 and 2019 Measurement Period2 2015-2016 2014-2015 2013-2014 TOTAL PENSION LIABILITY Service Cost $ 2,298,617 $ 2,250,860 $ 2,330,709 Interest 8,575,275 8,229,312 7,907,915 Changes of Benefit Terms - - - Changes of Assumptions -(1,996,819)- Difference Between Expected and Actual Experience (613,440) (981,200)- Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,288,251) (4,885,406) Net Change in Total Pension Liability 4,812,234 2,213,902 5,353,218 Total Pension Liability - Beginning 114,283,338 112,069,436 106,716,218 Total Pension Liability - Ending (a) $ 119,095,572 $ 114,283,338 $ 112,069,436 PLAN FIDUCIARY NET POSITION Net Plan to Plan Resource Movement $ - $- $- Contributions - Employer 3,819,770 3,557,098 3,137,174 Contributions - Employee 1,010,337 1,007,023 1,074,954 Net Investment Income 369,214 1,601,760 10,874,999 Benefit Payments, Including Refunds of Employee Contributions (5,448,218) (5,288,251) (4,885,406) Administrative Expense (45,185) (83,511) - Other Changes in Fiduciary Net Position - - - Net Change in Fiduciary Net Position (294,082) 794,119 10,201,721 Plan Fiduciary Net Position - Beginning 74,140,210 73,346,091 63,144,370 Plan Fiduciary Net Position - Ending (b) $ 73,846,128 $ 74,140,210 $ 73,346,091 Plan Net Pension Liability/(Asset) - Ending (a) - (b) $ 45,249,444 $ 40,143,128 $ 38,723,345 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 62.01% 64.87% 65.45% Covered Payroll $ 12,767,963 $ 12,451,513 $ 12,276,578 Plan Net Pension Liability/(Asset) as a Percentage of Covered Payroll 354.40% 322.40% 315.42% 1 Measurement period 2019-20 (fiscal year 2020-2021) was the seventh year of implementation; therefore, only seven years are shown. 2 Historical information is required only for measurement periods for which GASB 68 is applicable REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 60 E 30, 2017 and 2016 Schedule of Plan Contributions1 Contributions in Relation to the Actuarially Actuarially Contributions as a Fiscal Determined Determined Contribution Percentage of Year Contribution2 Contribution2 Deficiency (Excess) Covered Payroll3 Covered Payroll3 2015 $ 3,557,098 $ (3,557,098) $ - $ 12,451,513 28.57% 2016 $ 3,819,770 $ (3,819,770) $ - $ 12,767,963 29.92% 2017 $ 4,105,810 $ (4,105,810) $ - $ 12,829,415 32.00% 2018 $ 4,441,517 $ (4,441,517) $ - $ 12,969,485 34.25% 2019 $ 4,906,983 $ (36,706,983) $ (31,800,000) $ 12,892,655 284.71% 2020 $ 2,437,119 $ (2,437,119) $ - $ 13,383,715 18.21% 2021 $ 2,765,952 $ (3,965,952) $ (1,200,000) $ 13,917,932 28.50% 1Historical 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 Includes one year’s payroll growth assumption using 2.75% payroll growth assumption for fiscal years 2018-2020; 3.00% payroll growth assumption for fiscal years 2015-2017. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2020-21 were from the June 30, 2018 public agency valuations. Also note, that some of the data from prior years were updated with the most current available information. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details see June 30, 2018 Funding Valuation Report Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2018 Funding Valuation Report Discount Rate 7.00% Inflation 2.50% Salary Increases Varies by Entry Age and Service Payroll Growth 2.75% Investment Rate of Return 7.00% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Retirement Age The probabilities of Retirement are based on the 2017 CalPERS Experience Study. Mortality The probabilities of mortality are based on the 2017 CalPERS Experience Study. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2021 and 2020 DRAFT COPY – 10/13/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors Otay Water District Spring Valley, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the Otay Water District (the “District”), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated _____ __, 2021. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Attachment C Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Riverside, California _____ __, 2021 DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY _______ __, 2021 Board of Directors Otay Water District Spring Valley, CA We have audited the financial statements of the Otay Water District (the “District”) for the year ended June 30, 2021. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated May 7, 2021. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Matters Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the District are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the 2021 fiscal year. We noted no transactions entered into by the District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Management’s estimate of the fair value of investments is based on information provided by financial institutions. We evaluated the key factors and assumptions used to develop the fair value of investments in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of capital assets depreciation is based on historical estimates of each capitalized item’s useful life. We evaluated the key factors and assumptions used to develop the capital assets depreciation in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimation of the net pension liability and related pension deferred outflows and inflows of resources are based on an actuarial valuation. We evaluated the key factors and assumptions used to develop the net pension liability and related pension deferred outflows and inflows of resources in determining that it is reasonable in relation to the financial statements taken as a whole. DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Attachment D Management’s estimate of the net other post employment benefits (OPEB) liability and related OPEB deferred outflows and inflows of resources are based on an actuarial valuation. We evaluated the key factors and assumptions used to develop the net OPEB liability and related OPEB deferred outflows and inflows or resources in determining that it is reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were: The disclosure of the fair value of investments in Notes 2 and 3 to the financial statements represents amounts susceptible to market fluctuation. The disclosure of capital assets in Note 4 to the financial statements is based on historical information which could differ from actual useful lives of each capitalized item. The disclosure of the defined benefit pension plan, the net pension liability and related pension deferred outflows and inflows of resources in Note 7 to the financial statements represents management’s estimate based on an actuarial valuation. Actual results could differ depending on these key factors and assumptions used for the actuarial valuation. The disclosure of other post employment benefits, the net OPEB liability and related OPEB deferred outflows and inflows of resources in Note 8 to the financial statements represents management’s estimate based on an actuarial valuation. Actual results could differ depending on these key factors and assumptions used for the actuarial valuation. The financial statement disclosures are neutral, consistent and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. None of the misstatements detected as of a result of audit procedures