Loading...
HomeMy WebLinkAboutOperating and Capital Budget FY 2013-2014 Otay Water District Adopted Operating and Capital Budget Fiscal Year 2013-2014 BOARD OF DIRECTORS Jose Lopez, Division 4 President Mitchell Thompson, Division 2 Vice President David Gonzalez, Jr., Division 1 Treasurer Gary Croucher, Division 3 Mark Robak, Division 5 MANAGEMENT TEAM Mark Watton General Manager German Alvarez Assistant General Manager Joseph R. Beachem Chief Financial Officer Rom Sarno, Jr. Chief, Administrative Services Geoff Stevens Chief Information Officer Rod Posada Chief, Engineering Pedro Porras Chief, Water Operations Table of Contents Page Letter of Transmittal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv Budget Foreword Otay Water District At-A-Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statement of Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Strategic Performance Management Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Budget Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Resolution No. 4210 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 History and Community Profile Past and Present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Timeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Current Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 The Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Water Rate Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Sewer Rate Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Service Area Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Ten Principal Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Ten Largest Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 San Diego Rainfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Financial Summaries Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Operating Budget Summary – General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Operating Budget Summary by System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 General Fund Revenues, Expenditures and Transfers . . . . . . . . . . . . . . . . . . . . . . . 47 Fund Balance Summary by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Revenues and Expenditures by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Revenues and Expenditures by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Five-Year Forecast Five-Year Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 General Fund Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Fund Balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Debt Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Schedule of Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Projected Principal Payments by Debt Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Projected Interest Payments by Debt Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 i Table of Contents Revenues and Expenditures Potable Revenues and Expenditures Potable Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Operating Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Classification of Water Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Water Sales Summary by Service Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Unit Sales History and Meter Count by Customer Class . . . . . . . . . . . . . . . . . . . . 68 System Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 MWD and CWA Fixed Fees (pass-through) . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Meter Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Revenue History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Water Purchases and Related Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Power Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Materials and Maintenance Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Potable Water Service Area Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Recycled Revenues and Expenditures Recycled Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Timeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Operating Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Classification of Water Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Water Sales Summary by Meter Size. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Unit Sales History and Meter Count by Customer Class. . . . . . . . . . . . . . . . . . . . 86 System Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Meter Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Revenue History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Water Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Power Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Materials and Maintenance Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Recycled Water Service Area Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Sewer Revenues and Expenditures Sewer Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Timeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Operating Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Sewer Charges Summary by Service Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Revenue History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Power Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Materials and Maintenance Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Formula for Sewer Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Sewer Service Area Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 ii Table of Contents General Revenues and Expenditures General Revenues and Expenses Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 General Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 General Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Departmental Operating Budget Departmental Operating Budget Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Labor and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Labor and Benefits by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Position Count by Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Contract/Temporary Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Materials and Maintenance Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Operating Expenditures by Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Operating Expenditures by Object . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Departmental Budgets: Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 General Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Administrative Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 IT and Strategic Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Water Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 General Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Capital Budget Capital Improvement Program Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Major CIP Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 CIP Projects in Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 CIP Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 CIP Funding Source and Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 CIP Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 CIP Justification and Impact on Operating Budget . . . . . . . . . . . . . . . . . . . . . . . . 203 Capital Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Policies Summary of Financial Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Reserve Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Reserve Policy Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 Investment Policy Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Debt Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 Debt Policy Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Appendix Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 iii September 5, 2013 Honorable Board of Directors Otay Water District I am pleased to present the Otay Water District’s Adopted Operating and Capital Budget for Fiscal Year 2014. This year’s budget continues to support the management plan to finance all of the District’s services, programs and capital needs during the 2014 fiscal year as well as the succeeding five fiscal years. San Diego County has very limited natural supplies of water and therefore must rely on imported water from Northern California and the Colorado River. The wholesale and retail water agencies serving San Diego County have always been challenged by their dependence on imported water and continue implementing programs to create a more reliable, robust water system, one that will also increase water independence. Programs to secure more water, as well as a more reliable water supply, are expensive and represent a contributing factor to increasing costs. Not only are the regional water providers faced with the ongoing challenge of a reliable supply, but they are also challenged with significant cost increases and the need to provide high quality water. The District must find the best solutions that balance these challenges. The tool the District has used as its guide to accomplish this is the Strategic Management Performance Plan. The District’s first strategic plan was developed in 2003 and it has been updated every three years since then. The current plan covers Fiscal Years 2012-2014 and can be found on pages 7-14. 2012-2014 Strategic Plan We are now entering the third year of the 2012-2014 Strategic Plan. As with previous plans, the focus has been on the District’s transformation from a growth-centric to a maintenance- based organization. Where growth had been a significant focus in the early years of the iv District’s existence, today we are primarily focused on managing long-term maintenance and replacement of infrastructure. As an organization matures, fewer resources are needed to support growth, but the effort to maintain and improve infrastructure and assets increases. Over time, an organization derives income more from customer rates and less from developer fees. At this stage in its development, increased maintenance and replacement costs place pressure on customer rates. To balance the customer’s interest in minimizing rate increases while also maintaining an organization’s infrastructure investments and a strong financial position, it must place greater emphasis on internal efficiency and the development of technology assisted best practices. In effect, an organization must use investments in technology to do more with the same or even fewer resources. A goal of the District’s earlier strategic plans included capitalizing on the technology investments and utilizing those technologies to continually improve efficiency and productivity. The success of this approach is evidenced by the gains in efficiency and by the reduction in staffing, even though the customer base has grown in recent years. The following charts show that since 2007, the District has reduced its staffing by 31.75 full-time equivalents or 18.2% while the number of customer accounts has increase by 1,694 during the same time period. 17 4 . 7 5 17 2 . 7 5 16 8 . 7 5 16 6 15 9 15 6 14 8 14 3 52,615 54,309 40,000 45,000 50,000 55,000 60,000 0 20 40 60 80 100 120 140 160 180 200 2007 2008 2009 2010 2011 2012 2013 2014 Ac c o u n t s Em p l o y e e C o u n t FISCAL YEAR Employee Count and Number of Accounts v The District has been able to continue absorbing some of the pass-through costs from our water suppliers, the San Diego County Water Authority (CWA) and Metropolitan Water District (MWD), through increased efficiency and improved productivity. This helps to address customer concerns about rising water rates. The chart below shows that since 2007, the pass-through costs have increased 87% while the District’s water rates have increased 76.6%. Based on an annual survey of water and sewer rates conducted by District staff, Otay continues to be one of the lower cost providers in San Diego County. The District has the 10th lowest water rate out of the 23 member agencies in San Diego County and the 6th lowest sewer rate out of the 29 sewer service providers in San Diego County. The results of the water and sewer surveys are shown on page 33 and 34 respectively. In this and coming years, the District will continue its efforts to improve business processes to further increase efficiency and productivity through adherence to the 2012-2014 Strategic Plan. Today, the District provides water service to nearly 48,911 potable and 709 recycled water customers within approximately 125.5 square miles of southeastern San Diego County. All of the potable water sold to customers is purchased from CWA. Fifty eight percent of this water is in turn purchased from the region’s primary water importer, MWD. The District has been proactive in reducing our dependence on MWD water treatment facilities. For 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2007 2008 2009 2010 2011 2012 2013 2014 87.0% 76.6% Pass-Through Costs vs. District Rate Increases Pass Through Costs Otay Water Rate Increase vi example, in 2009, the District entered into an agreement with the CWA that allowed our neighboring Helix Water District to treat imported water on behalf of the District at their Levy Water Treatment Plant. This has brought regional water treatment closer to our customers, which reduces dependence on water treatment facilities located outside of San Diego County. The District also owns and operates a wastewater collection and recycling system to provide public sewer service to approximately 4,657 homes and businesses. Wastewater is collected and delivered to the Ralph W. Chapman Water Recycling Facility (RWCWRF), which is capable of reclaiming wastewater at a rate of 1.3 million gallons per day. In addition to the Chapman facility, the District purchases up to 6 million gallons per day of recycled water from the City of San Diego’s South Bay Water Reclamation Plant. Recycled water from these two sources is used to irrigate golf courses, schools, public parks, roadway landscapes, and other approved uses in the City of Chula Vista. The use of recycled water reduces dependence on imported supplies and provides a local supply that diversifies District resources. BUDGET SUMMARY The Otay Water District’s operating expenditures consist of three major sectors: potable water, recycled water, and sewer, budgeted at $86,101,100 for Fiscal Year 2014. Revenues from potable and recycled water are projected to be $75,373,600, about $5,916,800 (7.8%) more than the Fiscal Year 2013 budget. Water sales volumes are expected to increase slightly, by less than 1% over FY 2013 actual sales, as the economy is slowly improving, even when efforts to promote water conservation continue without significant increases in water sales, rate increases are essential to offset the higher wholesale cost of water. Sewer revenues are projected to be $2,701,600, about $146,400 more than Fiscal Year 2013. This increase from higher sewer rates is primarily to cover $18.6 million of capital projects over the next six years. The remaining budgeted revenues of $7.7 million come from various special fees, assessments, and miscellaneous income. Significant aspects of the Operating Budget are:  A balanced budget meeting the goals of the Strategic Plan.  The use of an economist to project growth for the region.  An updated six-year Rate Model to ensure sound financial planning and reserve levels. vii  Ongoing water supply rate increases of 7.7% from MWD and CWA because of the high cost of supply programs, higher energy costs, and operating costs.  Implemented rate increases in potable, recycled water, and sewer. This included pass-through rate increases from CWA and the County of San Diego.  In efforts to minimize rate increases, the District has again reduced staffing levels from 148 full-time equivalent positions to 143.  Of San Diego County’s 23 water agencies, Otay’s water rates are below the county- wide average. The Fiscal Year 2013-14 Capital Improvement Program (CIP) Budget consists of 63 projects and a budget of $13.8 million. The budget emphasizes long-term planning for ongoing programs while functioning within fiscal constraints and population growth. This year’s CIP budget decreased by $4.2 million compared to last year’s projection, due to the completion of some large projects as well as the deferral of projects to match the timing of land development. The coming years will continue to pose challenges for those in California’s water community. For instance, it is uncertain if the challenges facing the Sacramento-San Joaquin Bay Delta, the source of 30 percent of Southern California’s water supply, will be addressed and at what cost to end users. The District as a member of the CWA is well positioned for water coming from the Colorado River thanks to the QSA Agreement. As the cost of water has increased to the retail customer, sales have decreased. As one would expect, water sales reductions have impacted revenues and will continue to affect the District’s finances. This sales decrease has now ended and the District is seeing moderately increased water sales. Our success as an organization is significantly enhanced by the practices and policies put in place by the Board of Directors to ensure the strength and stability of the District. We are fully confident that with these policies and practices, supported by dedicated and talented staff, we will achieve continued success as an organization and, thus, assure the well-being of the people we serve. In adopting this budget, the challenges presented this year were met by the Otay Water District Board of Director’s resolve to keep the stability and financial strength of the District as one of its highest priorities. viii AWARDS AND ACKNOWLEDGMENTS  The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to Otay Water District, California for its annual budget for the fiscal year beginning July 1, 2012. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operations guide, as a financial plan, and as a communications device.  The Government Finance Officers Association of the United States and Canada (GFOA) also presented the Otay Water District with two special recognition awards, Outstanding as a Policy Document and Outstanding as a Communication Device, for its annual budget for the fiscal year beginning July 1, 2012.  The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Operating Budgeting for Fiscal Year 2012-2013.  The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Capital Budgeting for Fiscal Year 2012-2013. In conclusion, this budget reflects the vision of the Board of Directors of the Otay Water District, its management, and its employees. We will continue to strive to make improvements in our budget processes, including an extensive review and analysis of projections for revenues, expenditures, capital projects, and reserves. I would like to thank all the staff involved in this process for the efforts put forth in the preparation of this budget to ensure a successful outcome. To the Board of Directors, we acknowledge and appreciate their continued support and direction in achieving excellence in financial management and District operations. Mark Watton, General Manager ix At-A-Glance Mission Statement To provide high value water and wastewater services to the customers of the Otay Water District in a professional, effective, and efficient manner. History The Otay Water District was formed in 1956 to serve as a public water and sewer agency, authorized as a California special district, under the provisions of the Municipal Water District Act of 1911. The District’s ordinances, policies, taxes, and rates for service are set by five Directors elected by voters in their respective geographic area. The District joined the San Diego County Water Authority (CWA) in September 1956 to acquire the right to purchase and distribute imported water throughout its service area. The District is also responsible for the collection, treatment, and disposal of wastewater from a portion of the northern region of the District. In 1980, the District started operation of the Ralph W. Chapman Water Recycling Facility (RWCWRF) and in May, 2007 a new source of recycled water from the City of San Diego was obtained, allowing the Otay Water District to supply 13% of total water demand with recycled water. Service Area The District's boundaries encompass an area of approximately 125 square miles in San Diego County, lying immediately east of the City of San Diego metropolitan area and running from the City of El Cajon south to the international border, abutting the cities of El Cajon and La Mesa and encompassing most of the City of Chula Vista and a small portion of the City of San Diego. Organizational Structure The General Manager reports directly to the Board of Directors. The Assistant General Manager along with District management oversees day-to-day operations. The Assistant General Manager oversees the five departments of Administrative Services; Finance; Information Technology and Strategic Planning; Water Operations; and Engineering. These and other lines of reporting are shown on the organization chart on page 16. 1 General Information For Fiscal Year 2014, the District will have a staff of 143 full-time equivalent employees under the leadership of the General Manager. The District provides water service to approximately 53% of its expected ultimate deliveries with a population of more than 211,000 people. This percentage increases as the District's service area continues to grow to ultimate build-out. The District is projected to deliver approximately 28,985 acre-feet of potable water to 49,150 potable customer accounts and to ultimately deliver, by 2035, 56,600 acre-feet of potable water to serve 285,000 people or 69,000 accounts. The growth rate, as projected by the San Diego Association of Governments (SANDAG) for the Chula Vista area of San Diego County, is approximately 1.8% per year over the next decade. Using historical data and considering current economic conditions, staff has moderated this projection to a growth rate of 0.47% for Fiscal Year 2014. Since 1956, the District has provided high quality water to a semi-arid region of the southeastern San Diego County. In 1971, the District constructed a small collection and treatment plant for sewer in the northern section of the District, and in 1980 the District opened the Ralph W. Chapman Water Recycling Facility (RWCWRF). For over 50 years, the available supply of water has helped transform the District service area from a mostly scrub and cactus-covered backcountry into a balance of diverse environments. Recycled water from the RWCWRF is used to irrigate golf courses, schools, public parks, roadway landscapes, and various other approved uses in eastern Chula Vista. The RWCWRF is capable of recycling wastewater at a rate of 1.3 million gallons per day (1,200 acre-feet per year). The District is also in partnership with the City of San Diego to beneficially reuse an additional 2,916 acre-feet per year of recycled water for Fiscal Year 2014, and ultimately up to 6,720 acre-feet per year. The District continues to be the largest retail provider of recycled water in the County of San Diego. The District also owns and operates a wastewater collection system providing public sewer service to approximately 4,657 customer accounts within the Jamacha drainage basin. The sewer service area covers approximately 8,797 acres, which is about 11% of the District’s total service area. Residential customers comprise 97% of the sewer customer base. 1. Carlsbad Municipal Water District 2. City of Del Mar 3. City of Escondido 4. Fallbrook Public Utility District 5. Helix Water District 6. City of National City 7. City of Oceanside 8. Olivenhain Municipal Water District 9. Otay Water District 10. Padre Dam Municipal Water District 11. Camp Pendleton Marine Corps Base 12. City of Poway 13. Rainbow Municipal Water District 14. Ramona Municipal Water District 15. Rincon del Diablo Municipal Water District 16. City of San Diego 17. San Dieguito Water District 18. Santa Fe Irrigation District 19. South Bay Irrigation District 20. Vallecitos Water District 21. Valley Center Municipal Water District 22. Vista Irrigation District 23. Yuima Municipal Water District 24. Lakeside Water District San Diego County Water Agencies 2 Statement of Values As Otay Water District employees we dedicate ourselves to: Customers We take pride that our commitment to customer-centered service is our highest priority. Excellence We strive to provide the highest quality and value in all that we do. Integrity We commit ourselves to doing the right thing. Ethical behavior, trustworthiness and accountability are the District’s foundation. Teamwork We promote mutual trust. We share information, knowledge and ideas to reach our common goals. Employees We see each individual as unique and important. We value diversity and open communication to promote fairness, dignity and respect. Otay Water District Employees Dedicated to Community Service 3 DISTINGUISHED BUDGET PRESENTATION AWARD The Government Finance Officers Association (GFOA) presented a Distinguished Budget Presentation Award to the District for its annual budget for the fiscal year 2012-2013. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operations guide, as a financial plan, and as a communications device. This award is valid for a period of one year only. We believe our current budget continues to conform to program requirements, and we are submitting it to GFOA to determine its eligibility for another award. In addition, the Finance Department received two special recognitions for the FY 2012-2013 budget: 1) Outstanding as a Policy Document, and 2) Outstanding as a Communications Device. These special recognitions are rarely given to agencies. In fiscal year 2012 10 agencies received the special recognition for a Communications Device and 10 agencies received the special recognition for a Policy Document out of 1,376 applicants. 4 Financial Awards The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Operating Budget for Fiscal Year 2012-2013. The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Capital Budget for Fiscal Year 2012-2013. 5 Award Otay Water District has been awarded the 2013 Tyler Public Sector Excellence Award. The award recognizes the achievement of a high level of excellence in leadership, innovation, and excellence in the use of Tyler’s ERP system for business solutions. 6 Strategic Performance Management Plan SWOT ANALYSIS Introduction The Strategic Plan is the core document which guides the agency’s efforts to meet and positively adapt to change. Every three years the District engages in a major revision of its Strategic Plan. This current plan (covering fiscal years 2012-2014) is the fourth in a series of three-year plans that began in 2003. In order to develop the FY12-14 Strategic Plan, each Chief meets with their staff to get a collective list of ideas. Once these ideas are reviewed and discussed, they are filtered using a SWOT analysis, assessing the District’s Strengths, Weaknesses, Opportunities, and Threats. To further focus the suggested objectives, another analysis examines the plan from the Balanced Scorecard perspective (Customer, Financial, Business Process, and Learning & Growth). The Senior Management Team reviews every strategy, goal, objective, project plan, performance measure, and target contained in the plan. Through this team discussion process the General Manager gains consensus with his staff on the exact priorities for the District, including detailed financial and resource considerations required to execute the plan. Thus, the plan serves as an informal contract between the agency staff and the Board of Directors on the strategic work that will be done and what the agency hopes to achieve over the next three years. In turn, the General Manager presents the plan to the Board for input. Through the Strategic Plan and budget approval processes, the Board is then able to make well informed oversight decisions about the utility’s direction. 7 Strategic Performance Management Plan Mission To provide high value water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner. Vision A District that is innovative in providing water services at affordable rates, with a reputation for outstanding customer service. Key Challenge Our key District challenge is to add increased value by improving our core business processes. From a water supply perspective, this means determining the optimum mix of water supply, treatment, and delivery solutions for our customers. From a daily operating perspective, efficiency improvements have become the primary source of competitive advantage and cost optimization for utilities. Adding value from this perspective means the entire team focusing on not only the highest priority goals but also examining the details of what we do every day and be willing to alter how we do it if it makes a positive difference. Our employees voice a high degree of personal and professional satisfaction with our direction and the entire team is committed to meeting this key challenge with distinction. Strategic Plan Performance metrics and targets are a critical element of the Strategic Plan but differ from Strategic Plan objectives. Objectives identify the action items that are necessary to achieve the strategic vision. Performance measures are designed to ensure the day-to-day operations of the utility are meeting agreed-upon expectations. Performance measures were revised from the prior year and are updated quarterly, and reviewed by the Board on a semi-annual basis. Object Legend Scorecard Strategy Goal Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 8 Strategic Performance Management Plan I. Customer Service - Deliver high quality services to meet customer needs and increase confidence of the customer in the value the District provides. A. “Maximize our customer satisfaction by expanding and improving communications.” 1. Enhance communications with customers using our new phone system. 2. Regularly produce and evaluate communications tools and explore the effective use of new media options including: electronic newsletters, auto-dialer services, video streaming, social networks, and web media to ensure the District’s outreach efforts are cost-effectively reaching all stakeholders. 3. Continue promoting the Water Conservation Garden as a venue for new and existing homeowners, developers, and businesses. 4. Increase customers employing on-line bill payment. 5. Increase conservation related communications, such as surveys and comparative information, by expanding web-based information. II. Financial - Provide enhanced value by directing and managing the financial issues that are critical to the District. A. “Improve financial information and billing systems.” 1. Strengthen the long-term financial plan. 2. Develop sewer capacity fees for expansion. 3. Renegotiate the South Bay Water Reclamation Plant (SBWRP) recycled water supply agreement with the City of San Diego. 4. Evaluate the feasibility of replacing the existing customer information system or migrating to the new version of the Eden software. 5. Improve financial planning and communication regarding the expenditure of district funds. 6. Streamline requisition and purchasing procedures. 9 Strategic Performance Management Plan III. Business Process - Improve business functionality by constantly improving the efficiency and effectiveness of important business processes. A. “Actively manage water supply and demand.” 1. Prepare and implement a Waste Water Management Plan. 2. Implement the recommendations within the Integrated Water Resources Plan (IRP) to acquire alternative and/or additional potable and recycled water supplies and reliability. 3. Work with the District’s largest potable water customers to convert landscape and interior water use to recycled water where fiscally feasible and safe. 4. Ensure best practices are followed in meeting the 20 by 2020 conservation targets including reclassification of industrial and commercial customers. 5. Educate and work with local agencies and others to influence developers and builders to incorporate practical water efficient practices in new construction. 6. Continue working with the City of Chula Vista for the possible development of a Membrane Bioreactor Plant (MBR) and for a potential agreement with the City for recycled water supplies from the MBR Plant. B. “Identify and implement improvements to the following business processes.” 1. Streamline Accounts Payable business process. 2. Develop complete Asset Management Program. 3. Strengthen CIP planning, budgeting, and cost tracking processes. 4. Update the District’s National Incident Management System (NIMS) Emergency Management Plan. 5. Enhance security processes and planning. 6. Update District-wide Records Management program. 7. Improve and streamline meter related processes. 8. Develop and implement large meter vault retrofit programs. 9. Streamline Finance business processes. 10. Streamline Customer Service business processes. 10 Strategic Performance Management Plan 11. Streamline inventory procedures. 12. Implement GIS-centric work order system. 13. Improve the operating cost and efficiency of data center and network services. 14. Implement a water loss management program. 15. Evaluate opportunities to combine or transfer similar work functions. 16. Complete valve exercising program business processes. 17. Develop large and small meter test bench strategy. 18. Develop data collection and condition assessment for collection system facilities. 19. Develop gen-set load bank testing. 20. Replace SCADA software system. 21. Implement the recommendation for improving response to extended power outages. 22. Implement wireless radio and data network for field operations. 23. Develop data collection and condition assessment for potable system facilities. IV. Learning & Growth - Provide the leadership, tools, and management commitment to become a more results-oriented culture. A. “Results-oriented workforce.” 1. Identify management initiatives for represented/unrepresented employees in preparation for negotiations that will provide more efficiencies and more flexibility. 2. Evaluate policies and procedures as appropriate to streamline processes and ensure the District remains competitive. 3. Review classification plan with the goal of providing greater flexibility. 4. Negotiate a successor “Memorandum of Understanding” for represented employees for 2014 and beyond, and related compensation and benefits for unrepresented employees. 5. Senior Management Team to develop summary of expectations for management team to manage change in the future. 6. Update performance evaluation categories/program to ensure a results-oriented workforce and update and provide training, if needed. 7. Evaluate pay-for-performance program to ensure the District is rewarding employees for innovations and business processes. 11 Strategic Performance Management Plan Performance Management Performance measures were revised on July 1, 2011, to reflect the measurement criteria for the Fiscal Years 2012-2014 Strategic Plan. Performance Measures  Customer Satisfaction: Measure the level of overall customer satisfaction with the District. Survey is conducted on an annual basis. Formation of survey begins in the first quarter. Actual survey measures calendar year (January-December). Currently reported quarterly.  Blanket Order Activity: Percentage of material purchases acquired via blanket POs.  Total Customer Water Saved: Estimate of water saved per acre-feet through conservation programs.  Health & Safety Severity Rate: Quantifies the rate of employee days lost from work due to illness or injury.  Employee Turnover Rate: Annual percent of voluntary terminations (excludes retirement).  Training Hours per Employee: Measures the quantity of general and management formal training employees are completing.  Safety Training Program: Safety and Risk Administration will provide a minimum of 8 safety training programs/hours per quarter which all field employees shall attend.  CIP Project Expenditures vs. Budget: Compares quarterly CIP expenditures with budget. 12 Strategic Performance Management Plan  Construction Change Order Incidence: Measures the rate of change order for CIP projects under construction.  Mark-Out Accuracy: Measures the percentage of mark outs performed without an at-fault hit, which is damage to a District facility that results from a missing or erroneous mark out.  Project Closeout Time: Measures the average number of days between the issuance of a Notice of Substantial Completion (NOSC) and a Notice of Completion (NOC) for all construction projects in construction.  Answer Rate: Percentage of calls as a measure of all calls received.  O&M Cost per Account: Operations & Maintenance (O&M) cost per account/per customer. (QualServe)  Billing Accuracy: Percentage of correct bills issued. (QualServe)  Overtime Percentage: Comparing actual to budgeted overtime (including comp time) to monitor costs.  Sewer Rate Ranking: Otay ranking for the average sewer bill compared to other agencies in San Diego County.  Water Rate Ranking: Otay ranking for the average water bill compared to other agencies in San Diego County.  Debt Coverage Ratio: Measures level of debt coverage ratio (ability to pay debt). (QualServe) The minimum level is 125%.  Reserve Level: Measures all of the District’s reserves against the Board adopted Reserve Policy levels.  Distribution System Loss: Percentage for unaccounted water. (QualServe)  Customer Satisfaction with Website: Tracks customer satisfaction with website through surveys.  Network Availability: Percentage of uptime for network during normal business hours.  Website Hits: Tracks the number of visitors to our website per month.  Unplanned Disruptions: Quantifies the number of unplanned water outages experienced by the utility customer expressed as number of accounts affected per 1,000 accounts. (QualServe) 13 Strategic Performance Management Plan  Technical Quality Complaint: Measures technical quality complaints of those related to core utility services. It is expressed as complaints per 1,000 customer accounts.  Planned Potable Water Maintenance Ratio in Dollars: Compares how effectively the District is investing in planned maintenance. (QualServe)  Planned Recycled Water Maintenance Ratio in Dollars: Compares how effectively the District is investing in planned maintenance.  Planned Wastewater Maintenance Ratio in Dollars: Percentage of planned maintenance costs compared to combined planned and corrective maintenance costs.  Direct Cost of Treatment per MGD: Measures the direct cost to treat one million gallons of wastewater and does not include staff overhead or fringe benefits, but it does include their salaries (QualServe).  O&M Cost per MGP – Wastewater: Total O&M cost (less depreciation) /Volume in MG processed during the reporting period.  Percentage of Preventative Maintenance Completed in the Fleet Shop: To track the percentage of scheduled PM’s that are completed in the Fleet Shop.  Percentage of Preventative Maintenance Completed at the Reclamation Plant: To track the percentage of scheduled PM’s that are completed at the Reclamation Plant.  Percentage of Preventative Maintenance Completed in the Pump/Electric Section: To track the percentage of scheduled PM’s that are completed in the Pump/Electric Section.  Percentage of Preventative Maintenance Completed in the Valve Maintenance Program: To track the percentage of scheduled PM’s that are completed in the Valve Maintenance Program.  Valve Exercising Program: Maintenance of distribution systems’ infrastructure to ensure minimal interruption of potable water delivery to customers.  Potable Water Distribution System Integrity: Measures the condition of the water distribution system expressed as the total annual number of leaks and breaks per 100 miles of distribution piping. (QualServe)  Planned Water Service Disruption Rate: Quantifies the number of planned water outages experienced by the utility customer expressed as number of accounts affected per 1,000 accounts. (QualServe) 14 Strategic Performance Management Plan  Potable Water Compliance Rate: Quantifies the percentage of time each year that the District meets all of the health related drinking water standards in U.S. National Primary Drinking Water Regulations. (QualServe)  Collection System Integrity: Number of wastewater collection system failures per 100 miles of collection system pipeline. (QualServe)  Replace Manual Read Meters with Automated Meter Readers: The measure reflects the total number of AMR meter replacements per year which will increase meter reading efficiency and reduce water loss through increased meter accuracy.  Recycled Water System Integrity: Tracks number of leaks or breaks per 100 miles of water distribution system.  Sewer Overflow Rate: Measures the wastewater collection system pipeline condition and the effectiveness of planned maintenance. (QualServe) 15 ORGANIZATION CHART District Position Count - (143 Positions) GENERAL MANAGER (5) Assistant General Manager Administrative Services (16) Finance (29) Water Operations (61) Engineering (20) Human Resources Purchasing and Facilities Safety and Risk Administration Water Conservation Controller and Budgetary Services Treasury and Accounting Services Customer Service IT Applications IT Operations GIS Water System Operations Utility Maintenance/ Construction Planning Design Environmental Water Resources Public Services Survey Inspection Construction Citizens and Customers Information Technology and Strategic Planning (12) BOARD OF DIRECTORS Meter Readering 16 Budget Overview Budget Guide The District views the budget as an essential tool for proper financial management. This budget is developed with input from the various department levels of the organization and is adopted prior to the start of each fiscal year. It is designed and presented for the general needs of the District, its staff, and citizens. The budget is a comprehensive and balanced financial plan that features District services, resources and their allocation, financial policies, and other useful information to allow the users to gain a general understanding of the District’s financial status and future plans. To help readers navigate this document, the following is a general description of each of the tabulated sections of the budget. Budget Foreword This introductory section contains descriptions and general information about the District, strategic focus areas highlighting major initiatives and accomplishments, and the Budget Calendar and Process. History and Community Profile Included in this section is the history of the District, along with the current and projected economic conditions. It also includes statistics on the District’s customers, the region’s tax base, San Diego rainfall, future development and projects that will have an impact on the District in the coming years. Financial Summaries This section contains an overview of the District’s revenues and expenditures by fund for the current budgeted fiscal year, the prior years’ actual amounts, and the future estimated amounts. The prior year’s actual amounts are unaudited due to timing of the completion of the financial statement audit; actual amounts may vary pending the completion of the audit. It includes a description of each of the revenue and expense categories as well as charts depicting their relationships. Five-Year Forecast The District prepares a comprehensive Rate Model each year based on budget input, trends, new programs, and requirements. Estimates are made for cost increases, rate increases, targeted fund balances, capital needs, and debt requirements. Analysis for the current budget year plus five subsequent years is conducted and a six-year forecast is prepared based on the Rate Model results. 