were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated ______ __, 2021. DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the District’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the District’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to management’s discussion and analysis and the required supplementary information section, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. Such information has 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 it. As part of the audit, we assisted with the preparation of the financial statements and related notes and State Controller’s report preparation. However, these services, does not constitute an audit under Government Auditing Standards and are considered nonaudit services. Management has reviewed, approved, and accepted responsibility for the results of these services. Restriction on Use This information is intended solely for the use of the Board of Directors and management of the District and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY INDEPENDENT ACCOUNTANTS’ REPORT ON APPLYING AGREED-UPON PROCEDURES Mr. Joseph Beachem Chief Financial Officer Otay Water District Spring Valley, CA We have performed the procedures enumerated below on evaluating the investments of the District as of and for the fiscal year ended June 30, 2021. The District’s management is responsible for evaluating the investments of the District. The Otay Water District (the “District”) has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose, which is solely to assist the District’s management in evaluating the compliance with the District’s investment policy for the fiscal year ending June 30, 2021. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes. Our procedures and associated findings are as follows: 1. Obtain a copy of the District’s investment policy and determine that it is in effect for the fiscal year ended June 30, 2021. Finding: At June 30, 2021, the current investment policy (Policy #27) is dated May 1, 2019. This policy was reviewed and reapproved with no revisions on May 6, 2020 and was last amended on May 1, 2019 at the regular board meeting. Therefore, the investment policy is in effect for the time period under review. 2. Select 4 investments held at year end and determine if they are allowable investments under the District’s Investment Policy. Finding: We selected the following investments: FHLB - Maturity 9/10/2021, FHLB - Maturity 9/10/2021, Local Agency Investment Fund (LAIF), and San Diego County Pool. All four investments are allowable and within maturity limits as stated in the District’s investment policy at June 30, 2021. The first two investments (FHLB) are allowable under the investment policy, however, since these two investments are reserve accounts related to the 2010 Series A and B bonds, they are subject to the debt agreements and not the District’s investment policy. DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY Attachment E 2 3. For the four investments selected in #2 above, determine if they are held by a third party custodian designated by the District. Finding: The four investments examined are held by third party custodians, Union Bank of California, the State of California (LAIF) and the County of San Diego designated by the District in compliance with the District’s investment policy. Per discussion with the District’s management and evidenced by Union Bank of California’s statement, Union Bank does not act as a broker dealer for the District but acts as a custodial agent of the District holding the investments in a trust capacity. LAIF with the State of California and the County of San Diego pooled investment funds are external investment pools held by the respective governmental agency. 4. Confirm the par or original investment amount and market value for the four investments selected above with the custodian or issuer of the investments. Finding: No exceptions were noted as a result of our procedures except there was a variance from the market value for the County of San Diego Pool. The confirmation for the County of San Diego Pool had a market value of $56,463,691.34 while the District’s investment report had a market value of $56,420,000. 5.Select two investment earnings transactions that took place during the year and recompute the earnings to determine if the proper amount was received. Finding: Selected the following investment earnings transactions: interest earned on FHLB Bond on September 10, 2020 and interest earned on FHLB Bond on March 10, 2021. No exceptions were noted as a result of our procedures. 6.Trace amounts received for transactions selected at #5 above into the District’s bank accounts. Finding: No exceptions were noted as a result of our procedures. 7.Select five investment transactions (buy, sell, trade or maturity) occurring during the year under review and determine that the transactions are permissible under the District’s investment policy. Finding: We selected the following investment transactions: LAIF deposit/purchase of $4,800,000 in August 2020, San Diego County Pool deposit/purchase of $5,001,581.57 in August 2020, LAIF withdrawal of $2,800,000 in December 2020, LAIF deposit/purchase of $6,536,097.94 in April 2021, and San Diego Pool deposit/purchase of $10,086,621.94 in April 2021. Those transactions were permissible under the District’s investment policy. No exceptions were noted as result of our procedures. 8.Review the supporting documents for the five investments selected at #7 above to determine if the transactions were appropriately recorded into the District’s general ledger. Finding: No exceptions were noted as a result of our procedures. DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY 3 We were engaged by the District to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an audit or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the investments of the District for the fiscal year ending June 30, 2021. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. We are required to be independent of the District and meet our ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement. This report is intended solely for the information and use of the Board of Directors and senior management of the Otay Water District and is not intended to be and should not be used by anyone other than these specified parties. Riverside, California _______ __, 2021 DRAFT COPY – 10/11/2021 PRELIMINARY & TENATIVE for DISCUSSION PURPOSES ONLY STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 3, 2021 PROJECT: Various DIV. NO. ALL SUBMITTED BY: Kent Payne Purchasing and Facilities Manager APPROVED BY: Adolfo Segura, Chief, Administrative Services Jose Martinez, General Manager SUBJECT: AUTHORIZE A TWO-YEAR FIXED CONTRACT, PLUS THREE (3) ONE-YEAR OPTIONS, WITH NATURESCAPE SERVICES, INC. FOR LANDSCAPE MAINTENANCE SERVICES IN AN AMOUNT NOT-TO-EXCEED $617,724 GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) award a contract to NatureScape Services, Inc. (NatureScape) and authorize the General Manager to execute a two-year fixed contract, plus three (3) one-year options, with NatureScape of San Diego, CA, for landscape maintenance services in an amount not-to-exceed $617,724. COMMITTEE ACTION: See “Attachment A”. PURPOSE: To obtain Board authorization for the General Manager to enter into a two-year fixed contract with NatureScape, plus three (3) one-year options, for landscape maintenance services in an amount not-to- exceed $617,724. ANALYSIS: The District utilizes a multi-year contract for landscape maintenance AGENDA ITEM 5 2 services to maintain its Administrative, Operations, and Treatment Plant facilities, as well as the remote pump stations, reservoirs, hydro stations, and easements. A scope of work matrix is provided (see “Attachment B”). Staff issued a Request for Proposals through its online solicitation portal, Periscope (formerly BidSync). Four (4) firms attended a mandatory pre-proposal meeting and site walk held at the main campus and at a number of remote facilities. The District received three (3) proposals that were evaluated by a three-person review panel that scored each submittal on Company Background, Staff Qualifications, and Quality Assurance. Separately, a score was assigned to each proposed contract fee, then added to the review panel ratings for a final score (see “Attachment C”). Firm 5-year Fee Hourly Rate Score NatureScape Services, Inc. $617,724 $30.00 84 Greenridge Landscape, Inc.* $709,932 $45.00 58 Aztec Landscaping, Inc. $953,351 $35.00 67 Monthly and annual fees are as follows: Calendar Year Monthly Fee Annual Fee 2022 $9,689 $116,268 2023 $9,789 $117,468 2024 Option 1 $9,999 $119,988 2025 Option 2 $10,750 $129,000 2026 Option 3 $11,250 $135,000 Contract Total $617,724 *Incumbent contract holder NatureScape received the highest score at 84 and was also determined to be the best overall value for the required scope of services. NatureScape is a local family-owned and operated landscape maintenance firm started in 1975 and incorporated in 2017. They employ 34 full-time and 22 seasonal workers. An internet search revealed no negative ratings or complaints. NatureScape is rated highly by public agency clients, which include the City of San Diego, City of Chula Vista, County of San Diego, San Diego County Water 3 Authority, and the San Diego Unified Port District. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The annual landscape maintenance operating budget is $130,000. Of this amount, $116,268 will be utilized for calendar year 2022 of the contract. STRATEGIC GOAL: Supports the Districts Strategy: Ensure financial health through formalized policies, prudent investing, and efficient operations. LEGAL IMPACT: None. ATTACHMENTS: Attachment A – Committee Action Report Attachment B – Scope of Work Matrix Attachment C – Scoresheet ATTACHMENT A SUBJECT/PROJECT: AUTHORIZE A TWO-YEAR FIXED CONTRACT, PLUS THREE (3) ONE- YEAR OPTIONS, WITH NATURESCAPE SERVICES, INC. FOR LANDSCAPE MAINTENANCE SERVICES IN AN AMOUNT NOT-TO-EXCEED $617,724 COMMITTEE ACTION: The Finance, Administration, and Communications Committee reviewed this item at a meeting held on October 20, 2021. The Committee supports presentation to the full Board for their consideration. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a Committee approved item or modified to reflect any discussion or changes as directed from the Committee prior to presentation to the full Board. ATTACHMENT B SUBJECT/PROJECT: AUTHORIZE A TWO-YEAR FIXED CONTRACT, PLUS THREE (3) ONE- YEAR OPTIONS, WITH NATURESCAPE SERVICES, INC. FOR LANDSCAPE MAINTENANCE SERVICES IN AN AMOUNT NOT-TO-EXCEED $617,724 SCOPE OF WORK MATRIX # Facility Name Location Landscape General Duties* 1 1655-1 Hydro-Station 14810 Presilla Drive Jamul, CA 32.700722923410495, - 116.8387307638279 •Trim oleanders off the fence and top to fence line 2x a year. •Spray herbicides (systemic and preemergent) twice a year before rainy season or as needed. •Clean all culverts from dirt and debris •General clean-up of trash and debris. Haul away trimmings. •Install/maintain and operate irrigation drip system. •May need fire prevention natural growth removal. 2 Intentionally left blank 3 1485-1 Pump Station 14303 Lyons Valley Road, Jamul, CA 32.728975123374376, - 116.86297652076674 •Trim plants twice a year. •General clean-up of trash and debris as needed. Haul away trimmings. •Install/maintain and operate irrigation as needed. •Erosion controls install/maintain (including mud removal from asphalt). 4 1296-1-9 Tank (9-2 tank @ Bear Mt.) 13635 Bear Mountain Way, Jamul, CA 32.7101889011776, - 116.89260418539448 •General clean-up of trash, debris, and landscaped areas. •Clean all culverts from dirt and debris once a year before rainy season or as needed. •Line trim as needed for weed abatement. Haul away trimmings. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate irrigation drip system. 6 5 944-1-9 Pump Station (9-1 PS) 13255 Campo Road, Jamul, CA 32.72874729563849, - 116.89861552488024 •Trim and clean all landscaped areas three times a year or as needed. •Haul away all trimmings and debris. •Clean all culverts from dirt and debris before rainy season or as needed. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate irrigation drip system. 6 944-1-9 Tank and 944-2-9 Tank (9-1 tanks) 3102 Vista Diego Road, Jamul, CA •Trim and clean all landscaped areas three times a year or as needed. •Haul away all trimmings and debris. •Clean all culverts and storm drains from dirt and debris before rainy season. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate irrigation drip system. •Dirt removal from paved areas around tanks after rainy season. •Install/maintain erosion control. 7 Vista Diego Hydro Station 3151 Vista Diego Road, Jamul, CA 32.723259915929994, - 116.87881549967733 •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year or as needed. 8 832-1-2 Reservoir (2-1 Tank)12118 Campo Road, El Cajon, CA 32.73396067514205, - 116.92881847188326 •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate irrigation drip system. 9 832-1-2 Pump Station (2-1 PS) 12176 Highway 94, El Cajon, CA 32.73550561897947, - 116.93459247252014 •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate irrigation drip system. •Removal of unwanted plant species among oleanders. 7 10 1090-1-2 Pump Station (2-2 PS) 3029 Millar Ranch Road, Spring Valley, CA 32.722730628573615, - 116.92341523060547 •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Install/maintain, repair, and operate fire sprinklers around fence bi-weekly during summertime or fire season. •Install/maintain and operate irrigation drip system. •Weed control as needed. •Install/maintain erosion control as needed. 11 1090-1-2 Tank (2-2 tank) 12300 Millar Anita Lane, Spring Valley, CA 32.71976311486826, - 116.92319455798108 •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Removal of natural growth for fire abatement/protection. •Rake around tank, outside and access roads. •Install/maintain, repair, and operate irrigation drip system. •Spray herbicides for weed prevention twice a year or as needed. 