17 Budget Overview Revenues and Expenditures The District budgets revenues and expenditures by Potable, Recycled, and Sewer Systems. General revenues and expenditures that are not specific to one system or department are budgeted in the General Revenues and Expenses section. An allocation of overhead costs is made to equitably distribute the cost of running the District among the various business segments. Departmental Operating Budget This section provides a summary of each department’s operating expenditures and detailed budget information including its mission, responsibilities, three-year staffing schedules, performance indicators, accomplishments, and goals. Also provided are graphical presentations of departmental budget percentages to District totals, as well as summary expenditure information by division for three fiscal years. Capital Budget An overview of the District’s Capital Improvement Program (CIP), the Water Resources Master Plan (WRMP), the Sewer Master Plan, major assumptions and criteria, a six-year listing of CIP project expenditures justifications, and the impact on the Operating Budget and capital purchases budget for the fiscal year are located in this section. Policies This section includes a summary of the District’s financial policies and practices, including the Reserve Policy, Investment Policy, and Debt Policy. Appendix The last section consists of a Glossary of budget and financial terms, List of Acronyms, and an Index. 18 Budget Overview Budget Process The District has integrated the Capital Improvement Program (CIP) Budget and the Operating Budget. These budgets are developed based on the District’s Water Resources Master Plan, the Sewer Master Plan and Strategic Business Plan. New initiatives and programs are categorized into the Balanced Scorecard perspectives. Appropriate budget amounts are determined by using the historical data of operations and new growth, developers’ input, SANDAG projections, and economic outlook. To assure reliable, high-quality service to the growing customer base, the District has committed to a number of long-range strategies that drive the budgeting process. The strategies and assumptions used to develop the District’s integrated budget are:  An average projected long-term growth rate of 1.7%  Pass-through rate increases for costs imposed on the District by the wholesale water providers  Accurate projections of capital budget needs (including replacement needs)  Reserve funding in accordance with the Reserve Policy to meet future growth demands and maintain financial stability  Funding of the Strategic Plan initiatives as categorized into the Balanced Scorecard perspectives  Avoid rate spikes by leveling rate increases over a six-year period. The Finance Department prepares the budget for the Potable, Recycled, and Sewer Systems. This is done using estimated cost increases from the District’s wholesale water providers as well as estimated sewer charge increases provided by the County and City of San Diego. Other significant factors in the budget development include projected growth in customer accounts and weather. Additionally, all general revenue and expense budgets are calculated using trend analysis and any external factors that may affect these items. Each year, the Finance Department provides departments with a Budget Workbook which gives instructions on how to budget for personnel, administrative expenses and materials and maintenance expenses. Included in this workbook are historical trends, assumptions, and training on how to enter the expense data into the District budget system. 19 Budget Overview Budget Calendar February March April May July – January 2/13/13 Chiefs submit request for new Personnel, Personnel Reclassification changes, Advancements and Long-Term Staffing to HR 2/20/13 HR to complete preliminary review of new Personnel, Personnel Reclassification changes, requests and Advancements 2/22/13 Project Managers submit CIP Budgets for new projects and changes to existing projects in CIP Budget Application 2/25/13 Chiefs to submit Operating and Admin Budget; Capital Purchases and Justifications; Labor Budget Worksheet 3/4/13 HR to review new personnel, reclassifications and change requests with GM 3/4/13 Finance to review Operating Budget and Reconciliation with Departments 3/5/13 Engineering Department reviews all CIP budget requests with AGM 3/11/13 Finance to review Department Operating Budgets with GM and AGM 3/11/13 Finance to review preliminary CIP Budget with Chief of Engineering 3/13/13 Finance to have second review of CIP budget with AGM and Engineering 3/21/13 Finance to review personnel cost with Chiefs, AGM and GM 3/22/13 Review CIP Budget with General Manager 4/2/13 Finance to review assumptions and rates with Chiefs, AGM and GM 4/4/13 Chiefs submit Position Analysis Questionnaire to HR for GM approved Personnel Requests and Request for Reclassifications (advancements do not need GM approval) 4/11/13 Preliminary Budget review with General Manager 5/7/13 Practice run of budget presentation with Finance, Chiefs, AGM, and GM 5/14/13 Budget Workshop for approval of FY 2013-2014 Operating and Capital Budgets and Draft Proposition 218 30-Day Rate Increase Notices 7/17/13 Proposition 218 Rate Notices mailed 9/4/13 Proposition 218 Public hearing and Board approval of Rates 1/1/14 Water and Sewer Rate Increase 20 Budget Overview Personnel Budget The budgeting of salaries and benefits is performed in the position budgeting module of the ERP system. This tool allows the District to budget for each authorized position and the associated benefits in an automated fashion. Departments submit requests for new positions, reclassifications, or advancements to the Assistant General Manager. These requests are reviewed by the Assistant General Manager and then presented to the General Manager for approval. Upon their approval, the Finance Department enters these changes, as well as negotiated pay increases and benefit rate changes, into the position budget system. Position budgeting calculates the salaries and benefits to be included in the District’s budget. Administrative and Materials and Maintenance Budget Administrative and Materials and Maintenance expenses are entered into the budget model of the ERP system by individual requests. These requests are compared to last year’s budget and expenses to determine reasonableness by the Finance Department. All costs are justified and supported by explanations. These budgets are then presented to the General Manager and the Board of Directors prior to adopting the budget. Capital Improvement Plan (CIP) Budget The Engineering Department issues budget instructions for the CIP budget process. Each project manager uses the CIP Budget module system to review year-to-date project expenses and then estimates cost to the end of the fiscal year. They also project future costs to complete the project. Costs are adjusted for scope changes as well as construction cost increases. Engineering then compiles the CIP Budget and submits it to the Assistant General Manager and the General Manager for review prior to presentation to the Board of Directors. Rate Model Once budgets have been calculated, the Finance Department inputs all of the operating revenues and expenses, CIP expenses, reserve funding, and reserve levels into the District’s Rate Model. Inflators for cost and volume are input into the Rate Model to project the next six years of revenue and expenses. This debt coverage ratio is also evaluated to ensure adequate levels. Rates are then set for the current fiscal year, plus five subsequent years, such that all financial targets are met. Using this comprehensive modeling tool, the District is able to smooth future rate increases, determine when debt should be issued, and maintain all of the reserve levels in accordance with the Reserve Policy. 21 Budget Overview The District has a three-year Strategic Plan, and each year in the spring, the portion of the plan that pertains to the upcoming fiscal year is presented to the Board of Directors for review and direction. This is followed by a coordinated presentation of the budget by all departments, to the Board of Directors for their approval at a special budget workshop in May. The review of the Strategic Plan and the adoption of the budget on an annual basis give the District its direction for the following fiscal year. During the year, each department receives monthly budget and cost reports that are essential to monitor and control costs. As events occur or conditions change, modifications to or deviations from the original budget may be necessary. In the event the General Manager determines that an emergency exists which requires immediate action; he may transfer appropriation within the budget allocations, or request that the Board of Directors increase the current budgeted funds. Due to the size of the District’s CIP, a separate budget book has been prepared outlining in detail the projects and expenditures required to ultimate build-out. A synopsis of the CIP may be found under the Capital Budget section of this report. As part of the integrated budget, capital purchases have been included within the CIP Budget. The Budget Report is intended as a financial guide and may be modified by the Board of Directors during Fiscal Year 2014. All approved modifications to the budget will be documented in the form of a staff report and noted in the board meeting minutes. Water and Sewer Rates Strategic Plan MWD/CWA & Sewer Rates Year End Balances Operating Budget Input CIP Budget Input Assumptions Interest Rates Inflation Growth Sales Targets Debt Coverage Reserve Levels Rate Model Operating Budget CIP Budget 22 Budget Overview Budget Basis The District utilizes the accrual basis for budgeting which is the same as the basis of accounting used in the audited financial statements, recognizing revenues and expenses in the period in which they are earned and incurred, respectively. The District reports its activities on an enterprise fund basis, which is used to account for operations that are financed and operated in a manner similar to a private business enterprise and conforms to the guidelines of Generally Accepted Accounting Principles (GAAP). The intent of the District is that the costs (including replacement cost of existing assets) of providing goods or services to the general public on a continuing basis, be financed or recovered primarily through user charges. Fund Structure The District budgets services in one of the three business segments: Potable, Sewer or Recycled. Each business segment categorizes revenue and expenditure as a function of the Operating Budget, Capital Improvement Plan Budget or Developer Deposits. Please refer to the District’s Reserve Policy, beginning on page 207, which provides the detailed flow of funds. Recycle Sewer Sewer Operating Budget Sewer CIP Budget Sewer Developer Deposits Recycle Operating Budget Recycle Developer Deposits Recycle CIP Budget Potable Potable Operating Budget Potable CIP Budget Potable Developer Deposits 23 24 25 Past and Present The Otay Water District was formed in 1956 by a small group of ranchers, farmers and other property owners concerned about the declining quality and quantity of well water. In 1957, developers in south Spring Valley created the La Presa County Water District to gain water from the San Diego County Water Authority (CWA). The CWA is the water wholesale supplier of the member agencies in San Diego County. In the fall of 1969, these two districts merged into the Otay Water District. Since then, the District has grown from a handful of customers and two employees to become an organization operating a water network with more than 724 miles of potable and 99 miles of recycled pipelines, 44 reservoirs, a water reclamation plant, and one of the largest recycled water distribution systems in the State of California. The character of the service area has also changed from predominantly dry-land farming and cattle ranching to businesses, high-tech industries, and large master- planned communities. The District’s boundaries currently stretch from Otay Mesa and eastern Chula Vista to Spring Valley, southern El Cajon, and Jamul. The mission of the District is to provide customers with the best quality water, wastewater, and recycled water service in a professional, effective, and efficient manner. As with the past few years, the District continues to face numerous challenges with the slow recovery from the largest economic downturn since the Great Depression and home foreclosures. The District also faces large water supply cost increases, inaction in the State Capitol to address the crisis in the Sacramento – San Joaquin Bay Delta, and the uncertainty of Colorado River water, the source of 100% of our imported water. In June 2007, the District dedicated the Supply Link Project connecting the recycled water system to the City of San Diego’s City South Bay Water Reclamation Plant. Today, the District purchases about 3 million gallons per day (mgd) of recycled water from the City of San Diego, increasing to 6 mgd ultimately, and in addition 1 mgd is produced at RWCWRF. With recycled water meeting a large portion of the landscape irrigation needs, this means in the future approximately 7 mgd of potable water does not have to be pumped hundreds of miles from northern California or the Colorado River. Instead, enough drinking water to serve more than 15,000 homes is being conserved and can be used to address shortages in the years to come. Otay Water District, 2013 La Presa County Water District (ca. 1957) 26 1956 1962 1973 1986 1995 1997 2000 2005 2006 2010 2013 2016 Otay Municipal Water District was established. 1956 Estimated completion of Rosarito Desalination Project. 2018 Otay Water District's new Administrative office. 1997 Serving approximately 3,800 customer accounts. 1966 Serving approximately 10,000 customer accounts. 1976 Serving approximately 18,000 customer accounts. 1986 Serving approximately 28,757 customer 1996 First meeting at Christie's Restaurant in Chula Vista and drew up future service area. 1955 Dissolution of La Presa County Water District and changed name to Otay Water District. 1969 The Board of Directors of the La Presa County Water District and Otay Municipal Water District entered into a joint power agreement. 1962 US Olympic Training Center opened in Eastlake service area. 1995 Otay Water District's new Operations Building. 2000 Serving approximately 39,450 customer accounts. 2000 Timeline Number of Employees: 83 1973 Number of Employees: 143 2013 Number of Employees: 127 1991 Number of Employees: 165 2006 Serving approximately 52,556 customer accounts. 2006 The census determined the City of Chula Vista and portions of Otay service area was the 7th fastest growing 2000 District Headquarters. 1974 Serving approximately 53,020 customer accounts. 2010 Serving approximately 54,215 customer accounts. 2013 Rosarito Desalination Project Study 2005 Otay Water District's 50th Anniversary. 2006 27 28 Current Economic Conditions The District services the needs of a growing population by purchasing water from the San Diego County Water Authority (CWA). CWA purchases its water from the Metropolitan Water District of Southern California (MWD) and the Imperial Irrigation District (IID). The District takes delivery of the water through several connections of large diameter pipelines owned and operated by CWA. The District currently receives treated water from CWA and from Helix Water District (HWD) by contract with CWA. In the Southern region, in addition to the treated water deliveries from CWA, the District has an emergency agreement with the City of San Diego in the case of a shutdown of the main treated water source. Through innovative agreements like this, benefits can be achieved by both parties by using excess capacity of another agency and diversifying local supply, thereby increasing reliability. For several decades, the District has collected and recycled wastewater generated within the Jamacha drainage basin and pumped the recycled water south to the Salt Creek basin where it is used for irrigation and other non-potable uses. However, the demand for recycled water out-paced the supply, requiring the District to supplement the limited supply of recycled water with potable water. Through the agreement with the City of San Diego, the District has discontinued supplementing its recycled demand with potable water. Once again, this decreases the demand on potable water and increases reliability of the District’s supply. The District’s sewer service area is growing at a slow but steady rate of approximately 0.2% each year. Most of this growth is from small development projects or homeowners converting their septic system to sewer because of environmental issues. The District’s water service area was one of the fastest growing regions in the nation. During the past decade, the population of the service area has nearly doubled. It is estimated that the District is currently serving approximately 211,000 residents. The local and national recovery from the global recession of 2009 has been slow; however, due to San Diego County’s diverse economy, it is forecasted to do better than most of the nation. Over the past 10 years, the District has added more than 6,768 new customer connections, with 2,326 occurring in Fiscal Year 2004. In Fiscal Year 2013, the District sold 284 meters which is an average of 24 meters per month. 29 The Future The District continues to use the challenges presented by growth to create new opportunities and new organizational efficiencies. By utilizing and continuing to refine its Strategic Business Plan, it has captured the Board of Director’s vision and united its staff in a common mission. The organization has achieved a number of significant accomplishments based on its successful adherence to its Strategic Business Plan. The District is not only poised to continue successfully providing an affordable, safe, and reliable water supply for the people of its service area, but is set to reap the rewards of greater efficiencies and economies of scale. Future Development As in the previous fiscal year, the District employed an Economist to provide an Economic Outlook of the National Economy, San Diego County’s Economy, the future of South San Diego County and an overview of the Otay Water District. Projections of future development indicate that the ratio of multi-family units will increase because the remaining land is zoned for multi-family development. Projected Total For Sale and Rental Units Otay Water District Service Area FY 2014 through FY 2019 Project FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 Total Total Single-Family Units 103 273 310 510 513 500 2,209 Total Condominium 140 383 383 400 500 500 2,306 Total Rental 839 691 580 250 250 250 2,860 Total Units 1,082 1,347 1,273 1,160 1,263 1,250 7,375 % Multi-Family 90% 80% 76% 56% 59% 60% 70% Source: The London Group Realty Advisors, April 2013 Using the economist report, the District’s engineering staff projects that over the next six years the District will sell another 3,424 meters which translates to 5,155 equivalent dwelling units (EDUs). These projections have been incorporated in the Five-Year Forecast on pages 52-53. Projected Meter Sales in EDUs 354 647 801 1,050 1,108 1,195 0 200 400 600 800 1000 1200 1400 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 Me t e r s 30 The Future San Diego County Water Supply San Diego County imports about 90 percent of its water from the Colorado River and Northern California. Since these sources face legal and environmental constraints, the region has been exploring other ways to ensure an adequate water supply, including increased water recycling, more aggressive conservation programs, increased water storage, groundwater desalination and seawater desalination. Carlsbad Desalination Project The District’s water wholesaler, the San Diego County Water Authority, voted on November 29, 2012, to approve a water purchase agreement with Poseidon Resources Corporation (Poseidon). Under the water purchase agreement, the Water Authority will purchase 48,000 to 56,000 acre-feet of water annually from the desalination plant located in Carlsbad, California. The plant is expected to produce up to 50 million gallons of water a day beginning in 2016 and will generate enough water to meet 7 percent of the region’s demand. The total price for the desalinated water, including related upgrades to the Water Authority’s pipelines and treatment plant, is projected to start between $2,041 and $2,290 per acre-foot (in 2012 dollars). An acre-foot is approximately 325,900 gallons, or enough to supply two typical single-family households of four for a year. Rosarito Desalination and the Otay Mesa Conveyance and Disinfection System Projects The Rosarito Desalination Project is comprised of a 100 million gallons per day seawater reverse osmosis desalination plant, together with a pump station and pipeline, to convey water to Tijuana and excess production water to the District. This will be the first cross-border water supply project of its kind and requires public messaging to inform key stakeholders and the public of the significance of the Project. If successful, this Project will start delivering water to District customers by early 2018. The Project includes the construction of facilities on the U.S. side to include a large diameter pipeline 3.5 miles long, a pump station, a disinfection facility and the use of the Roll Reservoir in Otay Mesa. Carlsbad Desalination Project rendering Rosarito Desalination Project rendering 31 Demographics The District boundaries shown in the map encompass an area of approximately 125.5 square miles in San Diego County, located immediately east of the City of San Diego metropolitan area and running from the City of El Cajon south to the international border. SANDAG creates and maintains a tremendous quantity of demographic, economic, land use, transportation and criminal justice information about the San Diego region. The demographic data include population characteristics like age, education, and employment. Because of the overlapping of the District’s service area with the cities of Chula Vista, La Mesa, El Cajon, and the unincorporated areas of Spring Valley and Jamul, the following demographic data is from the City of Chula Vista as it most closely represents the District. Demographics of the City of Chula Vista The population of Chula Vista has grown from 83,927 in 1980 to 249,382 in 2012. This represents an increase of 165,455 in the past 30 years or a 197.1% increase, which correlates to the District’s rapid growth for the same period. As shown in the table below, the ethnic/racial makeup of the City consists of 58% Hispanic, 20% White, 14% Asian, 4% Black, and the remaining 7% is all other groups. In a recent economic forecast conducted by the London Group Reality Advisors, the District’s median age is 35.5 and 33.0% of adults have a four-year degree or higher. The average household income is $96,791 and the median household income is $80,479. 2012 City of Chula Vista Demographics Population 249,382 Persons/Household 3.17 Ethnic/Racial makeup Hispanic 58% White 20% Asian 14% Black 4% Other 7% Median Age 35.5 Percentage with 4 year degree or higher 33.0% Average Household Income $ 96,791 Median Household Income $ 80,479 Source: SANDAG; The London Realty Group, Claritas Demographics 32 Water Rate Comparison The District strives to remain cost effective in its rate setting,by controlling operating cost, yet passing through the full cost of supply.In June 2013,the District conducted a survey of the water rates of its neighboring water providers within San Diego County. The following chart shows that the District is in the top 11 of the lowest water rates. SURVEY OF MEMBER AGENCY WATER RATES BASED ON 14 UNITS OF WATER USE AND 3/4 METER SIZE PROJECTED WATER BILL FOR FY 2014 $112.27 $108.51 $106.13 $103.26 $92.87 $91.66 $88.24 $88.05 $84.64 $80.77 $79.05 $78.34 $77.84 $77.44 $76.61 $75.65 $74.45 $74.33 $72.31 $71.56 $67.97 $65.78 $61.59 $- $20 $40 $60 $80 $100 $120 Rainbow Padre Dam E Padre Dam W Ramona Valley Center *Vista Escondido *Fallbrook Sweetwater *Del Mar *Olivenhain Rincon Otay San Diego *Carlsbad Vallecitos *Santa Fe *Oceanside Helix Poway San Dieguito Yuima Lakeside * At the time of the survey in June 2013, the member agency's FY 2014 rate was unavailable. The estimated increase is equal to the District's FY 2014 average rate increase. 33 Sewer Rate Comparison Water consumption based sewer rate Flat Sewer Rate Otay Water District The District conducted a survey of the rates of the sewer providers within San Diego County. Sewer rates are billed at either a fixed or variable rate. The following chart shows the various sewer providers and the type of rate that is charged to the consumers. The District is among the lowest sewer rates in the County of San Diego. SEWER RATE COMPARISON, SAN DIEGO COUNTY BASED ON 14 UNITS OF WATER USE AND 3/4 RESIDENTIAL METER SIZE PROJECTED SEWER BILL FOR FY 2014 120.95 104.61 99.15 91.52 85.30 80.66 77.33 71.97 70.73 68.89 68.81 65.71 62.86 58.08 56.50 54.32 53.53 53.10 51.48 50.17 47.20 46.62 43.04 42.35 35.91 34.04 28.00 27.59 22.83 $- $20 $40 $60 $80 $100 $120 Del Mar *Valley Center - WV *Valley Center - MP *Oceanside *Olivenhain *Fallbrook Padre Dam Rainbow *Rancho Santa Fe *Encinitas Imperial Beach San Diego, City *Buena Chula Vista *Vista *Valley Center - MG Escondido Ramona *El Cajon Solana Beach Poway La Mesa Lemon Grove Otay Vallecitos *National City San Diego, County Carlsbad Leucadia * At the time of the survey in June 2013, the member agency's FY 2014 rate was unavailable. The estimated increase is equal to the District's FY 2014 average rate increase. 34 Service Area Assessed Valuation Source: County of San Diego Auditor and Controller Otay Water District’s service area encompasses property with over $22.8 billion of assessed valuation. Properties are assessed at 100%of their full value less exemption from taxation under the law and homeowner’s exemptions.As shown in the chart below, since 2009 there has been a notable decrease in the assessed value of properties primarily due to the real estate market downturn and increased foreclosures in the District service area. The assessed valuation is the basis for the property tax change. The District receives its portion of the 1%property tax, according to Proposition 13 and AB8,and with the increases in the assessed valuation the District will benefit by receiving its proportionate share of this increase. Five-Year Service Area Assessed Valuation, in millions ($) $- $4,000 $8,000 $12,000 $16,000 $20,000 $24,000 $28,000 2009 2010 2011 2012 2013 $26,752 $24,199 $23,519 $23,145 $22,836 35 Assessed Percent Value to Total 1. GGP-OTAY RANCH LP 118,496,741$ 0.53% 2. REGULO PLACE APARTMENTS INVESTORS LLC 92,893,489 0.42% 3. S P LAVIDA REAL LLC 70,737,194 0.31% 4. CAMDEN USA INC 64,164,161 0.28% 5. E Q R-MISSIONS AT SUNBOW LLC 58,842,674 0.26% 6. SSBTLCREV LLC 50,676,080 0.22% 7. B R E-FM CA LLC 50,490,696 0.22% 8. CAPITAL SALVAGE INC 44,268,000 0.19% 9. SYCUAN TRIBAL DEVELOPMENT CORP.42,201,128 0.18% 10. VESTAR CALIFORNIA XVII LLC 35,670,295 0.16% Total $ 628,440,458 2.75% Total Service Area Assessed Valuation $ 22,836,336,223 88,327,076$ Other Taxpayers 628,440,458$ Ten Principal Taxpayers 22,207,895,765 22,836,336,223$ Organization Ten Principal Taxpayers as of June 30, 2013 36 % of Annual Water Customer Type Revenues Sales 1. City of Chula Vista Publicly Owned 3,079,176$ 4.3% 2. State of California Publicly Owned 948,779 1.3% 3. County of San Diego Publicly Owned 801,457 1.1% 4. City of San Diego Publicly Owned 638,175 0.9% 5. EastLake County Club Commercial 540,498 0.7% 6. EastLake III Community Commercial 539,273 0.7% 7. Sweetwater School District Publicly Owned 460,200 0.6% 8. Highlands Golf Company, LLC Commercial 454,086 0.6% 9. Chula Vista School District Publicly Owned 448,741 0.6% 10. SANDAG Publicly Owned 362,369 0.5% Total 8,272,754$ 11.5% Actual FY 2013 Water Sales (All Customers)72,157,731$ Others 8,272,754$ 11.5% Ten Largest Customers 63,884,977 88.5% 72,157,731$ 100.0% Customer Name Ten Largest Customers - Fiscal Year 2013 37 San Diego Rainfall Although San Diego received less than normal rainfall in Fiscal Year 2013,the District is expecting that San Diego's rainfall will return to its average pattern and volume for Fiscal Year 2014.The 10-year average of 9.18 inches for San Diego rainfall reflects the long-term drought conditions for our area. San Diego's rainfall average over 20 years is 9.17 inches;the 30-year average is 9.74 inches;and the 40-year average is 10.36 inches. San Diego rainfall, while a contributing factor,is not the controlling factor for our potable water supply shortage. The San Diego region imports 90%of its potable supply,so conditions elsewhere affect the actual amount of water available to the District.In the event the amount of water supplied to the District is reduced,water sales revenues would decrease. Related water purchase expenses would also be reduced, mitigating the impact of the decrease in revenues. The amount of any supply reduction would dictate the magnitude of the District's response and type of reaction. The San Diego rainfall information shown in the chart above uses data from the San Diego Airport at Lindbergh Field and is provided by the Western Regional Climate Center. More information can be obtained from their website: http://www.wrcc.dri.edu. The Western Regional Climate Center’s website data,in turn,is derived from data received from the National Climatic Data Center,the National Weather Service,the National Resource Conservation Service,the Bureau of Land Management,the U.S. Forest Service,and other federal,state,and local agencies. Although the data reflects actual rainfall at Lindbergh field, it is representative of rainfall for the area served by the Otay Water District. 5.18 22.50 5.42 3.85 7.49 9.17 11.01 12.66 8.03 6.48 0 5 10 15 20 25 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 In c h e s Fiscal Year Fiscal Years 2004-2013 Annual Rainfall 10-Year Average Rainfall (9.18 inches) 38 Budget Summary The FY 2014 Operating Budget is summarized and presented in the Operating Budget Summary- General Fund on pages 44-45. This schedule presents the District’s overall Revenues and Expenditures by type. Also included in this section is the Operating Budget Summary by System on page 46 which presents the General Fund budget in the business segments of Potable, Recycled and Sewer. Additional schedules provided in this section are the General Fund Revenues, Expenditures and Transfers, Fund Balance Summary by Fund, the Revenues and Expenditures by Fund and the Revenues and Expenditures by Type for all funds are presented on pages 47-51. For Fiscal Year 2014, the District has approved an increase in water rates for its customers in order to pass-through cost increases from water suppliers. The District also approved an increase in sewer rates for the rehabilitation of the aging sewer system. These cost increases are being experienced by our neighboring water agencies and most are encountering similar rate increases. OPERATING BUDGET SUMMARY – GENERAL FUND The Operating Budget for Fiscal Year 2014 is $86.1 million in comparison to the previous fiscal year budget of $82.3 million. The $3.8 million increase is a result of water supply rate increases of 5.0% from MWD and 4.3% from CWA. CWA’s increase is due to the high cost of supply programs, higher energy rates, and increase in operating costs. Revenues Potable Water Sales Potable water sales revenue collected from the sale of water, including: system charges, energy charges, and penalties accounts for 77.9% of the District’s operating revenues. It is estimated that 28,985 acre-feet of potable water will be sold during FY 2014, which is an increase of 60.2 acre-feet from FY 2013. Budgeted revenues from water sales are projected to be $67.0 million, an increase of 8.5% from FY 2013, which is primarily due to necessary rate increases because of higher water costs from CWA and MWD. Additional schedules relating to potable water sales are included in the Potable Revenues and Expenditures section of this budget. Recycled Water Sales Recycled water sales revenue is comprised of collections from the sale of 2,916 acre-feet of recycled water to customers at a discount of 15% off the potable irrigation rate. The FY 2014 sales revenue budget is $8.3 million which is an increase of $637,700 from FY 2013 and includes the incentive credits provided by MWD and the CWA. Sewer Revenues Sewer charges are the monthly fees collected from the sewer service connections and represents 99% of the District’s sewer revenue. The remaining 1% of revenue is derived from penalties. The monthly fees are determined by volume of flow and the strength of solids discharged into the sewer 39 Budget Summary system. The FY 2014 Sewer Revenues are projected to be $2.7 million which is a slight increase of $146,400 from FY 2013. Meter Fees Meter fees are charges collected for new water service connections. Fees vary depending upon meter size and type of service. The FY 2014 revenue from meter fees is $81,600, which is $30,600 less than the FY 2013 budget. The costs associated with meter installations are included in the Operating Expenses section. Capacity Fee Revenues These fees are earned by the General Fund for Engineering Department’s support for expansion functions. The FY 2014 capacity fee revenue is $1.3 million which is an increase of $110,600 from FY 2013. Betterment Fees for Maintenance These fees are earned by the General Fund for Water Operations Department’s maintenance of certain District assets. The FY 2014 Betterment Fees is $776,700 which is an increase of $87,300 from FY 2013. Tax Revenues The District receives 1% property tax revenues, debt-related assessments, and availability fees on properties within the District’s boundaries. These revenues are collected by the County of San Diego via the Property Tax Roll and remitted to the District annually. Based on the historical collections from the County of San Diego, the District projected tax revenues of $3.6 million, a decrease of $285,500 compared to FY 2013. Non-Operating Revenues Non-operating revenues are revenues that are not directly related to the operation of a water or sewer utility, and include such items as District property rentals and leases, and billing services for the City of Chula Vista. The District projected a $1.8 million for FY 2014 which is a decrease of $68,300 compared to FY 2013. Interest Interest is earned by each fund that has a positive balance and is paid by each fund with a negative balance. Interest income on General Fund balances is considered general use revenue. Interest revenue is projected to be 69,100 in FY 2014 which is $36,600 less than FY 2013. Transfers These transfers are necessary to ensure that each fund pays its fair share of costs, or to achieve required fund balances per the District’s policy. For FY 2014, the General Fund Draw Down is 40 Budget Summary $61,600 which is a decrease of $885,300 compared to FY 2013. Transfers from the Potable General Fund are $152,800 in FY 2014 which is a decrease of $442,200 compared to FY 2013. Transfer from OPEB Reserve In Fiscal Year 2008, the District established an OPEB Trust with CERBT. This gave the District a high rate of return, lowering the amount necessary to reserve for OPEB expenses. The remaining amount was placed in a District held reserve. The funds have been used as directed by the Board, to fund both OPEB and employee compensation. This fund will be depleted in FY 2014. The District budgeted to transfer $149,800 in FY 2014 which is a decrease of $729,700 compared to FY 2013. Expenditures Potable Water Purchases Water purchases are the expenses of purchasing 30,584 acre-feet for the District's potable water supply. A provision has been made to allow 1,599 acre-feet of water for District usage, leakage, and evaporation. Total Potable Water Purchases is projected to be $33 million in FY 2014 which is an increase of $2.5 million compared to FY 2013. Recycled Water Purchases Recycled water purchases are the expenses of purchasing 2,916 acre-feet for the District's recycled water supply. The District no longer budgets for a potable supplement to the recycled system due to the source of recycled water from the City of San Diego. Total Recycled Purchases is projected to be $1.6 million in FY 2014 which is an increase of $95,500 compared to FY 2013. Infrastructure Access Charge This charge was established in Fiscal Year 1999 by CWA to finance a portion of its fixed annual costs including annual payments of principal and interest on debt as well as 80% of all operation and maintenance costs. This fixed charge is based on the number of "household meter equivalents." Infrastructure access charges are projected to be $1.9 million in FY 2014 which is an increase of $38,100 compared to FY 2013. Customer Service Charge This charge was established in Fiscal Year 2004 by CWA as a fixed charge. The Customer Service Charge is set to recover costs necessary to support CWA’s development of policies and implementation of programs that benefit the region as a whole. Customer service charges are projected to be $1.8 million which is an increase of $65,800 compared to FY 2013. Emergency Storage Charge The Emergency Storage Charge was established by CWA in Calendar Year 2003, to recover costs associated with non-agricultural water deliveries and is allocated based on each member agency’s share of deliveries. Emergency storage charges are projected to be $4.5 million which is an increase of $429,500 compared to FY 2013. 41 Budget Summary Capacity Reservation Charge This charge was established in Fiscal Year 2002 by the MWD, as a fixed charge on a member agency's requested maximum day capacity. The Capacity Reservation Charge is a charge per cubic-foot-second (cfs) and is applied to the amount of capacity (daily flow) a member agency expects to use during the peak period from May through September. Capacity reservation charges are projected to be $531,000 which is an increase of $27,000 compared to FY 2013. Readiness-to-Serve Charge This charge was established in Fiscal Year 1996 by MWD, to recover the principal and interest payments on non-tax supported debt service used to fund the capital improvements necessary to meet the continuing reliability and quality needs associated with current demands. These costs are offset by standby charges collected by the MWD on the tax bills of District customers. These charges are projected to be $1.7 million which is an increase of $130,100 compared to FY 2013. Power Costs Power is the cost associated with the transmission and distribution of water to customers. The pumping costs to distribute water vary with elevation and will increase as water sales increase. Power costs are projected to be $2.7 million which is an increase of $325,300 compared to FY 2013. Labor and Benefits Labor and benefits are the wages and fringe benefits for 20143 Full-time Equivalent (FTE) employees. Labor costs are reduced by the number of hours that are charged to non-operating Capital Improvement Program (CIP) and developer deposit projects. The detail of actual personnel and payroll related expenses is included in the Departmental Operating Budget section. Labor and benefits decreased by $180,800 from $18.9 million to $18.7 million in FY 2014. Administrative Expenses Administrative expenses are costs incurred by various departments that are directly related to District operations. Administrative expenses are projected to be $5.1 million in FY 2014 which is an increase of $277,700 compared to FY 2013. Additional details are supplied in the Departmental Operating Budget section. Materials and Maintenance Materials and maintenance expense is the cost associated with the operation and maintenance of District facilities. Materials and maintenance expenses are projected to be $3.5 million in FY 2014 which is $215,000 less than FY 2013. Additional details are supplied in the Departmental Operating Budget section. 42 Budget Summary Reserves New Water Supply Reserves These reserves are established to fund new water supply needs including project costs, existing debt payments, and new debt that will be issued in the future to fund expansion. Expansion Reserves These reserves are established to fund expansion needs including project costs, existing debt payments, and new debt that will be issued in the future to fund expansion. Betterment Reserves These reserves are established to fund the betterment needs of facilities including project costs, existing debt payments, and new debt that will be issued in the future to fund betterment. Replacement Reserves These reserves are established to fund the replacement needs including project costs, existing debt payments, and new debt that will be issued in the future to fund replacement. OTHER FINANCIAL SCHEDULES/PRESENTATIONS Operating Budget Summary by System The Budget Summary by System schedule reflects the separation of operating revenues and expenses among potable water, recycled water, and sewer. This is provided as information but is necessary to ensure sufficient revenue is collected from sewer customers versus water customers. Fund Balance Summary by Fund This schedule shows each fund’s balance at June 30, 202013, and the projected balance for June 30, 202014, based on the results of the budget and rate model. This includes transfers between funds made to meet target levels as outlined in the Reserve Policy. Revenues and Expenditures by Fund The Revenues and Expenditures by Fund schedule reflect each fund’s revenues and expenditures by business line, where appropriate. This schedule is reconciled to the Fund Balance Summary and excludes transfers between funds. Revenues and Expenditures by Type – All Funds This is a consolidated schedule of revenues and expenditures, including sources and uses of funds but excluding fund transfers. 43 FY 2012 FY 2014 11-Actual Budget Actual * Budget $% REVENUES ##Potable Water Sales 56,784,245$ 61,754,400$ 63,669,294$ 67,033,500$ 5,279,100$ 8.5% Recycled Water Sales 7,018,903 7,702,400 8,488,486 8,340,100 637,700 8.3% ##Sewer Revenues 2,395,365 2,555,200 2,618,291 2,701,600 146,400 5.7% ##Meter Fees 131,904 112,200 108,538 81,600 (30,600) (27.3%) ##Capacity Fee Revenues 1,160,066 1,180,600 1,237,085 1,291,200 110,600 9.4% ##Betterment Fees for Maintenance 690,885 689,400 612,663 776,700 87,300 12.7% Tax Revenues 3,587,019 3,882,600 3,600,263 3,597,100 (285,500) (7.4%) ##Non-operating Revenues 2,063,472 1,914,300 1,859,023 1,846,000 (68,300) (3.6%) ##Interest 81,511 105,700 59,399 69,100 (36,600) (34.6%) OPTransfer from OPEB Reserve 1,380,000 879,500 879,500 149,800 (729,700) (83.0%) ExpTransfer from Betterment Reserve 30,000 - - - - - Transfer from Replacement 120,000 - - - - - General Fund Draw Down 522,800 946,900 946,900 61,600 (885,300) (93.5%) Transfer from Potable General Fund 595,000 595,000 595,000 152,800 (442,200) (74.3%) TOTAL REVENUES 76,561,170$ 82,318,200$ 84,674,444$ 86,101,100$ 3,782,900$ 4.6% EXPENDITURES ##Potable Water Purchases 27,957,531$ 30,552,200$ 32,063,055$ 33,028,900$ 2,476,700$ 8.1% Recycled Water Purchases 1,605,774 1,504,000 1,391,947 1,599,500 95,500 6.3% ##CWA - Infrastructure Access Charge 1,756,656 1,818,000 1,818,204 1,856,100 38,100 2.1% ##CWA - Customer Service Charge 1,553,756 1,687,800 1,688,369 1,753,600 65,800 3.9% ##CWA - Emergency Storage Charge 3,505,590 4,086,000 4,086,425 4,515,500 429,500 10.5% ##MWD - Capacity Reservation Charge 599,146 504,000 503,873 531,000 27,000 5.4% ##MWD - Net RTS and Standby Charge 1,481,211 1,610,400 1,609,710 1,740,500 130,100 8.1% Subtotal - Water Costs 38,459,664$ 41,762,400$ 43,161,582$ 45,025,100$ 3,262,700$ 7.8% ##Power 2,138,674$ 2,368,000$ 2,430,461$ 2,693,300$ 325,300$ 13.7% ##Labor and Benefits 17,240,618 18,856,200 18,361,022 18,675,500 (180,700) (1.0%) ##Administrative Expenses 4,299,360 4,804,900 4,254,758 5,082,600 277,700 5.8% ##Materials & Maintenance 3,763,097 3,747,900 3,727,095 3,532,900 (215,000) (5.7%) Subtotal - Operations Costs 27,441,750$ 29,777,000$ 28,773,335$ 29,984,300$ 207,300$ 0.7% ##Expansion Reserve 555,000 3,936,000 3,936,000 3,428,000 (508,000) (12.9%) Bet Betterment Reserve - 1,120,000 1,120,000 125,000 (995,000) (88.8%) RepReplacement Reserve 3,330,000 743,000 743,000 4,230,000 3,487,000 469.3% Sewer General Fund 786,800 595,000 595,000 152,800 (442,200) (74.3%) TO OPEB Trust - - - 1,242,900 1,242,900 - Potable General Fund 2,420,500 2,285,800 2,285,800 1,913,000 (372,800) (16.3%) Sewer Replacement 1,720,000 2,099,000 2,099,000 - (2,099,000) - New Supply Reserve 1,585,000 - - - - - Subtotal - Reserve Funding 10,397,300$ 10,778,800$ 10,778,800$ 11,091,700$ 312,900$ 2.9% TOTAL EXPENDITURES 76,298,713$ 82,318,200$ 82,713,717$ 86,101,100$ 3,782,900$ 4.6% EXCESS REVENUES (EXPENSES)262,457$ -$ 1,960,727$ -$ -$ - Operating Budget Summary - General Fund FY 2013 Budget to Budget Variance * Actual unaudited 44 Operating Budget Summary - General Fund Potable Water Sales 67,033,500$ 77.9% Recycled Water Sales 8,340,100 9.7% Tax Revenues 3,597,100 4.2% Sewer Revenues 2,701,600 3.1% Other Fees 2,149,500 2.5% Non-Operating Revenues 1,846,000 2.1% Transfers 364,200 0.4% Interest 69,100 0.1% 86,101,100 100.0% Potable Water Costs 43,425,600$ 50.4% Labor and Benefits 18,675,500 21.7% Reserve Funding 11,091,700 12.9% Administrative Expenses 5,082,600 5.9% Materials and Maintenance 3,532,900 4.1% Power 2,693,300 3.1% Recycled Water Purchases 1,599,500 1.9% 86,101,100$ 100.0% FY 2014 Operating Revenues FY 2014 Operating Expenditures 45 Potable Recycled Sewer Total REVENUES Water Sales 67,033,500$ -$ -$ 67,033,500$ Recycled Water Sales - 8,340,100 - 8,340,100 Sewer Revenues - - 2,701,600 2,701,600 Meter Fees 79,400 2,200 - 81,600 Capacity Fee Revenues 1,229,600 - 61,600 1,291,200 Bett Betterment Fees for Maintenance 776,700 - - 776,700 Tax Revenues 3,545,500 - 51,600 3,597,100 Non-operating Revenues 1,812,200 - 33,800 1,846,000 Interest 60,900 3,900 4,300 69,100 OPEBTransfer from OPEB Reserve 149,800 - - 149,800 General Fund Draw Down - 61,600 - 61,600 Transfer from Potable General Fund - - 152,800 152,800 TOTAL REVENUES 74,687,600$ 8,407,800$ 3,005,700$ 86,101,100$ EXPENDITURES Water Purchases 33,028,900$ 1,599,500$ -$ 34,628,400$ CWA - Infrastructure Access Charge 1,856,100 - - 1,856,100 CWA - Customer Service Charge 1,753,600 - - 1,753,600 CWA - Emergency Storage Charge 4,515,500 - - 4,515,500 MWD - Capacity Reservation Charge 531,000 - - 531,000 MWD - Net RTS and Standby Charges 1,740,500 - - 1,740,500 Subtotal - Water Costs 43,425,600$ 1,599,500$ -$ 45,025,100$ Power 2,068,100 523,600 101,600 2,693,300 Labor and Benefits 16,259,300 1,259,900 1,156,300 18,675,500 Administrative Expenses 4,480,500 310,400 291,700 5,082,600 Materials & Maintenance 1,855,700 282,500 1,394,700 3,532,900 Subtotal - Operations Costs 24,663,600$ 2,376,400$ 2,944,300$ 29,984,300$ 5716 Expansion Reserve 3,418,000 10,000 - 3,428,000 Bett RBetterment Reserve - 125,000 - 125,000 Repl Replacement Reserve - 4,230,000 - 4,230,000 Sewer General Fund 152,800 - - 152,800 TOPEOPEB Trust 1,114,600 66,900 61,400 1,242,900 Potable General Fund 1,913,000 - - 1,913,000 Subtotal - Reserve Funding 6,598,400$ 4,431,900$ 61,400$ 11,091,700$ TOTAL EXPENDITURES 74,687,600$ 8,407,800$ 3,005,700$ 86,101,100$ EXCESS REVENUES (EXPENSES) -$ -$ -$ -$ FY 2014 Operating Budget Summary by System * Actual unaudited 46 General Fund - Revenue, Expenditures and Transfers FY 2012 FY 2014 11-Actual Budget Actual * Budget $% REVENUES Water/Sewer Rates 66,198,513$ 72,012,000$ 74,776,072$ 78,075,200$ 6,063,200$ 8.4% ##Meter Fees 131,904 112,200 108,538 81,600 (30,600) (27.3%) ##Capacity Fee Revenues 1,160,066 1,180,600 1,237,085 1,291,200 110,600 9.4% ##Betterment Fees for Maintenance 690,885 689,400 612,663 776,700 87,300 12.7% Tax Revenues 3,587,019 3,882,600 3,600,263 3,597,100 (285,500) (7.4%) ##Non-operating Revenues 2,063,472 1,914,300 1,859,023 1,846,000 (68,300) (3.6%) ##Interest Income 81,511 105,700 59,399 69,100 (36,600) (34.6%) Transfers 2,647,800 2,421,400 2,421,400 364,200 (2,057,200) (85.0%) TOTAL REVENUES 76,561,169 82,318,200 84,674,443 86,101,100 3,782,900 4.6% EXPENDITURES Water Cost 38,459,664 41,762,400 43,161,583 45,025,100 3,262,700 7.8% ##Power 2,138,674 2,368,000 2,430,461 2,693,300 325,300 13.7% ##Labor and Benefits 17,240,618 18,856,200 18,361,022 18,675,500 (180,700) (1.0%) ##Administrative Expenses 4,299,360 4,804,900 4,254,758 5,082,600 277,700 5.8% ##Materials & Maintenance 3,763,097 3,747,900 3,727,095 3,532,900 (215,000) (5.7%) Fund Transfers, Net 10,397,300 10,778,800 10,778,800 11,091,700 312,900 2.9% TOTAL EXPENDITURES 76,298,713 82,318,200 82,713,717 86,101,100 3,782,900 4.6% EXCESS REVENUES (EXPENDITURES) 262,457$ -$ 1,960,727$ -$ -$ -$ FY 2013 Budget to Budget Variance * Actual unaudited 47 Actual*Projected Balance Interfund Balance June 30, 2013 Revenues Expenditures Transfers (1)June 30, 2014 GENERAL FUND Potable 16,756,661$ 74,687,600$ 74,687,600$ 1,913,000$ 18,669,661$ Recycled 3,035,426 8,407,800 8,407,800 (774,000) 2,261,426 Sewer 1,857,087 3,005,700 3,005,700 (61,600) 1,795,487 Total General Fund 21,649,174 86,101,100 86,101,100 1,077,400 22,726,574 EXPANSION FUND Potable and Recycled (2)971,641 3,175,500 7,566,500 3,785,000 365,641 Sewer 21,983 - 61,600 40,000 383 Total Expansion Fund 993,624 3,175,500 7,628,100 3,825,000 366,024 (3) BETTERMENT FUND Potable 3,255,622 2,950,800 4,802,100 540,000 1,944,322 Recycled (1,888) 112,900 204,000 125,000 32,012 Sewer 376,053 41,500 333,000 995,000 1,079,553 Total Betterment Fund 3,629,787 3,105,200 5,339,100 1,660,000 3,055,887 (3) REPLACEMENT FUND Potable 27,459,711 1,738,900 7,308,800 (1,425,000) 20,464,811 Recycled 657,890 122,300 450,900 4,230,000 4,559,290 Sewer 9,691,578 33,300 2,117,000 267,000 7,874,878 Total Replacement Fund 37,809,180 1,894,500 9,876,700 3,072,000 32,898,980 NEW SUPPLY FUND Potable 375,140 986,500 751,600 - 610,040 Recycled 512,832 77,000 134,400 - 455,432 Sewer - - - - - Total New Supply Fund 887,972 1,063,500 886,000 - 1,065,472 (3) OPEB FUND 149,705 800 991,400 1,093,100 252,204 (4) DEBT RESERVE FUND 17,605,348 664,800 3,753,700 - 14,516,448 TOTAL 82,724,790$ 96,005,400$ 114,576,100$ 10,727,500$ 74,881,590$ 5,602,286$ (1)The total for interfund transfers does not net to $0 because some transfers are already reflected in the Operating Revenues and Expenditures for General Fund as follows: Expansion Reserve (3,428,000)$ Betterment Reserve (125,000) General Fund (1,851,400) Replacement Reserve (4,230,000) OPEB Reserve (1,093,100) Total (10,727,500) # (2)Potable and Recycled funds are combined for expansion purposes. (3)The fund balance is anticipated to change more than 10% due to the District's ongoing current year CIP expenditures fund by current years revenues and prior years debt issuance proceeds, as well as transfers made in accordance with the Reserve Policy found on pages 207-240. (4)This is a planned reduction of this reserve to fund the PERS OPEB trust in accordance with the actuarial analysis, as well as fund salary and benefit cost in accordance with the Memorandum of Understanding with the labor union. Fiscal Year 2014 Budget Fund Balance Summary by Fund *Actual unaudited 48 FY 2012 FY 2014 Actual* Budget Actual* Budget REVENUES GENERAL FUND GPrev Potable 65,590,783$ 70,255,100$ 71,775,592$ 74,687,600$ GRrev Recycled 7,559,139 7,988,600 8,767,111 8,407,800 GSrev Sewer 3,411,248 4,074,500 4,131,742 3,005,700 Total General Fund (1)76,561,170 82,318,200 84,674,444 86,101,100 EXPANSION FUND EPrev Potable 1,873,048 3,569,600 1,947,226 2,332,400 ERrev Recycled 2,799,471 1,543,700 1,554,732 843,100 ESrev Sewer 3,896 1,900 406 - Total Expansion Fund 4,676,414 5,115,200 3,502,364 3,175,500 BETTERMENT FUND BPrev Potable 3,108,951 3,615,400 2,724,182 2,950,800 BRrev Recycled 755,486 32,900 73,192 112,900 BSrev Sewer 44,366 43,900 43,861 41,500 Total Betterment Fund 3,908,803 3,692,200 2,841,235 3,105,200 REPLACEMENT FUND RPrev Potable 2,565,204 2,120,700 1,798,381 1,738,900 RRrev Recycled 334,671 160,300 24,950 122,300 RSrev Sewer 36,114 42,200 29,562 33,300 Total Replacement Fund 2,935,988 2,323,200 1,852,893 1,894,500 NEW SUPPLY FUND NSPrevPotable 409,513 1,035,300 174,964 986,500 NSRrevRecycled 61,526 23,800 53,520 77,000 NSSrevSewer - - - - Total New Supply Fund 471,040 1,059,100 228,485 1,063,500 OreOPEB FUND 16,724 20,331 3,056 800 Dre DEBT RESERVE FUND 760,136 747,900 734,278 664,800 Total Revenues 89,330,275$ 95,276,131$ 93,836,755 96,005,400$ Revenues and Expenditures by Fund FY 2013 *Actual unaudited 49 FY 2012 FY 2014 Actual* Budget Actual* Budget Revenues and Expenditures by Fund FY 2013 EXPENDITURES GENERAL FUND GPexp Potable 65,388,280$ 70,255,100$ 70,968,083$ 74,687,600$ GRexp Recycled 7,706,695 7,988,600 7,526,709 8,407,800 GSexp Sewer 3,203,740 4,074,500 4,218,924 3,005,700 Total General Fund 76,298,715 82,318,200 82,713,716 86,101,100 EXPANSION FUND EPexp Potable 5,577,429 6,808,600 5,828,937 5,167,000 ERexp Recycled 2,841,020 2,692,800 2,270,550 2,399,500 ESexp Sewer 176,209 165,000 153,541 61,600 Total Expansion Fund 8,594,658 9,666,400 8,253,028 7,628,100 BETTERMENT FUND BPexp Potable 6,440,493 5,534,400 4,219,470 4,802,100 BRexp Recycled 69,035 119,000 98,039 204,000 BSexp Sewer 1,038,885 1,522,800 1,155,420 333,000 Total Betterment Fund 7,548,412 7,176,200 5,472,930 5,339,100 REPLACEMENT FUND RPexp Potable 6,235,808 7,942,800 4,903,562 7,308,800 RRexp Recycled 4,519,201 408,000 269,474 450,900 RSexp Sewer 257,897 1,773,300 1,343,206 2,117,000 Total Replacement Fund 11,012,905 10,124,100 6,516,241 9,876,700 NEW SUPPLY FUND NSPexpPotable 391,094 710,800 752,144 751,600 NSRexpRecycled 44,536 77,800 56,106 134,400 NSSexpSewer - - - - Total New Supply Fund 435,630 788,600 808,251 886,000 OexOPEB FUND 1,502,871 801,200 634,221 991,400 DexDEBT RESERVE FUND 6,396,578 5,418,100 3,287,611 3,753,700 Total Expenditures 111,789,769 116,292,800 107,685,998 114,576,100$ SURPLUS (DEFICIT) (1)(22,459,495)$ (21,016,669)$ (13,849,243) (18,570,700)$ *Actual unaudited 50 FY 2012 FY 2014 Actual Budget Actual* Budget REVENUES AND FUND SOURCES Potable Water Sales 56,784,244$ 61,754,400$ 63,669,294$ 67,033,500$ Recycled Water Sales 7,018,903 7,702,400 8,488,486 8,340,100 Tax Revenues 3,587,019 3,882,600 3,600,263 3,597,100 Capacity Fee Revenues 3,890,246 4,406,700 3,098,524 3,530,000 Grants 935,227 400,000 183,565 92,000 Sewer Revenues 2,395,365 2,555,200 2,618,291 2,701,600 Non-Operating Revenues 2,063,472 1,914,300 1,859,023 1,846,000 General Fund Draw Down 522,800 946,900 946,900 61,600 Interest 568,655 517,531 318,537 289,700 Transfer from OPEB 1,380,000 879,500 879,500 149,800 Capacity Fees for Maintenance 1,160,064 1,180,600 1,237,085 1,291,200 Betterment Fee Revenues 713,570 705,400 770,672 904,800 Betterment Fees for Maintenance 690,885 689,400 612,663 776,700 GO Bond Debt Tax Revenues 597,799 618,300 650,587 597,000 Availability Fees 517,283 519,200 502,283 474,100 Sewer Debt Tax Revenues 14,201 7,000 2,626 1,100 New Supply Fee Revenue 459,031 399,100 329,193 321,800 Meter Fees 131,904 112,200 108,538 81,600 COPs Proceeds 5,154,604 5,490,400 3,365,724 3,762,900 Interfund Transfers 745,000 595,000 595,000 152,800 Total Revenues and Fund Sources 89,330,275$ 95,276,131$ 93,836,755 96,005,400$ EXPENDITURES AND USES OF FUNDS Potable Water Purchases 36,853,891$ 40,258,400$ 41,769,636$ 43,425,600$ CIP Expenses 18,717,660 17,994,100 11,384,302 13,863,100 Labor Expenses 17,240,618 18,856,200 18,361,022 18,675,500 Interfund Transfers 7,190,000 7,898,000 7,898,000 9,025,900 Debt Service 7,781,983 8,642,300 8,564,448 8,549,000 Administrative Expenses 4,299,360 4,804,900 4,254,758 5,082,600 Materials and Maintenance 3,763,098 3,747,900 3,727,095 3,532,900 Power 2,138,674 2,368,000 2,430,461 2,693,300 Recycled Water Purchases 1,605,774 1,504,000 1,391,947 1,599,500 Capacity Fees for Maintenance 1,160,066 1,180,600 1,237,085 1,291,200 Payment to PERS 753,000 - - - Betterment Fees for Maintenance 690,885 689,400 616,502 776,700 General Fund Transfers 3,207,300 2,880,800 2,880,800 2,065,800 OPEB Health Expenses 749,871 801,200 634,221 991,400 COPs Proceeds Distribution 5,637,590 4,667,000 2,535,722 3,003,600 Total Expenditures and Uses of Funds 111,789,769 116,292,800 107,685,998 114,576,100 SURPLUS (DEFICIT) (22,459,494)$ (21,016,669)$ (13,849,243) (18,570,700)$ *Actual unaudited Revenues and Expenditures by Type - All Funds FY 2013 Note: Consistent with the District's financing plan, the 2010 debt proceeds along with District reserves have been used to fund capital projects, resulting in the expected deficits in Fiscal Years 2012 and 2013 shown above. 51 Five-Year Forecast – FY 2015 through 2019 The District updates its Rate Model to build the budget for the upcoming fiscal year and to forecast the five subsequent years. This financial forecast is designed to provide a general understanding of how revenues and expenditures are expected to influence the District and is reviewed in relation to its effect on funding capital projects and reserve levels. Estimates for growth, water costs, and others such as rainfall, and average water consumption per customer, are used throughout the Rate Model to calculate various revenue and expense amounts in each year. The Engineering Department is primarily responsible for the growth estimates as described in the budget overview on page 21. Water cost estimates are obtained from District water suppliers, CWA and MWD, and power cost inflators from San Diego Gas and Electric, the District power supplier. Labor and benefit cost inflators are based on the Memorandum of Understanding with the District’s labor union, estimates from the District’s health providers as well as actuarial reports from the District’s pension providers. Other general inflators are derived from statistical data from consumer price indexes for the region. The District must look at building new infrastructure to service the needs of its customers. The CIP Master Plan looks at the service needs of all customers over the next six years and at the betterment and expansion needs from now until ultimate build-out. The capital projects and the funding for them are reviewed annually by the Engineering Department. As new capital assets are brought into service, they are managed by an Infrastructure Management System (IMS) which is crucial to tracking and maintaining the history of 724 miles of potable pipelines, 99 miles of recycled pipelines, 88 miles of sewer lines, 40 potable and 4 recycled reservoirs, 21 potable and 3 recycled pump stations, and a 1.3 million gallons per day reclamation plant. Utilizing an integrated database from the Geographic Information System (GIS) provides real-time work order planning, execution, and consolidation of all maintenance history. These systems are also integrated with financial software to allow asset tracking and management information. As the systems are further developed, the District will be able to better anticipate operating costs associated with the capital projects. The impact of the CIPs on the Operating Budget is addressed in the CIP section of this budget. Projected Cost of Water The projected water cost is based on CWA’s Rate Modeling Program. This process evaluates many options of the Regional Water Facilities Master Plan, which determines the most feasible projects for water resources and incorporates these decisions into CWA’s Capital Improvement Program. This cost is also based on CWA’s estimated water cost for purchases from MWD and the Imperial Irrigation District (IID). Pe r A c r e F o o t 52 REVENUES FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Water/Sewer Rates 83,586,400 90,699,000 98,705,800 105,325,100 109,577,200 Meter Fees 81,600 82,200 82,800 83,300 83,900 Capacity Fee Revenues 1,235,700 1,248,100 1,260,600 1,273,200 1,285,900 Betterment Fees 783,100 790,900 801,400 812,200 823,900 Annexation Fees - 8,200 17,000 26,200 36,000 Non-operating Revenues 1,879,500 1,914,000 1,950,300 1,987,200 2,024,900 Tax Revenues 3,602,800 3,667,900 3,736,600 3,898,800 4,070,700 Interest Income 84,400 145,800 207,400 414,100 634,800 TOTAL 91,253,500$ 98,556,100$ 106,761,900$ 113,820,100$ 118,537,300$ EXPENDITURES AND TRANSFERS Water Cost 47,865,700$ 54,317,100$ 61,617,100$ 66,195,100$ 71,152,300$ Power 2,813,500 3,021,600 3,282,700 3,451,600 3,632,100 Labor and Benefits 19,241,100 19,926,300 20,621,700 21,287,300 21,969,900 Administrative Expenses 4,905,500 5,053,500 5,206,300 5,365,700 5,530,400 Materials & Maintenance 3,744,500 3,906,700 4,079,900 4,246,100 4,419,300 Reserve Funding , Net 12,683,200 12,330,900 11,954,200 13,274,300 11,833,300 TOTAL 91,253,500$ 98,556,100$ 106,761,900$ 113,820,100$ 118,537,300$ EXCESS REVENUES -$ -$ -$ -$ -$ General Fund Forecast - FY 2015 Through FY 2019 This forecast incorporates both cost increases for expenditures and rate increases for revenues, as well as growth projections. $0 $20 $40 $60 $80 $100 $120 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 $9 1 $9 9 $1 0 7 $1 1 4 $1 1 9 $9 1 $9 9 $1 0 7 $1 1 4 $1 1 9 Revenues and Expenditures Forecast, in millions ($) Revenues Expenditures 53 FUND FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 General Fund 19,649,800$ 21,562,500$ 23,713,900$ 25,143,100$ 26,682,800$ Betterment Fund 1,860,100 3,614,200 2,071,900 205,200 219,600 Replacement Fund 31,598,500 27,620,600 25,061,600 26,257,700 27,804,900 Expansion Fund 638,300 479,100 1,855,300 6,192,400 6,191,900 New Supply Fund 2,098,500 2,486,800 1,601,100 222,600 169,500 Debt Reserve 8,940,900 425,200 315,800 338,200 382,300 TOTAL 64,786,100$ 56,188,400$ 54,619,600$ 58,359,200$ 61,451,000$ 100 300 400 500 600 Fund Balances Forecast - FY 2015 Through FY 2019 $0 $20 $40 $60 $80 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Fund Balances Forecast, in millions ($) General Fund Betterment Fund Replacement Fund Expansion Fund New Supply Fund Debt Reserve 54 Debt Management Financing the capital improvements needed to provide alternative sources of water supply to keep up with the growing demand in the District’s service area has been accomplished through a combination of long-term and short-term financing sources. These include General Obligation Bonds, Certificates of Participation (COPs), Build America Bonds (BABs), developer fees, and pay- as-you-go funding. The District’s primary debt management objective is to keep the level of indebtedness within available resources and within limits that will allow the District to meet the debt service coverage ratios required by the bond covenant. Bonds have been and will be used to improve existing facilities and to build the projects in the Capital Improvement Program (CIP). The District’s debt service obligations have a significant effect upon the District’s current and future water rates. All efforts that minimize the cost of debt have a corresponding effect that reduces water rates. In May 2013, Standard & Poor’s (S&P) affirmed the District’s AA rating. At the same time, S&P revised its outlook on the District from stable to negative. The revised outlook was based on the District’s financial performance during the past two fiscal years. S&P cited the 2012 debt coverage ratio of 132% and complete reliance on expensive imported potable water as reasons for the weaker financial performance. S&P also cited a strong liquidity position and strong income levels in the district’s service area as offsets to the cited credit weaknesses. The 132% actual debt coverage ratio for fiscal year 2012 exceeded the debt covenant minimum ratio of 125%. In May 2013, the District completed an $8.1 million refinance of its 2004 Certificates of Participation (COPS). As a result, the District and its ratepayers will save $763,000 over the next 10 years. 55 Debt Management The District’s goal of maintaining a very strong financial ratio has not changed. The rate planning process has maintained a high level of financial discipline and as a result, the debt coverage improved during 2013 to 150% and is expected to continue improving during the rate model’s current five year planning horizon. The District’s Board of Directors has always held that a strong debt coverage ratio will benefit the ratepayers as it reduces the cost of water infrastructure; and have been willing to support this with necessary rate increases. As a result of the District’s consistent financial direction, the change in S&P’s rating outlook is not expected to be a permanent shift. To meet the bond indebtedness obligation and maintain stable rates, the rate model is used to forecast revenues and operating requirements. The District has projected a schedule of rate increases designed to generate sufficient revenue to pay off existing and planned future debt issues. See the Policies section of the budget for the District’s complete Debt Policy. Upgrade project at the Ralph W. Chapman Water Recycling Facility Facility 56 Outstanding Year Maturity Original Balance # Incurred Date Amount 06/30/13 1 1996 Certificates of Participation (COPs)September 1, 2026 15,400,000$ 10,400,000$ 2 2007 Certificates of Participation (COPs)September 1, 2036 42,000,000 37,745,000 3 2009 General Obligation (GO) Bonds August 31, 2022 7,780,000 6,235,000 4 2010 Certificates of Participation Series A (COPs)September 1, 2024 13,840,000 12,255,000 5 2010 Build America Bonds Series B (BABs)September 1, 2040 36,355,000 36,355,000 6 2013 Water Revenue Refunding Bonds September 1, 2023 7,735,000 7,735,000 Total Outstanding Debt 123,110,000$ 110,725,000$ Total Assessed Valuation - FY 2013 Percentage of Original Debt to Assessed Valuation 0.54%0.08% Debt Limit per District Debt Policy (% of Assessed Valuation)15.00%15.00% Schedule of Outstanding Debt 9,918,724,059$ 22,836,336,223$ All Debts Description GO Bonds Note: The accounting for debt proceeds and payments is described in the District's Reserve Policy found on pages 207-240. 57 1996 COPs 2009 GOBs 2007 COPs 2010A COPs 2010B BABs 2013 WRRBs Total 500,000 535,000 955,000 820,000 - 660,000 3,470,000 500,000 550,000 995,000 845,000 - 605,000 3,495,000 600,000 570,000 1,035,000 870,000 - 615,000 3,690,000 600,000 585,000 1,075,000 900,000 - 635,000 3,795,000 600,000 605,000 1,115,000 940,000 - 660,000 3,920,000 700,000 635,000 1,155,000 975,000 - 685,000 4,150,000 700,000 650,000 1,200,000 1,015,000 - 715,000 4,280,000 700,000 680,000 1,250,000 1,065,000 - 745,000 4,440,000 800,000 705,000 1,300,000 1,120,000 - 775,000 4,700,000 800,000 720,000 1,355,000 1,175,000 - 805,000 4,855,000 900,000 - 1,410,000 1,235,000 - 835,000 4,380,000 900,000 - 1,470,000 1,295,000 - 3,665,000 1,000,000 - 1,530,000 - 1,365,000 3,895,000 1,100,000 - 1,595,000 - 1,450,000 4,145,000 - - 1,665,000 - 1,545,000 3,210,000 - - 1,735,000 - 1,640,000 3,375,000 - - 1,810,000 - 1,745,000 3,555,000 - - 1,890,000 - 1,855,000 3,745,000 - - 1,970,000 - 1,975,000 3,945,000 - - 2,055,000 - 2,105,000 4,160,000 - - 2,150,000 - 2,245,000 4,395,000 - - 2,245,000 - 2,390,000 4,635,000 - - 2,340,000 - 2,550,000 4,890,000 - - 2,445,000 - 2,715,000 5,160,000 - - - - 2,895,000 2,895,000 - - - - 3,085,000 3,085,000 - - - - 3,290,000 3,290,000 - - - - 3,505,000 3,505,000 10,400,000$ 6,235,000$ 37,745,000$ 12,255,000$ 36,355,000$ 7,735,000$ 110,725,000$ 2040 2041 TOTAL 2034 2035 2036 2037 2038 2039 2028 2029 2030 2031 2032 2033 2022 2023 2024 2025 2026 2027 2016 2017 2018 2019 2020 2021 2014 2015 Projected Principal Payments by Debt Issuance FY $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 1996 COPs 2009 GOBs 2007 COPs 2010A COPs 2010B BABs 2013 WRRBs Principal Interest 58 1996 COPs (1)2009 GOBs (2)2007 COPs 2010A COPs 2010B BABs 2013 WRRBs (3)Total 602,900 215,088 1,541,900 533,538 2,371,868 254,667 5,519,960 572,700 198,663 1,504,900 508,563 2,371,868 237,275 5,393,968 537,500 181,663 1,466,300 478,488 2,371,868 213,033 5,248,852 501,200 162,969 1,425,800 443,088 2,371,868 186,800 5,091,725 465,000 139,633 1,383,700 406,288 2,371,868 159,567 4,926,056 465,000 114,433 1,339,300 367,988 2,371,868 131,167 4,789,756 423,700 88,533 1,292,900 323,113 2,371,868 101,567 4,601,681 339,200 61,533 1,243,400 271,113 2,371,868 70,767 4,357,881 291,900 33,500 1,191,700 216,488 2,371,868 38,767 4,144,223 243,600 4,800 1,136,800 159,113 2,371,868 5,567 3,921,748 190,200 - 1,079,300 98,863 2,371,868 - 3,740,231 135,900 - 1,019,200 33,994 2,371,868 - 3,560,962 76,500 - 955,500 - 2,328,345 - 3,360,345 11,100 - 955,500 - 2,238,589 - 3,205,189 - - 818,000 - 2,143,093 - 2,961,093 - - 744,800 - 2,041,540 - 2,786,340 - - 668,400 - 1,933,609 - 2,602,009 - - 588,600 - 1,818,823 - 2,407,423 - - 505,500 - 1,694,728 - 2,200,228 - - 416,600 - 1,560,558 - 1,977,158 - - 323,200 - 1,417,508 - 1,740,708 - - 225,700 - 1,265,086 - 1,490,786 - - 124,000 - 1,102,634 - 1,226,634 - - 17,800 - 929,495 - 947,295 - - - - 745,010 - 745,010 - - - - 548,357 - 548,357 - - - - 338,716 - 338,716 - - - - 115,262 - 115,262 4,856,400$ 1,200,815$ 21,968,800$ 3,840,631$ 50,683,773$ 1,399,175$ 83,949,594$ (1)Interest on the 1996 Certificates of Participation is variable and is projected using an interest rate of 5.9%. (2)The 1993 GO Bonds were refinanced in April of 2009. (3)The 2013 Water Refunding Bonds is an advanced refunding of the 2004 COPs, which is a refunding of the 1993 COPs. 2037 2038 2039 2040 2041 TOTAL 2031 2032 2033 2034 2035 2036 2025 2026 2027 2028 2029 2030 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 Projected Interest Payments by Debt Issuance FY 59 Potable Revenues and Expenditures A valve in the open position inside a pipe Potable Revenues The District will provide water service to approximately 49,150 potable customers by the end of Fiscal Year 2014. Ninety-two percent of the potable customers are residential and the remaining eight percent are comprised of multi-residential, publicly-owned, commercial, agricultural, landscaping, and construction. With the decline in residential developments in recent years, the District expects only nominal growth of 0.6% for Fiscal Year 2014. Unit sales are anticipated to increase 0.2% compared to the previous year's budget. Water rates vary among the customer classifications. The water rates for all customers are based on an accelerated block structure; as more units are consumed, a higher unit rate is charged on units sold in the top tiers. Unit sales represent approximately 63% of the water sales budget. Other revenue sources include: system charges, energy charges, penalties, and other pass-through charges from the San Diego County Water Authority (CWA) and the Metropolitan Water District (MWD). All customers are required to pay fixed monthly fees of the MWD and CWA fixed charge and the District system fee, based on meter size. These fees recover 30% of the potable water sales revenue. Water rates, energy fees, and penalties recover the remaining 70% of revenues necessary to fund operations. (Note: when potable and recycled revenues are combined the fixed fees do not exceed 30% of the total revenues.) Energy charges are based on the quantity of water used and the elevation to which the water has been lifted to provide service. Revenue from energy charges is used to recover the power costs associated with pumping. This charge is adjusted based on a review of these costs to ensure that sufficient revenue is collected to offset pumping costs. Penalties are charged to District customers when late payments are made on accounts. These penalty revenues are budgeted based on historical trends. 60 Potable Revenues and Expenditures Potable Expenditures In Fiscal Year 2014, the District estimates to purchase 30,584.1 acre-feet of potable water, sufficient to meet the demands of its customers. Provisions have been made for District usage, leakage, and evaporation in the amount of 1,599.2 acre-feet. Today, the District purchases 100% of its potable water from the San Diego County Water Authority (CWA); however, in the past the District purchased only treated water through the CWA’s treated water pipeline. Then in 2006, to diversify the water supply and to become less reliant on treated water from outside the region, Otay entered an agreement to purchase 10,000 acre-feet of raw water treated by neighboring Helix Water District at their Levy Water Treatment Plant. This raw water comes into the region through a CWA raw water pipeline that gives the District redundancy in water supply, which is necessary to ensure water deliveries can continue in an emergency situation such as earthquakes or other natural disasters. It also brings regional water treatment closer to our customers, which reduces dependence on water treatment facilities located outside of San Diego County. Flow Control Facility No. 14 connects the Helix Water District to Otay Water District through approximately 5 miles of 36” pipeline. Although the District does not own a direct water supply reservoir that captures surface water, there are cooperative agreements between CWA and the other member agencies to manage water demands and supply the region in times of need. The member agencies and CWA reservoirs serve multiple functions including: surface water capture, seasonal shift water storage, carryover storage, and local sources of emergency water supplies. Member agency and CWA reservoirs function as system capacity buffers during peak demand periods and offer a level of security for short and long‐term emergency situations. The location of each reservoir as shown on page 62 effects the extent to which it can perform the various functions, as does the individual agencies’ operational plan implemented at each location. 61 Potable Revenues and Expenditures CWA purchases water for the County of San Diego from MWD and the Imperial Irrigation District (IID). Any cost increases by CWA, MWD, or IID impacts the District's water purchases and directly affects the District's fees, rates, and service charges. 62 1956 1962 1967 1980 1998 2000 2006 2010 2013 Otay Municipal Water District was established. 1956 Otay Municipal Water District and the La Presa County Water District joined together. 1962 49,860 water meters in service. 2013 47,496 water meters in service. 2006 32,722 water meters in service. 1998 Otay has 7 active Potable Pump Stations. 1980 Otay has 13 active Potable Pump Stations. 1996 Otay has 23 active Potable Pump Stations. 2013 2010 -1296-3 Reservior construction. 624-1 Patzig Reservoir dedication. 12.4 MG 1967 Jamacha Road 36" Pipeline connecting Otay to Helix Water Levy Water Treatment Plant giving Otay an alternate water source 2010 2008 -Built 640-1 and 2 Regulatory. 520-1 1st steel reservoir built at regulatory. 1957 Potable Timeline 35,175 water meters in service. 2000 118 Miles of Potable Water Mains. 1975 Sales Volume of Potable Water 17,779. 1994 Sales Volume of Potable Water 28,721. 2013 725 Miles of Potable Water Mains. 2013 Sales Volume of Potable Water 28,500. 1985 Filled Eastlake with Potable Water. Originally filled with recycled water in 1986. 2004 Automated Meter Reading (AMR) was implemented. Fire in Jamul burned the roof of 832-1 and 1200-1 reserviors. 1970 9-1 Pump Station was re- built by District. 1988 1296-1 pump station ws built by Otay Water 1992 832-1 pump station was the last pump station built by Otay Water District staff 1994 624-3 30 MG reservoir was built in Eastlake. 1994 Built 803-1 Pump Station. 2000 Built 980-2 Pump Station. 2008 63 64 FY 2012 FY 2014 11-Actual Budget Actual * Budget $% REVENUES ##Water Sales 56,784,244$ 61,754,400$ 63,669,294$ 67,033,500$ 5,279,100$ 8.5% ##Meter Fees 120,565 108,600 107,836 79,400 (29,200) (26.9%) ##Capacity Fee Revenues 980,066 1,015,600 1,083,545 1,229,600 214,000 21.1% ##Betterment Fees for Maintenance 690,885 689,400 612,663 776,700 87,300 12.7% Tax Revenues 3,536,434 3,831,100 3,547,497 3,545,500 (285,600) (7.5%) ##Non-operating Revenues 2,031,351 1,883,700 1,823,671 1,812,200 (71,500) (3.8%) ##Interest 67,237 92,800 51,585 60,900 (31,900) (34.4%) OPETransfer from OPEB 1,380,000 879,500 879,500 149,800 (729,700) (83.0%) TOTAL REVENUES 65,590,783$ 70,255,100$ 71,775,591$ 74,687,600$ 4,432,500$ 6.3% EXPENDITURES Potable Water Purchases 27,957,532 30,552,200 32,063,055 33,028,900 2,476,700 8.1% ##CWA - Infrastructure Access Charge 1,756,656 1,818,000 1,818,204 1,856,100 38,100 2.1% ##CWA - Customer Service Charge 1,553,756 1,687,800 1,688,369 1,753,600 65,800 3.9% ##CWA - Emergency Storage Charge 3,505,590 4,086,000 4,086,425 4,515,500 429,500 10.5% ##MWD - Capacity Reservation Charge 599,146 504,000 503,873 531,000 27,000 5.4% ##MWD-Net RTS and Standby Charges 1,481,211 1,610,400 1,609,710 1,740,500 130,100 8.1% Subtotal - Water Costs 36,853,891$ 40,258,400$ 41,769,636$ 43,425,600$ 3,167,200$ 7.9% ##Power 1,628,174 1,785,700 1,775,213 2,068,100 282,400 15.8% ##Labor and Benefits 15,301,396 16,690,300 16,356,331 16,259,300 (431,000) (2.6%) ##Administrative Expenses 3,615,965 3,990,500 3,622,171 4,480,500 490,000 12.3% ##Materials & Maintenance 1,738,353 2,055,400 1,969,932 1,855,700 (199,700) (9.7%) 11-1 Subtotal - Operations Costs 22,283,889$ 24,521,900$ 23,723,647$ 24,663,600$ 141,700$ 0.6% ##Expansion Reserve - - - 3,418,000 3,418,000 100.0% Bett Betterment Reserve - 495,000 495,000 - (495,000) (100.0%) swr Transfer to Sewer GF 595,000 595,000 595,000 152,800 (442,200) (74.3%) TOPTransfer to OPEB - - - 1,114,600 1,114,600 100.0% GF Transfer to GF Reserve 2,420,500 2,285,800 2,285,800 1,913,000 (372,800) (16.3%) Swr Transfer to Sewer Replacement 1,720,000 2,099,000 2,099,000 - (2,099,000) (100.0%) NSFTransfer to New Supply Fund 1,515,000 - - - - (100.0%) Subtotal - Reserve Funding 6,250,500$ 5,474,800$ 5,474,800$ 6,598,400$ 1,123,600$ 20.5% TOTAL EXPENDITURES 65,388,280$ 70,255,100$ 70,968,083$ 74,687,600$ 4,432,500$ 6.3% EXCESS REVENUES (EXPENDITURES)202,502$ -$ 807,508$ -$ -$ (100.0%) FY 2013 Budget to Budget Variance Operating Budget Summary - Potable * Actual unaudited 65 FY 2013 FY 2013 FY 2014 Actual*Budget Budget $ % Water Sales 40,845,630$ 39,110,200$ 42,668,000$ 3,557,800$ 9.10% System Fees 10,315,199 10,328,400 11,184,200 855,800 8.29% Energy Fees 1,964,062 1,809,500 1,958,100 148,600 8.21% MWD and CWA Fixed Fees 9,747,977 9,705,800 10,399,700 693,900 7.15% Penalties 796,426 800,500 823,500 23,000 2.87% Total Water Sales 63,669,294$ 61,754,400$ 67,033,500$ 5,279,100$ 8.55% *Actual unaudited Water Sales 42,668,000$ 63% System Charges 11,184,200 17% MWD and CWA Fixed Charges 10,399,700 16% Energy Charges 1,958,100 3% Penalties 823,500 1% 67,033,500$ 100% Water Rates: Rates vary among classes of service and are charged per unit of water. A unit of water is equal to 100 cubic feet. On January 1, 2009, the District implemented a tiered rate structure for all customer types to encourage conservation and bring equity among the classes. System Fees: Each water service customer pays a monthly system charge for water system replacement, maintenance, and operation expenses. The charge is based on the size of the meter. MWD and CWA Fixed Fees: These pass-through charges are to pay for MWD's and CWA's fixed annual costs including the construction, operation and maintenance of aqueducts and emergency storage projects. These Fixed Charges are based on the size of the meter. Energy Fees: The energy pumping fee is $ .048 per 100 cubic feet of water for each 100 feet of lift above the elevation of 450 feet. All water customers are in one of 29 zones based on elevation. Penalties: Charges and penalties are imposed on customer accounts for late payments and returned checks. Classification of Water Sales - Potable Budget to Budget Variance 66 Current Approved*Accounts Units Amount Residential 44,802 7,586,000 24,597,400$ Conservation Tier (< 5 hcf)1.73$ 1.86$ 6 - 10 2.69 2.90 11 - 22 3.50 3.77 over 23 hcf 5.39 5.80 Master Meter 805 1,468,800 4,968,900 0 - 4 2.66 2.86 5 - 9 3.45 3.71 over 10 hcf 5.32 5.73 Public and Commercial 1,504 1,817,100 5,636,600 Tier I 2.84 3.06 Tier II 2.92 3.14 Tier III 2.96 3.19 Agriculture, Landscaping, and Construction 1,320 1,754,000 7,088,300 Tier I 3.87 4.17 Tier II 3.95 4.25 Tier III 4.01 4.32 Total 48,431 12,625,900 42,291,200$ Government Fee 0.29 0.31 - - 376,800 Total Water Sales 48,431 12,625,900 42,668,000$ Residential 7,586,000 60% Master Meter 1,468,800 12%Public and Commercial 1,817,100 14%Agricultural and Lanscaping 1,646,800 13%Temporary and Others 107,200 1% 12,625,900 100% Water Sales Summary by Service Class - Potable FY 2014 Sales BudgetWater Rates FY 2014 Unit Sales by Service Class *Approved rates for water billed beginning in January 2014 67 Budget Customer Class FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Residential 8,881,191 7,679,494 7,486,069 7,507,214 7,836,873 7,586,000 Master Meters 1,430,235 1,371,244 1,389,616 1,409,515 1,495,057 1,468,800 Public and Commercial 1,938,215 1,798,277 1,771,396 1,859,571 2,031,253 1,817,100 Agricultural and Landscaping 2,183,823 1,644,130 1,537,304 1,581,243 1,723,839 1,646,800 Temporary and Others 490,297 254,016 179,472 153,351 102,020 107,200 Total Unit Sales 14,923,761 12,747,161 12,363,857 12,510,894 13,189,042 12,625,900 Budget Customer Class FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Residential 43,417 43,619 43,903 44,396 44,669 44,802 Master Meters 767 797 797 799 800 805 Public and Commercial 2,067 2,026 2,111 2,138 2,174 2,223 Agricultural and Landscaping 1,228 1,127 1,223 1,227 1,227 1,229 Temporary and Others 129 114 120 105 41 91 Total Unit Sales 47,608 47,683 48,154 48,665 48,911 49,150 Unit Sales History and Meter Count by Customer Class - Potable Unit Sales (in thousand) and Meter Count Trends Unit Sales History (in hcf) Meter Count Actual Actual 5,000 15,000 25,000 35,000 45,000 55,000 - 5,000 10,000 15,000 20,000 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget Potable Meters Potable Unit Sales 68 Meter Current Approved* Size Estimated 6/30/2013 FY 2014 Growth Rates Rates Estimated 6/30/2013 FY 2014 Growth FY 2014 Budget 0.75 43,690 200 16.74$ 16.19$ 8,632,300$ 21,200$ 8,653,500$ 1.00 2,233 - 21.26 22.87 591,300 - 591,300 1.50 944 1 32.57 39.58 408,700 200 408,900 2.00 1,101 - 46.13 59.62 698,600 - 698,600 3.00 71 - 82.29 113.08 83,300 - 83,300 4.00 161 5 122.99 173.22 286,100 5,200 291,300 6.00 17 - 236.02 340.29 58,800 - 58,800 8.00 3 - 371.64 540.76 16,400 - 16,400 10.00 5 - 529.88 774.64 39,100 - 39,100 Sub-total 48,225 206 10,814,600 26,600 10,841,200 2.00 16 - 34.57 21.14 5,300 - 5,300 2.50 4 - 34.57 21.14 1,300 - 1,300 3.00 1 - 34.57 21.14 300 - 300 4.00 70 - 34.57 28.49 26,500 - 26,500 6.00 159 - 34.57 28.49 60,200 - 60,200 8.00 378 - 34.57 28.49 143,000 - 143,000 10.00 91 - 34.57 28.49 34,400 - 34,400 Sub-total 719 - 271,000 271,000 Turn Over Fees 10.00 10.00 72,000 - 72,000 Total 48,944 206 11,157,600 26,600 11,184,200 *Approved rates for water billed beginning in January 2014. System Fees System Fees - Potable Meter Count Historical System Fees, in millions ($) All Service Types Fire Services $- $2 $4 $6 $8 $10 $12 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget 69 Meter Current Approved* Size Estimated 6/30/2013 FY 2014 Growth Rates Rates Estimated 6/30/2013 FY 2014 Growth FY 2014 Budget 0.75 43,683 200 13.28$ 14.45$ 7,268,000$ 18,400$ 7,286,400$ 1.00 2,223 - 22.12 26.79 