12 Wastewater Reclamation Plant; and Steele Canyon PS 11901/11977 Singer Lane, Spring Valley, CA Reclamation Plant: 32.7281113759401, - 116.94721943623401 Steele Canyon PS: 32.734197119879155, - 116.94148071183844 •Trim oleanders at Steele Canyon PS Tank once a year. •Trim, clean and fertilize all landscaped areas twice a year or as needed •Trim all ice plant and ivy 3 times a year or as needed. •Apply granular pre-emergent as needed twice a year. •Line trim inside treatment plant for weed abatement 3 or 4 times a year or as needed. •Keep a 25 feet firebreak between fence line and natural growth vegetation before fire season. •Spray herbicides around roadway, treatment plant and accessories for weed prevention four times a year or as needed. •Haul away all trimmings. •Clean-up and mow roadside as needed. •Clean all culverts from dirt and debris before rainy season or as needed. •Install/maintain and operate all irrigation systems including adjusting timers for different seasons of the year. •Blow driveways and hardscapes as may be requested. 13 Cottonwood Meadows Sewer Lift Station 3550 Par Four Drive, El Cajon, CA 32.739909811891664, - 116.91929365129484 •Trim of fence and clean all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Line trim inside station and entry access road for weed abatement twice a year or as needed. •Spray herbicides for weed prevention twice a year or as needed. 14 Intentionally left blank 8 15 860-1 Cottonwood Hydropneumatic Station Pump Station (Windriver) 2508 Windriver Road, El Cajon, CA 32.75338851918531, - 116.91056930191007 • Trim neighbor’s landscape overgrowth twice a year. • Haul away all trimmings and debris. • General clean-up. • Line trim for weed abatement twice a year. • Spray herbicides for weed prevention twice a year. 16 803-4 Tank (Vista Grande Reservoir) 1612 Vista Grande Road, El Cajon, CA 32.76960268564462, - 116.91066405085418 • Trim, clean and fertilize all landscaped areas 3 times a year or as needed. • Haul away all trimmings and debris. • Install/maintain and operate irrigation d rip system or hand water during summer. • Install and maintain erosion control before rainy season. • Line trim for weed abatement as needed. • Spray herbicides for weed prevention 3 times a year or as needed. • Clean all culverts from debris and dirt before rainy season or as needed. 17 1200-1-3 Tank 1697 Burris Drive, El Cajon, CA 32.76795586052126, - 116.90310707931694 • Bee removal as needed. • Trim natural growth to keep it contained within limits once a year. • Haul away all trimmings and debris. • Line trim for weed abatement as needed. • Install/maintain and operate irrigation system. 18 978-2 Reservoir Filipponi Reservoir 1124 Vista Grande Road, El Cajon, CA 32.77788787445248, - 116.91037479676977 • Trim, clean and fertilize all landscaped areas twice a year or as needed. • Haul away all trimmings and debris. • Clean all culverts from debris and dirt before rainy season and as needed. • Set erosion control for protection of all culverts. • Line trim for weed abatement as needed. • Spray herbicides for weed prevention twice a year or as needed. • Install/maintain and operate irrigation drip line system. • Maintain clean all access road to the tank from the first chain link fence gate to second chain link fence gate. • Spread mulch around bottlebrushes as needed. 19 978-1-2 Reservoir (3-2 Res.) 2542 Pence Drive, El Cajon, CA 32.776558081950526, - 116.89806797066288 • Trim, clean and fertilize all landscaped areas inside tank twice a year. • Haul away all trimmings and debris. • Line trim for weed abatement as needed. • Spray herbicides for weed prevention twice a year or as needed. • Clean all culverts from dirt and debris before rainy season or as needed. • Maintain access road and trim and top oleanders twice a year. • Install/maintain and operate all irrigation systems. 9 20 803-3 Reservoir (Singing Hills Reservoir) 2568 Pence Drive, El Cajon, CA •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all cuttings and debris. •Clean all culverts from debris and dirt before rainy season. •Install/maintain and operate irrigation drip system. •Spray herbicides for weed prevention twice a year. 21 Silverado Sewer Lift Station Camino De Las Piedras, El Cajon, CA 32.77050748670371, - 116.88077914855046 •General clean-up as needed. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention as needed. 22 Hidden Mesa Sewer Lift Station 1256 Hidden Mountain Drive, El Cajon, CA 32.776723599517446, - 116.91557748026821 •Trim and clean all landscaped areas, keep overgrowth away from stairs once a year. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention once a year or as needed. •Haul away all trimmings and debris. 23 803-2 Tank (20-3 Res.) 2825 Willow Glen Drive, El Cajon, CA 32.753407931069255, - 116.8941429995109 •Trim the roadside entrance to keep natural growth contained once a year or as needed. •Trim around fence to keep natural growth contained twice a year or as needed. •Spray herbicides for weed prevention twice a year or as needed. •Haul away all trimmings and debris. 24 Intentionally left blank 25 Russell Square Sewer PS 5139 ½ Russell Square, La Mesa, CA 32.77279785912984, - 116.96974240764581 •Trim all landscaped areas away from fence twice a year or as needed. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year or as needed. •General clean-up as needed. 26 Calavo Sewer Lift Station 3700 Avocado Blvd. @ Campo Road, La Mesa, CA 32.74728816994529, - 116.96256906759936 •Trim, clean and fertilize all landscape areas twice a year or as needed. •Line trim for weed abatement as needed. •Haul away all trimmings and debris. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate all drip irrigation system. 27 Intentionally left blank 10 28 Regulatory Reservoir 11880 Campo Road, Spring Valley, CA 32.74420079038116, - 116.94654134247054 •Install erosion control around storm drains before rainy season. •Line trim entrance road, reservoirs and inside property for weed abatement twice a •year, or as needed. •Trim, clean and fertilize all landscaped areas once a year, or as needed. •Haul away all trimmings and debris. •Spray herbicides for weed prevention 3 times a year or as needed. •Clean all culverts for dirt and debris before rainy season or as needed. •Install/maintain and operate all drip line irrigation system. •Clean around reservoir vaults, maintain free of weeds and debris as often as needed. 29 Intentionally left blank 30 850-1-1 Tank (20-1 Res, 1-6 Tank) 2105 Ledge Avenue, Spring Valley, CA 32.72635333708018, - 116.9785635020983 •Trim road entrance to keep natural growth contained once a year. •Line trim for weed abatement inside and outside twice a year or as needed. •Spray herbicides for weed prevention inside and outside twice a year or as needed. •Haul away all trimmings and debris. •Clean all culverts from dirt and debris before rainy season or as needed. •Tree branch removal when needed. 31 850-1-RES; Pointe Hydro Station (1050 HS) 10105 Pure Waters Court, Spring Valley, CA 32.7187927802632, - 116.96300338300756 •Line trim for weed abatement twice a year or as needed. •Spray herbicides for weed prevention twice a year or as needed. •General clean-up of trash and debris 3 times a year. 32 657-1/850-1 PRV. (La Presa PS)10557 Jamacha Blvd., Spring Valley, CA 32.72425301927596, - 116.96970376943331 •Tree branch removal when needed. •Trim, clean and fertilize all landscaped areas once yearly or as needed. •Haul away all trimmings and debris. •Line trim for weed abatement twice a year or as needed. •Spray herbicides for weed prevention twice a year or as needed. •General clean-up of trash and debris twice a year. 33 657-1-1 and 657-2-1 Tanks (San Bernardino Tanks) 1156 San Bernardino Avenue, Spring Valley, CA 32.716065012706075, - 116.98615215112774 •Trim, Clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Line trim for weed abatement including easement 3 times a year or as needed. •Spray herbicides for weed prevention twice a year or as needed. •Install/maintain and operate all drip line irrigation system. 