652,400 - 652,400 1.50 938 1 44.31 60.61 590,500 400 590,900 2.00 1,099 - 70.85 103.08 1,146,900 - 1,146,900 3.00 71 - 141.71 219.23 153,800 - 153,800 4.00 95 5 221.43 351.09 326,300 10,300 336,600 6.00 17 - 442.80 718.69 118,500 - 118,500 8.00 3 - 708.53 1,160.59 33,600 - 33,600 10.00 5 - 1,015.06 1,670.55 80,600 - 80,600 Total 48,134 206 10,370,600$ 29,100$ 10,399,700$ *Approved rates for water billed beginning in January 2014. Note: Contruction meters, Fire Services, and Recycled Meters are exempt from MWD and CWA Fixed Fees. Landscape Publicly-Owned Agriculture MWD & CWA - Fixed ChargesMeter Count MWD and CWA Fixed Fees (Pass-Through) - Potable Historical MWD and CWA Fixed Fees, in millions ($) $- $2 $4 $6 $8 $10 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget 70 Meter Meter Installation Meter Total Budgeted Size Sales Fee Fee Fees Amount 0.75 200 95.84$ 201.96$ 297.80$ 59,600$ 1.00 - 95.84 260.61 356.45 - 1.50 1 95.84 423.59 519.43 500 2.00 - 95.84 606.96 702.80 - 3.00 - 577.03 1,891.54 2,468.57 - 4.00 5 577.03 3,285.31 3,862.34 19,300 6.00 - 911.46 5,674.62 6,586.08 - 8.00 - 1,397.64 7,090.02 8,487.66 - 10.00 - 1,397.64 10,196.77 11,594.41 - Total 206 79,400$ Meter Fees: Meter Fees - Potable Meter Fees are charges collected for new water service connections. Fees vary depending upon meter size and type of service. The costs associated with meter installations are included in the Operating Expenses section of the budget. These charges are funded by developers. Historical Meter Count - 15,000 30,000 45,000 60,000 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget 71 Budget FY 2009 FY 2010 FY 2011 FY 2012 FY 2013*FY 2014 Water Sales 30,375,618$ 31,326,151$ 32,236,451$ 35,615,558$ 40,845,630$ 42,668,000$ System Fees 9,510,996 9,342,732 9,490,904 9,583,563 10,315,199 11,184,200 Energy Fees 1,866,237 1,662,233 1,693,186 1,881,776 1,964,062 1,958,100 MWD and CWA Fixed Fees 3,758,403 6,359,939 7,421,386 9,000,267 9,747,977 10,399,700 Penalties 649,683 853,279 665,931 703,081 796,426 823,500 Total Potable Revenues 46,160,937$ 49,544,334$ 51,507,858$ 56,784,245$ 63,669,294$ 67,033,500$ *Actual unaudited Revenue History - Potable Revenue History - Potable, in millions ($) Actual $- $10 $20 $30 $40 $50 $60 $70 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget Water Sales System Fees Energy Fees MWD & CWA Fees Penalties 72 FY 2013 Actual FY 2014 Budget FY 2013 Actual* FY 2014 Budget Acre Feet Acre Feet Rate (1) Potable Water Purchases (CWA): Budgeted Sales 30,313.9 28,984.9 $1,063/$1,103 30,396,821$ 31,301,900$ District & Unbilled Usage 50.8 70.0 $1,063/$1,103 50,793 75,600 Water Loss 1,515.4 1,529.2 $1,063/$1,103 1,611,910 1,651,400 Total Variable Charges 31,880.1 30,584.1 32,059,524$ 33,028,900$ *Actual unaudited MWD and CWA Fixed Charges: Infrastructure Access Charge (IAC)1,818,204$ 1,856,100$ Customer Service Charge (CSC)1,688,369 1,753,600 Emergency Storage Charge (ESC)4,086,425 4,515,500 Capacity Reservation Charge (CRC)503,873 531,000 Readiness-to-Serve Charge (RTS)1,609,710 1,740,500 Total Fixed Charges 9,706,581$ 10,396,700$ Total Variable and Fixed Charges 41,766,105 43,425,600 Average Cost Per Acre Foot 1,310$ 1,420$ (1)The first rate applies to purchases from July to December of the fiscal year; the second from January to June. Water Purchases and Related Costs - Potable Purchase Costs - 10,000 20,000 30,000 40,000 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2013 Actual FY 2014 Budget Historical Potable Water Purchases, in acre-feet 73 Power Costs - Potable Administrative and Operations Buildings Potable Transmission Total Potable Power Costs FY 2009 Actual 179,631$ 1,724,366$ 1,903,997$ FY 2010 Actual 177,651 1,622,773 1,800,424 FY 2011 Actual 158,657 1,468,322 1,626,979 FY 2012 Actual 165,099 1,463,075 1,628,174 FY 2013 Actual*164,785 1,610,428 1,775,213 FY 2014 Budget 173,400 1,894,700 2,068,100 Historical Power Costs, in thousands $0 $500 $1,000 $1,500 $2,000 $2,500 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual* FY 2014 Budget Potable Transmission Administrative and Operations Buildings *Actual unaudited 74 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Directors' Fees 13,600$ 30,000$ 19,900$ 30,000$ -$ - Travel and Meetings 127,457 172,400 126,979 190,900 18,500 10.7% Conservation and Outreach 214,556 231,500 199,479 206,600 (24,900) (10.8%) General Office Expense 275,518 296,600 290,648 321,200 24,600 8.3% Equipment 914,749 918,500 969,967 905,100 (13,400) (1.5%) Fees 449,611 450,700 476,561 491,400 40,700 9.0% Services 1,364,543 1,662,000 1,280,658 2,047,800 385,800 23.2% Training 79,439 113,700 56,258 107,700 (6,000) (5.3%) Utilities 20,330 20,500 12,796 16,000 (4,500) (22.0%) Miscellaneous 126,263 155,000 117,228 140,000 (15,000) (9.7%) Total 3,586,066 4,050,900 3,550,474 4,456,700 405,800 10.0% Less: Overhead Allocation (882,455) (969,400) (781,755) (920,400) 49,000 - Subtotal 2,703,611 3,081,500 2,768,719 3,536,300 454,800 14.8% General Expenses 912,355 909,000 853,452 944,200 35,200 3.9% Total Expenditures 3,615,966$ 3,990,500$ 3,622,171$ 4,480,500$ 490,000$ 12.3% 4,498,421$ 4,959,900$ 4,403,926$ 5,400,900$ Directors' Fees 30,000$ 0.6% Travel and Meetings 190,900 3.5% Conservation and Outreach 206,600 3.8% General Office Expense 321,200 5.9% Equipment 905,100 16.8% Fees 491,400 9.1% Services 2,047,800 37.9% Training 107,700 2.0% Utilities 16,000 0.3% Miscellaneous 140,000 2.6% General Expenses 944,200 17.5% Subtotal 5,400,900$ 100.0% Less: Overhead Allocation (920,400) Total Administrative Expenses 4,480,500$ FY 2013 Administrative Expenditures - Potable FY 2014 Administrative Expenditures - Potable Budget to Budget Variance * Actual unaudited 75 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 229,087$ 354,500$ 188,902$ 281,000$ (73,500)$ (20.7%) Meters and Materials 168,922 183,000 93,825 130,400 (52,600) (28.7%) Fleet Parts and Equipment 124,121 148,000 151,767 131,000 (17,000) (11.5%) Infrastructure Equipment & Supplies 368,050 444,000 443,642 381,600 (62,400) (14.1%) Chemicals 212,902 241,000 259,981 241,000 - - Safety Equipment 27,006 29,400 31,381 26,300 (3,100) (10.5%) Laboratory Equipment and Supplies 33,517 35,000 33,276 35,000 - - Other Materials and Supplies 147,991 158,200 127,727 150,700 (7,500) (4.7%) Building and Grounds Materials 68,628 55,500 64,586 55,500 - - Contracted Services 358,129 406,800 574,845 423,200 16,400 4.0% Total Materials and Maintenance 1,738,353$ 2,055,400$ 1,969,932$ 1,855,700$ (199,700)$ (9.7%) Fuel and Oil 281,000$ 15.1% Meters and Materials 130,400 7.0% Fleet Parts and Equipment 131,000 7.1% Infrastructure Equipment and Supplies 381,600 20.6% Chemicals 241,000 13.0% Safety Equipment 26,300 1.4% Laboratory Equipment and Supplies 35,000 1.9% Other Materials and Supplies 150,700 8.1% Building and Grounds Materials 55,500 3.0% Contracted Services 423,200 22.8% $1,855,700 100.0% Materials and Maintenance Expenditures - Potable FY 2013 FY 2014 Materials and Maintenance Expenditures - Potable Budget to Budget Variance *Actual unaudited 76 Potable Water Service Area 77 Recycled Revenues and Expenditures In 1980, the District began operation of the Ralph W. Chapman Water Recycling Facility (RWCWRF). The RWCWRF plant is capable of recycling wastewater at the rate of 1.3 million gallons per day (MGD) to augment water supplies for irrigation purposes only. The treatment process consists of primary, secondary, and tertiary treatment. The facility’s conversion time from raw sewage to full Title 22 recycled water is approximately 20 hours. The steps of the water recycling process are as follows: Primary Treatment The raw sewage flows in at the rotary screen, also known as the “headworks” which removes a large amount of coarse organic and inorganic material that is either floating or in suspension. This is followed by a grit chamber, which removes the heavy settled material. Secondary Treatment This is where the biological treatment begins. The first step takes place in the aeration tanks, also known as reactors or sedimentation basins, which contain bacteria that feed on the organic material in sewage. These bacteria are aerobic, and therefore require a great quantity of pumped- in air to help them thrive. The second step in the process is clarification where the sludge from the aeration tanks is allowed to settle to the bottom and the clear liquid, or secondary effluent, flows out over weirs at the surface. Some of the settled sludge is disposed of and some is returned to the 78 Recycled Revenues and Expenses aeration tanks to keep the process in balance. The secondary effluent flowing over the weirs is now ready for the next step. Solids, screenings, and sludge are discharged to the City of San Diego Metropolitan Wastewater (Metro) system. Tertiary Treatment Just before filtration, a small amount of coagulant is added as a filter aid which helps suspended material in the secondary effluent “clump” on the surface of the filters. The filters consist of a layer of sand with a layer of anthracite coal on top. As the fluid moves through the filters, the flow goes through a chlorine contact chamber where disinfection takes place, completing the process of recycling wastewater into recycled water. The District entered an agreement with the City of San Diego in October 2003, to purchase up to six million gallons a day of recycled water from their South Bay Water Reclamation Plant (SBWRP). To bring this plan to fruition, the District constructed a 30-inch, six mile pipeline, a 12 million gallon reservoir and a pump station to bring this new source of recycled water into the District’s system. These projects were completed in spring 2007 which eliminated the need for a potable supplement of the recycled system. The benefits of this to the region as a whole are great, as less demand on the potable system will be made, reducing future capacity and storage requirements. The $42 million investment in capital outlay results in a significant reduction of water purchase costs and an increase in system reliability. The District expects that 12 percent of its total water demand will be met using recycled water. Both the RWCWRF plant owned and operated by the District and the SBWRP plant owned and operated by the City of San Diego supply the District’s recycled distribution system, as shown in the diagram below. 79 Recycled Revenues and Expenses The District operates the largest recycled water distribution system in San Diego County and will supply approximately 3,910 acre-feet of recycled water to 702 landscaping and construction customers by the end of Fiscal Year 2013. The recycled water customer base consists primarily of irrigation at golf courses, schools, parks, and open space in the Eastlake, Otay Ranch, Rancho Del Rey and other areas of eastern Chula Vista. To increase demand of recycled water and reduce the demands of potable water, the District has begun a capital project to offer incentives to suitable customers to convert potable to recycled water. See page 202 of the Capital Budget to view project R2094. With this program the District hopes to convert 300 acre-feet of potable water to recycled, helping the region further reduce demands on the potable water system. Producing and distributing recycled water is costly. To help offset the costs of supplying alternative water sources, both CWA and MWD offer incentive programs. In Fiscal Year 1991, the District signed agreements with CWA and MWD to take advantage of the programs they offered. A second agreement was signed in 2000. In 2005, the District agreed to terminate both agreements and to enter into a new agreement which will allow the District to maximize its ability to earn incentives and to simplify the grant requirements. Currently, the District receives $200 from CWA and $185 from MWD for every acre-foot (AF) of recycled water sold. 80 1968 1980 1990 1997 2005 2007 2012 Today Name changed from Jamacha Basin Wastewater Reclamation Facility to to Ralph W. Chapman Water Recycling Facility in honor of one of our early Directors that promoted water recycling. 1994 703 Recycled Connections. 2013 Built the 680-1 Reservior and 944 Pump Station. 2004 Started construction of 450-1 Reservior and 680-1 underground Pump Station. 2005 Signed new 20 year agreement with MWD for recyled credits. -$185 2005 Signed agreement with City of San Diego to purchase 6 MGD from the Sourth Bay Water 2003 Signed agreement with CWA for recycled credits -25 years $200 acre feet. 2007 13% of all water sold in District is Recycled Water. Today Upgrated the 944-1 Recycling 2012 General Dynamic's landscaping is irrigated with Recycled Water. Jamacha Basin Wastewater Reclamation Facility opens. 1980 Otay and Chula Vista require dual piping in new development in 1990 Recycled Timeline Received $4 million Grant for Recycled Water 2006 Nine recycled storage ponds were built on the San Miguel Habitat Management Mitigation Area. 1981 Jamacha Basin Wastewater Reclamation Facility started producing high tertiary recycling water, meeting Title 22 1991 Otay Water District lease a portion of the Use Area to construct a golf course. 1997 Auld Golf Course was completed., now operated by Salt Creek. 2001 Early Recycling Facility at the intersection of Jamacha Road and Hillsdate Road. 1971 Recycled water used for earth work compaction and dust suppression in West Chula Vista. 1985Test Pilot -First use of recycled water for agricultural purposes. 1968 2012 -Upgrated and automated the operation of the Ralph W. Chapman Water Recycling facility. Otay began Operation of the 450-1 Reservior, 680-1 Pump Station and 30-Inch Main from San Diego to receive recycled water from the South Bay Water Reclamation Plant (SBWRP). 2007 76 Recycled Connections. 2000 489 Recycled Connections. 2006 81 82 FY 2012 FY 2014 31-Actual Budget Actual * Budget $ % REVENUES Recycled Water Sales 7,018,903$ 7,702,400$ 8,488,486$ 8,340,100$ 637,700$ 8.3% Meter Fees 11,339 3,600 703 2,200 (1,400) (38.9%) Capacity Fee Revenues 3,791 - - - - (100.0%) Interest 2,306 6,800 2,121 3,900 (2,900) (42.6%) General Fund Draw Down 522,800 275,800 275,800 61,600 (214,200) (77.7%) TOTAL REVENUES 7,559,139$ 7,988,600$ 8,767,111$ 8,407,800$ 419,200$ 5.2% EXPENDITURES Recycled Water Purchases 1,605,774$ 1,504,000$ 1,391,947$ 1,599,500$ 95,500$ 6.3% Power 440,069 498,500 471,139 523,600 25,100 5.0% Labor and Benefits 1,121,530 1,312,700 1,141,404 1,259,900 (52,800) (4.0%) Administrative Expenses 284,936 405,500 321,637 310,400 (95,100) (23.5%) Materials & Maintenance 299,386 331,900 264,582 282,500 (49,400) (14.9%) 11 Subtotal - Operations Costs 2,145,921$ 2,548,600$ 2,198,763$ 2,376,400$ (172,200)$ (6.8%) Expansion Reserve 555,000 3,936,000 3,936,000 10,000 (3,926,000) (99.7%) B Betterment Reserve - - - 125,000 125,000 100.0% R Replacement Reserve 3,330,000 - - 4,230,000 4,230,000 100.0% TOTransfer to OPEB - - - 66,900 66,900 100.0% NTransfer to New Supply Fund 70,000 - - - - - Subtotal - Reserve Funding 3,955,000$ 3,936,000$ 3,936,000$ 4,431,900$ 495,900$ 12.6% TOTAL EXPENDITURES 7,706,695$ 7,988,600$ 7,526,710$ 8,407,800$ 419,200$ 5.2% EXCESS REVENUES (EXPENDITURES)(147,556)$ -$ 1,240,401$ -$ -$ (100.0%) FY 2013 Budget to Budget Variance Operating Budget Summary - Recycled * Actual unaudited 83 FY 2013 FY 2013 FY 2014 Actual*Budget Budget $% Water Sales 6,148,619$ 5,561,600$ 6,103,900$ 542,300$ 9.75% System Fees 292,201 292,200 355,900 63,700 21.80% Energy Fees 346,064 305,300 315,400 10,100 3.31% MWD and CWA Rebates 1,660,736 1,505,600 1,526,600 21,000 1.39% Penalties 40,867 37,700 38,300 600 1.59% Total Recycled Water Sales 8,488,486 7,702,400$ 8,340,100$ 637,700$ 8.28% *Actual unaudited Water Sales 6,103,900 73% System Charges 355,900 4% Energy Charges 315,400 4% MWD and CWA Rebates 1,526,600 18% Penalties 38,300 1% Total 8,340,100 100% Water Rates: Rates vary among classes of service and are charged per unit of water. A unit of water is equal to 100 cubic feet of water. On January 1, 2009, the District implemented a tiered rate structure for all customer types to encourage conservation and bring equity among the classes. System Fees: Each water service customer pays a monthly system charge for water system replacement, maintenance, and operation expenses. The charge is based on the size of the meter. Energy Fees: The energy pumping fee is $ .048 per 100 cubic feet of water for each 100 feet of lift above the elevation of 450 feet. All water customers are in one of 29 zones based on elevation. MWD and CWA Rebates: Incentive from MWD and CWA for providing recycled water. The District receives $200 from CWA and $185 from MWD for every acre-foot (AF) of recycled water sold. Penalties: Charges and penalties are imposed on customer accounts for late payments and returned checks. Classification of Water Sales - Recycled Budget to Budget Variance 84 Fiscal Year 2014 Sales Budget Current Approved*Accounts Units Amount 106 55,300 189,600$ Tier I 3.31$ 3.56$ Tier II 3.35 3.61 Tier III 3.42 3.68 593 1,253,800 4,296,600 Tier I 3.31 3.56 Tier II 3.35 3.61 Tier III 3.42 3.68 Recycled 3.0" and 4.0" Meter 11 92,300 316,200 Tier I 3.31 3.56 Tier II 3.35 3.61 Tier III 3.42 3.68 3 325,800 1,119,700 Tier I 3.31 3.56 Tier II 3.35 3.61 Tier III 3.42 3.68 713 1,727,200 5,922,100$ Government Fee 0.29 0.29 - - 181,800 Total Water Sales 713 1,727,200 6,103,900$ *Approved rates for water billed beginning in January 2014. Recycled .75" and 1.0" Meter 55,300 3% Recycled 1.5" and 2.0" Meter 1,253,800 73% Recycled 3.0" and 4.0" Meter 92,300 5% Recycled more than 6.0" Meter 325,800 19% 1,727,200 100% Water Rates Total FY 2014 Unit Sales by Meter Size Water Sales Summary by Meter Size - Recycled Recycled .75" and 1.0" Meter Recycled 1.5" and 2.0" Meter Recycled more than 6.0" Meter 85 Budget Customer Class FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Recycled .75" & 1.0" Meter 58,743 49,393 46,328 47,699 58,329 55,300 Recycled 1.5" & 2.0" Meter 1,435,274 1,295,264 1,220,953 1,201,012 1,332,988 1,253,800 Recycled 3.0" & 4.0" Meter 56,114 73,737 74,444 93,899 99,067 92,300 Recycled > 6.0" Meter 441,258 355,567 333,866 310,223 350,025 325,800 Total Unit Sales 1,991,389 1,773,961 1,675,591 1,652,833 1,840,409 1,727,200 Budget Customer Class FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Recycled .75" & 1.0" Meter 95 96 95 101 105 106 Recycled 1.5" & 2.0" Meter 564 574 576 581 590 593 Recycled 3.0" & 4.0" Meter 9 10 11 11 11 11 Recycled > 6.0" Meter 3 3 3 3 3 3 Total Meter Count 671 683 685 696 709 713 Unit Sales History and Meter Count by Customer Class - Recycled Unit Sales History (in hcf) Meter Count Unit Sales (in thousand) and Meter Count Trends Actual Actual 100 300 500 700 100 500 900 1,300 1,700 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget Meter Count Recycled Unit Sales 86 Meter Current Approved* Size Estimated 6/30/2013 FY 2014 Growth Rates Rates Estimated 6/30/2013 FY 2014 Growth FY 2013 Budget 0.75 1 1 16.74$ 16.19$ 200$ 200$ 400$ 1.00 104 - 21.26 22.87 27,500 - 27,500 1.50 396 1 32.57 39.58 171,400 400 171,800 2.00 194 2 46.13 59.62 123,100 1,300.00 124,400 3.00 4 - 82.29 113.08 4,700 - 4,700 4.00 7 - 122.99 173.22 12,400 - 12,400 6.00 2 - 236.02 340.29 6,900 - 6,900 8.00 - - 371.64 540.76 - - - 10.00 1 - 529.88 774.64 7,800 - 7,800 Total 709 4 354,000$ 1,900$ 355,900$ Budgeted Recycled System Fees 355,900$ *Approved rates for water billed beginning in January 2014. Meter Count Budgeted System Fees System Fees - Recycled Historical System Fees, in thousands ($) - 100 200 300 400 500 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget 87 Meter Meter Installation Meter Total Total Size Count Fee Fee Fees Amount 0.75 1 95.84$ 201.96$ 297.80$ 300$ 1.00 - 95.84 260.61 356.45 - 1.50 1 96.84 423.59 520.43 500 2.00 2 96.84 606.96 703.80 1,400 3.00 - 577.03 577.03 1,154.06 - 4.00 - 577.03 577.03 1,154.06 - 6.00 - 911.46 911.46 1,822.92 - 8.00 - 1,397.64 1,397.64 2,795.28 - 10.00 - 1,397.64 1,397.64 2,795.28 - Total 4 2,200$ Meter Fees: Meter Fees - Recycled Historical Meter Count Meter Fees are charges collected for new water service connections. Fees vary depending upon meter size and type of service. The costs associated with meter installations are included in the Operating Expenses section of the budget. These charges are funded by developers. - 200 400 600 800 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget 88 Budgeted FY 2009 FY 2010 FY 2011 FY 2012 FY 2013*FY 2014 Water Sales 3,787,845$ 4,417,995$ 4,645,719$ 4,999,441$ 6,148,619$ 6,103,900$ System Fees 366,529 261,946 266,547 268,937 292,201 355,900 Energy Fees 288,247 266,599 274,608 303,867 346,064 315,400 MWD and CWA Rebates 1,711,787 1,583,801 1,482,019 1,413,335 1,660,736 1,526,600 Penalties 83,950 92,545 93,146 33,323 40,867 38,300 Total Recycled Revenue 6,238,358$ 6,622,886$ 6,762,039$ 7,018,903$ 8,488,486$ 8,340,100$ Revenue History - Recycled Revenue History - Recycled, in thousands ($) AFWXDO $- $2 $4 $6 $8 $10 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Budget Water Sales System Fees Energy Fees MWD and CWA Rebates Penalties *Actual unaudited 89 FY13 Actual*FY14 Budget FY13 Actual*FY14 Budget Acre Feet Acre Feet Rate Purchase Costs Purchase Costs % of Total SBWRP Recycled Water Purchases (CSD) Recycled Water Purchases 3,249.8 2,916.0 350.00$ 1,137,413$ 1,020,600$ 63.8% Meter Fee - - 1,646.50 - 19,800 1.2% Take-or-pay contract (1)727.2 1,597.5 254,534 559,100 35.0% Total 3,977.0 4,513.5 1,391,947$ 1,599,500$ 100.00% Average Cost Per Acre Foot (Effective Rate)428.32$ 548.52$ (1) This is the anticipated take-or-pay amount to be paid to the City of San Diego. The contract requires the purchase of a minimum volume of water. The District does not anticipate meeting the minimum, therefore a payment would be due to the City of San Diego. Water Purchases - Recycled - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual* FY 2014 Budget Historical Recycled Water Purchases, in acre feet *Actual unaudited 90 Power Costs - Recycled Treatment and Recycled Transmission FY 2009 Actual 572,331$ FY 2010 Actual 422,780 FY 2011 Actual 462,031 FY 2012 Actual 440,069 FY 2013 Actual*471,139 FY 2014 Budget 523,600 Historical Power Costs, in thousands ($) $0 $100 $200 $300 $400 $500 $600 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual* FY 2014 Budget *Actual unaudited 91 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Travel and Meetings 365$ -$ -$ -$ -$ - Equipment 3,015 1,300 685 1,300 - - Fees 46,557 57,600 32,572 35,300 (22,300) (38.7%) Services 40,059 124,700 99,885 64,200 (60,500) (48.5%) Miscellaneous - 5,000 - - (5,000) (100.0%) Overhead Allocation 194,940 216,900 188,496 209,600 (7,300) (3.4%) Total Expenditures 284,936$ 405,500$ 321,638$ 310,400$ (95,100)$ (23.5%) Equipment 1,300$ 0.42% Fees 35,300 11.37% Services 64,200 20.68% Overhead Allocation 209,600 67.53% 310,400$ 100.0% FY 2013 Administrative Expenditures - Recycled FY 2014 Administrative Expenditures - Recycled Budget to Budget Variance * Actual unaudited 92 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 13,931$ 13,600$ 1,621$ 15,000$ 1,400$ 10.3% Meters and Materials 5,626 5,000 4,590 4,500 (500) (10.0%) Infrastructure Equipment & Supplies 99,605 74,500 82,178 67,400 (7,100) (9.5%) Chemicals 163,179 226,000 161,867 180,600 (45,400) (20.1%) Safety Equipment 2,513 - 1,585 - - - Laboratory Equipment & Supplies 4,398 4,000 4,311 4,000 - - Other Materials and Supplies 3,303 5,300 4,307 5,300 - - Contracted Services 6,831 3,500 4,123 5,700 2,200 62.9% Total Materials and Maintenance 299,386$ 331,900$ 264,582$ 282,500$ (49,400)$ (14.9%) Fuel and Oil 15,000$ 5.3% Meters and Materials 4,500 1.6% Infrastructure Equipment & Supplies 67,400 23.9% Chemicals 180,600 63.9% Laboratory Equipment & Supplies 4,000 1.4% Other Materials and Supplies 5,300 1.9% Contracted Services 5,700 2.0% 282,500$ 100.0% Materials and Maintenance Expenditures - Recycled FY 2013 FY 2014 Materials and Maintenance Expenditures - Recycled Budget to Budget Variance *Actual unaudited 93 Recycled Water Service Area 94 Sewer Revenues and Expenditures The District provides sewer service to approximately 15,200 customers through 4,657 accounts (or approximately 6,673 Assigned Service Units) located in the northern section of the District. The District operates and maintains the sewage collection system serving Rancho San Diego, Singing Hills, and portions of Mount Helix within the Upper Sweetwater River Basin, also known as the Jamacha Basin. Residential customers comprise 98.4% of the customer base. Modest growth of 0.2% is anticipated in Fiscal Year 2014. Wastewater collection within the Jamacha Basin is provided by two agencies: the Otay Water District and the Spring Valley Sanitation District. Customers in the basin, not served by either agency, dispose of their sewage through septic tanks. After the sewer has been collected, it is sent to the District’s Ralph W. Chapman Water Recycling Facility (RWCWRF) treatment plant where the District produces recycled water, see page 78 outlining the sewer process. The byproduct of the treatment process is called sludge and it is discharged through the City of San Diego Metropolitan Wastewater (Metro) and the Spring Valley Sanitation District systems. The District is a member of Metro Wastewater Joint Powers Authority and shares in the use of the City of San Diego's regional wastewater facilities. A significant amount of the sewer operation costs is for sewer service charges from the Metro Wastewater JPA which is budgeted at $1,023,400 for Fiscal Year 2014. Additionally, the District will pay $274,600 for its share of the operation and maintenance cost of the Rancho San Diego Outfall and the Spring Valley Outfall to transport sewage to Metro for Fiscal Year 2014. To meet State of California requirements, customers must pay their fair share of sewer costs. The District is required to determine sewer rates in accordance with the State’s Revenue Program Guidelines. During Fiscal Year 2013, the District performed a Cost of Service Study and Rate Study (i.e. reviewed rates, fees, charges, costs, and the usage structure) and determined that increases in rates, fees, and charges are necessary in order to recover sufficient revenues to operate and maintain the public sewer system. Sewer bills are based on the rate of discharge and the strength for non-residential customers. Due to their higher discharge and strength, non-residential customers (comprising 1.6% of the customer base) comprise 14.7% of the total sewer charges. The old and new formulas for sewer are shown on pages 104 and 105. 95 1958 1972 1980 1987 1998 2010 2011 2012 2013 Went live with Closed- circuit television (CCTV ) Sewer Camera. 2012 4,571 Sewer Customers. 2006 Jamacha Basin Wastewater Reclamation Facility opens. 1980 4,652 Otay Sewer Customers. 2013 Sewer State Loan Paid in Full. 2011 Entered into regional wastewater disposal agreement with Metropolitan Water District in incompliance with strength based regulations for sewer billing. 1998 Built Steele Canyon Pump Station. 1972 Completed major upgrades of Treatment Plant for nutrient control. 2013 Rebuilt Calavo Pump Station. 2010 4,000 Sewer Customers. 1995 Sewer Timeline 4,199 Sewer Customers. 2000 Built Cottonwood Meadows Sewer Lift Station. 1985 Built Hidden Mountain Sewer Lift Station. 1982 Built Russell Square Sewer Lift Station. 1984 Point Loma Wastewater Treatment Plant.Ralph W. Chapman Water Recycling.2012 -Calavo Gardens Sewer Rehabilitation La Presa County Water District completed a small sewer system and stransferred it to Spring Valley Sanitation Distirct. 1958 Otay Water District, under a Federal and State Grant, constructed its first Calavo Gardens Sewer Outfall. 1972 Entered into agreement with County of San Diego cost sharing of facilities. 1998 Built the Rancho San Diego Pump Station by agreement with County of San Diego. 1987 4,639 Sewer Customers. 2010 96 97 FY 2012 FY 2014 21-Actual Budget Actual * Budget $% REVENUES 4200 Sewer Revenues 2,395,365$ 2,555,200$ 2,618,291$ 2,701,600$ 146,400$ 5.7% 4136 Capacity Fee Revenues 176,209 165,000 153,541 61,600 (103,400) (62.7%) Tax Revenues 50,585 51,500 52,766 51,600 100 0.2% 4400 Non-operating Revenues 32,121 30,600 35,352 33,800 3,200 10.5% 4510 Interest 11,968 6,100 5,692 4,300 (1,800) (29.5%) TF BeTransfer from Betterment 30,000 - - - - (100.0%) Repl Transfer from Replacement 120,000 - - - - (100.0%) General Fund Draw Down - 671,100 671,100 - (671,100) (100.0%) TOTAL REVENUES 3,411,248$ 4,074,500$ 4,131,742$ 3,005,700$ (1,068,800)$ (26.2%) EXPENDITURES 5411 Power 70,431$ 83,800$ 184,108$ 101,600$ 17,800$ 21.2% 5110 Labor and Benefits 817,693 853,200 863,286 1,156,300 303,100 35.5% 5200 Administrative Expenses 398,458 408,900 310,949 291,700 (117,200) (28.7%) 5300 Materials & Maintenance 1,725,358 1,360,600 1,492,581 1,394,700 34,100 2.5% 11-13 Subtotal - Operations Costs 3,011,940$ 2,706,500$ 2,850,924$ 2,944,300$ 237,800$ 8.8% Bett RBetterment Reserve - 625,000 625,000 - (625,000) - Repl Replacement Reserve - 743,000 743,000 - (743,000) - swr gTransfer to General Fund Reserve 191,800 - - - - - TOPETransfer to OPEB - - - 61,400 61,400 100.0% Subtotal - Reserve Funding 191,800$ 1,368,000$ 1,368,000$ 61,400$ (1,306,600)$ (95.5%) TOTAL EXPENDITURES 3,203,740$ 4,074,500$ 4,218,924$ 3,005,700$ (1,068,800)$ (26.2%) EXCESS REVENUES (EXPENDITURES)207,508$ -$ (87,183)$ -$ -$ (100.0%) FY 2013 Budget to Budget Variance Operating Budget Summary - Sewer * Actual unaudited 98 FY 2014 Accounts ASU(1)Current Approved(3)Current Approved(3)Budget Residential Single Family 4,533 4,533 13.30$ 14.38$ 1.92$ 2.35$ 1,993,200$ Multi-Family 50 1,360 13.30 1.92 2.35 311,100 Commercial s Schools 6 275 45.30 2.35 131,000 Churches 4 42 45.30 2.35 17,100 Low Strength 44 257 45.30 2.35 124,800 Medium Strength 13 c 99 45.30 3.37 49,000 High Strength 7 107 45.30 5.37 48,700 Meter Size 0.75"- 25.83$ 1"- 38.03 1.5"- 68.53 2"- 105.12 3"- 190.52 4"- 312.51 6"- 617.48 8"- 983.46 10"- 1,410.42 Penalties 26,700 TOTAL ACCOUNTS AND ASUs 4,657 6,673 TOTAL SEWER CHARGES 2,701,600$ Sewer Charges by Service Class FY 2014 Single Family 1,993,200$ 74.6% Multi-Family 311,100 11.6% Schools 131,000 4.9% Churches 17,100 0.6% Commercial-Low Strength 124,800 4.7% Commercial-Medium Strength 49,000 1.8% Commercial-High Strength 48,700 1.8% 2,674,900$ 100.0% (1)Assigned Service Units (2)Eliminated the ASU (commercial) and dwelling units (multi-family) calculation and created a system fee based on water meter size. (3)Approved rates for sewer service beginning in January 2014. Sewer Charges Summary by Service Class System Fee(2)Usage Fee 99 Actual* Budget FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Sewer Charges 2,154,628$ 2,271,879$ 2,363,313$ 2,368,192$ 2,588,991$ 2,674,900$ Penalties 29,896 39,707 23,287 27,173 29,300 26,700 Total 2,184,523$ 2,311,586$ 2,386,600$ 2,395,365$ 2,618,291$ 2,701,600$ Revenue History - Sewer Revenue History - Sewer, in thousands ($) Actual $- $1,000 $2,000 $3,000 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual* FY 2014 Budget Sewer Charges Penalties *Actual unaudited100 Power Costs - Sewer Sewer Lift Stations FY 2009 Actual 88,512$ FY 2010 Actual 84,408 FY 2011 Actual 81,347 FY 2012 Actual 70,431 FY 2013 Actual*184,108 ** FY 2014 Budget 101,600 *Actual unaudited **Subsequent to Budget approval, staff corrected the 2013 actuals for a misclassification of power between recycled and sewer. Historical Power Costs, in thousands ($) $0 $40 $80 $120 $160 $200 FY 2009 Actual FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual* FY 2014 Budget 101 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Equipment 364 8,700 - 500 (8,200) (94.3%) Fees 1,940 4,000 1,571 2,000 (2,000) (50.0%) Services 254,397 239,500 160,869 94,500 (145,000) (60.5%) Miscellaneous 10,882 10,000 3,105 6,700 (3,300) (33.0%) Overhead Allocation 130,875 146,700 145,404 188,000 41,300 28.2% Total Expenditures 398,458 408,900 310,949 291,700 (117,200) (28.7%) Equipment 500$ 0.2% Fees 2,000 0.7% Services 94,500 32.4% Miscellaneous 6,700 2.3% Overhead Allocation 188,000 64.4% 291,700$ 100.0% FY 2013 Administrative Expenditures - Sewer FY 2014 Administrative Expenditures - Sewer Budget to Budget Variance * Actual unaudited 102 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil -$ -$ 17,343$ -$ -$ -$ Fleet Parts and Equipment 1,074 1,500 1,623 1,500 - - Infrastructure Equipment & Supplies 44,117 68,000 169,014 50,000 (18,000) (26.5%) Chemicals 5,677 7,000 3,130 4,500 (2,500) (35.7%) Safety Equipment 2,736 - - - - - Laboratory Equipment & Supplies 4,697 5,000 5,591 5,000 - - Other Materials and Supplies 65 200 1,613 200 - - Contracted Services 41,047 30,000 24,102 35,500 5,500 18.3% Materials and Maintenance 99,413 111,700 222,416 96,700 (15,000) (13.4%) Sewer Charges Metro O&M Costs 1,397,400 1,009,700 1,009,692 1,023,400 13,700 1.4% Spring Valley Sewer Charge 228,545 239,200 260,473 274,600 35,400 14.8% Total Sewer Charges 1,625,945 1,248,900 1,270,165 1,298,000 49,100 3.9% Total Materials and Maintenance 1,725,358$ 1,360,600$ 1,492,581$ 1,394,700$ 34,100$ 2.5% Fleet Parts and Equipment 1,500$ 0.1% Infrastructure Equipment & Supplies 50,000 3.6% Chemicals 4,500 0.3% Laboratory Equipment & Supplies 5,000 0.4% Other Materials and Supplies 200 0.0% Contracted Services 35,500 2.5% Metro O&M Costs 1,023,400 73.4% Spring Valley Sewer Charge 274,600 19.7% 1,394,700$ 100.0% Materials and Maintenance Expenditures - Sewer FY 2013 FY 2014 Materials and Maintenance Expenditures - Sewer Budget to Budget Variance *Actual unaudited 103 Formula for Sewer Rates To meet State of California requirements, customers must pay their fair share of sewer costs. The District is required to determine sewer rates in accordance with the State’s Revenue Program Guidelines. Residential and Multi-Residential Sewer Service To estimate sewer use, the District averages metered water use for the winter months of January through April. A “winter average” is the basis of the sewer charges for the entire year. The winter months are the best time to average water use because less water is used outdoors and most of the water used flows to the sewer system. The District gives customers a 15% usage discount to acknowledge that not all water purchased goes to the sewer system. The maximum consumption charge is based on 30 units. The following tables shows the changes to the sewer bill formulas: The current usage fee for single family residential is $1.92 and effective January 1, 2014 is $2.35. The current system fee for single family residential is $13.30 and $19.40 for .75” and 1” meters respectively. As recommended by the cost of service study, effective January 1, 2014, the monthly system fee for both .75” and 1” meters will be identical at $14.38. The current usage fee for multi-family residential is $1.92 and, effective January 1, 2014, it will be $2.35. The current system fee for multi-residential is $13.30 per dwelling unit, effective January 1, 2014, it will be based on the water meter size. The rates and charges by meter size are show on page 99. Commercial and Industrial Sewer Service To estimate sewer use, the District averages metered water use. An “average annual consumption” is the basis of the sewer charges for the entire year. The average annual consumption is defined as the units of water billed from January through December of the previous year. The District gives customers a 15% usage discount to acknowledge that not all water purchased goes to the sewer system. Old Sewer Bill Calculation July 1, 2013-December 31, 2013 ((Winter Average X .85) x Usage Fee) + (System Fee x Dwelling Units) New Sewer Bill Calculation January 2014-June 30, 2014 ((Winter Average X .85) x Usage Fee) + System Fee 104 Formula for Sewer Rates Old Strength Factors July 1, 2013-December 31, 2013 1.000 Schools and Churches 1.000 Low-Strength Commercial 1.238 Medium-Strength Commercial 2.203 High-Strength Commercial New Strength Factors January 2014-June 30, 2014 1.000 Low-Strength Commercial 2.000 Medium-Strength Commercial 4.000 High-Strength Commercial The current and revised formulas (effective January 1, 2014) for calculating Commercial and Industrial Sewer Rates and Fees are as follows: Under the old method, monthly bills were based on Assigned Service Units (ASU), which is no longer the industry standard. As shown above, the customer’s flow was reduced by 15% to reflect that not all water used flows into the sewer system. It was then converted to residential equivalence by dividing by 250. The number of ASU’s were multiplied by the usage fee, $45.30, to determine the monthly sewer bill. Effective January 1, 2014, the District will calculate the monthly bill based on the customer’s water use, sewer strength and the size of the customer’s water meter. The new method of calculating sewer bills is more equitable among customer classes. The rates and charges by meter size are shown on page 99. The District is required to determine sewer rates in accordance with the State’s Revenue Program Guidelines. The State Water Resources Control Board (SWRCB) has grouped commercial customers into various categories and has identified Strength Factors for each of these business categories. The standard of measure for Strength Factors is the typical sewer strength of a single-family residence (SFR). The Strength Factors established by the SWRCB are listed below and are used by the District in the calculation of commercial sewer rates. These factors are in terms of the strength relative to a SRF, with a SFR having a strength factor of 1. The following are the current and revised (effective January 1, 2014) Strength Factors: Beginning January 1, 2014, the special formulas used for schools will be eliminated and a school’s sewer bill will be the same as all commercial accounts. Schools and churches are categorized as Low Strength Commercial customers. Old Sewer Bill Calculation July 1, 2013-December 31, 2013 Step 1: ASU = ((Flow in Gallons per Day x .85/250) x Strength Factor) Step 2: ASU x Usage Fee = Sewer Billing New Sewer Bill Calculation January 2014-June 30, 2014 (((Average Annual Consumption x .85 x Usage Fee x Strength Factor) + System Fee 105 Sewer Service Area 106 General Revenues and Expenditures The District’s revenues and expenses in this section are not directly related to the services delivered to potable, recycled, or sewer customers, yet they are operating expenses or revenues. General Revenues Capacity fees are restricted for the purpose of funding the District facilities when collected these may cover costs including but not limited to planning, design, construction, and financing associated with those facilities. The District uses a portion of capacity fee revenues to provide general expansion planning and developer support. These fees reimburse the General Fund for the cost of providing these services. Betterment fees are earned by the General Fund for facilities maintenance performed by the Water Operations Department. Annexation fees are collected when developers buy into the District’s potable and recycled water facilities. The fee ensures that future users fund the portion of the facilities that were sized and built for their future use by prior customers. Prior to FY 2010, annexation fees were unrestricted and therefore included in the General Fund revenues. With the new fee methodology, these fees are now restricted for the purpose of capital improvements. The 1% Property Tax is a result of Proposition 13 that was approved in 1978, which limited the general levy property tax rate for all taxing authorities to a total rate of 1% of the assessed value. Subsequent legislation, AB8, established that the receipts from the 1% levy were to be distributed to taxing agencies according to approximately the same proportions received prior to Proposition 13. These general use funds are currently being used as a source of operating revenue. The District levies availability charges each year in developed areas to be used for upgrades and betterment and in undeveloped areas to provide a funding for planning, mapping, and preliminary design of facilities to meet future development. Current legislation provides that any availability charge in excess of $10.00 per parcel or acre shall be used only for the benefit of the improvement district in which it is assessed. Included in the General Revenues are a variety of Non-Operating Revenues. These revenues include lease revenue, set-up fees, sewer billing fees, grants, and miscellaneous revenues. Lease revenues make up a large portion of general revenues and are mainly from the lease of cell-sites on District property. When the District enters a new lease there is a one-time fee charged with the set-up of each cell-site. The District incurs expenses related to these leases and the purpose of the fee is to recover the cost to set up the lease. In addition to the cell-site leases, the District leases land to the Highlands Golf Co., LLC. The lease 107 General Revenues and Expenditures terms include a minimum annual rent guarantee plus a percentage of sales. This lease has a 40- year term with two additional five-year options. For most of the District’s water customers in the City of Chula Vista, the City of Chula Vista (CCV) provides the sewer services. The CCV sewer fees are based on water consumption. Because of the shared customer base, the CCV contracts with the District for the billing of their sewer customers who live within the District. General Expenses The expenditures in this section are general operating costs not associated with an individual department. These include legal costs, insurance premiums, changes in accrued employee leave balances, and miscellaneous interest. These expenditures represent 7.5% of the total Departmental Budget. Legal expenditures are viewed as a District-wide general cost because they benefit all departments and usually are not attributed to any one department. The District retains outside legal services instead of in-house counsel. Insurance premiums are also viewed as District-wide general cost because it benefits all departments and cannot be attributed to any one department. The District participates in a program where it can reduce its premium by implementing training sessions to reduce on-the-job accidents and injuries. Some employee benefits are charged to the General Expense Department because they are not entirely attributable to a specific department or fiscal year in which they are incurred. For example, when a pay rate increase occurs for an employee, his/her leave balances increase in value due to this change. In this case, the cost is charged to the General Expense Department. 108 FY 2012 FY 2014 Actual Budget Actual * Budget $% Fee Revenues Capacity Fee Revenues 1,160,066$ 1,180,600$ 1,237,085$ 1,291,200$ 110,600$ 9.4% Betterment Fees for Maintenance 690,885 689,400 612,663 776,700 87,300 12.7% Subtotal Fee Revenues 1,850,951 1,870,000 1,849,748 2,067,900 197,900 10.6% Tax Revenues 1% General Tax 2,890,156 3,185,600 2,892,382 2,910,000 (275,600) (8.7%) Availability Fees 696,863 697,000 707,881 687,100 (9,900) (1.4%) Subtotal Tax Revenues 3,587,019 3,882,600 3,600,263 3,597,100 (285,500) (7.4%) General Revenues 5,437,970$ 5,752,600$ 5,450,011$ 5,665,000$ (87,600)$ (1.5%) FY 2012 FY 2014 Actual Budget Actual * Budget $% Property Rental 1,222,060$ 1,265,300$ 1,276,914$ 1,279,700$ 14,400 1.1% Sewer Billing Fees 366,431 366,400 370,195 371,400 5,000 1.4% Set-up Fee for Lease Site 3,000 1,500 4,000 - (1,500) (100.0%) Grants 34,593 - 13,944 - - 0.0% Revenue from Shared Facility 32,121 30,600 35,352 33,800 3,200 10.5% Miscellaneous 405,267 250,500 158,618 161,100 (89,400) (35.7%) Non-Operating Revenues 2,063,472$ 1,914,300$ 1,859,023$ 1,846,000$ (68,300)$ (3.6%) Potable Recycled Sewer Total Fee Revenues Capacity Fee Revenues 1,229,600$ -$ 61,600$ 1,291,200$ Betterment Fees for Maintenance 776,700 - - 776,700 Total Fee Revenues 2,006,300 - 61,600 2,067,900 Tax Revenues 1% General Tax 2,910,000 - - 2,910,000 Availability Fees 635,500 - 51,600 687,100 Total Tax Revenues 3,545,500 - 51,600 3,597,100 Non-Operating Revenues Property Rental 1,279,700 - - 1,279,700 Sewer Billing Fees 371,400 - - 371,400 Revenue from Shared Facility - - 33,800 33,800 Miscellaneous 161,100 - - 161,100 Total Non-Operating Revenues 1,812,200 - 33,800 1,846,000 Total General and Non-Operating Revenues 7,364,000$ -$ 147,000$ 7,511,000$ Note: For General and Non-Operating Revenues, the Potable Fund serves as the District's General Fund for accounting purposes. FY 2014 Budget Non-Operating Revenues FY 2013 General and Non-Operating Revenues by Business General Revenues FY 2013 Budget to Budget Variance Budget to Budget Variance * Actual unaudited 109 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Administrative Expenditures Legal Fees 364,519$ 380,000$ 279,625$ 380,000$ -$ 0.0% General Insurance 547,836 529,000 573,827 564,200 35,200 6.7% Total Expenditures 912,355 909,000 853,452 944,200 35,200 3.9% Benefits Benefits (1)699,740 1,267,300 1,490,161 (2)1,205,400 (61,900) (4.9%) Total General Expense 1,612,095$ 2,176,300$ 2,343,613$ 2,149,600$ (26,700)$ (1.2%) FY 2013 General Expense (1)Benefits include District-wide labor and benefit costs not attributable to any one department, such as the effect of cost of living raises on accrued leave liabilities or the Other Post Employment Benefit (OPEB) Costs. These costs are netted against the District's anticipated Vacancy Factor. The Vacancy Factor for FY 2013 and FY 2014 is $271,300 and $266,900 respectively. Additionally, the labor and benefits shown on this schedule are those related to operating costs and does not include CIP labor and benefit costs. (2)The District's OPEB ARC (Annual Required Contribution) consists of Normal Cost and Unfunded Actuarial Accrued Liability (UAAL) Cost. During FY 2012 the District's general fund paid only the Normal Cost ($642,000). The FY 2012 OPEB UAAL cost ($662,000) was paid through a reserve. In FY 2013 the entire OPEB ARC amount of $1,287,000 (Normal Cost, $662,000; UAAL cost, $625,000) was budgeted through the general fund. Budget to Budget Variance *Actual unaudited 110 Departmental Operating Budget Labor and Benefits Labor and Benefits represent 21.7% of the total Operating Budget. Fiscal Year 2014 marks the last year of the Employees’ Association’s a six-year Memorandum of Understanding (MOU). The highlights of 2008 MOU included: changes to salaries based on a salary survey, changes to the medical and dental plans, enhancements of the retirement package to include post retirement health benefits for active employees, and rewriting the MOU to streamline the District practices. District personnel are assigned to work in six departments: General Manager, Administrative Services, Finance, Information Technology & Strategic Planning, Water Operations, and Engineering. The departments are further categorized by functions into divisions. The Fiscal Year 2014 Budget includes funding for labor and benefits for 143 Full-time Equivalent (FTE) employees. The staffing level for Fiscal Year 2014 had a decrease of five (5) FTE employees from Fiscal Year 2013. The District has chosen to eliminate vacant positions in areas that have experienced a reduction of work due to slowing of growth. Since 2007, the District has reduced FTEs by 18.2% due to slowed growth and by focusing on efficiencies and automation. Efficiencies have been achieved by strategic planning, goal setting, outsourcing and leveraging advancements in technology. A projected 9.14% of the labor and benefits costs will be charged to projects included in the Capital Improvement Program (CIP) and Developer Deposits. These labor and benefit costs are not considered operating costs and therefore reduce the Operating Budget by $1,969,700. Administrative Expenses Administrative Expenses represent 5.9% of the District's total operating costs. A detailed listing of the Administrative Expenses for Fiscal Year 2014 is shown on page 118. The increase of $277,700 is due to increased regulatory fees, property insurance, and outside services needed for consultants. This increase is offset by decreased conservation incentives and telecommunications costs. In addition, the District eliminated non-essential items such as travel, conferences, and services that are not vital to perform this year. Administrative Expenses include such items as memberships, office supplies, staff training, Directors' fees, water conservation programs, safety expenses, and regulatory agencies' fees. Some of the administrative expenses are less discretionary than others such as insurance or regulatory fees which are mandatory. The District is more able to control expenses such as training or business meetings. The safety needs of the District's customers and employees and compliance with regulatory agencies are of utmost importance, so related expenses are considered necessary. 111 Departmental Operating Budget Materials and Maintenance Like all costs included by the District, the Materials and Maintenance Expenses allow the District to provide reliable, high-quality products, services, and support to its customers. As the District continues to grow and technology and regulations change, maintenance and services will be adjusted, as needed. This year, there is a 5.7% decrease in Materials and Maintenance Expenses totaling $215,000. This reduction is mainly due to decreases in chemicals; fleet and meter materials, contracted services, building grounds, and materials. The Water Operations Department has implemented an Infrastructure Management System (IMS) which allows for better maintenance of existing assets and enhanced monitoring of all assets including new assets coming on-line. It also facilitates planning for repair and replacement as well as assessing the condition of infrastructures. IMS helps the District to better track and manage the Materials and Maintenance Expenses. Strategic Plan Implementation Strategic goals and objectives approved by the Board of Directors are incorporated into departmental operating budgets to ensure adequate funds are available to implement the Strategic Plan. The District updates its performance measurement program each fiscal year to provide measurable results of progress on both strategic and key operational goals and objectives. (See the plan objectives and measures in the department sections that follow.) Performance measures have been developed by comparing key District activities with functional and available operational data that provide reliable feedback on progress. Developed cooperatively with staff and the help of outside consultants, the measures are designed to be comparable to measures commonly found in similar industries. The performance measures focus on “best practice” as applied to the District. Measures are collected and reviewed quarterly by the Senior Management Team and reviewed by the Board at least twice a year. Results are used to set new targets for the following fiscal year and to hold staff accountable for the current fiscal year. 112 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% Information Technology and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% Departmental Operating Budget Total FY 2014 Departmental Operating Budget - $28,709,600 113 FY 2012 FY 2014 Actual Budget Actual*Budget Labor Costs 11,035,318$ 11,905,100$ 11,015,847$ 11,344,700$ Benefits Pension 3,293,694 3,083,000 2,941,200 3,095,900 Employee Assistance Program 3,784 5,000 3,882 5,000 Workers' Compensation (4,597) 245,900 165,713 247,700 Health/Dental/Life Insurance/OPEB 2,743,477 3,556,400 3,418,245 3,666,900 Social Security/Medicare 905,547 975,800 941,551 955,600 Salary Continuation Insurance 68,536 65,900 64,082 63,400 State Unemployment Insurance 55,818 75,000 39,656 60,000 Vacation/Sick/Holiday/Other Leave 2,204,816 2,254,800 2,193,636 2,101,800 Total Fringe Benefits 9,271,075 10,261,800 9,767,965 10,196,300 Total Labor and Benefits 20,306,393 22,166,900 20,783,812 21,541,000 Less: Non-Operating Labor and Benefits Labor Costs 1,313,527 1,429,600 1,056,826 1,233,600 Fringe Benefits Allocation 798,332 842,900 598,471 736,100 Total Work Order Allocation 2,111,859 2,272,500 1,655,297 1,969,700 Operating Labor & Benefits 18,194,534 19,894,400 19,128,515 19,571,300 Total Overhead Allocation 1,510,556 1,644,000 1,215,350 1,418,600 Less: Overhead Allocation Personnel Portion 953,916 1,038,200 767,494 895,800 Admin Portion of Overhead (36.85%)556,640$ 605,800 447,856 522,800 Net Operating Labor and Benefits 17,240,618$ 18,856,200$ 18,361,021$ 18,675,500$ Labor and Benefits FY 2013 148 19 65 12 30 17 5 143 20 61 12 29 16 5 0 40 80 120 160 Total Engineering Water Operations Information Technology & Strategic Planning Finance Administrative Services General Manager Full-Time Equivalent (FTE) Comparison by Department FY 2014 FY 2013 *Actual unaudited 114 Potable Sewer Recycled Developer Reimbursed- CIP Total Operating Labor Costs 9,172,700$ 443,700$ 494,700$ -$ 10,111,100$ Benefits 8,677,400 376,900 405,900 - 9,460,200 Overhead Allocation-Personnel (1,577,300) 322,200 359,300 - (895,800) Total Operating Labor and Benefits 16,272,800 1,142,800 1,259,900 - 18,675,500 CIP Labor Costs 754,900 206,600 91,400 180,700 1,233,600 Benefits 455,600 113,400 55,400 111,700 736,100 Overhead Allocation-Personnel 548,200 150,000 66,400 131,200 895,800 Total CIP Labor and Benefits 1,758,700 470,000 213,200 423,600 2,865,500 Total Labor and Benefits 18,031,500$ 1,612,800$ 1,473,100$ 423,600$ 21,541,000$ Potable - Operating 16,272,800$ 77.1% Potable - CIP 1,758,700 8.3% Sewer - Operating 1,142,800 5.4% Sewer - CIP 470,000 2.2% Recycle - Operating 1,259,900 6.0% Recycle - CIP 213,200 1.0% 21,117,400$ 100.0% Labor and Benefits by Fund - Fiscal Year 2014 115 FY 2012 FY 2013 FY 2014 General Manager 6 5 5 (1) Total FTE - General Manager 6 5 5 Administrative Services 3 3 3 Human Resources 4 4 4 Purchasing 7 7 7 Safety 1 1 1 Conservation 3 2 1 (1) Total FTE - Administrative Services 18 17 16 Controller and Budgetary Services 7 7 8 (2) Treasury and Accounting Services 5 5 6 (2) Customer Service 17 15 15 (1) Payroll and Accounts Payable 3 3 0 (2) Total FTE - Finance 32 30 29 IT and Strategic Planning Applications 5 4 5 (2) IT Operations 4 4 3 Geographic Information Systems 4 4 4 Total FTE - IT and Strategic Planning 13 12 12 Operations Management 2 2 2 Water System Operations 28 27 26 (1) Utility Maintenance/Construction 28 28 26 (1) Collection/Treatment/Reclamation Operations 8 8 7 (1) Total FTE - Operations 66 65 61 Engineering Management 3 3 3 Engineering 18 16 17 (2) Total FTE - Engineering 21 19 20 District Total FTE Position Count 156 148 143 (3) Temporary positions to fill interim needs are identified and filled on an as-needed basis. Position Count by Department (1) The District’s strategic planning efforts of streamlining our business processes enabled the District to be more efficient and provided an opportunity to reduce staffing. (2) Positions were re-classified and/or transferred as part of streamlining the District's organizational structure. 116 FY 2012 FY 2013 FY 2014 Water Conservation Technician 1 0 1 Strategic Planning Assistant 1 0 0 Reclamation Plant Operator 1 0 0 Utility Construction Assistant 1 1 0 (3) Sr. Civil Engineer 1 1 0 (2) Total Contract/Temporary Employees 5 2 1 General Manager 5 4% Administrative Services 16 11% Finance 29 20% IT and Strategic Planning 12 8% Operations 61 43% Engineering 20 14% 143 100% Contract / Temporary Employees Position Count 117 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Directors' Fees 13,600$ 30,000$ 19,900$ 30,000$ -$ - Travel and Meetings 127,822 172,400 126,978 190,900 18,500 10.7% Conservation and Outreach 214,556 231,500 199,479 206,600 (24,900) (10.8%) General Office Expense 275,518 296,600 290,648 321,200 24,600 8.3% Equipment 918,128 928,500 970,652 906,900 (21,600) (2.3%) Fees 498,107 512,300 510,704 528,700 16,400 3.2% Services 1,658,999 2,026,200 1,541,412 2,206,500 180,300 8.9% Training 79,439 113,700 56,258 107,700 (6,000) (5.3%) Utilities 20,330 20,500 12,796 16,000 (4,500) (22.0%) Miscellaneous 137,145 170,000 120,333 146,700 (23,300) (13.7%) Total 3,943,645 4,501,700 3,849,160 4,661,200 159,500 3.5% Less: Overhead Allocation (556,640) (605,800) (447,855) (522,800) 83,000 - Subtotal 3,387,005 3,895,900 3,401,306 4,138,400 242,500 6.2% General Expenses 912,355 909,000 853,452 944,200 35,200 3.9% Total Expenditures 4,299,360$ 4,804,900$ 4,254,758$ 5,082,600$ 277,700$ 5.8% 4,856,000$ 5,410,700$ 4,702,612$ 5,605,400$ Directors' Fees 30,000$ 0.5% Travel and Meetings 190,900 3.4% Conservation and Outreach 206,600 3.7% General Office Expense 321,200 5.7% Equipment 906,900 16.2% Fees 528,700 9.4% Services 2,206,500 39.4% Training 107,700 1.9% Utilities 16,000 0.3% General Expense 944,200 16.8% Miscellaneous 146,700 2.6% 5,605,400 100.0% Less: Overhead Allocation (522,800) Total Administrative Expenses 5,082,600$ FY 2013 Administrative Expenditures - Total FY 2014 Total Administrative Expenditures Budget to Budget Variance * Actual unaudited 118 FY 2012 FY 2014 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 243,018$ 368,100$ 207,866$ 296,000$ (72,100)$ (19.6%) Meters and Materials 174,549 188,000 98,415 134,900 (53,100) (28.2%) Fleet Parts and Equipment 125,195 149,500 153,390 132,500 (17,000) (11.4%) Infrastructure Equipment & Supplies 511,772 586,500 694,834 499,000 (87,500) (14.9%) Chemicals 381,758 474,000 424,978 426,100 (47,900) (10.1%) Safety Equipment 32,255 29,400 32,966 26,300 (3,100) (10.5%) Laboratory Equipment and Supplies 42,611 44,000 43,178 44,000 - - Other Materials and Supplies 151,359 163,700 133,647 156,200 (7,500) (4.6%) Building and Grounds Materials 68,628 55,500 64,586 55,500 - - Contracted Services 406,007 440,300 603,070 464,400 24,100 5.5% Materials and Maintenance 2,137,152 2,499,000 2,456,930 2,234,900 (264,100) (10.6%) Sewer Charges Metro O&M Costs 1,397,400 1,009,700 1,009,692 1,023,400 13,700 1.4% Spring Valley Sewer Charge 228,545 239,200 260,473 274,600 35,400 14.8% Total Sewer Charges 1,625,945 1,248,900 1,270,165 1,298,000 49,100 3.9% Total Materials and Maintenance 3,763,097$ $3,747,900 $3,727,095 $3,532,900 ($215,000) (5.7%) Fuel and Oil 296,000$ 8.4% Meters and Materials 134,900 3.8% Fleet Parts and Equipment 132,500 3.8% Infrastructure Equipment and Supplies 499,000 14.1% Chemicals 426,100 12.1% Safety Equipment 26,300 0.7% Laboratory Equipment and Supplies 44,000 1.3% Other Materials and Supplies 156,200 4.4% Building and Grounds Materials 55,500 1.6% Contracted Services 464,400 13.1% Sewer Charges 1,298,000 36.7% 3,532,900$ 100.0% Materials and Maintenance Expenditures - Total FY 2013 FY 2014 Materials and Maintenance Expenditures Budget to Budget Variance *Actual unaudited 119 FY 2012 FY 2014 Actual Budget Actual* Budget Variance Departmental Expenditures BoaBoard of Directors 74,996$ 111,900$ 87,128$ 108,700$ (3,200)$ GenGeneral Manager 1,669,025 1,488,400 1,419,489 1,444,500 (43,900) GenGeneral Expense 1,612,095 2,176,300 2,343,613 2,149,600 (26,700) AdmAdministrative Services 3,345,258 3,678,800 3,292,343 3,537,100 (141,700) FinaFinance 4,539,994 4,886,800 4,650,792 4,785,300 (101,500) IT aIIT and Strategic Planning 2,872,362 2,995,800 2,932,601 3,135,600 139,800 WaWater Operations 10,935,715 11,853,000 11,015,311 11,523,000 (330,000) EngEngineering 1,764,186 1,862,000 1,816,946 2,025,800 163,800 Tot Total Departmental Expenditures 26,813,631 29,053,000 27,558,223 28,709,600 (343,400) Less: Overhead Allocation (1,510,556) (1,644,000) (1,215,350) (1,418,600) 225,400 Net Departmental Expenditures 25,303,075$ 27,409,000$ 26,342,873$ 27,291,000$ (118,000)$ Non-Departmental Expenditures Water Purchases 38,459,664$ 41,762,400$ 43,161,584$ 45,025,100$ 3,262,700$ Power 2,138,674 2,368,000 2,430,461 2,693,300 325,300 Expansion Reserve 555,000 3,936,000 3,936,000 3,428,000 (508,000) Betterment Reserve - 1,120,000 1,120,000 125,000 (995,000) Replacement Reserve 3,330,000 743,000 743,000 4,230,000 3,487,000 Transfer to Sewer General Fund 595,000 595,000 595,000 152,800 (442,200) Transfer to General Fund Reserve 2,612,300 2,285,800 2,285,800 1,913,000 (372,800) Transfer to Sewer Replacement 1,720,000 2,099,000 2,099,000 - (2,099,000) Transfer to OPEB - - - 1,242,900 1,242,900 Transfer to New Supply Reserve 1,585,000 - - - - Total Non-Departmental Expenditures 50,995,637 54,909,200 56,370,845 58,810,100 3,900,900 TOTAL OPERATING EXPENDITURES 76,298,713$ 82,318,200$ 82,713,717$ 86,101,100$ 3,782,900$ FY 2013 Operating Expenditures by Department Budget to Budget *Actual unaudited 120 Operating Expenditures by Object FY 2012 FY 2014 Actual Budget Actual* Budget Variance Departmental Expenditures Labor and Benefits 18,194,534$ 19,894,400$ 19,128,515$ 19,571,300$ (323,100)$ Director's Fees 13,600 30,000 19,900 30,000 - Travel and Meetings 127,821 172,400 126,979 190,900 18,500 Conservation and Outreach 214,556 231,500 199,479 206,600 (24,900) General Office Expense 275,519 296,600 290,648 321,200 24,600 Equipment 918,129 928,500 970,652 907,000 (21,500) Fees 1,410,463 1,421,300 1,364,156 1,472,800 51,500 Services 1,658,997 2,026,200 1,541,412 2,206,500 180,300 Training 79,438 113,700 56,258 107,700 (6,000) Materials & Maintenance 2,137,153 2,499,000 2,456,930 2,234,900 (264,100) Power and Utilities 20,330 20,500 12,796 16,000 (4,500) Sewer Charges 1,625,945 1,248,900 1,270,165 1,298,000 49,100 Miscellaneous 137,145 170,000 120,333 146,700 (23,300) Total Departmental Expenditures 26,813,631 29,053,000 27,558,223 28,709,600 (343,400) Less: Overhead Allocation (1,510,556) (1,644,000) (1,215,350) (1,418,600) 225,400 Net Departmental Expenditures 25,303,075$ 27,409,000$ 26,342,873$ 27,291,000$ (118,000)$ Non-Departmental Expenditures Water Purchases 38,459,664$ 41,762,400$ 43,161,584$ 45,025,100$ 3,262,700$ Power 2,138,674 2,368,000 2,430,461 2,693,300 325,300 Expansion Reserve 555,000 3,936,000 3,936,000 3,428,000 (508,000) Betterment Reserve - 1,120,000 1,120,000 125,000 (995,000) Replacement Reserve 3,330,000 743,000 743,000 4,230,000 3,487,000 Transfer to Sewer General Fund 595,000 595,000 595,000 152,800 (442,200) Transfer to General Fund Reserve 2,612,300 2,285,800 2,285,800 1,913,000 (372,800) Transfer to Sewer Replacement 1,720,000 2,099,000 2,099,000 - (2,099,000) Transfer to OPEB - - - 1,242,900 1,242,900 Transfer to New Supply Fund 1,585,000 - - - - Total Non-Departmental Expenditures 50,995,637 54,909,200 56,370,845 58,810,100 3,900,900 TOTAL OPERATING EXPENDITURES 76,298,713$ 82,318,200$ 82,713,717$ 86,101,100$ 3,782,900$ FY 2013 Budget to Budget *Actual unaudited 121 Board of Directors Mission Statement To provide safe, reliable water, recycled water and wastewater services to our community in an innovative, cost efficient, water-wise and environmentally responsible manner. Mitchell Thompson Vice President Division 2 Gary Croucher Division 3 David Gonzalez, Jr. Treasurer Division 1 Jose Lopez President Division 4 Mark Robak Division 5 Board of Directors The Otay Water District is a revenue- neutral public agency established in accordance with the California Water Code. This not-for-profit status means Otay has no private shareholders, pays no dividends and therefore does not report to, nor answer to the California Public Utilities Commission. We do, however, answer to the public we serve through a five-member Board of Directors. Each Director is elected by voters within their respective division boundaries to represent the public's interest with regard to rates for service, taxes, policies, ordinances and other matters related to the management and operation of the Otay Water District. 122 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Board of Directors 74,996$ 111,900$ 87,128$ 108,700$ Board of Directors Board of Directors , $108,700 FY 2014 Total Departmental Budget - $28.7 Million 123 *Actual unaudited Board of Directors FY 2012 FY 2014 Actual Budget Actual*Budget Benefits 58,088$ 65,300$ 62,475$ 62,100$ Director's Fees 13,600 30,000 19,900 30,000 Travel and Meetings 2,789 16,600 4,753 16,600 Training 519 - - - Total 74,996$ 111,900$ 87,128$ 108,700$ Budget vs. Actual, in thousands ($) FY 2013 $- $15 $30 $45 $60 $75 $90 $105 $120 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $9 8 $8 7 $1 0 7 $1 1 2 $1 0 9 $6 3 $7 5 $7 5 $8 7 Budget Actual 124 Director’s Division Boundaries 125 General Manager Mission Statement To provide high value water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner. Key Challenge Our key District challenge is to add increased value by improving our core business processes. From a water supply perspective, this means determining the optimum mix of water supply, treatment, and delivery solutions for our customers. From a daily operating perspective, efficiency improvements have become the primary source of competitive advantage and cost optimization for utilities. Adding value from this perspective means the entire team focusing on not only the highest priority goals but also examining the details of what we do every day and be willing to alter how we do it if it makes a positive difference. Our employees voice a high degree of personal and professional satisfaction with our direction and the entire team is committed to meeting this key challenge with distinction. General Manager’s Vision “A District that is at the forefront in innovations to provide water services at affordable rates, with a reputation for outstanding customer service.” CE 126 Position Count FY 2012 FY 2013 FY 2014 General Manager 111 Assistant General Manager 211 District Secretary 111 Sr. Confidential Executive Secretary 111 Communications Officer 1 1 1 Total 655 District Position Count - 143 General Manager Department - (5 Positions) General Manager - Position Count Board of Directors 1111 General Manager 1211 District Secretary 1211 Sr. Confidential Executive Secretary 1211 Communications Officer 1211 Assistant General Manager 2111 127 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget General Manager/Assistant General Manager 1,669,025$ 1,488,400$ 1,419,489$ 1,444,500$ General Manager General Manager, $1,444,500 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 128 General Manager FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits 1,289,474$ 1,106,800$ 1,105,281$ 1,106,200$ Travel and Meetings 42,384 53,900 46,630 50,900 Conservation and Outreach 7,378 6,000 2,695 7,000 General Office Expense 6,754 5,100 4,390 5,300 Equipment 161 - - 1,500 Fees 41,464 82,000 59,993 48,000 Services 281,305 234,600 200,500 225,600 Training 105 - - - Total 1,669,025$ 1,488,400$ 1,419,489$ 1,444,500$ Budget vs. Actual, in thousands ($) $- $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $1 , 6 6 7 $1 , 7 9 1 $1 , 7 2 1 $1 , 4 8 8 $1 , 4 4 5 $1 , 5 3 0 $1 , 6 8 9 $1 , 6 6 9 $1 , 4 1 9 Budget Actual ctual unaudited 129 General Manager Services We Provide The General Manager’s office provides staffing, scheduling, and other support to the Board of Directors, General Manager, and Assistant General Manager. The office posts and disseminates meeting notices, agendas, minutes, sets board meeting dates, and assists in conducting board and committee meetings. It also manages public and media relations, bi- national and legislative affairs, and provides liaison with local elected officials and community groups. The General Manager’s office oversees the production and distribution of publications and notices to inform the public of District functions, policies, and services. The office also coordinates special events and provides staffing and support to local water associations. Performance Measures Accomplishments – Fiscal Year 2012-2013  Otay Water District continues to be one of the lower cost water service providers among San Diego County’s 23 water agencies.  Otay’s labor costs were reduced through the reduction of five full-time positions as a result of increased efficiency from automation programs, which resulted in a District-wide annual cost-savings of $771,000. This savings helps to lessen the impact of higher water costs to customers.  Otay’s customers continue to report high levels of satisfaction with the District as their service provider. In the last customer survey, 91% of customers rated the District’s service as good, very good, or excellent.  For the ninth consecutive year, Otay received the Distinguished Budget Presentation Award from the Government Finance Officers Association of the United States and Canada. The GFOA also awarded the District two special awards recognizing the 2012-2013 Budget as Outstanding as a Policy Document and Outstanding as a Communications Device. These awards reflect the District’s longstanding commitment to transparency and accountability. Customer Satisfaction Measures the level of overall customer satisfaction with the District. Survey is conducted on an annual basis. Formation of survey begins in Q1. Actual survey measures calendar year (January-December). Currently reported quarterly. 130 General Manager  Otay has an AA (Double A) credit rating from the rating agency Standard and Poor’s, and an AA- credit rating from Fitch. These ratings are excellent given Otay’s size and reflect on the District’s high credit worthiness.  The District refinanced $8.1 million of its 2004 Certificates of Participation that will result in a savings of $763,000 over the next 10 years.  The District completed construction of a number of notable Capital Improvement Projects including the Ralph W. Chapman Water Recycling Facility Upgrade project, Calavo Garden Sewer System Upgrade, the Hunte Parkway Pipeline project, and the 850-3 Reservoir Exterior Coating and Upgrade project.  The District’s phone system was upgraded to provide key account information to customer service staff to expedite and improve the handling of customer service calls.  Otay upgraded its vehicle radios and replaced base stations to enhance communications redundancy.  The District continues to monitor and facilitate meetings with the International Boundary and Water Commission (IBWC), Mexican officials and NSC Agua as they continue working toward permitting, approval and construction of an ocean water desalination facility to serve potential customers in Mexico and in Otay’s service area. 131 Administrative Services - General Mission Statement To provide support to the Board of Directors, the General Manager, and District staff by identifying and meeting objectives to satisfy the needs of our customers by providing, through best management practices, the full range of employer and employee services, administrative services, risk management, water conservation, and safety and security. Department Responsibilities The Administrative Services Department, under the general direction of the Chief Administrative Services, provides the following support services: Human Resources, Purchasing and Facilities, Safety and Risk Administration, and Water Conservation. It also coordinates assigned activities with other District departments and outside agencies, and provides highly responsible and complex administrative support for the District, General Manager and Board of Directors. 132 Position Count FY 2012 FY 2013 FY 2014 Chief, Administrative Services 111 Confidential Executive Secretary 111 Confidential Secretary 111 Human Resources Manager 111 Senior Human Resources Analyst 111 Human Resources Analyst 111 Human Resources Technician 1 1 1 Purchasing & Facilities Manager 111 Senior Buyer 111 Assistant Buyer 111 Lead Warehouse Worker / Facilities Worker 111 Warehouse / Delivery Worker 111 Facilities Maintenance Technician 2 2 2 Safety & Security Administrator 111 Water Conservation Manager 110 Water Conservation Specialist 2 1 0 Senior Water Conservation Specialist 0 0 1 Total 181716 Administrative Services - Position Count District Position Count - 143 Administrative Services Department - (16 Positions) Purchasing and Facilities 2231 (7) Safety and Risk Administration 2241 (1) Water Conservation 2251 (1) Human Resources 2221 (4) Chief, Administrative Services 2211 (3) 133 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Administrative Chief 453,277$ 476,100$ 461,568$ 489,800$ Human Resources 774,103 885,300 679,097 882,300 Purchasing and Facilities 1,320,226 1,461,000 1,514,838 1,407,000 Safety and Security 272,763 313,600 208,676 290,600 Water Conservation 524,890 542,800 428,164 467,400 TOTAL 3,345,259$ 3,678,800$ 3,292,343$ 3,537,100$ Administrative Services Administrative Services, $3,537,100 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 134 Administrative Services FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits 2,331,863$ 2,407,800$ 2,182,488$ 2,210,900$ Travel and Meetings 11,881 21,400 10,237 20,300 Conservation and Outreach 207,178 225,500 196,784 199,600 General Office Expense 89,763 124,300 132,071 145,800 Equipment 35,866 92,500 72,960 56,000 Fees 3,209 4,000 - - Services 267,396 393,400 231,556 502,800 Training 73,544 77,700 39,852 81,200 Materials & Maintenance 304,229 311,700 413,599 304,500 Power and Utilities 20,330 20,500 12,796 16,000 TOTAL 3,345,259$ 3,678,800$ 3,292,343$ 3,537,100$ Budget vs. Actual, in thousands ($) $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $3 , 9 1 3 $3 , 9 3 5 $3 , 7 2 7 $3 , 6 7 9 $3 , 5 3 7 $3 , 3 8 8 $3 , 4 1 5 $3 , 3 4 5 $3 , 2 9 2 Budget Actual *Actual unaudited 135 Administrative Services – Human Resources Administrative Services Objectives Completed Objectives:  Increase conservation related communication by expanding web-based information.  Update the District’s National Incident Management System (NIMS) Emergency Management Plan.  Streamline inventory procedures.  Streamline requisition and purchasing procedures.  Identify management initiatives for represented/unrepresented employees in preparation for negotiations that will provide greater efficiency and more flexibility.  Evaluate policies and procedures as appropriate to streamline processes and ensure the District remains competitive.  Senior Management Team to develop summary of expectations for management team to manage change in the future. Objectives on Schedule:  Regularly produce and evaluate communications tools and explore the effective use of new media options including: electronic newsletters, auto-dialer services, video streaming, social networks or web media to ensure the District’s outreach efforts are cost-effectively reaching all stakeholders.  Continue promoting the Water Conservation Garden as a venue for new and existing homeowners, developers, and businesses.  Ensure best practices are followed in meeting the 20 by 2020 conservation targets including reclassification of industrial and commercial customers.  Educate and work with local agencies and others to influence developers, builders, and to incorporate practical water efficient practices in new construction.  Enhance security processes and planning.  Review classification plan with the goal of providing greater flexibility.  Update performance evaluation categories/program to ensure a results-oriented workforce and update and provide training, if needed. Objectives not scheduled to start yet:  Negotiate a successor Memorandum of Understanding (MOU) for represented employees for 2014 and beyond, and related compensation and benefits for unrepresented employees.  Evaluate pay-for-performance program to ensure the District is rewarding employees for innovations and business processes. Human Resources Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 136 Administrative Services – Human Resources Services We Provide Human Resources, under the direction of the Chief of Administrative Services, provides the following support services: recruits, selects and ensures the retention of qualified employees; develops, implements and administers policies, procedures, collective bargaining contracts and employee programs; ensures up-to-date classification plans and a competitive compensation program; manages benefits programs for employees and retirees; manages the Workers’ Compensation program; oversees employee performance through management staff to include employee training and development, recognition and incentives, performance evaluation process and employee discipline; ensures legal compliance; and implements work/life balance initiatives to include a comprehensive wellness program. Performance Measures Turnover Rate Annual percent of voluntary terminations. (Excludes retirement) Training Hours per Employee Measures the quantity of general and management formal training hours employees are completing. 137 Administrative Services – Human Resources Accomplishments – Fiscal Year 2012-2013  Implemented amendments to retiree health to be in compliance with the California Public Employees’ Pension Reform Act, which will result in cost-savings to the District over time.  Modified the District’s Employee Recognition Program, which included a new “Outstanding Performance” Award that recognizes employees or teams who promote the District’s values of Customers, Excellence, Integrity, Teamwork and Employees. An additional ongoing recognition award was added to give Managers, Supervisors, and Leads the opportunity to immediately acknowledge employees for a “job well done”.  Coordinated and received credit for the Special District Risk Management Authority’s (SDRMA) Credit Incentive Program. The credit totaled $36,682 for Property and Liability, and $32,567 for Workers’ Compensation premiums. 138 Administrative Services – Purchasing Purchasing Services We Provide The Purchasing Division, under general direction of the Chief of Administrative Services, oversees the general purchasing standards used within the District; purchases and oversees the procurement of supplies, equipment, and services; controls and administers the District’s standard materials inventory; disposes of surplus materials, equipment, and supplies; assists in the acquisition and disposal of non-infrastructure related real estate; performs non-structural facility maintenance work; and administers and manages outsourced facility maintenance service contracts. It also provides, as needed, complex purchasing related analysis and consultation to the District and General Manager. Performance Measures Accomplishments – Fiscal Year 2012-2013  Initiated semi-annual closing of completed purchase orders to reduce and simplify the work for financial year-end closing.  Bid and changed uniform service providers resulting in annual cost savings of approximately $92,000 over 5 years.  Oversaw the transition of electronic documents from the EDEN system to TRIM.  Obtained a re-certification of the Administration, Operations, and Warehouse fire sprinkler systems and assisted in establishing a CIP for fire system upgrades for FY 14.  Oversaw the documentation inventory receiving processes for the Warehouse Blanket Order Activity Percentage of material purchases acquired via blanket purchase orders. Industry Best Practice Target is at least 15%. 139 Administrative Services – Safety and Security Safety and Security Services We Provide Safety and Security, under the direction of the Chief of Administrative Services, provides the following: assesses the occupational exposure to risk; evaluates hazards and mitigation of safety hazards and risk to injury; directs and supervises accident investigations relating to occupational injuries, fleet incidents and/or damage to, or theft of District property; develops hazardous materials business plans, community right-to-know, Risk Management Prevention and Process Safety Management plans; develops and implements procedures to ensure compliance with safe work practices and determines training needs to address issues; develops, implements and manages safety programs; manages the District’s security program; implements, schedules and coordinates recurring safety training; coordinates the Department of Transportation (DOT), the District’s Drug Free Workplace, and DMV Pull-Notice Programs; and plans and coordinates the District’s emergency preparedness program. Performance Measures (1) Targets changed from 32-24 hours in FY 2012 H&S Severity Rate Quantifies the rate of employee days lost from work due to illness or injury. Safety Training Program Safety & Risk Administration will provide a minimum of 24 safety training programs/hours annually to all field employees. (1) 140 Administrative Services – Safety and Security Accomplishments – Fiscal Year 2012-2013  Implemented access and gate control to key District facilities.  Developed the frame work for an RFP for a comprehensive security contract.  Added and tested remote video capability to key District facilities. 141 Administrative Services – Water Conservation Water Conservation Services We Provide Water Conservation, under the direction of the Chief of Administrative Services, provides the following: promotes and conducts residential and large landscape surveys; promotes the Water Conservation Garden as a resource to its customers; participates in outreach events throughout the community, including a WaterSmart Plant Fair, the Spring Garden Festival, Lemon Festival, Bonita Festival, JamulFest, South Bay Green Scene and the Fall Gardening Festival; funds and promotes a variety of incentive and other programs available to its customers including rebates for high efficiency clothes washers and toilets, turfgrass replacement with WaterSmart plants, rotating sprinkler nozzles and weather-based irrigation controllers, and the WaterSmart Landscape contest. promotes school education programs which includes funding tours at the Water Conservation Garden, the “Water is Life” poster contest, the water themed high school photo contest and video contest; submits regular reports on the District's status with regard to the Water Conservation Best Management Practices as developed by the California Urban Water Conservation Council; manages the District’s Water Shortage Response Plan as well as its water waste reporting program. Performance Measures Gallons Per Capita Per Day Meet or exceed Department of Water Resources and California Urban Water Council targets for per capita use of potable water. FY 2013 is the first year for this performance measure. 142 Administrative Services – Water Conservation Accomplishments – Fiscal Year 2012-2013  Completed Rain Barrel Feasibility Analysis Report that addressed the return-on-investment potential for District sponsored rain barrel incentives and discovered the implementation was not cost-effective.  Created and posted to the District’s webpage water conservation videos.  Completed mixed meter feasibility study as required by the California Urban Water Conservation Council (CUWCC). 143 Finance - General Mission Statement To provide timely, accurate, and clear information that optimizes service to the District’s staff and ratepayers. Through continuous improvement, professional service, and effective fiscal policies the Finance Department will ensure that financial resources are collected, recorded, protected, and expended in a fiscally responsible manner. Department Responsibilities The Finance and Accounting Department, under the general direction of the Chief Financial Officer, provides the following support services: Controller and Budgetary Services, Treasury and Accounting Services, Customer Service, Billing, Meter Reading, Payroll, and Accounts Payable. The Department ensures District’s conformance with modern finance, customer service, accounting theory and practices, and compliance with applicable state and federal laws. The Department also implements financial accounting, reporting programs, and practices to meet the District’s fiduciary responsibilities. The Finance staff provides highly responsible and complex administrative support to the District, General Manager, and Board of Directors. 