11 34 1004-1-1 PS (Buena Vista PS and adjacent property) 1306 Buena Vista Avenue, Spring Valley, CA 32.71781963340492, - 116.99351796940242 •Pull all weeds, trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris, •Line trim for weed abatement as needed. •Clean outside road from debris twice a year. •Spray herbicides for weed prevention including adjacent lot, twice a year. •Maintain and operate irrigation system. Adjust irrigation timers according to yearly seasons. •Clean all culverts from dirt and debris before rainy season or as needed. 35 Intentionally left blank 36 Intentionally left blank 37 1004 Tank 1828 La Presa Ave., Spring Valley, CA 32.72610855530305, - 116.99209435468974 •Trim, clean and fertilize all landscaped areas twice a year or as needed. •Haul away all trimmings and debris. •Removal of natural growth for fire abatement/protection. •Rake around tank, outside and access roads. •Spray herbicides for weed prevention twice a year or as needed. 38 Mexico Connection (TJ) International fence boundary 32.55322370317177, - 116.91901761264101 •Mow and line trim around property and valves for weed abatement twice a year. •Spray herbicides for weed prevention twice a year. •Wash with water all pipes and concrete pad every two weeks. 39 870-1-7 Reservoir (Upper Res.) 440 North Alta Road, San Diego, CA 32.594773446305204, - 116.92707751528816 •Maintain a firebreak outside fence before fire season or as needed. •Mow and line trim property, valves, reservoirs, and vaults for weed abatement twice a year or as often as necessary. •Spray herbicides for weed prevention twice a year. •Clean culverts from dirt and debris before rainy season. 40 High Head and Low Head PS Low Head: 32.59629631593492, - 116.92706618556636 800 and 1200 North Alta Road., High Head: 32.59525569178576, - 116.9256069085635 •Line trim around reservoir and pump stations for weed abatement twice a year. •Mow and line trim around all valves and vaults for weed abatement twice a year. •Spray herbicides for weed prevention twice a year or as needed 41 458-1-10 & 458-2-10 Reservoir 651 Pt. Barrow Drive, Chula Vista, CA 32.60574093348044, - 117.02580946979134 •Trim, clean and fertilize all landscaped areas twice a year. •Remove any fallen trees or branches as needed. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year. •Install/maintain and operate irrigation drip system. •Spread mulch as needed. 12 42 Greg Rogers Sewer Lift Station 1195 Oleander Avenue., Chula Vista, CA 32.617679521533276, - 117.03440041064212 • Trim, clean and fertilize all landscaped areas once a year. • Haul away all trimmings and debris. • Line trim for weed abatement as needed. • Spray herbicides for weed prevention twice a year. • Install/maintain and operate irrigation drip system. 43 Intentionally left blank 44 485-1-22 Tank (22-2 Res) 996 East H Street, Chula Vista, CA 32.63511540325052, - 117.01927415802191 • Trim, clean and fertilize all landscaped areas twice a year. • Haul away all trimmings and debris. • Line trim for weed abatement as needed. Spread mulch as needed. • Spray herbicides for weed prevention twice a year. • Fallen tree branch removal as needed. • Install/maintain and operate irrigation drip line system. 45 Rancho Del Rey Well site 760 N. Rancho del Rey Pkwy Chula Vista, CA 32.64519124685684, - 117.03288652057776 • Pull out weeds from property as often as needed. • Spray herbicides for weed prevention as often as needed. • Haul away all debris. Spread mulch as needed. • Trim, clean and fertilize all landscaped areas as needed. • Install/maintain and operate irrigation drip line system. 46 624-2 Reservoir 2010 Gotham, Chula Vista, CA 32.64840910054817, - 116.97881276693982 • Mow and line trim for weed abatement twice a year. • Spray herbicides for weed prevention twice a year. Spread mulch as needed. • Trim overgrowth on fence areas as needed. Rake for fallen debris as needed. • Tree and branch removal as needed. • Haul away all trimmings and debris. Asphalt clean-up after rain. • Install erosion control around storm drains. 47 711-1-27 (7-11 Tanks) 2710 Otay Lakes Road access off or Park Meadows, Chula Vista, CA 32.647970505580105, - 116.95503839367176 • Spread mulch as needed. • Install erosion control around storm drains before rainy season. • Line trim for weed abatement as often as needed. • Spray herbicides for weed prevention twice a year. • Trim and clean all landscaped areas twice a year. • Tree and branch removal as needed. • Haul all trimmings and debris. • Clean all culverts from debris and dirt before rainy season or as needed. • Install/maintain and operate irrigation drip line system. 13 48 624-3 Reservoir (30 Million) 1230 Eastlake Parkway, Chula Vista, CA 32.63492102495674, - 116.96958889153214 •Inspect and assign work to landscape contractors weekly. •Make recommendations as to how to improve landscaped areas weekly. •Troubleshoot irrigation systems as needed. 49 711-1 Pump Station Central Area 10391 Otay Lakes Road, Chula Vista, CA 32.63757558739006, - 116.97343213757372 •Mow and line trim upper, lower property, all vaults, valves, and easement for weed abatement 3 times a year. •Spray herbicides for weed prevention 3 times a year. •Clean all culverts from dirt and debris at the upper and lower property before rainy season or as needed. •Install and maintain erosion control program before rainy season. •Trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris. •Install/maintain and operate irrigation drip line system. 50 980-1 PS (EastLake 980 PS) 2406 Otay Lakes Road, Chula Vista, CA 32.64922092407599, - 116.96133257495077 •Trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris. •Clean around pump station for trash and debris as often as needed. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year. •Install/maintain and operate irrigation systems weekly. •Tree trimming and branch removal as needed. 51 711-3 Res.Hunte Parkway and Salt Creek Golf Course, Chula Vista, CA 32.66839070371882, - 116.9550217140657 •Inspect and assign work to landscape contractors weekly. •Make recommendations to landscape contractors weekly. •Maintain and operate irrigation systems as needed. •Mow and line trim around property boundaries and wild habitat fencing twice a year or as needed. •Repair and inspect wild habitat fencing as often as needed. •Haul away any trimmings or debris. 52 980-1-27 and 980-2-27 Res (Use Area) End of road Hunte Parkway and Salt Creek Golf Course Chula Vista, CA 32.68228113563474, - 116.95579978329295 •Inspect and repair wild habitat fencing as needed. •Line trim and power mow around reservoir and adjacent areas for weed abatement twice a year. •Spray herbicides for weed control twice a year. •Remove fallen trees as needed. 