144 Position Count FY 2012 FY 2013 FY 2014 Chief Financial Officer 1 1 1 Executive Secretary 111 Secretary 111 Finance Manager, Treasury and Accounting 111 Finance Manager, Controller and Budget 1 1 1 Finance Supervisor, Payroll and A/P (1)110 Customer Service Manager 222 Senior Accountant 4 4 4 Accountant 3 3 3 Accounting Technician (1)222 Lead Customer Service Representative 2 2 2 Customer Service Representative I, II and III 8 7 7 Lead Customer Service Field Representative 1 1 1 Customer Service Field Representative I and II 433 Total 32 30 29 Finance - Position Count District Position Count - 143 Finance Department - (29 Positions) (1) Division 2351 was eliminated along with one position and the remaining two positions moved to Divisions 2321 and 2331, respectively, in FY 2014. Treasury and Accounting Services 2331 (6) Customer Service 2341 (11) Controller and Budgetary Services 2321 (5) Chief Finance Officer - 2311 (3) Meter Reading 2341 (4) 145 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Finance Chief 505,191$ 518,100$ 519,012$ 508,600$ Controller and Budgetary Services 623,942 711,900 607,319 853,900 Treasury and Accounting Services 1,091,452 1,080,900 1,162,894 1,274,600 Customer Service 1,935,419 2,166,500 1,991,079 2,148,200 Payroll and Accounts Payable 383,990 409,400 370,489 - TOTAL 4,539,994$ 4,886,800$ 4,650,792$ 4,785,300$ Finance Finance, $4,785,300 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 146 Finance FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits 3,755,813$ 3,960,100$ 3,829,025$ 3,844,100$ Travel and Meetings 10,267 12,700 10,251 17,000 General Office Expense 170,588 164,900 152,322 167,300 Fees 335,742 291,200 347,545 365,900 Services 141,321 287,600 191,316 244,300 Training - 300 - - Miscellaneous (1)126,263 170,000 120,333 146,700 Total 4,539,994$ 4,886,800$ 4,650,792$ 4,785,300$ Budget vs. Actual, in thousands ($) (1) Comprised primarily of Bad Debt Expense which was previously budgeted in Operations. Beginning in FY 2013, it will be budgeted in Finance, Customer Service Division. For comparative purposes, the FY 2012 expenses totalling $126,263 has been moved from Operations. $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $4 , 8 6 9 $4 , 7 3 0 $4 , 7 1 2 $4 , 8 8 7 $4 , 7 8 5 $4 , 6 1 7 $4 , 5 5 9 $4 , 5 4 0 $4 , 6 5 1 Budget Actual *Actual unaudited 147 Finance – Strategic Plan Objectives Finance Department Objectives Objectives Completed:  Strengthen the long-term financial plan.  Increase customers employing on-line bill payment. Objectives on Schedule:  Streamline Finance business processes.  Improve financial planning and communication regarding the expenditure of District funds.  Streamline accounts payable business processes.  Enhance communications with customers using our new phone system.  Evaluate the feasibility of replacing the existing customer information system or migrating to the new version of the Eden software.  Improve and streamline meter related processes.  Streamline Customer Service business processes. Objectives not scheduled to start yet:  Develop water and sewer capacity fees for expansion. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 148 Finance – Controller and Budgetary Services Controller and Budgetary Services Services We Provide The Controller and Budgetary Services Division is responsible for developing and publishing the annual operating and capital budgets as well as preparing the six-year financial plan and setting rates. Prepares monthly and annual reports, monitors budget variances, and coordinates interactions with outside agencies. This division is also responsible for the bi-weekly payroll of 143 full-time and temporary employees using the District’s Integrated Financial Eden System. Timesheets and pay stubs are collected and distributed electronically. Tax returns are filed on a quarterly basis and W2’s are filed annually. Benefits and deductions are processed bi-weekly. Performance Measures O&M Cost per Account Operations & Maintenance (O&M) cost per account/per customer. (QualServe) Overtime Percentage Comparing actual to budgeted overtime to monitor costs. 149 Finance – Controller and Budgetary Services Sewer Rate Ranking District's average customer bill as compared to other agencies in San Diego County. Otay is ranked 6th of 28 agencies. Water Rate Ranking District's average customer bill as compared to other agencies in San Diego County. Otay is ranked 11th of 23 agencies. Distribution System Loss Percentage for unaccounted water (QualServe). 150 Finance – Controller and Budgetary Services Accomplishments – Fiscal Year 2012-2013  For the ninth consecutive year, the District has met nationally recognized guidelines and has been awarded the Distinguished Budget Presentation for the Fiscal Year 2012-2013 Budget by the Government Finance Officers Association (GFOA). In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, a financial plan, as an operation guide and as a communication device. This award is a significant achievement and is the highest form of recognition in governmental budgeting.  The GFOA also awarded the District two special awards that recognized the Fiscal Year 2012-2013 Budget as Outstanding as a Policy Document and Outstanding as a Communications Device.  For the seventh consecutive year, the District has been awarded the Operating Budget Excellence Award for the Fiscal Year 2012-2013 Budget by the California Society of Municipal Finance Officers (CSMFO), which recognizes agencies that have prepared a budget document or a communication tool that meets certain standards.  For the eighth consecutive year, the District has been awarded the Capital Budget Excellence Award for the Fiscal Year 2012-2013 Capital Improvement Program Budget by the CSMFO which recognizes agencies that have prepared a Capital Improvement Budget document or a communication tool that meets certain standards.  Finance staff completed a water and sewer rate study that evaluated the District’s fixed fees, water consumption within each tier, fire service fees, and the assigned service units (ASU) calculation for sewer customers. 151 Finance – Treasury and Accounting Services Treasury and Accounting Services Services We Provide The Treasury and Accounting Services Division coordinates and directs the activities of the general ledger accounting, audit, banking and cash management, investments and treasury functions, debt financing, job costing, cost accounting, fixed assets, and contract review. This division is also responsible for the accounts payable process which pays approximately 750 invoices on a monthly basis. Responsible for completing the District’s annual financial audit and publishing of the Comprehensive Annual Financial Report (CAFR). Conducts an annual review of the District’s Investment Policy, as required by law, with approval by the Board of Directors. Provides financial analysis and review of staff projects and operational business proposals. Assists in the preparation of the District’s annual operating and capital budgets, along with updating the Rate Model and the six-year financial plan. Performance Measures (1) The YTD coverage ratio is below target primarily due to lower than expected water sales, as a result of the higher than normal winter rainfall. Debt Coverage Ratio Measures level of debt coverage ratio (ability to pay debt). (QualServe) Includes growth related revenue. The minimum legal level is 125%. Reserve Level Measures all of the District's reserves against the Board adopted Reserve Policy levels. (1) 152 Finance – Treasury and Accounting Services Accomplishments Fiscal – Year 2012-2013  For the ninth consecutive year, the District has been awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association (GFOA) for the Comprehensive Annual Financial Report (CAFR) for fiscal year ending June 30, 2012. This is the highest form of recognition in the area of governmental accounting and financial reporting, and clearly demonstrates how the District takes great care in maintaining high financial standards.  Finance staff achieved an overall rate of return on the District’s portfolio in excess of the California State Local Agency Investment Fund (LAIF) rate of return, despite the falling economy and available investment rates. This goal has now been met for more than 5-1/2 continuous years. It is the District’s policy to invest available public funds in a manner which will provide maximum security, meeting the daily cash flow demands of the entity and seeking a return on the investments, while conforming to all state statutes governing the investment of public funds. 153 Finance – Customer Service Customer Service Services We Provide The Customer Service Division is responsible for providing meter reading, billing, receipting, collections, and customer care for water and sewer services. The meter reading team reads approximately 49,000 potable, recycled, and District meters a month using automatic meter reading technology. The District has completed the conversion to an automated meter reading system to enhance the District’s efficiency, accuracy, and customer service. The billing and customer care teams handle the coordination of billing and receipting of approximately 50,000 accounts per month. Customers have the choice of receiving either a paper bill or an email. Various payment options include ACH, web, IVR (telephone) and the convenience of multiple locations for walk-in payments. The District has an automated phone system and web portal, which gives customer’s access to their account information 24/7. If they desire more personal service, the customer care team handles an average of 5,000 customer calls per month. Performance Measures Answer Rate Percentage of calls as a measure of all calls received. The targets are set by industry standards. Billing Accuracy Percentage of correct bills issued. (QualServe) The targets are set by industry standards. 154 Finance – Customer Service Accomplishments – Fiscal Year 2012-2013  Completed software upgrade of the MasterLinx system which allows for continual gathering of meter reads. This has translated into 30% fewer site visits for off-cycle reads.  Reviewed all District commercial sewer customer accounts to evaluate customer business type and reclassify to the appropriate sewer strength category to ensure compliance with current sewer definitions.  Continued process improvements which included automation of routine processes such as letters, late notices and various e-mail notifications to customers. 155 IT and Strategic Planning - General Mission Statement To provide superior technology and strategic planning services in support of District goals, staff and customer service. Department Responsibilities The Information Technology and Strategic Planning Department, under the general direction of the Chief Information Officer, provides the following support services: development and implementation of information technology; District’s Strategic Planning Process, including the development of long-term strategic initiatives, and defining performance measurement metrics; information system support to the District and complex administrative support to the District, General Manager, and Board of Directors. 156 Position Count FY 2012 FY 2013 FY 2014 Chief Information Officer 1 1 1 IT Manager 111 GIS Manager 111 GIS Programmer/Analyst 1 1 1 GIS Analyst 111 GIS Technician 1 1 1 Network Engineer 1 1 1 Database Administrator 111 Lead Business System Analyst 111 Business System Analyst I and II 222 Network Analyst 111 Records Assistant 1 0 0 Total 131212 IT and Strategic Planning - Position Count District Position Count - 143 Information Technology & Strategic Planning Department - (12 Postions) IT Applications 2411 (4) IT Operations 2421 (3) GIS 2431 (4) Chief Information Officer 2411 (1) 157 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget IT Chief/Applications 984,576$ 971,100$ 939,324$ 973,500$ IT Operations 1,183,471 1,281,600 1,271,205 1,390,400 Geographic Information System 704,316 743,100 722,072 771,700 TOTAL 2,872,361$ 2,995,800$ 2,932,601$ 3,135,600$ IT and Strategic Planning IT and Strategic Planning, $3,135,600 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 158 IT and Strategic Planning FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits 1,824,404$ 2,003,100$ 1,937,986$ 2,028,000$ Travel and Meetings 8,105 9,300 10,393 26,700 General Office Expense 2,070 400 1,139 1,500 Equipment 837,741 801,000 864,973 812,900 Services 200,042 163,500 110,766 259,500 Training - 18,500 7,344 7,000 Total 2,872,361$ 2,995,800$ 2,932,601$ 3,135,600$ Budget vs. Actual, in thousands ($) $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $2 , 8 5 6 $2 , 9 6 4 $3 , 0 8 0 $2 , 9 9 6 $3 , 1 3 6 $2 , 8 6 4 $2 , 9 7 8 $2 , 8 7 2 $2 , 9 3 3 Budget Actual *Actual unaudited 159 IT and Strategic Planning – Strategic Plan Objectives IT and Strategic Plan Objectives Objectives on Schedule:  Update District-wide Records Management program.  Implement GIS-centric work order system.  Improve the operating cost and efficiency of data center and network services.  Develop complete Asset Management Program. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 160 IT and Strategic Planning – IT Applications IT Applications Services We Provide The Information Technology and Strategic Planning Department provides the following support services: development and implementation of information technology; the District’s Strategic Planning process including the development of long-term strategic initiatives and defining performance measurement metrics; information system support to the District and also provides highly responsible and complex administrative support to the District, General Manager, and Board of Directors. Accomplishments – Fiscal Year 2012-2013  Strategic Plan - In FY 2013, 42 of 44 (95%) strategic objectives identified in the plan were either completed or on schedule to be completed. Also, 34 of 43 (79%) Performance Measures identified as critical to District operations were either ahead of schedule or on target.  Received the Tyler Technology Excellence Award for outstanding utilization of utility business systems. The District was selected from nearly 40 applicants using this technology.  Completed two RFPs (request for proposals) for the replacement of the Work Management System, which will utilize GIS-based technology for efficient work processes and an RFP for implementation of a replacement SCADA system for the District, changing out an 18-year old system.  Replaced an end-of-life GPS (fleet tracking) system with a significant upgrade in functionality and more useful reporting capabilities.  Continued development of an asset management program with 100% of horizontal assets (pipes, valves etc.) and 85% of vertical assets (pump stations, reservoirs etc.) collected and ready for analysis.  Upgraded SharePoint architecture to the latest version and in the process of using the new technology to assist in streamlining business processes, such as automated reporting of contract expirations and enhanced documentation.  Automated critical customer service processes such as special letters to customers, lock list processing, and meter turn off and change-out notices. Enhanced the meter reading software with new capabilities to capture more information that assists with customers’ final bills. Also produced an annual Special Assessments file, which is used to calculate tax revenue (over $1 million) the District will receive from the San Diego County Real Estate Tax. 161 IT and Strategic Planning – IT Operations IT Operations Services We Provide IT Operations is responsible for day-to-day functions of the District’s data center, network and desktop hardware/software, disaster recovery center, telecommunications, mobile and wireless networks, website, and help desk. IT Operations has collateral responsibilities for access security control and video surveillance. Performance Measures Customer Satisfaction with Website Tracks customer satisfaction with website through surveys. Network Availability Percentage of uptime for network during normal business hours. (1) Upgraded network engineering design and equipment for improved performance and reliability. Website Hits Tracks the number of visitors to our website per month. (1) 162 IT and Strategic Planning – IT Operations Accomplishments – Fiscal Year 2012-2013  Outsourced the District’s website core and enhanced email and network monitoring services to a “cloud provider” achieving lower costs, more functionality, and higher reliability.  Deployed numerous wireless modems to replace obsolete and less reliable single purpose copper circuits in remote locations. In addition, replaced video security software and reduced storage requirements by multiple terabytes of data.  Exceeded performance targets for overall system reliability, 99.9% vs. 99.2%.  Increased data center reliability by reorganizing campus-wide wiring and eliminating voice circuits replaced by VOIP (voice over internet protocol). In addition, saved over $100,000 in hardware costs by creating a total of 45 virtual servers (VMs) that operate on consolidated hardware.  The District migrated to the latest versions of Microsoft software including SQL 2008, SharePoint 2010, and Windows 7.  In the Data Center, eliminated several storage racks, closed a back-up data center, reengineered internet circuits, eliminated unnecessary air conditioning and consolidated HVAC vendor support, reducing overall energy usage by 20%. 163 IT and Strategic Planning – GIS System Geographic Information System (GIS) Services We Provide The GIS division is responsible for the technical and administrative support to the Engineering and Operations Departments on GIS/AM/FM and CAD systems. It is also responsible for the data collection and data QA/QC of the District’s facility data and land based data. In addition, it provides technical support in designing, developing, documenting and maintaining the District’s database systems and creates database structures that consolidate the conceptual, logical and physical models of data. Accomplishments – Fiscal Year 2012-2013  Implemented new POSM software for accurately tracking condition assessment of sewer pipes using the latest CCTV technologies. Added new layers of information to our GIS including CCTV data for sewer pipes and revised boundaries for facilities to make tracking easier.  Continued to enhance the GIS data structures to allow staff to identify and track work done to key pieces of infrastructure such as pump stations and reservoirs. These “vertical assets” are now much more accessible for improved maintenance planning.  Delivered new tools, particularly the Operations Dash-Board, which utilizes ESRI off-the- shelf software to provide multi-dimensional access to data from either a map or data table perspective with appropriate drill down and hyperlinking activity. Also migrated to ArcGIS10 software and ArcGISOnline.  Updated inaccurate parcels, revising naming conventions to make data simpler to use, and reviewed District and Division boundaries to ensure that both election and tax records are accurate. Also examined data inconsistencies between the Customer Billing System and the GIS land data.  Continued to produce annual hard copy map book update to field staff of all facilities and enhanced the e-facilities book for the Engineering team at the Public Services front counter. 164 Water Operations - General Mission Statement To provide all operations and maintenance service in the most efficient, safe, and cost effective manner to all internal and external customers, and to strive to continually improve the level of service. Department Responsibilities The Water Operations Department, under the general direction of the Chief, Water Operations, provides the following support services: Potable and Recycled Water System Operations, Construction Maintenance, Sewer Collection, and Wastewater Treatment, that provides highly responsible and complex technical and administrative support to the District, General Manager, and Board of Directors. 165 Water Operations - Position Count Water Operations Department - (61 Positions) Utility Maintenance/Construction 3231 (1) Utility Maintenance 3232 (16) Fleet Maintenance 3233 (4) Pump & Electrical 3236 (5) Water System Operations 3221 (1) Meter Shop 3224 (5) Water System 3225 (15) Recycle System 3226 (5) SCADA System 3227 (2) Laboratory 3243 (1) Reclamation Plant 3244 (4) Chief, Water Operations 3211 (2) 166 Position Count FY 2012 FY 2013 FY 2014 Chief, Water Operations 1 1 1 Executive Secretary 1 1 1 Systems Operations Manager 1 1 1 Water Systems Supervisor 1 1 1 Pump Electrical Supervisor 1 1 1 Recycled Water Systems Supervisor 1 1 1 Meter Maintenance/Cross Connect Supervisor 1 1 0 Lead Water Systems Operator 2 2 2 Water Systems Operator I, II, and III 9 9 9 Valve Maintenance Worker 1 1 1 Senior Disinfection Technician 2 2 2 Senior SCADA Instrumentation Technician 1 1 1 SCADA Instrumentation Technician 1 1 1 Electrician I and II 2 2 2 Pump Mechanic I and II 2 2 2 Lead Cross Connection/ Meter Maintenance Worker 1 1 1 Meter Maintenance Worker I and II 5 4 4 Utility Services Manager 1 1 1 Utility Maintenance Supervisor 2 2 2 Utility Crew Leader 4 4 3 Utility Workers I and II 9 9 8 Senior Utility/Equipment. Operator 3 3 3 Fleet Maintenance Supervisor 1 1 1 Equipment Mechanic I and II 3 3 3 Reclamation Plant Supervisor 1 1 1 Lead Reclamation Plant Operator 1 1 1 Reclamation Plant Operator I, II, III 3 3 2 Lead Recycled Water Distribution Operator 1 0 0 Recycled Water Distribution Operator 3 4 4 Laboratory Analysts 1 1 1 Total 66 65 61 Water Operations - Position Count District Postion Count - 143 Water Operations Department - (61 Positions) 167 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Water Operations Chief 409,734$ 430,300$ 416,786$ 432,600$ Water Systems 6,693,493 7,004,800 6,704,697 6,646,000 Construction Maintenance 3,832,488 4,417,900 3,893,828 4,444,400 TOTAL 10,935,715$ 11,853,000$ 11,015,311$ 11,523,000$ Water Operations Water Operations, $11,523,000 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 168 Water Operations FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits (1)7,029,157$ 7,821,300$ 7,222,931$ 7,759,500$ Travel and Meetings 46,265 44,300 34,923 46,500 General Office Expense 3,746 300 404 300 Equipment 38,801 35,000 32,719 36,500 Fees 77,932 97,100 62,429 72,800 Services 265,663 408,300 341,963 365,500 Training 4,400 10,500 6,446 13,500 Materials & Maintenance 1,832,924 2,187,300 2,043,331 1,930,400 Sewer Charges 1,625,945 1,248,900 1,270,165 1,298,000 Miscellaneous (2)10,882 - - - Total 10,935,715$ 11,853,000$ 11,015,311$ 11,523,000$ (1) Excludes CIP labor and benefits. Budget vs. Actual, in thousands ($) (2)Bad Debt Expense was previously budgeted in Operations. For comparative purposes, $126,263 has been moved to the Finance Department, Customer Service Division. $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $1 1 , 4 7 9 $1 1 , 4 2 1 $1 2 , 6 8 9 $1 1 , 8 5 3 $1 1 , 5 2 3 $1 0 , 5 8 5 $1 1 , 5 1 4 $1 0 , 9 3 6 $1 1 , 0 1 5 Budget Actual *Actual unaudited 169 Water Operations – Strategic Plan Objectives Water Operations Objectives Completed Objectives:  Develop and implement large meter vault retrofit programs.  Implement a water loss management program.  Evaluate opportunities to combine or transfer similar work functions.  Complete valve exercising program business processes.  Develop large and small meter test bench strategy.  Develop data collection and condition assessment for collection system facilities.  Develop gen-set load bank testing. Objectives on Schedule:  Replace SCADA software system.  Implement the recommendation for improving response to extended power outages.  Implement wireless radio and data network for field operations. Objectives Behind Schedule  Develop data collection and condition assessment for potable system facilities. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 170 Water Operations – Water System Operations Water System Operations Services We Provide The Water Systems Operations Division encompasses six sections which are responsible for operations and maintenance of the potable and recycled water distribution systems and the Ralph W. Chapman Water Recycling Facility. The water system operators maintain the water distribution system and ensure it is running properly in order to provide safe, reliable drinking water to the District’s customers. The SCADA staff performs installations, maintenance, updates, and modifications to the SCADA control system and related communications equipment, both for existing facilities as well as CIP projects. The treatment plant staff maintains and operates the District’s sewer treatment plant in order to produce high-quality recycled water to the District’s recycled water customers. The recycled system operators maintain the recycled water distribution system and ensures it is operating properly in order to provide recycled water to the District’s recycled water customers. Laboratory staff ensures all regulatory-required sampling, analyses, and reporting is done to meet the requirements from the California Department of Public Health for potable water and the Regional Water Quality Control Board for recycled water and the reclamation plant treatment process. Laboratory staff works closely with the water system operators and disinfection staff to monitor and optimize the water quality in the distribution system. They also perform bacteriological sampling and analyses for Utility Maintenance and Engineering to ensure proper disinfection was performed after maintenance or new construction. The Meter Maintenance staff provides meter maintenance and repairs and/or replacement of meters to ensure accurate accounting of water usage. By proactively administering the Backflow/Cross- Connection Control program, regulated by the Department of Public Health, staff provides comprehensive protection of water quality. Performance Measures (1) The FY 2013 target was not met because 100 customers had their water shut-off for over four hours during main break repairs. To meet this target, a maximum of 35 customers can be affected by unplanned outages in one year. Unplanned Disruptions Quantifies the number of unplanned water outages experienced by the utility customer expressed as number of accounts affected per 1,000 accounts. (QualServe) (1) 171 Water Operations – Water System Operations (1) The YTD target was met because the ratio of money spent on planned maintenance versus corrective maintenance in the recycled system was higher than 70%. Technical Quality Complaint The number of complaints is a good measure of customer service. Technical quality complaints allow us to measure the complaint rates we are experiencing with individual quantification of those related to core utility services. It is expressed as complaints per 1,000 customer accounts. Planned Recycled Water Maintenance Ratio in Dollars Compares how effectively the District is investing in planned maintenance. Planned Wastewater Maintenance Ratio in Dollars Percentage of planned maintenance costs compared to combined planned and corrective maintenance costs. (1) 172 Water Operations – Water System Operations . Direct Cost of Treatment per MGD Measures the direct cost to treat one million gallons of wastewater and does not include staff overhead or fringe benefits, but it does include their salaries. (QualServe) O&M Cost per MG Measure for the full operation and maintenance cost to treat one million gallons of wastewater. (QualServe) Percentage of Preventative Maintenance (PM) Completed in the Reclamation Plant Tracks the percentage of scheduled PMs that are completed in the Reclamation Plant. 173 Water Operations – Water System Operations (1) New work flow methods were implemented, as a result the number of valves exercised were high. (2) Due to low staffing levels. (3) New work flow methods were implemented, as a result the number of valves exercised were high. (4) Due to low staffing levels. Percentage of Preventative Maintenance (PM) Completed in the Valve Maintenance Program Tracks the percentage of scheduled PMs that are completed in the Valve Maintenance Program. Valve Exercising Program Actual number of valves exercised per year for maintenance of distribution systems' infrastructure to ensure minimal interruption of potable water delivery to customers. Water Distribution System Integrity Measures the condition of the water distribution system expressed as the total annual number of leaks and breaks per 100 miles of distribution piping. (QualServe) (4) (3) (1) (2) 174 Water Operations – Water System Operations Recycled Water Distribution System Integrity Tracks number of leaks or breaks per 100 miles of water distribution system. Drinking Water Compliance Rate Quantifies the percentage of time each year that the District meets all of the health related drinking water standards in U.S. National Primary Drinking Water Regulations. (QualServe) Planned Water Service Disruption Rate Quantifies the annual average of planned water outages experienced by the utility customer expressed as number of accounts affected per 1,000 accounts. (QualServe) 175 Water Operations – Water System Operations Accomplishments – Fiscal Year 2012-2013  Completed the Strategic Plan Objective for developing and implementing a large meter vault retrofit program.  Completed the Strategic Plan Objective for implementing a water loss management program.  Completed the Strategic Plan Objective for completing and then implementing the new valve exercising business process.  Completed the conversion to AMR meters.  Returned the R. W. Chapman Water Recycling Facility (RWCWRF) to service after the CIP improvements were completed. It is meeting all permit requirements, as designed.  Eliminated weekend and holiday staffing at the RWCWRF due to the increased automation of plant processes.  Entered into a Recycled Water Oversight Consent Agreement with the Department of Environmental Health which reduces regulatory fees by 60% per year. Saved $27,000 in fees this fiscal year.  Completed Phase I data collection of potable water assets for the Asset Management Program. 176 Water Operations – Utility Services Maintenance Percentage of Preventative Maintenance Completed in the Fleet Shop Tracks the percentage of scheduled PM's that are completed in the Fleet Shop. Utility Services Maintenance Services We Provide The Utility Maintenance and Construction Division has three sections which provide vital maintenance functions that ensure the best quality of water and wastewater service to customers while adhering to all applicable regulatory compliance requirements. Utility Maintenance maintains the wastewater collection system, valve exercising, large meter installation, main line and service line repairs as well as proactive regulatory system upgrades, and constant evaluation of the system integrity to allow for system planning upgrades. The wastewater collection system crews are cleaning and televising the sewer system on a daily basis to ensure smooth flow of the system and to look for any area of concern in the system. The Fleet Maintenance staff implements active preventative maintenance practices and repairs the District’s vehicles and equipment to ensure optimum performance while establishing fuel efficient operational practices and emissions compliance. Pump and Electrical staff performs preventative, predictive and corrective maintenance on all pumps, motors, switchgear, and control valves in the District and assists with electrical maintenance and installation throughout the District. Performance Measures (1) The actual and projected maintenance is 100% complete. Planned Potable Water Maintenance Ratio in Dollars Compares how effectively the District is investing in planned maintenance. (QualServe) (1) 177 Water Operations – Utility Services Maintenance (1) The actual and projected number of system failures for FY 2011-FY 2014 is 0.0. (2) Both actual/projected and targets are at 0.0%. (3) The actual and projected maintenance is 100% complete. Collection System Integrity Number of wastewater collection system failures per 100 miles of collection system pipeline. (QualServe) Sewer Overflow Rate Measures the wastewater collection system pipeline condition and the effectiveness of planned maintenance. (QualServe) (2) Percentage of Preventative Maintenance (PM) Completed in the Pump/Electric Section Tracks the percentage of scheduled PM's that are completed in the Pump/Electric section. (1) (3) 178 Water Operations – Utility Services Maintenance Accomplishments – Fiscal Year 2012-2013  Completed Recycled System Air-Vacuum Value Retrofit CIP–R2099 ahead of schedule: 361 of the 361 air vacs previously identified.  Completed the Diesel Containments CIP – P2536: 9 of 9 containments.  Completed the first complete Emergency Facility testing cycle.  Implemented the District’s CCTV program of the collection system and completed inspection of all previously identified red flagged areas.  Coordinated two General Manager declared emergency repairs utilizing outside contractors.  Transfer of the Pump Electric section and Meter Maintenance section between Water Operations and Utility Services.  The Collection System Maintenance staff cleaned 233,980 feet of sewer lines. 179 Engineering - General Mission Statement To provide effective services to the other departments and development community by constructing District assets and expediting the permitting process utilizing our dedicated employees and innovative technology to attain excellent customer satisfaction. Departmental Responsibilities The Engineering Department, under the general direction of the Chief of Engineering, provides the following support services: Planning, Design, Construction Management, Inspection Project Management, Surveying, and Public Services of all District facilities. Responsible for strategic planning, capital budget, water resources planning, support facilities planning, environmental services, quality control, construction, developer designed and constructed facilities, along with coordinating assigned activities with other District departments and outside agencies. Provides highly responsible and complex administrative and technical support to the District, General Manager, and the Board of Directors. 180 Position Count FY 2012 FY 2013 FY 2014 Chief, Engineering 1 1 1 Executive Secretary 111 Secretary 111 Engineering Manager 222 Public Services Manager 100 Senior Civil Engineer 1 2 2 Associate Civil Engineer 2 1 1 Assistant Civil Engineer I and II 111 Environmental Compliance Specialist 1 1 1 Permit Technicians 2 2 2 Senior Engineering Technician 222 Inspection Supervisor 111 Construction Inspectors I and II 223 Supervising Land Surveyor 111 Land Surveyor 100 Assistant Survey Technician 1 1 1 Total 211920 Engineering - Position Count District Position Count - 143 Engineering Department - (20 Positions) Planning 3321 (0) Design & Water Resources 3341 (6) Environmental Services 3451 (1) Public Services 3421 (3) Construction Services 3431 (5) Survey Services 3441 (2) Chief, Engineering 3311 (3) 181 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Engineering Chief 193,133$ 284,700$ 313,610$ 259,200$ Planning 262,442 230,000 168,754 285,000 Design 254,284 300,400 279,410 262,900 Water Resources 144,364 152,400 117,707 127,300 Public Services 277,127 278,000 340,605 340,400 Construction Services 161,781 169,700 158,080 202,800 Survey Services 273,987 249,600 249,053 327,100 Environmental Services 197,068 197,200 189,727 221,100 TOTAL 1,764,186$ 1,862,000$ 1,816,946$ 2,025,800$ Engineering Engineering, $2,025,800 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 182 Engineering FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits (1)1,205,995$ 1,262,700$ 1,298,168$ 1,355,100$ Travel and Meetings 6,131 14,200 9,792 12,900 General Office Expense 2,599 1,600 322 1,000 Equipment 5,558 - - - Fees 39,760 38,000 40,737 42,000 Services 503,272 538,800 465,311 608,800 Training 871 6,700 2,616 6,000 Total 1,764,186$ 1,862,000$ 1,816,946$ 2,025,800$ (1) Excludes CIP labor and benefits. Budget vs. Actual, in thousands ($) $- $500 $1,000 $1,500 $2,000 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $2 , 0 7 1 $2 , 0 2 4 $1 , 8 3 7 $1 , 8 6 2 $2 , 0 2 6 $1 , 9 1 7 $1 , 9 8 4 $1 , 7 6 4 $1 , 8 1 7 Budget Actual *Actual unaudited 183 Engineering Strategic Plan Objectives Engineering Strategic Plan Objectives Objectives Completed:  Prepare and implement a Wastewater Management Plan.  Continue working with the City of Chula Vista for the possible development of a Membrane Bioreactor Plant (MBR) and for a potential agreement with the City for recycled water supplies from the MBR Plant.  Work with the District’s largest potable water customers to convert landscape and interior water use to recycled water where fiscally feasible and safe.  Strengthen CIP planning, budgeting, and cost-tracking processes. Objectives on Schedule:  Implement the recommendations within the Integrated Water Resources Plan (IRP) to acquire alternative and/or additional potable and recycled water supplies and enhanced resource reliability. Objectives on Hold:  Re-negotiate the South Bay Water Reclamation Plant (SBWRP) recycled water supply agreement with the City of San Diego. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 184 Engineering – Planning, Design Planning / Design / Environmental / Water Resources Services We Provide The Planning, Design, Environmental, and Water Resources Divisions provide a variety of services directly related to potable water, recycled water, and sewer services. Water Resources staff identifies, negotiates, and develops additional potable and recycled water supplies. Planning staff develops the preliminary design of a project in order to facilitate final design and ultimately construction of the facility. Planning staff also coordinates the review of planning documents related to potential new development. Design staff prepares the design of facilities and advertises projects for bid. Environmental staff coordinates and tracks the project through the construction stage and for a period after construction if long- term mitigation is required. In addition, assists the Operations Department on special design projects related to maintenance of existing facilities including the Ralph W. Chapman Water Reclamation Facility. Additionally, Water Resources staff coordinates with other agencies on regional issues and is responsible for obtaining grants, loans, and cost- sharing opportunities. Accomplishments – Fiscal Year 2012-2013  Received $183,565 in grant funds from the United States Bureau of Reclamation for participation in the Title XVI Program in Fiscal Year 2013. Over $12.2 million in Title XVI grant funds have been received to date.  Awarded a SANDAG TransNet Environmental Mitigation Program Grant for $88,840 to enhance Cactus Wren habitat at the District’s San Miguel Habitat Management Area.  Completed the Wastewater Management Plan (WWMP) and the Supplemental Program EIR. The purpose of the WWMP is to develop costs, identify risks, benefits, regulatory requirements, and opportunities the District could pursue in providing wastewater services and new recycled water supply resources. 185 Engineering – Public Services Public Services / Survey / Inspection / Construction Services We Provide The Public Services, Survey, Inspection, and Construction Divisions assist the public by responding to customer visits, phone calls, and inquiries regarding permits, plan-checking fees, filing procedures, permit status, meter sales, meter costs, and lateral costs. Staff administers all plan-checking submittals for potable water, recycled water, and sewer applications for approval, cellular lease agreements, fire service, and backflow inspections, project deposits, and invoicing. Staff also provides inspections to private developer funded projects and the District's Capital Improvement Projects, easement and encroachment enforcements, and survey and utility mark-outs of District facilities and GPS plots. Once bid, the Construction staff provides construction management for the projects. Performance Measures (1) Both actual/projected and targets are at 100%. CIP Project Expenditures vs. Budget Compares quarterly CIP expenditures with budget. Mark-out Accuracy Measures the percentage of mark-outs performed without an at-fault hit, which is damage to a District facility that results from a missing or erroneous mark-out. (1) 186 Engineering – Public Services (1) Due to a credit change order on the Jamacha Rd 36” Pipeline Project, the District experienced an overall change order rate of -9.3 in FY 2011 Accomplishments – Fiscal Year 2012-2013  Generated revenue in meter sales in excess of $3.24 million and sold 284 meters equating to 357.75 EDU’s and 284 permits.  Generated revenue in cell sites in excess of $1.09 million and maintained 33 cell site leases.  The Survey Division completed 2,872 USA Mark-out tickets with an accuracy rate of 100%. District surveyors also completed 187 facility records corrections and performed 32 surveys related to various CIPs.  The Inspection Division performed QA/QC on 7,515 linear feet of pipeline. District inspectors also performed 206 meter sets and 15 plan checks that consisted of fire services, backflows, and developer pipeline projects. Completed construction of the Sewer Replacement on Avocado, Hidden Mesa, Challenge, Louisa, and Calavo project. The project included replacing 5,000 linear feet of 40+ year old sewer Project Closeout Time Measures the average number of days between the issuance of a Notice of Substantial Completion (NOSC) and a Notice of Completion (NOC) for CIP projects in construction. Construction Change Order Measures the rate of change orders for CIP projects under construction. (1) 187 Engineering – Public Services pipelines, acquiring six easements from four different property owners, multiple outreach meetings with residents and the local planning group, and coordination with the County’s paving program. The total cost of the project was $2,323,837. The Change Order incidence was 2.8 percent.  Completed construction of the 30-Inch Potable Pipeline in Hunte Parkway. This project will reduce the head losses during high demands in the 980 pressure zone. This 30-Inch Potable Pipeline was placed into service in March 2013.  Completed the construction of the Ralph W. Chapman Water Recycling Facility Upgrade project. This project upgraded the plant to meet more stringent effluent nitrogen levels and included energy efficient aeration panels and turbo aeration blowers that will result in significant energy savings. The plant effluent nitrogen levels are consistently below the monthly average permit limit of 9.4 mg/L. The total cost of the project was $3,526,098. The Change Order incidence was 2.4 percent.  Completed construction of the 850-3 Reservoir Exterior Coating and Upgrades project which included removing and replacing the exterior coating, and structural modifications were added to replace aging equipment and bring the tank up to current safety standards. The total cost of the project was $293,700. The Change Order incidence was 0.1 percent.  Completed the final design and construction of the 624-1 (Patzig) Reservoir Floating Cover Replacement Project. This project replaced a deteriorating reservoir cover and liner to increase the service life of the reservoir and maintain compliance with drinking water standards. The total cost of the project was $640,458. The Change Order incidence was 40.1 percent. 