14 53 Main Yard (Ops and Admin Buildings) 2553-2554 Sweetwater Springs Blvd., Spring Valley, CA 32.72444055730977, - 116.96701539344284 •General clean-up of trash and debris as often as needed. •Trim, clean and fertilize all landscaped areas as needed. •Water schedule and maintenance. •Install/maintain and operate irrigation systems. Adjust timers according to yearly seasons. •Supply mulch for landscape contractors as needed. •Inspect and assign work of landscape contractors weekly. •Make recommendations to landscape contractors weekly. 54 450-1 Recycle Tank 1680 Maxwell Rd., Chula Vista, CA 32.605133895814426, - 117.02238965058142 •Trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. Spread mulch as needed. •Spray herbicides for weed prevention twice a year. •Fallen tree branch removal as needed. •Install/maintain and operate irrigation drip line system. 55 1485-1 & 2 Reservoir 15008 Lyons Valley Rd, Jamul, CA 32.73264419522376, - 116.83467824891598 •Trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. Spread mulch as needed. •Spray herbicides for weed prevention twice a year. •Fallen tree branch removal as needed. •Install/maintain and operate irrigation drip line system. 56 Intentionally left blank 57 Future N-S Pump Station Site Parcels 5809-5835 Quarry Rd Bonita, CA 91902 32.68905917613489, - 117.01565759738499 •Mow and line trim for weed abatement twice a year. •Spray herbicides for weed prevention three times a year. •Tree and branch removal as needed •Haul away all trimmings and debris. •General clean-up for trash and debris as often as needed 58 850-3 RES 12887 Wieghorst Way, El Cajon, CA 32.75823741939893, - 116.93117888475454 •Line trim for weed abatement twice a year or as needed. •Spray herbicides for weed prevention twice a year or as needed. •General clean-up of trash and debris 3 times a year or as needed. 15 59 870-2 Pump Station 440 ALTA RD, SAN DIEGO, CA 92154 32.593388672943945, - 116.92654746075392 •Trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris. •Line trim for weed abatement as needed. Spread mulch as needed. •Spray herbicides for weed prevention twice a year. •Fallen tree branch removal as needed. •Install/maintain and operate irrigation drip line system. 60 Easement - Sewer Line Approx 1300 Linear Feet 12-foot clearance PASEO SALAMONER, LA MESA, 91941 32.744641, -116.954781 32.74465351198073, - 116.95463843844432 •Line trim and clear brush along access and around clean outs once per year 61 Summit Chlorine Station 444 Ruxton Ave., Spring Valley, CA 32.70597773835129, - 117.0061816523569 •Line trim for weed abatement as needed. •Spray herbicides for week prevention twice a year or as needed. •Haul away all trimmings and debris. 62 1100-1 Hydro Station 475 Coastal Hills Drive, Chula Vista 32.67202610086155, - 116.9421217881619 •Trim, clean and fertilize all landscaped areas twice a year. •Haul away all trimmings and debris. •Clean around pump station for trash and debris as often as needed. •Line trim for weed abatement as needed. •Spray herbicides for weed prevention twice a year. •Install/maintain and operate irrigation systems weekly. •Tree trimming and branch removal as needed. 63 927-2 RECY - RES 520 Hunte Parkway, Chula Vista 32.68032367933262, - 116.95367899752998 •Line trim for weed abatement as needed. •Spray herbicides for week prevention twice a year or as needed. •Haul away all trimmings and debris. *Duties may be modified from time-to-time as circumstances require. 16 ATTACHMENT C SUBJECT/PROJECT: AUTHORIZE A TWO-YEAR FIXED CONTRACT, PLUS THREE (3) ONE-YEAR OPTIONS, WITH NATURESCAPE SERVICES, INC. FOR LANDSCAPE MAINTENANCE SERVICES IN AN AMOUNT NOT-TO- EXCEED $617,724 SCORESHEET FY22-2231-008 - Landscape Maintenance Services Company Background Staff Qualifications Quality Assurance Combined Rating Fee Total Score SCORE 20 25 25 70 30 100 AZTEC LANDSCAPING, INC. Evaluator 1 19 23 23 65.67 1 67 Evaluator 2 19 24 25 Evaluator 3 18 23 23 $953,351 Greenridge Landscape, Inc. Evaluator 1 13 11 12 43.33 15 58 Evaluator 2 13 11 12 Evaluator 3 17 20 21 $709,932 NatureScape Services, Inc. Evaluator 1 16 17 17 54.00 30 84 Evaluator 2 16 17 17 Evaluator 3 18 21 23 $617,724 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 3, 2021 PROJECT: Various DIV. NO. ALL SUBMITTED BY: Kent Payne Purchasing and Facilities Manager APPROVED BY: Adolfo Segura, Chief, Administrative Services Jose Martinez, General Manager SUBJECT: AUTHORIZE A TWO-YEAR FIXED CONTRACT, PLUS THREE (3) ONE-YEAR OPTIONS, WITH AZTEC JANITORIAL SERVICES FOR JANITORIAL SERVICES IN AN AMOUNT NOT-TO-EXCEED $525,181.20 GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) award a contract to Aztec Janitorial Services (Aztec) and authorize the General Manager to execute a two-year fixed contract, plus three (3) one-year options, with Aztec of Lemon Grove, CA, for janitorial services at the Administration, Operations, Warehouse, and Treatment Plant buildings, plus seven remote facility restrooms in an amount not-to- exceed $525,181.20. COMMITTEE ACTION: See “Attachment A”. PURPOSE: To obtain Board authorization for the General Manager to enter into a two-year fixed contract with Aztec, plus three (3) one-year options, for janitorial services in an amount not-to-exceed $525,181.20. ANALYSIS: The District utilizes a multi-year contract for janitorial services at its main facilities and seven remote sites. A scope of work matrix is AGENDA ITEM 6 2 provided (see “Attachment B”). Staff issued a Request for Proposal through its online solicitation portal, Periscope (formerly BidSync). Seven (7) firms attended a mandatory pre-proposal meeting via Zoom and a site walk was conducted at the main campus. The District received three (3) proposals as of the submittal deadline. These proposals were evaluated by a three-person review panel that scored each firm’s experience, proposed supervisor qualifications, quality control plan, and monthly fee for each year of the contract (see “Attachment C”). Firm Five-Year Fee Total Score Aztec Janitorial Services $525,181.20 63 JLK Enterprise, Inc. $519,600.00 51 T&T Janitorial, Inc.* $319,800.00 60 Monthly and annual fees are as follows: Calendar Year Monthly Fee Annual Fee 2022 $8,409.90 $100,918.80 2023 $8,578.00 $102,936.00 2024 Option 1 $8,749.50 $104,994.00 2025 Option 2 $8,924.60 $107,095.20 2026 Option 3 $9,103.10 $109,237.20 Contract Total $525,181.20 *Incumbent contract holder Aztec’s proposal received the highest score and was determined to be the best value for the required scope of services. Staff checked their references and all rated Aztec as good to excellent. An internet search revealed no negative ratings or complaints. Aztec is a locally owned company located in Lemon Grove, CA, and has been providing janitorial services for over 29 years. Aztec’s current clients include SANDAG, City of Murrieta, and KRA Corporation. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The annual contracted services operating budget is sufficient to cover the yearly cost of the contract. 3 STRATEGIC GOAL: Supports the Districts Strategy: Ensure financial health through formalized policies, prudent investing, and efficient operations. LEGAL IMPACT: None. ATTACHMENTS: Attachment A – Committee Action Report Attachment B – Scope of Work Matrix Attachment C – Scoresheet ATTACHMENT A SUBJECT/PROJECT: AUTHORIZE A TWO-YEAR FIXED CONTRACT, PLUS THREE (3) ONE- YEAR OPTIONS, WITH AZTEC JANITORIAL SERVICES FOR JANITORIAL SERVICES IN AN AMOUNT NOT-TO-EXCEED $525,181.20 COMMITTEE ACTION: The Finance, Administration, and Communications Committee reviewed this item at a meeting held on October 20, 2021. The Committee supports presentation to the full Board for their consideration. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a Committee approved item or modified to reflect any discussion or changes as directed from the Committee prior to presentation to the full Board. Task #Lunchroom and Department Kitchenettes: M T W T F 1 Faucets, Sinks and Drains:clean and polish; remove all stains 2 Microwaves:clean and sanitize interior; polish exterior 3 Coffee Machine and Toasters:clean, polish exteriors 4 Refrigerators and Vending Machines:clean, sanitize exteriors 5 Countertops, Cabinet Faces and Handles:clean and sanitize 6 Lunchroom Tables, Chairs & Furniture:clean and sanitize 7 Waste Containers:empty, replace liners (supplied by Otay), clean 8 Floors:sweep, mop and sanitize 9 Wall Switches:clean and sanitize Task #Restrooms and Gym Locker Rooms: M T W T F 1 Sinks and Faucets:clean, sanitize and polish 2 Countertops:clean and sanitize 3 Mirrors:clean and polish 4 Toilets, *Urinals and Flushers:clean, sanitize and polish; remove stains and buildup *monthly replace urinal mats (provided by Otay) 5 Toilet Seats:clean and sanitize top and underneath; remove stains 6 Dispensers:clean, sanitize and polish; refill soap, paper towels, toilet paper and seat covers 7 Waste Containers:empty and replace liners (supplied by Otay), clean and polish 8 Sanitary Napkins:empty container and replace inserts 9 Partitions and Handles:wipe down and sanitize 10 Floors:sweep, mop and sanitize 11 Gym Showers:clean and sanitize; remove buildup and stains; polish metal fixtures Task #Common Areas, Meeting Rooms, Offices & Cubicles: M T W T F 1 Waste & Recycle Containers:empty and replace liners (supplied by Otay), clean and polish 2 Lobby Security Glass:spot clean both sides per strict instructions on file 3 Glass Doors and Partitions:spot clean and polish 4 Drinking Fountains:clean, sanitize and polish 5 Door Handles:clean and sanitize 6 Conference Rooms:dust and clean tables 7 Carpeted Walkways and Copier Areas:vacuum 8 Main Entrance Exterior:sweep clean 9 Non-Carpeted Floors:sweep, clean and mop 10 Interior Stairway:sweep and clean treads; clean and sanitize handrails 11 Elevators:clean and sanitize buttons; polish metal surfaces 12 Wall Switches:clean and sanitize Task #Lunchroom and Department Kitchenettes: Q1 Q2 Q3 Q4 1 Countertops, Cabinet Faces and Handles:detail clean tops, corners, edges, backsplash 2 Lunchroom Floor:clean, wax and polish 3 Kitchenette Floor:detail clean/polish floor, base, corners, under/behind refrigerators 4 Refrigerators and Vending Machines:clean top, exteriors, water dispensers Task #Restrooms and Gym Locker Rooms: Q1 Q2 Q3 Q4 1 Floors and Base:detail clean floors, edges, corners, grout 2 Partitions and Ceramic Tile Walls:wash down and sanitize 3 Gym Showers:detail clean floors, edges, corners, grout Task #Common Areas, Meeting Rooms, Offices & Cubicles: Q1 Q2 Q3 Q4 1 Lobby Security Glass:fully clean both sides per strict instructions on file 2 Glass Doors and Partitions:fully clean and polish 3 Meeting Rooms:vacuum and dust chairs and furniture 4 Board Room:clean and polish the Dais, wood surfaces; vacuum and dust chairs and furniture 5 Elevator Floors:detail clean and polish 6 Ceiling Vents:brush down and vacuum 7 Carpet:detail vacuum offices, cubicles, walkways, Board room, training room, etc. Administration Building Daily Tasks Administration Building Quarterly Tasks* Scope of Work Matrix 8 Cobwebs:remove from walls, ceilings, windows 9 Dust:file cabinets, bookcases, shelves, desks, fixtures, baseboards, pictures, windowsills, high reach ledges, partition tops, door tops, air conditioning vents 10 Doors and Frames: clean, remove smudges and marks 11 Floors:detail clean and polish floors, edges, corners, base 12 Painted Walls: spot clean Task #Janitor and Utility Rooms: Q1 Q2 Q3 Q4 1 Floors:detail clean and polish floors, edges, corners, base 2 Utility Sinks and Drains:detail clean and sanitize; remove stains and buildup *Work to be observed and certified by janitorial supervisor; duties may be modified from time-to-time as circumstances require. Scope of Work Matrix Task #Crew Room and Department Kitchenettes: M T W T F 1 Faucets, Sinks and Drains:clean and polish; remove all stains 2 Microwaves:clean and sanitize interior; polish exterior 3 Coffee Machine and Toasters:clean, polish exteriors 4 Refrigerators and Vending Machines:clean, sanitize exteriors 5 Countertops, Cabinet Faces and Handles:clean and sanitize 6 Waste Containers:empty, replace liners (supplied by Otay), clean 7 Floors:sweep, mop and sanitize 8 Wall Switches:clean and sanitize Task #Restrooms and Locker Rooms: M T W T F 1 Sinks and Faucets:clean, sanitize and polish 2 Countertops:clean and sanitize 3 Mirrors:clean and polish 4 Toilets, *Urinals and Flushers:clean, sanitize and polish; remove stains and buildup *monthly replace urinal mats (provided by Otay) 5 Toilet Seats:clean and sanitize top and underneath; remove stains 6 Dispensers:clean, sanitize and polish; refill soap, paper towels, toilet paper and seat covers 7 Waste Containers:empty and replace liners (supplied by Otay), clean and polish 8 Sanitary Napkins:empty container and replace inserts 9 Partitions and Handles:wipe down and sanitize 10 Floors:sweep, mop and sanitize 11 Showers:clean and sanitize; remove buildup and stains; polish metal fixtures Task #Common Areas, Meeting Rooms, Offices & Cubicles: M T W T F 1 Waste & Recycle Containers:empty and replace liners (supplied by Otay), clean and polish 2 Glass Doors and Partitions:spot clean and polish 3 Drinking Fountains:clean, sanitize and polish 4 Door Handles:clean and sanitize 5 Conference Rooms:dust and clean tables 6 Carpeted Walkways and Copier Areas:vacuum 7 Main Entrance Exterior:sweep clean 8 Non-Carpeted Floors:sweep, clean and mop 9 Exterior Stairway:sweep and clean treads 10 Elevators:clean and sanitize buttons; polish metal surfaces 11 Wall Switches:clean and sanitize Task #Lunchroom and Department Kitchenettes: Q1 Q2 Q3 Q4 1 Countertops, Cabinet Faces and Handles:clean tops, corners, edges, backsplash 2 Kitchenette Floor:detail clean/polish floor, base, corners, under/behind refrigerators 3 Refrigerators and Vending Machines:clean top, exteriors, water dispensers Task #Restrooms and Gym Locker Rooms: Q1 Q2 Q3 Q4 1 Floors and Base:detail clean floors, edges, corners, grout 2 Partitions and Ceramic Tile Walls:wash down and sanitize 3 Gym Showers:detail steam clean; remove buildup and stains; polish metal fixtures Task #Common Areas, Meeting Rooms, Offices & Cubicles: Q1 Q2 Q3 Q4 1 Lobby Security Glass:fully clean both sides per strict instructions on file 2 Glass Doors and Partitions:fully clean and polish 3 Meeting Rooms:vacuum and dust chairs and furniture 4 Board Room:clean and polish the Dais, wood surfaces; vacuum and dust chairs and