188 Board of Directors 108,700$ 0.4% General Manager 1,444,500 5.0% General Expense 2,149,600 7.5% Administrative Services 3,537,100 12.3% Finance 4,785,300 16.7% IT and Strategic Planning 3,135,600 10.9% Water Operations 11,523,000 40.1% Engineering 2,025,800 7.1% 28,709,600$ 100.0% FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget General Expense 1,612,095$ 2,176,300$ 2,343,613$ 2,149,600$ General Expense The expenditures in this section are general operating costs not associated with an individual department. The expenditures include: legal costs, insurance premiums, changes in accrued employee leave balances and miscellaneous interest. These expenditures represent 7.5% of the total Department Budget. General Expense, $2,149,600 FY 2014 Total Departmental Budget - $28.7 Million *Actual unaudited 189 General Expense FY 2012 FY 2013 FY 2014 Actual Budget Actual* Budget Labor and Benefits (1)699,740$ 1,267,300$ 1,490,161$ 1,205,400$ Fees 912,355 909,000 853,452 944,200 Total 1,612,095$ 2,176,300$ 2,343,613$ 2,149,600$ (1) Benefits include District-wide labor and benefit costs not attributable to any one department, such as the effect of cost of living raises on accrued leave liabilities or the Other Post Employment Benefit Costs (OPEB). These costs are netted against the District's anticipated Vacancy Factor. The Vacancy Factor for FY 2013 and FY 2014 is $271,300 and $267,000 respectively. Additionally, the labor and benefits shown on this schedule are those related to operating costs and does not include CIP labor and benefit costs. The District's OPEB ARC (Annual Required Contribution) consists of Normal Cost and Unfunded Actuarial Accrued Liability (UAAL) cost. During FY 2012 the District's general fund paid only the Normal Cost ($642,000). The FY 2012 OPEB UAAL cost ($662,000) was paid through a reserve. In FY 2013 the entire OPEB ARC amount of $1,287,000 (Normal Cost, $662,000; UAAL cost, $625,000) was budgeted through the general fund. Budget vs. Actual, in thousands ($) $- $500 $1,000 $1,500 $2,000 $2,500 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 $8 6 6 $8 8 8 $7 9 2 $2 , 1 7 6 $2 , 1 5 0 $1 , 3 1 5 $1 , 1 8 8 $1 , 6 1 2 $2 , 3 4 4 Budget Actual *Actual unaudited 190 Capital Improvement Program The District provides water service to a population of approximately 211,000 in 2012 which is expected to ultimately increase to 317,583 by the year 2040. This growth as well as the maintenance of existing assets requires long-term capital planning. The process is dynamic, due to the evolving needs of the community, the water supply issues, and changing regulations. As such, capital planning is part of the District’s overall strategic planning. The capital planning process involves identifying current needs, future needs, and prioritizing them based on certain operating assumptions. The primary objective of this planning effort is to support an orderly and efficient program of expansion, new water supply, replacement, and betterment, while maintaining a stable long-range financial plan. To accommodate this growth requires that the District invest $475 million in capital assets through ultimate build-out. The Fiscal Year 2014 Capital Budget is $14 million and the six-year Capital Improvement Program (CIP) totals $107.1 million. A separate CIP Budget Notebook contains the descriptions, justifications, expenditures, and funding for all the identified projects to ultimate build- out. Assumptions and Criteria The CIP is developed based on the District's Water Resources Master Plan, incorporating historical data, growth, developers' input, SANDAG projections, and long-term economic outlook. The Water Resources Master Plan was built using several major assumptions and design criteria as follows: 1. Utilizing historical water demands for each land use type in the District to calculate future demands. 2. Using maximum day peaking factors that vary with demand level. 3. Utilizing land use as planned by the City of Chula Vista. 4. Providing ten days of emergency water supply through a maximum of five days in covered reservoirs and a minimum of five days from interconnections with adjacent agencies. 5. Inclusion of emergency operational storage to meet the five-day covered storage requirement into the ten-day outage supply requirement. CIP Justification and Impact on Operating Budget The justification for each project is determined by whether it is required due to growth (Expansion), new water sources (New Supply), improvements or upgrades (Betterment), or to replace an existing asset (Replacement). As these projects are completed and placed into service, there may be an impact on the Operating Budget by increasing costs in the areas of maintenance, energy, or chemicals as shown on the justification and impact pages in this section. 191 Capital Improvement Program Capital Purchases and Facilities All capital expenditures are in the CIP. This includes capital facilities and capital purchases. Capital purchases are non-recurring operating expenditures for assets that cost more than $10,000 each and have an estimated useful life of two years or more. The Capital Purchase Projects include Vehicle, Office Equipment, Furniture, and Field Equipment purchases. The details of these purchases can be found on page 204. Capital Facility Projects are items that exceed $10,000 or $20,000 for infrastructure related items (as defined under Capital Equipment on page 275 of the Glossary) and have a useful life of at least two years. The CIP projects are identified and are prioritized based on the following criteria: 1. Safety, restoration of service, immediate obligation, Board directed, or critical system need. 2. System upgrades or requirements to maintain system reliability in the next few fiscal years. 3. Need to meet the future growth of the system. 4. Project requirement may be reduced in capacity or may have low probability of need in the future. The following are the four categories of CIP projects: New Water Supply Facilities required to support new sources of water are funded from new supply fees or user rates. Expansion Facilities required to support new or future users are funded from capacity fees or user rates. Betterment Facilities required because of inadequate capacity or new requirements that benefit existing users are funded from availability, betterment fees, or rates. Replacement Facilities required to renew or replace existing facilities that have deteriorated or have exceeded their useful life are funded from user rates. 192 Major CIP Projects Capital Improvement Projects The 2014 Fiscal Year CIP Budget contains 63 projects. The cost of the work planned for Fiscal Year 2014 is $14 million. Of the 63 projects planned for Fiscal Year 2014, only five are designated as reimbursable projects with estimated costs totaling $154,000. These projects are built by developers and reimbursed by the District. The following shows how the $14 million of projects are broken down into four categories: 1. Capital facilities $ 4.4 million 2. Replacement or renewal projects $ 7.8 million 3. Capital purchase projects $ 1.6 million 4. Developer reimbursement projects $ .2 million The Six-Year CIP and Fiscal Year 2014 Capital Budget are consistent with the District's Water Resources Master Plan, current capacity fees, and the District's strategic financial objectives. 193 CIP Projects in Construction Calavo Gardens Sewer Rehabilitation (S2019, S2020, S2022, S2026)  Replacement of 4,500 linear feet of sewer  Manhole rehabilitation/replacement  Capacity upgrades  New flow control and diversion vault for Calavo Lift Station  $3.35M Budget  Start: February 2012  Projected Completed: June 2013 Final paving of private road along Avocado Boulevard Installation of grating supports in diversion vault at Rancho San Diego Shopping Center 194 CIP Projects in Construction 624-I Reservoir completed construction Reservoir 624-1 Floating Cover Replacement (P2477)  Install new reinforced polypropylene Geomembrane floating reservoir cover  $1.0M Budget  Start: November 2012  Project Completed: June 2013 195 CIP Projects in Construction Hunte Parkway 30-Inch Potable Pipeline (P2514) Final paving on Hunte Parkway  Installation of 2,250 linear feet of polyurethane coated steel pipe  $1.69M Budget  Start: April 2012  Project Completed: June 2013 196 CIP Projects in Construction Orange Avenue/I-805 12-Inch Potable Water Installation (P2513) In s t a l l a t i o n o f 1 0 -In c h h o t t a p c o n n e c t i o n a t M e l r o s e .  Installation of new 12-Inch water line to replace the Palomar Avenue line during Palomar bridge replacement by Caltrans  $1.30M Budget  Start: January 2013  Estimated Completion: August 2013 197 CIP Projects in Construction  Remove and replace deteriorating reservoir coatings and structural modifications  $1.53M Budget  Start: March 2013  Estimated Completion: August 2013 803-3 and 832-2 Reservoir Interior/Exterior Coating and Upgrades (P2518/P2519) 803-3 Reservoir interior coating progress 832-2 Ventilation and interior blasting equipment 198 (Thousand $000s)FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Total Beginning Balance 42,560$ 36,622$ 36,196$ 34,201$ 30,590$ 32,878$ Capacity Fees 3,114$ 5,717$ 7,225$ 10,029$ 10,931$ 12,187$ 49,202$ Debt financing - 2,875 3,575 1,570 - - 8,020 Grants 92 17 627 500 - - 1,236 Interest 150 160 249 297 538 824 2,218 Betterment Charges 866 885 903 920 936 950 5,460 Temporary Meters 416 416 417 418 421 422 2,510 Availability (Betterment Portion)513 523 533 543 552 561 3,225 New Supply Fee 322 606 773 1,043 1,134 1,259 5,136 COPS 2010B Reimbursement 3,699 6,316 9,146 759 759 759 21,437 Transfer from General Fund 8,558 11,578 10,130 9,444 11,418 9,799 60,926 Interfund Transfers 65 65 69 17 31 45 292 Total Sources 17,792 29,157 33,646 25,540 26,718 26,806 159,661 CIP Projects 13,863 19,761 25,671 18,990 14,063 14,743 107,091 Betterment Fees for Maintenance 777 783 791 802 812 824 4,789 Debt Service 7,799 7,803 7,930 8,099 8,282 8,445 48,358 Developer Services 1,291 1,237 1,247 1,260 1,272 1,286 7,593 Total Uses 23,730 29,584 35,640 29,151 24,430 25,298 167,830 Net Sources (Uses)(5,937)$ (427)$ (1,995)$ (3,611)$ 2,288$ 1,508$ (8,170)$ Ending Balance 36,622$ 36,196$ 34,201$ 30,590$ 32,878$ 34,386$ The CIP Reserve Funds presentation, shown on the following pages, is designed to provide an understanding of how the funding of CIPs is expected to financially influence the District over the next six years.  The financial impacts are based on CIPs and their funding sources, including fund transfers in accordance with the District’s Reserve Policy, and planned debt issuances. This data is captured in the District’s Rate Model on an annual basis in order to make these projections.  CIP Reserve Funds $0 $10,000 $20,000 $30,000 $40,000 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Th o u s a n d s Reserve Fund Balances New Supply Expansion Replacement Betterment 36,622 36,195 34,201 30,590 32,878 34,386 199 CIP Funding Source (Thousands $000s)FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 TOTAL Expansion 1,882$ 1,571$ 2,758$ 949$ 3,707$ 12,381$ 23,249$ Betterment 2,219 5,478 8,925 5,725 4,010 253 26,609 Replacement 9,063 10,992 10,787 9,116 3,706 2,109 45,773 New Supply 700 1,720 3,200 3,200 2,640 - 11,460 TOTAL 13,863$ 19,761$ 25,671$ 18,990$ 14,063$ 14,743$ 107,091$ CIP Category (Thousands $000s)FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 TOTAL Capital Facility Projects 4,362$ 8,572$ 16,342$ 13,932$ 6,656$ 9,518$ 59,382$ Replacement/Renewal Projects 7,730 10,115 5,725 3,508 1,793 1,985 30,856 Capital Purchase Projects 1,617 1,049 833 743 868 428 5,538 Developer Reimbursement Projects 154 4 4 4 1,352 2,349 3,867 Subtotal 13,863 19,740 22,904 18,187 10,669 14,280 99,643 FY 2015 Through FY 2019 Projects - 21 2,767 803 3,394 463 7,448 TOTAL 13,863$ 19,761$ 25,671$ 18,990$ 14,063$ 14,743$ 107,091$ CIP Funding Source and Category $0 $10,000 $20,000 $30,000 $40,000 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Six-Year CIP by Funding Source New Supply Expansion Replacement Betterment $0 $10,000 $20,000 $30,000 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Six-Year CIP by Category Developer Reimbursement Projects Capital Purchase Projects Replacement/Renewal Projects Capital Facility Projects 200 CIP No Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Total CAPITAL FACILITY PROJECTS P2083 PS - 870-2 Pump Station Replacement (28,000 GPM)$540 $550 $5,500 $5,381 $11,971 P2267 36-Inch Main Pumpouts and Air/Vacuum Ventilation Installations 5 195 200 P2434 Rancho Del Rey Groundwater Well Development 100 100 P2451 Otay Mesa Desalination Conveyance and Disinfection System 1,500 4,300 8,000 8,000 6,600 28,400 P2466 Regional Training Facility 14 14 P2486 Asset Management Plan Condition Assessment and Data 75 75 75 34 259 P2511 Otay Interconnect Pipeline 600 650 500 1,750 P2514 PL - 30-Inch, 980 Zone, Hunte Parkway - Proctor Valley/Use Area 130 130 P2537 Operations Yard Property Acquisition Improvements 50 235 285 P2539 South Bay Bus Rapid Transit (BRT) Utility Relocations 80 80 160 320 P2541 624 Pressure Zone PRSs 300 100 200 600 P2542 850-3 Reservoir Interior Coating 10 380 50 440 R2048 RecPL - Otay Mesa Distribution Pipelines and Conversions 100 1 1 1 50 1,547 1,700 R2058 RecPL - 16-Inch, 860 Zone, Airway Road - Otay Mesa/Alta 100 1 1 1 1 2,046 2,150 R2077 RecPL - 24-Inch, 860 Zone, Alta Road - Alta Gate/Airway 135 600 600 410 1,745 R2087 RecPL - 24-Inch, 927 Zone, Wueste Road - Olympic/Otay WTP 5 5 5 5 5 5,925 5,950 R2091 RecPS - 927-1 Pump Station Upgrade (10,000 GPM) and System Enhancements 250 250 R2107 RWCWRF Screening Compactor and Chlorine Injectors Enclosure 60 60 R2108 Res - 927-1 Reservoir Cover Replacement 100 1,300 1,400 R2110 RecPS - 927-1 Optimization and Pressure Zone modifications 150 150 S2039 Hidden Mountain Lift Station Enclosure 8 8 S2043 RWCWRF Sludge Handling System 50 100 1,250 100 1,500 22 Total Capital Facility Projects 4,362 8,572 16,342 13,932 6,656 9,518 59,382 REPLACEMENT/RENEWAL PROJECTS P2366 APCD Engine Replacements and Retrofits 5 250 225 220 243 45 988 P2382 Safety and Security Improvements 500 200 200 200 100 300 1,500 P2440 I-905 Utility Relocations 10 10 P2453 SR-11 Utility Relocations 125 700 565 700 2,090 P2477 Res - 624-1 Reservoir Cover Replacement 50 50 P2485 SCADA Communication System and Software Replacement 540 455 995 P2493 624-2 Reservoir Interior/Exterior Coating 1,550 390 1,940 P2494 Multiple Species Conservation Plan 60 60 P2495 San Miguel Habitat Management/Mitigation Area 140 180 190 200 200 200 1,110 P2496 Otay Lakes Road Utility Relocations 70 70 P2504 Regulatory Site Access Road and Pipeline Relocation 325 275 600 P2507 East Palomar Street Utility Relocation 230 375 605 P2508 Pipeline Cathodic Protection Replacement Program 60 125 100 285 P2513 East Orange Avenue Bridge Crossing 300 300 P2515 870-1 Reservoir Paving 490 490 P2518 803-3 Reservoir Interior/Exterior Coating 125 125 P2519 832-2 Reservoir Interior/Exterior Coating 335 335 P2520 Motorola Mobile Radio Upgrade 30 30 P2521 Large Meter Vault Upgrade Program 105 100 100 113 418 P2531 944-1 Reservoir Interior & Exterior Coating 5 160 10 175 P2532 944-2 Reservoir Interior & Exterior Coating 5 660 60 725 P2535 458-2 Reservoir Interior Coating 345 70 415 P2538 Administration and Operations Building Fire Sprinkler Replacement 100 300 400 R2109 Sweetwater River Wooden Trestle Improvement for the Recycled 100 100 150 350 R2111 RWCWRF - RAS Pump Replacement 100 100 S2012 San Diego County Sanitation District Outfall and RSD Outfall 450 450 450 450 450 440 2,690 S2024 Campo Road Sewer Main Replacement 275 1,975 2,375 825 5,450 S2027 Rancho San Diego Pump Station Rehabilitation 500 2,350 2,850 S2033 Sewer System Rehabilitation 800 1,000 1,300 800 800 1,000 5,700 29 Total Renewal & Replacements 7,730 10,115 5,725 3,508 1,793 1,985 30,856 CIP Projects ($1,000s) The 2014 Fiscal Year CIP Budget contains 63 projects. The costs for the work planned for Fiscal Year 2014 is $14 million.Of the 63 projects planned for Fiscal Year 2014,five are designated as reimbursable projects with an estimated cost of $154 thousand. These projects are built by a developer and reimbursed by the District. 201 CIP Projects ($1,000s) CIP No Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Total CAPITAL PURCHASE PROJECTS P2282 Vehicle Capital Purchases 266 450 450 475 500 2,141 P2285 Office Equipment and Furniture Capital Purchases 55 15 15 85 P2286 Field Equipment Capital Purchases 149 84 68 68 68 67 504 P2469 Information Technology Network and Hardware 350 100 100 100 200 200 1,050 P2470 Financial System Enhancements 130 100 100 100 100 161 691 P2540 Work Management System Replacement 300 300 100 700 S2042 Sewer Vehicle Capital Purchases 367 367 7 Total Capital Purchase 1,617 1,049 833 743 868 428 5,538 DEVELOPER REIMBURSEMENT PROJECTS R2082 RecPL - 24-Inch, 680 Zone, Olympic Parkway - Village 2/Heritage 1 1 1 1 1,000 742 1,746 R2083 RecPL - 20-Inch, 680 Zone, Heritage Road - Village 2/Olympic 1 1 1 1 1 395 400 R2084 RecPL - 20-Inch, 680 Zone, Village 2 - Heritage/La Media 1 1 1 1 350 617 971 R2085 RecPL - 20-Inch, 680 Zone, La Media - State/Olympic 1 1 1 1 1 595 600 R2094 Potable Irrigation Meters to Recycled Water Conversions 150 150 5 Total Reimbursement Projects 154 4 4 4 1,352 2,349 3,867 63 Total- FY2014 Projects 13,863 19,740 22,904 18,187 10,669 14,280 99,643 14 Total- FY2015 Through FY 2019 Projects - 21 2,767 803 3,394 463 7,448 77 Grand Totals $ 13,863 $ 19,761 $ 25,671 $ 18,990 $ 14,063 $ 14,743 $ 107,091 202 CIP #Description Cost Cat. (2) Funding Source (3) FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 TOTAL P2451 Otay Mesa Desalination Conveyance and Disinfection System M/E/C N/B $ - $ - $ - $ 4,000 $ 33,500 $ 38,500 $ 76,000 P2466 Regional Training Facility M E/B - - 1,000 1,000 1,000 1,000 4,000 P2514 PL - 30-Inch, 980 Zone, Hunte Parkway - Proctor Valley/Use Area M E 700 700 700 700 700 700 4,200 R2082 RecPL - 24-Inch, 680 Zone, Olympic Parkway - Village 2/Heritage M E - - - - - 1,200 1,200 R2083 RecPL - 20-Inch, 680 Zone, Heritage Road - Village 2/Olympic M E - - - - - 700 700 R2084 RecPL - 20-Inch, 680 Zone, Village 2 - Heritage/La Media M E - - - - - 1,900 1,900 R2085 RecPL - 20-Inch, 680 Zone, La Media - State/Olympic M E - - 1,300 1,300 - - 2,600 R2109 Sweetwater River Wooden Trestle Improvement for the Recycled Water Forcemain M R - - - 3,000 3,100 3,200 9,300 700 700 3,000 10,000 38,300 47,200 99,900 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 TOTAL $ 700 $ 700 $ 3,000 $ 6,000 $ 9,800 $ 18,700 $ 38,900 - - - 3,000 25,000 25,000 53,000 - - - 1,000 3,500 3,500 8,000 $ 700 $ 700 $ 3,000 $ 10,000 $ 38,300 $ 47,200 $ 99,900 (1) (2) (3) Note:See pages 201-202 for complete description of CIP projects. CIP Justification and Impact on Operating Budget O&M cost for a reservoir: Total annual operating cost divided by the number of million gallons (MG) of storage capacity in the system. This rate per MG is then multiplied by the MG capacity of the new reservoir. Reservoirs require chemical treatment; therefore, the chemical cost per MG is estimated and applied to the future operating cost. Both O&M and chemical costs are increased annually for inflation. Each of the capital purchases and other types of assets has its own unique O&M cost. Cost Category - Indicates maintenance cost, energy cost, or chemical cost, based on the project type and Engineer's estimates. O&M cost for a pump station: Total annual operating cost divided by the number of million of gallons a day (MGD) capacity in the system = O&M cost per MGD. This rate is then multiplied by the MGD capacity of the new pump station. Similarly, power cost per MGD for transmission is calculated and applied to the MGD of the new pump station. Chemical expenses are incurred for pumping at the well sites. All estimated costs are increased annually for inflation. Projected Incremental Operating Expenditures (operating cost) or O&M includes labor, benefits, materials, and overhead. O&M cost for pipes: Total annual operating cost divided by the number of feet of pipe in the system = O&M cost to maintain a foot of pipe. This rate is then multiplied by the number of feet in new pipeline, and is increased annually for inflation. Total Operating Budget Cost Impact Total Operating Budget Cost Impact Projected Incremental Operating Expenditures (1) E - Expansion B - Betterment R - Replacement N - New Supply The following schedule shows anticipated operating costs associated with each project in the CIP. Below is a summary of each category of new costs that will be impacted. No additional revenues are associated with the individual projects, as revenues are linked more directly to growth in water sales and capacity fee revenues. Cost Category Maintenance (M) Energy (E) Chemical (C) Funding Source - Some projects have multiple funding sources as indicated by a slash (/): 203 Item#Amount Grand Total : P2282 Vehicle 266,000$ P2285 Office Equipment 55,000$ P2286 Field 149,000$ S2042 Sewer Vehicle 366,200$ 836,200$ 836,200$ 4 Replace SUV, to be purchased from P2282 Vehicle Capital Purchase. 33,000 1 Replace F150 pick-up truck, to be purchased out of P2282 Vehicle Capital Purchases. 7 Replace vactor model 2110 plus jet rodder. S2042 366,200 Total of Vehicles 632,200 Vehicles Finance 5 Replace compact pick-up truck to be purchased from P2282 Vehicle Capital Purchases. 25,000 38,000 Operations 6 Replace crew truck, vehicle to be purchased from P2282 Vehicle Capital Purchase. 170,000 Information Technology 10 Replace GIS plotter located in Engineering P2285 25,000 Total of Office Equipment 55,000 Finance 8 Replace Finance Printer/Copier. P2285 15,000 General Manager 9 Replace GM Printer/Copier P2285 15,000 Replace equipment trailer, to be purchased out of P2286 field equipment. 32,000 Total of Field Equipment 149,000 Office Equipment FY 2014 Capital Purchases Summary by Project Capital purchases are non-recurring operating expense items for District-wide use that cost more than $10,000 each and have an estimated useful life of two years or more. The Capital Purchase Projects include Field Equipment, Office Equipment and Furniture, and Vehicle purchases. Description Field Equipment Operations 2 Replace backhoe, to be purchased from P2286 field equipment. 117,000$ 3 204 Summary of Financial Policies Introduction This section includes a brief synopsis of the District’s Reserve Policy, Investment Policy, and Debt Policy. The Reserve Policy is a comprehensive policy which explains how the District is operated, including the distinction of business segments to ensure users pay their fair share of costs. It explains how fees are collected and what they are used for. It also explains the difference between funds, as well as how transfers shall be made, and defines each reserve target funding level. The District adopted this new policy in November 2010. The following chart depicts the detailed flow of funds that may be useful in understanding the Reserve Policy. Unrestricted and Undesignated (General Use) Funds Restricted Funds FUND CHART Designated Funds Designated Expansion Designated New Supply Designated Replacement Designated Betterment Potable General Fund Recycled General Fund Sewer General Fund Restricted Expansion Restricted Betterment Debt Reserve Restricted New Supply OPEB Reserve 205 Summary of Financial Policies The Investment Policy is a guideline for the prudent investment of cash. It follows government code as well as authority granted by the Board of Directors. The primary objectives, in order of significance, are to invest safely, with adequate liquidity, and to achieve sufficient return on investments. This policy was revised and adopted by the Board in September 2006 and received a Certification of Excellence Award from the Association of Public Treasurers of the United States and Canada (APT US&C). The Debt Policy establishes that debt financing will only be used for Capital Improvement Projects (CIP), which have an extended useful life for ten years or longer, and that exceed the District’s ability to be funded with current resources such as annual cash flow, fund balances, or reserves. Additionally, the life of a project is expected to exceed the term of the financing. The District strives to maintain the highest possible credit ratings for all categories of long-term debt that can be achieved without compromising delivery of basic services and the achievement of district policy objectives. This policy was revised and adopted by the Board in January 2007 and received a Certification of Excellence award from the Association of Public Treasurers of the United States and Canada (APT US&C). 206 Reserve Policy 1.0 The District The Otay Water District is a California municipal water district, authorized in 1956 by the State Legislature under the provisions of the Municipal Water District Act of 1911. The District is a "revenue neutral" public agency; meaning each end user pays their fair share of the District's costs of water acquisition, construction of infrastructure, and the operation and maintenance of the public water facilities. The District provides water service within its boundaries, and provides sewer and recycled water service within certain portions of the District. As such, the District operates three distinct business segments:  Potable water  Recycled water  Sewer Each of these business segments has an identifiable customer base. In addition, the developer community, large and small, makes up a significant class of customer for each business segment. As a result, the District has four distinct customer service types:  Developers  Potable water users  Recycled water users  Sewer users The District has established practices and developed computer systems that have enabled the District to maintain a clear separation between the service costs relating to each of its four customer service types. Regardless of customer class, financial principles regarding cost allocation and fund accounting are fundamental to the District’s Reserve Policy. These principles are derived from the statements of the Governmental Accounting Standards Board (GASB), and from oversight and advisory bodies such as the California State Auditor, the Little Hoover Commission, and the Government Finance Officers Association (GFOA). These have significant impacts on how the finances of the District are organized and how financial processes work within the organization. 1.1 The District’s Use of Financial Resources All of the District’s expenditures fall into two broad categories: operating costs and capital expenditures. The operating costs include costs relating to the purchase and delivery of potable and recycled water, and the transportation and treatment of sewage. The capital expenditures 207 Reserve Policy support the construction of infrastructure necessary to deliver services. The District uses various funds to support the operating and capital efforts. Operations and maintenance is financed only by rates and charges, also called pay-as-you-go, while capital infrastructure is financed using two financing methods: pay-as-you-go and debt issuance (requiring annual debt service). The Capital Improvement Program (CIP) and the two funding methods support the construction, betterment, and replacement of infrastructure in all three business areas: potable, recycled, and sewer. The District establishes different funds to track revenues allocated to different activities. Once established, each fund receives financial resources up to the levels defined in this policy. Every year, as a part of the annual budget process, the District’s rate model is updated for each fund with the current fund balances and the estimated revenues and expenditures for the next six years. The expenditure requirements and financial resources are then evaluated to ensure that the existing fund balances and additional revenues are sufficient within the current budget cycle and for the next five years to maintain target fund levels. If a deficit is identified, then options for transfers, shifting CIP projects, debt, cost saving measures, and/or rate increases are evaluated. 1.2 The District’s Capital Improvement Program (CIP) The planning, design, and construction costs of all capital facilities within the three business segments are allocated to four cost types and corresponding fund categories: New Water Supply, Expansion, Replacement, and/or Betterment. The allocation to these four cost types is defined in the District’s Capital Improvement Program (CIP) and is determined by an engineering analysis that identifies which type of customer will benefit from each facility, planned or existing. The costs of the capital improvements are borne by either existing users or by the developing areas, or by a combination of the two, as applicable. This Reserve Policy protects both the existing users and the developing areas from incurring unwarranted costs. Developing areas are not required to finance facilities that are replacement or betterment and established areas are not required to replace facilities before they are worn out because of new development. However, to ensure a fair allocation of costs, each facility has the potential to be classified into any or all of the four cost types. In addition to these cost types there are occasional CIPs that may be billable to a third party, if for example a third party requires a District facility be relocated. Paragraphs a through d below, describe how the costs of capital facilities are financed through various fees. a. New Water Supply The portion of a new supply project that benefits new users is financed from the reserves in the New Water Supply Fund category. These reserves are primarily derived from proceeds of the new water supply fee. The New Water Supply Fund is restricted, meaning the amounts credited to this fund are accounted for separately and are used solely for the 208 Reserve Policy planning, design, and construction of the new water supply expansion facilities. Debt financing may also be a temporary financial resource to finance new water supply projects. The District has a Debt Policy (Policy No. 45) that guides the debt issuance process. Any debt proceeds used for this purpose would be restricted in nature and tracked separately. General use reserves may also be placed in the Designated New Water Supply Fund and used for water supply projects. b. Expansion The portion of a CIP project that benefits new users is financed from the reserves in the Expansion Fund category. These reserves are primarily derived from proceeds of the “incremental” portion of the capacity fees collected within developing areas. Capacity fees are accounted for separately and used for the planning, design, and construction of expansion facilities. Additionally, expansion may be financed by annexation fees or the “buy-in” portion of the capacity fee. Both of these fees are restricted for CIP purposes, but not specifically for expansion. Debt financing may also be a temporary financial resource for expansion projects. General use reserves may also be placed in the Designated Expansion Fund and used for expansion projects. c. Replacement The portion of a CIP project that benefits existing users by replacing an existing facility is financed from the reserves in the Replacement Fund category. Replacement of facilities may be financed with proceeds of annexation fees, the “buy-in” portion of the capacity fees, general use reserves held in the Designated Replacement Fund and debt proceeds. The various funding sources available for replacement projects is anticipated to provide the necessary flexibility to begin projects while any necessary debt financing is being obtained. d. Betterment Facilities that improve reliability, meet new regulations, or create increased levels of service are considered betterment facilities that benefit existing users. The reserves in the Better Fund category are used to finance these projects or portions of projects. Certain user rates, charges, and betterment fees are restricted geographically for betterment of facilities, but may also be used for general maintenance of facilities in that area. Proceeds of the annexation fee and the “buy-in” portion of the capacity fees may also be used to finance betterment projects. General use reserves may be placed in the Designated Betterment Fund and used for betterment projects. 1.21 Relocations Occasionally, relocation of a District facility is required by a third party. If the District has a superior easement the relocation cost will be paid by the third party, but only to the extent that the District does not benefit from the relocation. When relocation is required, a CIP project may be created which is wholly or partially financed by a third party. On occasion, the District will require that its own facilities be relocated. Depending on the nature of the facilities, the financial resources for 209 Reserve Policy these projects could be from new water supply, expansion, replacement, betterment or third party financing. Each project is individually negotiated with the third party based on the facts and circumstances of the relocation. Occasionally, the District will improve the facilities that are being relocated. When determining how to allocate costs to various funds the following guideline is suggested: if a project has more than five years of useful life remaining, an incremental cost view should be considered; if the project has less than five years of useful life remaining, a pro-rata cost approach should be considered. Also, the likelihood the District will benefit from an asset’s life extension should be evaluated prior to allocating costs. 1.22 Oversizing If deemed reasonable by the District, in connection with the construction of backbone facilities, a developer may be required to oversize new facilities for future development. The developer is reimbursed for incremental oversizing costs as per Policy No. 26. These reimbursements are not available for the distribution system within a development which is an obligation of the developer. 1.23 Exclusion of Developed Areas from Expansion Costs Developed areas are assumed to have sufficient supply and capacity to meet their current requirements as provided by the developers. In addition, they are considered to have borne capital financial costs that are at least proportionate to the benefits they have received from capital facilities. Accordingly, no regional capital financing costs are allocated to these areas so that they will not incur any costs for newly developing areas, except for capital projects that produce district- wide benefit or cost savings. 1.24 Improvement Districts (IDs) Improvement Districts (IDs) are established to facilitate the financing of particular improvements by the specific beneficiaries. The District has a number of improvement districts that were established for General Obligation (GO) debt repayment. Most GO debt has been paid off and it is unlikely that the District will issue additional GO debt. Improvement districts continue to be used for other purposes: 1) to distinguish sewer customers from water customers on the county tax roll; 2) to place parcels on the county tax roll for the collection of availability fees; or 3) for charging special water rates. Over the years, the District moved to a district-wide perspective of financing improvements. This philosophy is evident by the district-wide capacity and annexation fees. The District also uses district-wide water rates. As time goes on, it is expected that IDs will continue to outgrow their purpose and their use will diminish. 210 Reserve Policy 1.3 The Purpose of the Policy Public entities accumulate and maintain reserves to ensure both financial stability and continuous availability of services. Financial stability and the resulting improved credit quality allow the public entity to weather times of uncertainty and the impact of negative events, both major and minor. Reserves allow for the ongoing maintenance of property and timely payment of expenses even when such expenses exceed money available from a single fiscal period. In the final analysis, the type and level of reserves are driven by the type and magnitude of uncertainty faced by the public entity. A “reserve” has a number of meanings, as follows:  Working capital is required to insure timely payment of obligations.  A buffer against volatility in revenues.  Liquidity is required to obtain other goods and services (e.g., bank services).  Designated money to protect creditors.  Money set aside to replace assets at the end of their useful lives.  Money set aside to repair or replace assets damaged or destroyed at unanticipated times. It is important to note that reserves, fund balance, and net assets are not the same. Fund balance and net assets are accounting terms and may not always be in the form of cash or liquid investments. Fund balances and net assets may not always be reserves unless a designation of all or a portion of fund balance is made. In addition, the term fund balance was replaced by net assets as codified by the Governmental Accounting Standards Board (GASB). In short, reserves are the liquid assets of the District, accumulated and maintained for application to finance contingent future activities, whether known or unanticipated, operating or capital in nature. The District’s Reserve Policy governs the management and use of these financial resources. Few policies have a more significant impact on the financial health and stability of the District. This policy explains several key financial concepts used by the District and provides some background information to the overall strategies and practices utilized. The District has a fiduciary obligation to its customers, to manage and direct the use of public funds for the purpose of providing water and sewer services in an efficient and financially sound manner. 1.4 Policy Guidelines In 2000, the Little Hoover Commission reviewed the levels of reserve funds for special districts in California and prepared a report reflecting that special districts were accumulating unreasonable levels of funds. As a proactive response, the California Special Districts Association (CSDA) prepared Reserve Guidelines for its members. The Reserve Guidelines were significant in noting 211 Reserve Policy that reserve levels need to be in context of the organization’s overall business model and capital improvement plan. There are a number of potential events which the District should consider in the development of reserves:  Economic Uncertainty - performance of the regional economy and the impact of that performance on demand for water.  Weather - the amount of rainfall and the impact of weather on the availability and the cost of water as well as the demand for water.  Government Mandates - the impact of federal and state regulation, particularly environmental regulation.  Tax Changes - limitations on the District’s taxing and spending powers through the passage of a voter referendum, the impound of District property taxes or the removal of the District’s power to levy property taxes, further increases to Educational Revenue Augmentation Fund (ERAF) contributions or changes in calculation methodology.  Operating Costs - increases in operating and maintenance costs because of inflation, labor agreement or other modification.  Force Majeure - unanticipated expenditures resulting from natural disasters or intentional acts.  Emergency Maintenance - unanticipated expenditures resulting from unexpected failure of assets (e.g., rupture in the primary transmission system).  Unexpected Variation in Cash Flow - the incidence of additional costs or decreased revenues that require short-term borrowing in the absence of sufficient financial resources. The California State Auditor has, in its oversight role, offered a number of quality recommendations for the development of reserve policies as outlined in its report entitled, “California’s Independent Water Districts: Reserve Amounts Are Not Always Sufficiently Justified, and Some Expenses and Contract Decisions Are Questionable,” dated June 2004, Report No. 2003-137. All of these recommendations have been incorporated into this policy in an effort to address key issues surrounding the management and use of District reserves. The detailed objectives as identified by the State Auditor are as follows:  Distinguish between restricted and unrestricted reserves.  Establish distinct purposes for all reserves.  Set target levels, including minimums and maximums, for the accumulation of reserves.  Identify the events or conditions that prompt the use of reserves. 212 Reserve Policy  Conform to plans to acquire or build capital assets.  Receive Board approval and that it is in writing.  Require periodic review of reserve balances and rationale for maintaining them. Yet, the State Auditor’s report acknowledges that the California Constitution (Article XIII B, Section 5) is vague in its provisions governing the accumulation and use of reserves.1 Specifically, the Constitution states that “each entity of the government can establish contingency, emergency, unemployment, reserve, sinking fund or similar funds as it shall deem reasonable and proper.”2 Similarly, the State’s Water Code does not impose any requirements as to specific or recommended reserve fund levels. As a result, the public finance community as a whole has yet to settle on any real objective standards for the level of reserve funds appropriate for governmental enterprises. This lack of consensus as to specific standards is indicative of the wide variance of the financial and operations context for different districts and different contingencies justifying reserves. The Government Finance Officers Association (GFOA) in its “Recommended Practice on Appropriate Level of Unreserved Fund Balance in the General Fund” (2002) states that in establishing a policy governing the level of unreserved fund balance in the general fund, a government should consider a variety of factors. These include:  The predictability of its revenues and the volatility of its expenditures (i.e., higher levels of the unreserved fund balances may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile).  