furniture 5 Elevator Floors:detail clean and polish 6 Ceiling Vents:brush down and vacuum 7 Carpet:detail vacuum offices, cubicles, walkways, Board room, training room, etc. 8 Cobwebs:remove from walls, ceilings, windows 9 Dust:file cabinets, bookcases, shelves, desks, fixtures, baseboards, pictures, windowsills, high reach ledges, partition tops, door tops, air conditioning vents Operations Admin, Crew Room and Fleet Shop Quarterly Tasks* Operations Admin, Crew Room and Fleet Shop Daily Tasks Scope of Work Matrix 10 Doors and Frames: clean, remove smudges and marks 11 Floors:detail clean and polish floors, edges, corners, base 12 Painted Walls: spot clean Task #Janitor and Utility Rooms: Q1 Q2 Q3 Q4 1 Floors:detail clean and polish floors, edges, corners, base 2 Utility Sinks and Drains:detail clean and sanitize; remove stains and buildup *Work to be observed and certified by janitorial supervisor; duties may be modified from time-to-time as circumstances require. Scope of Work Matrix Task #Restrooms: M T W T F 1 Sinks, Countertops & Faucets:clean, sanitize and polish 2 Mirrors:clean and polish 3 Toilets, *Urinals and Flushers:clean, sanitize and polish; remove stains and buildup *monthly replace urinal mats (provided by Otay) 4 Toilet Seats:clean and sanitize top and underneath; remove stains 5 Dispensers:clean, sanitize and polish; refill soap, paper towels, toilet paper and seat covers 6 Waste Containers:empty and replace liners (supplied by Otay), clean and polish 7 Sanitary Napkins:empty container and replace inserts 8 Partitions and Handles:wipe down and sanitize 9 Floors:sweep, mop and sanitize Task #Common Areas, Warehouse & Shops Offices: M T W T F 1 Microwaves:clean and sanitize interior; polish exterior 2 Coffee Machine:clean, polish exteriors 4 Waste & Recycle Containers:empty and replace liners (supplied by Otay), clean and polish 5 Drinking Fountains:clean, sanitize and polish 6 Door Handles:clean and sanitize 7 Warehouse Office:vacuum 9 Front Warehouse Floors:sweep, clean and mop 10 Wall Switches:clean and sanitize Task #Restrooms: Q1 Q2 Q3 Q4 1 Floors and Base:detail clean floors, edges, corners, grout 2 Partitions and Laminate Walls:wash down and sanitize Task #Warehouse & Shops Offices: Q1 Q2 Q3 Q4 1 Ceiling Vents:brush down and vacuum 2 Floors:detail clean: vacumm, sweep, mop 3 Cobwebs:remove from walls, ceilings, windows (Shop and Warehouse Offices only) 4 Dust:file cabinets, bookcases, shelves, desks, fixtures, baseboards, pictures, windowsills, door tops, air conditioning vents 5 Doors and Frames: clean, remove smudges and marks 6 Painted Walls: spot clean *Work to be observed and certified by janitorial supervisor; duties may be modified from time-to-time as circumstances require. Warehouse Daily Tasks Warehouse Quarterly Tasks* Scope of Work Matrix Task #Lunchroom: M T W T F 1 Faucets, Sinks and Drains:clean and polish; remove all stains 2 Microwaves:clean and sanitize interior; polish exterior 3 Coffee Machine and Toasters:clean, polish exteriors 4 Refrigerators:clean, sanitize exteriors 5 Countertops, Cabinet Faces and Handles:clean and sanitize 6 Lunchroom Tables:clean and sanitize 7 Waste Containers:empty, replace liners (supplied by Otay), clean 8 Floors:sweep, mop and sanitize 9 Wall Switches:clean and sanitize Task #Restrooms and Locker Rooms: M T W T F 1 Sinks and Faucets:clean, sanitize and polish 2 Countertops:clean and sanitize 3 Mirrors:clean and polish 4 Toilets, Urinals and Flushers:clean, sanitize and polish; remove stains and buildup 5 Toilet Seats:clean and sanitize top and underneath; remove stains 6 Dispensers:clean, sanitize and polish; refill soap, paper towels, toilet paper and seat covers 7 Waste Containers:empty and replace liners (supplied by Otay), clean and polish 8 Sanitary Napkins:empty container and replace inserts 9 Partitions and Handles:wipe down and sanitize 10 Floors:sweep, mop and sanitize 11 Showers:clean and sanitize; remove buildup and stains; polish metal fixtures Task #Common Areas and Offices: M T W T F 1 Waste & Recycle Containers:empty and replace liners (supplied by Otay), clean and polish 2 Drinking Fountains:clean, sanitize and polish 3 Door Handles:clean and sanitize 4 Carpeted Walkways:vacuum 5 Admin Trailer Entrance Exterior:sweep clean 6 Non-Carpeted Floors:sweep, clean and mop 7 Wall Switches:clean and sanitize Task #Lunchroom: Q1 Q2 Q3 Q4 1 Countertops, Cabinet Faces and Handles:detail clean tops, corners, edges, backsplash 2 Lunchroom Floor:clean, wax and polish 3 Refrigerators:clean top, exteriors, water dispensers Task #Restrooms and Locker Rooms: Q1 Q2 Q3 Q4 1 Floors and Base:detail clean floors, edges, corners, grout 2 Partitions and Ceramic Tile Walls:wash down and sanitize 3 Showers:detail steam clean; remove buildup and stains; polish metal fixtures Task #Common Areas, Meeting Rooms, Offices & Cubicles: Q1 Q2 Q3 Q4 3 Meeting Rooms:vacuum and dust chairs and furniture 6 Ceiling Vents:brush down and vacuum 7 Admin Trailer Carpet:detail vacuum offices, cubicles, walkways, Board room, training room, etc. 8 Cobwebs:remove from walls, ceilings, windows 9 Dust:file cabinets, bookcases, shelves, desks, fixtures, baseboards, pictures, windowsills, high reach ledges, partition tops, door tops, air conditioning vents 10 Doors and Frames: clean, remove smudges and marks 11 Floors:detail clean and polish floors, edges, corners, base 12 Painted Walls: spot clean *Work to be observed and certified by janitorial supervisor; duties may be modified from time-to-time as circumstances require. Treatment Plant Lab and Admin Trailer Daily Tasks Treatment Plant Lab and Admin Trailer Quarterly Tasks* Scope of Work Matrix Task #Restrooms: 1 2 1 Sinks, Faucets & Countertops:clean, sanitize and polish 2 Mirrors:clean and polish 3 Toilets, Urinals and Flushers:clean, sanitize and polish; remove stains and buildup 4 Toilet Seats:clean and sanitize top and underneath; remove stains 5 Dispensers:clean, sanitize and polish; refill soap, paper towels, toilet paper and seat covers 6 Waste Containers:empty and replace liners (supplied by Otay), clean and polish 7 Sanitary Napkins:empty container and replace inserts 8 Partitions and Handles:wipe down and sanitize 9 Floors:sweep, mop and sanitize Task #Restrooms: Q1 Q2 Q3 Q4 1 Floors and Base:detail clean floors, edges, corners, grout 2 Partitions and Ceramic Tile Walls:wash down and sanitize 3 Showers:detail clean; remove buildup and stains; polish metal fixtures 4 Ceiling Vents:brush down and vacuum 5 Cobwebs:remove from walls, ceilings, windows 6 Doors and Frames: clean, remove smudges and marks 7 Painted Walls: spot clean Pump Stations (7) Quarterly Tasks Pump Stations (7) Twice Weekly Tasks 1296 PS - Buena Vista - Regulatory - Central - 30 Million - 450/680 Recycled - 870-2 PS Scope of Work Matrix Scoresheet Company Background Staff Qualifications Quality Assurance Combined Rating Fee Total Score 20 25 25 70 30 100 Evaluator 1 20 20 30 Evaluator 2 17 17 22 Evaluator 3 18 18 25 $525,181 Evaluator 1 15 15 15 Evaluator 2 16 14 19 Evaluator 3 15 16 21 $519,600 Evaluator 1 10 10 10 Evaluator 2 15 13 16 Evaluator 3 5 5 6 $319,800 30.00 63 51 60 1 2 30 SCORE AZTEC JANITORIAL SERVICES JLK ENTERPRISE, INC. T&T JANITORIAL, INC. 62.33 48.67