The availability of resources in other funds as well as the potential drain upon general fund resources from other funds (i.e., the availability of resources in other funds may reduce the amount of the unreserved fund balance needed in the general fund, just as deficits in other funds may require that a higher level of unreserved fund balance be maintained in the general fund).  Liquidity (i.e., a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained).  Designations (i.e., governments may wish to maintain higher levels of the unreserved fund balance to compensate for any portion of unreserved fund balance already designated for a specific purpose). 1 California State Auditor, Bureau of State Audits, “California’s Independent Water Districts: Reserve Amounts Are Not Always Sufficiently Justified, and Some Expenses and Contract Decisions Are Questionable,” dated June 2004, 2003-137; p. 8. 2 California Constitution, Article XIII B, Section 5. 213 Reserve Policy In the preparation of this policy, each of the CSDA guidelines and the GFOA recommendations has been considered. In addition, all seven objectives provided by the State Auditor are specifically addressed for each reserve. The District wholly supports the State Auditor’s efforts to bring a high- level of quality to reserve governance and establishing a standard of performance. The District recognizes that the customer pays for services provided. Quality management requires that periodic valuations be performed so that fees and charges can be set at appropriate levels to recover the cost of service. The District’s Reserve Policy has been drafted with consideration of the GFOA, CSDA, and State Auditor’s general guidelines as provided above. In addition, the District has adopted the following principles in the management of its financial resources:  Reserves are held and used only for the purpose for which they are collected. This is done to maintain equity among customers.  Each of the service types is tracked separately so that expenditures and revenues can be monitored and evaluated for each customer type. This provides the District with the necessary information to appropriately charge for each of the services.  Separation of operations and maintenance from capital expenditures occurs within each of the service types. This is done because the financing of these expenditures is often on different timelines or use different reserves.  The District will hold its reserves at responsible and prudent levels. This policy sets minimum, maximum, and target levels for each of the various funds. This has been done so that the District can maintain reserves to meet the purpose for which the funds were established. The levels are set by reference to line items in the District’s financial statements and approved budgets. This allows reserve levels to adjust to the District’s changing financial circumstances.  Debt financing of facilities provides intergenerational equity and maintains rates at reasonable levels. This equity is accomplished with long-term financing which spreads the cost of facilities over the life of the facilities. The burden to pay for facilities is then paid by those who use them. The District could amass significant reserves by pre-collecting financial resources in a Replacement Reserve Fund allowing the District to cash finance all replacements. However, this would require significant rate increases burdening the current customers and creating reserve levels difficult to defend to the ratepayers or other oversight entities. These concepts are fundamental to the way the District manages its funds and have a direct impact on the way rates and charges are set. The District performs annual budget evaluations and updates its rate model on an annual basis to monitor and adjust the various funds and revenue 214 Reserve Policy sources. The separation, tracking, and projecting of the various funds and expenditures create the essential information necessary for the equitable rate structure maintained by the District. The annual review preserves the balance between services provided and the fees charged. This review also insures that reserves will be available to continue to serve the District’s customers. Financial Sources 2.0 Developers a. Meter Installation Charges (General Use) Meter fees are charges collected for new water service connections. Fees vary depending upon meter size and type of service. The costs associated with meter installations are included in the Operating Expenses section of the budget. These charges are financed by developers. b. Developer Deposits (General Use) These deposits are for the engineering and operations services provided to developers. They are tracked separately for each developer and any excess amount is returned to the developer. c. Annexation Fees (Restricted) Annexation fees3 are collected as a condition of annexing into the District’s potable and recycled water facilities. Since the existing facilities have been built and maintained by developers or customers within the District, the annexation fee is calculated based on the present value of all property taxes (1% property tax and availability fees) paid by existing and prior customers. The annexation fee insures that future users finance a portion of facilities that were sized, built, and maintained for both existing and future users. Proceeds of annexation fees are restricted and can be used for expansion, replacement, or betterment projects. These reserves may be shifted back and forth as financing needs change. d. Annexation Fees (Unrestricted) A sewer annexation fee is collected when property is annexed into an improvement district. This fee is calculated using the “buy-in” basis and therefore is unrestricted. e. New Water Supply Fee (Restricted) New water supply fees4 are based on the cost of the expansion portion of new water supply projects divided by the number of future equivalent dwelling units (EDU). The new water supply fee covers the cost of planning, design, construction, and financing associated with facilities for the District’s new supply needs. These fees are paid by developers. The 3 Code of Ordinances, Section 9. 4 Code of Ordinances, Section 28 215 Reserve Policy proceeds of this fee may be used only for new potable or recycled water supply projects. Although the fees collected are not restricted separately, one portion for potable and the other for recycled, they are tracked separately. f. Capacity Fees (Restricted) Capacity fees4 are based on the value of existing and future facilities divided by the number of existing and future equivalent dwelling units. This method of calculating capacity fees is called the combined method, where the “buy-in” portion of the capacity fee covers costs to repay existing customers for the facilities that they have built, and where the “incremental” portion of the capacity fee covers the cost of future expansion facilities. The “buy-in” portion of the capacity fee is restricted to pay for planning, design, construction, and financing associated with expansion, replacement or betterment facilities. The “buy-in” portion may be shifted back and forth between expansion, betterment or replacement as the financing needs change. The “incremental” portion of the capacity fee is limited to planning, design, construction, and financing exclusively for expansion facilities (excluding new water supply expansion). Facility needs are based on projected land use planning. Changes in anticipated future land use occur and can alter projected facility requirements. Thus, both the anticipated facilities needs and their projected costs change over time as regulatory agencies make changes to land use. The District periodically reviews the capacity fee calculation to accommodate such variations. These fees are paid by developers. The District’s construction of infrastructure occurs prior to the addition of EDUs. This sequence serves two purposes: one it ensures that the District can serve the pending construction as it is completed; and two, it is more efficient to oversize many facilities at the outset rather than build for the current need and then reconstruct when the future need is realized. As a result of this strategy, the District has financed construction with bond financing as the existing expansion reserves are depleted. The capacity fee is calculated based on the combined recycled and potable water systems needs. This methodology is used because the two water systems work hand-in-hand. All capacity fees can be used for either potable or recycled but must be tracked to distinguish between the “buy-in” and “incremental” portions as described above. So, while capacity fees are not restricted separately by potable and recycled, they are tracked separately. 216 Reserve Policy 2.1 Customers/Users a. Uniform Rates and Charges (General Use) Charges to users for water, sewer, and recycled water are uniform throughout the District for similar customer types. b. Monthly System Fees (General Use) This is a fixed revenue source that is charged monthly. The amount of the charge is based on the meter size. c. Energy Charges (General Use) The energy pumping fee is a charge per Unit of water for each 100 feet of lift, or fraction thereof, above the base elevation of 450 feet. This charge is placed on the monthly water bills of all water customers. d. Penalties (General Use) Penalties are added to the monthly water and sewer bills for late charges, locks, etc. e. Pass-through Fixed Charges (General Use) A fixed monthly charge to the District’s customers intended to collect sufficient funds to pass-through the increased fixed costs from the County Water Authority (CWA) and the Metropolitan Water District (MWD). DEVELOPERS Diagram 2.0: Flow of Funds - Developer Sources Unrestricted and Undesignated (General Use) Funds Meter Installation Charges Developer Deposits Restricted Funds Annexation Fees Capacity Fees New Water Supply Fees 217 Reserve Policy f. Special Rates and Charges (Restricted) In addition to the uniform water charges, the District currently has five special water rates and one sewer rate. The five water rates are for construction, installation, and maintenance of water storage reservoirs, pump stations, and water lines. Each of these rates and charges must be used within the respective geographic areas from which they are collected. These special charges are listed below:  North District water charge (Code section 25.03G)  ID 9 water charge (Code section 25.03H)  ID 3 water charge (Code section 25.03I)  ID 10 water charge (Code section 25.03I)  La Presa water charge (Code section 25.03I)  Russell Square sewer charge (Code section 53.04C) When these rates were established they were for the specific purpose of constructing, installing, and maintaining the water and sewer systems in the areas in which the fees were collected. Therefore, these are restricted reserves by geographic area as well as by purpose. These rates and charges can also be used for maintenance; unlike the availability fees (discussed in 2.2 B.). These six special rates and charges along with availability fees are tracked separately, by geographic area, so they can be individually evaluated to maintain the targeted reserve levels. To meet this need, each special rate and charge is accounted for in a “sub-fund” of the Betterment Fund. g. Temporary Meter Fees (General Use/Restricted) Water charges, in lieu of capacity fees, are charged on temporary meters. This is done because temporary meters use system capacity but they are not charged a capacity fee. Temporary water use is charged at two times the water rate with the added charge placed in the Restricted Expansion Fund. The primary users of these temporary meters are developers; however, general customers also use these for various purposes. 218 Reserve Policy 2.2 County-Collected Taxes and Fees a. General Levy Property Tax Receipts (1% Property Tax) (General Use) In 1978, Proposition 13 limited the levy of ad valorem property taxes on real property to one percent of the assessed value of such property. Subsequent legislation, AB 8, established that the receipts from the one percent levy were to be distributed to taxing agencies proportionate to each agency’s general levy receipts prior to Proposition 13. Taxes received are for general use. b. Availability Charges (General Use/Restricted) The District levies availability charges each year in developed and undeveloped areas. Current legislation provides that any amount up to $10 per parcel is general use and any amount over $10 per parcel is restricted to be expended in and for the improvement district (ID) within which it is collected. Accordingly, the District may use availability charges in excess of $10 toward costs of water and sewer facilities which are either, expansion, betterment, or replacement of facilities consistent with the purpose of the ID in which they are collected. This portion of the proceeds of availability charges is geographically restricted and restricted by purpose. As costs are incurred on these projects the respective IDs are charged, reducing the reserves. To the extent that availability charges are not used CUSTOMERS / USERS Diagram 2.1: Flow of Funds - Customer Sources Unrestricted and Undesignated (General Use) Funds Monthly System Fees Restricted Funds Energy Charges Penalties Pass –Through Fixed Charges 2x Water Rate Special Rates and Charges Uniform Rates and Charges 219 Reserve Policy for the purpose for which they are collected, they must be returned to the property owners that paid them. The District has historically used these reserves for betterment capital facilities thus, the restricted reserves are accounted for in “sub-funds” of the Betterment Fund (see 2.1 f.). c. Improvement District General Obligation (GO) Bond Assessments (Restricted) The District has historically issued general obligation (GO) debt and establishes an improvement district for the repayment of that debt. When this financing method is used, the county tax roll can be used to collect special taxes or assessments within the ID to pay the debt obligation. The proceeds of the debt are restricted for the purpose as defined in the bond documents. 2.3 Miscellaneous Income a. Miscellaneous Rents and Leases (General Use) Revenues received from the rental and lease of District property are general use revenues. Not only are they periodic revenues, but there is also a one-time fee charged with the setup of each new lease. The District incurs expenses related to these rents and leases. The one-time fees are calculated to recover the costs to setup the leases. COUNTY COLLECTED TAXES AND FEES Unrestricted and Undesignated (General Use) Funds General Levy Property Tax Receipts Availability Charges Restricted Funds General Obligation Bond Assessments Diagram 2.2: Flow of Funds – County Collection Sources 220 Reserve Policy b. Sewer Billing Fees (General Use) Sewer billing fees are general use revenues. The District provides processing and billing services to the City of Chula Vista to bill and collect from their customers for sewer service. These fees are to recover the cost the District incurs to provide this service. c. Interest Income or Expense Allocation (General Use, Designated, and Restricted) Interest income (expense) will be allocated every month based upon each fund's month- ending balance. In this way, each fund receives credit for interest earned by that fund and each fund with a negative balance is charged for the use of the other fund’s reserves. 2.4 Debt Issuance a. Loans (General/Restricted Use) As the District determines that additional financing is required for a particular purpose, the option of borrowing is considered. The determination to borrow is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action. As an option to bond indebtedness, loans are available to satisfy short-term financing needs. These loans may or may not be contractually restricted for a particular purpose. b. General Obligation (GO) Bonds (Restricted) As the District becomes more developed it becomes less likely that general obligation debt will be used as it requires a vote of the public to be approved. Bond proceeds are restricted MISCELLANEOUS INCOME Unrestricted and Undesignated (General Use) Funds Miscellaneous Rents and Leases Sewer Billing Fees Restricted Funds Interest Income or Expense Allocation Diagram 2.3: Flow of Funds – Miscellaneous Income Sources Designated Funds 221 Reserve Policy for the construction of those facilities identified in the GO bond issuance. Occasionally, specific portions of bond proceeds may be allocated for the repayment of the principal and interest, also called debt service, on these bonds. As the District determines that additional financing is required for a particular purpose, the option of debt issuance is considered. The determination to issue debt is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action. c. Certificates of Participation (COPs) (Restricted) General revenues of the District are pledged as security for Certificates of Participation (COPs) indebtedness. If the District determines that additional financing is required for a particular purpose, the option of debt issuance is considered. The determination to issue debt is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action. This form of financing has become the industry’s preferred form of financing as it does not require a vote of the general public. 2.5 Inter-fund Transfers Each year in the budgeting process, future fund levels are projected for the next six years. Based on these projections transfers are recommended. Reserves may be transferred between Unrestricted or Designated Funds and the General Fund (see 4.0 “Funding Levels” DEBT PROCEEDS Unrestricted and Undesignated (General Use) Funds Loans General Obligation Bonds Restricted Funds Certificates of Participation Diagram 2.4: Flow of Funds – Debt Issuance Sources 222 Reserve Policy and 4.1 “Fund Transfers”). Reserves may not be transferred to or from any of the restricted funds unless it is between two restricted funds with a shared purpose. Fund Types and Categories 3.0 General Funds a. Purpose The General Fund is neither restricted nor designated. The District maintains one General Fund for each business segment (water, sewer, and recycled). This fund holds the working capital and emergency operating reserves. While the General Fund has a short-term focus to finance the District’s annual operations, it is supported by the six-year rate model. This fund is primarily used to finance the operations of the District; however, it can be used for any District purpose. This fund can be used to supplement the District’s rates and charges and be a temporary source of revenue to balance the Operating Budget. This fund can also be used to avoid spikes in the rates or significant and abrupt increases. It is an industry practice to have a fund that can be used to stabilize rates. This would only occur if there was a temporary need for reserves that would smooth out a rate spike or to ramp up what would otherwise be a dramatic rate increase. The General Fund also plays a role in the debt planning of the District. This fund is viewed by the debt markets as a commitment by the District to ensure financial stability of the rates and charges of the District. The District is anticipated to need a number of debt issuances over the years and this fund will help the District not only to stabilize rate fluctuations but also to access low cost financing for future projects. b. Sources Meter installation charges, temporary meter fees, uniform rates and charges, monthly system fees, energy charges, penalties, pass-through fixed charges, general levy property tax receipts, availability charges, miscellaneous rents and leases, sewer billing fees, interest income or expense allocation, loans, and a portion of the temporary water sales. The sewer general fund receives sewer charges, penalties, availability charges, sewer annexation fees (calculated on the “buy-in” basis), and interest income or expense allocation. Funding Levels I. Minimum Level – The minimum reserve level for each business segment of the General Fund is three months of operating budget expenses (evaluated separately for each segment). 223 Reserve Policy II. Maximum Level – The maximum reserve level for the General Fund is nine months of operating budget expenses. In the event that this fund exceeds the seven month level, the excess will be evaluated or transferred to one or more of the designated funds. III. Target Level – The target level of reserves is three months of operating budget expenses. In the event that the fund drops below the target level, rate increases or fund transfers would be considered. 3.1 Designated Other Post Employment Benefits (OPEB) Fund a. Purpose Designated Other Post Employment Benefits (OPEB) reserves are “general use” reserves that have been set apart by Board action to finance the medical benefits of qualified retirees as outlined in the District’s benefits plan. This District fund holds only a portion of the total OPEB reserves. The other portion is held in a trust at CalPERS and is restricted for the purpose of financing the OPEB liability. The two portions are considered jointly when looking at target reserve levels. Every two years, the fund is evaluated by an actuary to update the annual financing requirements. Changes in the actuarial valuation may result from changes in benefit levels, employee population, health insurance costs, or general market conditions. The reserves held by the District are currently designated and may be placed into the CalPERS trust to legally restrict the funds, removing the District’s legal access to these reserves. b. Sources The OPEB liability may be financed by general use reserves coming from user rates and charges, either from an operating budget expenditure or from interfund transfers. Transfers of unrestricted reserves may come from the various designated funds or from the General Fund. As a part of the normal budget process, annual operating revenues have been sufficient to finance the ongoing needs of this designated fund. While debt financing is also an option, the District has only used user rates and charges to finance this fund. c. Funding Levels I. Minimum Level – The minimum reserve level for this fund is equal to the District’s OPEB liability as determined by the actuarial study. When considering the reserve level of this fund, both the District held OPEB reserves and CalPERS held OPEB reserves must be considered jointly. II. Maximum Level – The maximum reserve level for this fund is equal to the District’s OPEB liability as determined by the actuarial study. In the event that the two funds, as described above, exceed the OPEB liability, the 224 Reserve Policy District will reduce the annual funding levels as defined by the actuarial study. III. Target Level – The target reserve level for this fund is equal to the District’s OPEB liability as determined by the actuarial study. In the event that the two funds, as described above, fall below the OPEB liability, the District will increase the annual funding levels as defined by the actuarial study. 3.2 New Water Supply Fund Category a. Purpose The New Water Supply Fund category is to finance the expansion portion of new water supply projects and is therefore to be paid by developers. When considering the reserve level of the New Water Supply category; the New Water Supply Fund, the New Water Supply Debt Fund, and the Designated New Water Supply Fund all work in concert and must be considered jointly. b. Sources The New Water Supply Fund receives reserves only from the new water supply fee. Other funds within the new water supply category of funds receive debt proceeds and general use reserves through a designation to this category. c. Funding Levels I. Minimum Level – As the District matures the CIP will move to purely replacement projects. As the District moves through its lifecycle the need for new water supply reserves will decrease and may be reduced to zero. II. Maximum Level – The maximum reserve level for the new water supply category of funds is limited to five years of the unfinanced new water supply facilities as described in the District’s CIP Budget. To determine the unfinanced amount, the total new water supply financing needs must be reduced by the projected new water supply revenues, general fund designations, and bond financing. If the combined new water supply reserves exceed the target level, the District should consider transferring designated reserves to meet other purposes, reduce the new water supply fee, or change the timing of the new water supply projects. III. Target Level – In order to facilitate debt financing of the new water supply, it is important that the various new water supply funds retain an overall reserve level of six months, prior to any attempt to obtain debt financing. This reserve level allows the District the time necessary to issue additional debt without depleting new water supply reserves. If the combined new 225 Reserve Policy water supply reserve levels drop below six months of expenditures, this would trigger a transfer of general use reserves, a bond sale, or a change in the timing of new water supply projects. Bond proceeds would be placed in the Restricted New Water Supply Debt Fund while transfers would be placed in the Designated New Water Supply Fund. 3.3 Expansion Fund Category a. Purpose The Expansion Fund category is to finance the expansion portion of capital projects and therefore is to be paid for by developers. When considering the reserve levels of the Restricted Funds Unrestricted and Undesignated Funding Sources Funding Source New Water Supply Fees Debt Proceeds Restricted Funds Restricted Funds Designated Funds New Water Supply Fund Expansion New Water Supply Fund Designated New Water Supply Fund Debt Fund General Fund – Rates and Charges New Water Supply Fund Category New Water Supply Debt Fund Diagram 3.2: New Water Supply Fund Category 226 Reserve Policy expansion category, the following funds work in concert and must be considered jointly: the Expansion Fund, Expansion Debt Fund, Annexation Fund (potable and recycled only), Capital Improvement Fund, and the Designated Expansion Fund. Potable and recycled reserves are considered jointly while sewer is evaluated separately. b. Sources The Expansion Fund is financed by water charges in lieu of capacity fees (for temporary meters) and the “incremental” portion of the capacity fee. The other funds in this category may also be financed by debt proceeds, annexation fees, the “buy-in” portion of the capacity fee, and the general fund through a designation of reserves. c. Funding Levels I. Minimum Level – As the District matures the CIP will move to purely replacement and betterment projects. As the District moves through this lifecycle the need for expansion reserves will decrease and may be reduced to zero. II. Maximum Level – The maximum reserve level for the expansion category of funds is limited to five years of unfinanced expansion facilities as described in the District’s CIP Budget. To determine the unfinanced amount, the total financing needs must be reduced by the projected expansion revenues, bond financing, and any restricted or general fund revenues allocated to this fund category. If the combined expansion reserves exceed target levels, the District should consider reducing capacity fees, reallocating restricted or designated funds to meet other purposes, or shifting the timing of expansion projects. III. Target Level – The target level is six months of expansion expenditures. It is important that the expansion reserves remain at a minimum of six months of expansion expenditures. This reserve level allows the District the time necessary to issue additional debt without depleting expansion reserves. If the combined expansion reserves drop below six months of expenditures this would trigger a transfer of general use reserves, a bond sale, an adjustment to the timing of expansion projects, or a reallocation of restricted reserves. Bond proceeds would be placed in the Restricted Bond Fund, transfers of general use reserves would be placed in the Designated Expansion Fund, and transfers of restricted reserves would be placed in either the Expansion Annexation Fund or the Expansion Capital Improvement Fund. 227 Reserve Policy 3.4 Replacement Fund Category a. Purpose The Replacement Fund category is to finance replacement projects. When considering the reserve levels of the replacement category of funds, the following funds work in concert and must be considered jointly: the Annexation Fund, Debt Unrestricted and Undesignated Funding Sources Diagram 3.3: Expansion Fund Category Funding Source 2x Water Rates Capacity Fees Restricted Funds Restricted Funds Designated Funds Expansion Fund Expansion Debt Fund Annexation Fund General Fund – Rates and Charges Annexation Fees Restricted Funds Expansion Capital Improvement Fund Debt Proceeds Restricted Funds Capital Improvement Fund Bond Debt Expansion Fund Designated Expansion Fund 59.4% Expansion Fund Category Restricted Funds Expansion Annexation Fund 40.6% 228 Reserve Policy Fund, Capital Improvement Fund, and the Designated Replacement Fund. The purpose of these reserves is to pay for the replacement of capital infrastructure and capital purchases. These reserves are not to be used for the replacement of non- capital items. With the District’s development of its financial systems and the greater need and ability to separate and track reserves, the replacement reserves have been separated into three funds: water, recycled, and sewer. Projects undertaken solely for the purpose of replacing major capital equipment or facilities, i.e., where the cost exceeds $10,000 for capital purchases or $20,000 for infrastructure items, generally these are not considered normal maintenance. When the cost is below $10,000, the costs are financed annually as operational maintenance. As charges are incurred on replacement projects the reserves are deducted from the respective Replacement Funds on a monthly basis. b. Sources The various funds in this category are financed by debt proceeds, annexation fees, the “buy-in” portion of the capacity fee, and general fund designations. c. Funding Levels I. Minimum Level – The minimum reserve level of this category of funds is 3% of the historical value of existing assets as identified in the District’s current financial statements. Potable, recycled, and sewer replacement are evaluated separately. II. Maximum Level – The maximum reserve level of this category of funds is 6% of existing assets. If the combined replacement reserves exceed target levels, the District should consider transferring annexation fees or the “buy- in” portion of the capacity fee to meet other purposes. Another consideration would be to shift the timing of replacement projects. III. Target Level – The target reserve level of this category of funds is 4% of existing assets. In the event that the reserves fall below the recommended target level, the District should consider transferring annexation fees or the “buy-in” portion of the capacity fee. The District should also consider shifting the timing of replacement projects or issuing debt to support the planned level of facility replacement. The District will act based on the annual six- year rate model, to insure that at the end of that planning horizon the reserves exceed the minimum level and is approaching the target level. 229 Reserve Policy 3.5 Betterment Fund Category a. Purpose The Betterment Fund category is to finance the betterment portion of capital projects with a portion going to maintenance of the potable, recycled, and sewer systems. The District maintains separate Betterment Fund categories, one for each improvement district. An improvement district is a legally defined geographic area usually established for the purpose of bond financing of facilities. The betterment Funding Source Unrestricted and Undesignated Funding Sources Capacity Fees Diagram 3.4: Replacement Fund Category Annexation Fees Restricted Funds Restricted Funds Designated Funds Capital Improvement Fund Replacement Debt Fund Designated Replacement Fund Annexation Fund General Fund – Rates and Charges Debt Proceeds Restricted Funds Debt Fund Replacement Annexation Fund Restricted Funds Replacement Capital Improvement Fund 59.4% Replacement Fund Category Replacement Annexation Fund 230 Reserve Policy reserves within these funds are restricted by law for use within the improvement district in which the fees were collected (Water Code 71631.6). However, the legal restriction of this reserve depends upon the particular revenue source. (See Section 2.1 f. for a review of the special rates and availability fees). When considering the reserve levels of the betterment category of funds, the following funds work in concert and must be considered jointly: the Betterment Fund, Annexation Fund, Debt Fund, Capital Improvement Fund, and Designated Betterment Fund. b. Sources The Betterment Fund category receives restricted revenues by improvement district via special water rates and from availability fees collected through the county tax roll. Betterment may also be financed by debt proceeds, annexation fees, the “buy- in” portion of the capacity fee, as well as the general fund through a designation of reserves. c. Funding Levels I. Minimum Level – As the District matures the CIP will move to purely replacement projects. As the District moves through this lifecycle the need for betterment reserves will decrease and may be reduced to zero. II. Maximum Level – The maximum reserve level for the betterment category of funds is limited to five years of unfinanced betterment facilities as described in the District’s CIP Budget. To determine the unfinanced amount, the total financing need must be reduced by the projected betterment revenues, bond financing, annexation, and general fund designations. If this maximum is exceeded, then the District should evaluate reductions in the special water rates and availability fees, transferring designated reserves to meet other purposes, or shifting the timing of betterment projects. III. Target Level – The target is six months of betterment expenditures. It is important that the betterment reserves remain at a minimum of six months of betterment expenditures. This reserve level allows the District the time necessary to issue additional debt without depleting betterment reserves. If the combined betterment reserves drop below six months of expenditures this would trigger a transfer of general use reserves, a bond sale, or an adjustment to the timing of betterment projects. Bond proceeds would be placed in the Betterment Bond Fund while transfers would be placed in the Designated Betterment Fund. 231 Reserve Policy Fund Restricted Funds Unrestricted and Undesignated Funding Sources Diagram 3.5: Betterment Fund Category Funding Source Capacity Fees Annexation Fees Restricted Funds Restricted Funds Designated Funds Capital Improvement Fund Betterment Debt Fund Betterment Fund General Fund – Rates and Charges Special Rates and Availability Charges Restricted Funds Betterment Annexation Fund Debt Proceeds Restricted Funds Annexation Fund Bond Debt Designated Betterment Fund Betterment Fund Betterment Capital Improvement Fund 59.4% Betterment Fund Category 232 Reserve Policy Diagram 3.6: Fund Targets Fund or Fund Category Actions to Consider if below Target Target Maximum New Supply Fund Category New supply fee increase, bond financing, or transfer to designation or to CIF or Annexation Fund Total of all funds in fund category = six months of capital expenditures Nexus of cost to fee Expansion Fund Category Capacity fee increase, bond financing, or transfer to designation or to CIF or Annexation Fund Total of all funds in fund category = six months of capital expenditures Nexus of cost to fee Replacement Fund Category Bond financing, or transfer to designation or to CIF or Annexation Fund Total of all funds in fund category = 4% of infrastructure Nexus of cost to fee Betterment Fund Category Bond financing, or transfer to designation or to CIF or Annexation Fund Total of all funds in fund category = six months of capital expenditures 5 years unfunded needs Debt Reserve Fund Increase tax collection or rates One semi-annual payment Two semi-annual payments OPEB Fund Fund transfers Full funding Full funding General Fund Rate increase or fund transfers Three months of operating budget expenses Nine months of operating budget expenses Note: The annexation fee for sewer is a general fund revenue. Additional Restricted Funds 4.0 Capital Improvement Fund a. Purpose The “Capital Improvement Fund’s sole purpose is to track the “buy-in” portion of the capacity fee and to ensure these fees are expended solely for the purpose for which they were collected. In this case it is to pay for facilities that were in existence at the time this fee was established. These fees may be used for expansion, replacement, or betterment 233 Reserve Policy projects or any debt related to these categories. These fees may also be used for either the potable or the recycled systems. As capacity fees are collected, the “buy-in” portion of the fee is allocated as needed to one of three capital improvement funds, one in each of the Expansion, Replacement, and Betterment Fund categories. These reserves are used to pay debt or offset any negative balance within these three categories of funds. These fees may not be used to finance the New Water Supply category, as there were no new water supply facilities in existence at the time the new methodology for capacity fees was established. b. Sources The “buy-in” portion of the capacity fee collected after June 30, 2010. c. Funding Levels There are no minimums, maximums, or target levels for these reserves on an individual basis. The allocation of this fee to the various capital improvement funds is dependent on the overall reserve levels within each fund category. 4.1 Annexation Fund a. Purpose The Annexation Fund’s sole purpose is to track the potable and recycled annexation fees collected and to ensure these fees are expended solely for the purpose for which they were collected. The annexation fees may be used for expansion, replacement, or betterment projects or any debt related to these categories. These fees may be used for either the potable or recycled systems. These reserves may not be used to finance the New Water Supply category, as it was not in existence at the time the fee was established. As these fees are collected they are allocated as needed to one of three capital improvement funds, one in each of the Expansion, Replacement, and Better Fund categories. b. Sources Potable and recycled annexation fees collected after June 30, 2010. c. Uses There are no minimums, maximums, or target levels for these reserves on an individual basis. The allocation of this fee to the various Annexation Funds is dependent on the overall reserve levels within each fund category. 4.2 Debt Reserve Fund a. Purpose The Debt Reserve Fund is established to hold the proceeds from the various debt issuances. There are two types of debt, General Obligation bonds and Certificates of Participation bonds. The proceeds are transferred to the New Water Supply, Expansion, 234 Reserve Policy Replacement, or Betterment Debt Funds as they are expended for various facilities within those fund categories. As repayment of the debt occurs, the balances within these individual funds are reduced so that the financial impact of issuing debt is tracked within the category for which the debt was issued. b. Sources Debt proceeds. c. Uses There are no minimums, maximums, or target levels for this fund on an individual basis. This fund is available on an as needed basis to fund CIP projects for new water supply, expansion, replacement, or betterment. From a funding level perspective, these reserves are evaluated in the context of all the various funds within each fund category. Fund Transfers 5.0 Funding Levels As described in the preceding sections, the District maintains reserves for its operating and capital activities. These reserves can be of three types: 1) undesignated or general use reserves, 2) designated, and 3) restricted for a specific purpose. The restricted reserves can be restricted geographically and/or by purpose. The District maintains various funds to track the various designations and restrictions. The source of the money for each fund was discussed along with the purpose, source of funds, and levels. Key characteristics of these funds are the target levels, minimums, and maximums. The funding levels must be viewed in the context of the economic environment, political environment, and in light of the District’s rate model. The District’s six-year rate model not only shows the current balance but also shows the trend of the fund balances. Often the trend of the fund is a greater indicator of financial stability than is the current balance. The rate model is updated each year with the budget process and evaluates each fund over the next six years. The rate model will take into account the general economic environment, looking at the development rate, supply rate increases, the possibility of raising rates, capital infrastructure spending, and strategic plan initiatives. The fund balances may at times be over or under the target amount. This is not only acceptable but expected. The rate model provides an empirical estimate of the conformance between the projected District’s financial activities and the guidelines of this policy. 5.1 Fund Transfers Reserves within the District’s various designated funds come from interfund transfers of unrestricted general use reserves. It is important to note that the District has the ability to use 235 Reserve Policy general use reserves for any business purpose. General use reserves may be transferred to and from any unrestricted fund for any business need. Designated reserves are general use reserves which have been set aside for a specific purpose by Board action. These reserves can only be used for the purpose they were designated, or with Board action they may be used for any other business purpose. While general use reserves may be used for any restricted purpose they may not be transferred to Restricted Funds due to the sensitivity of the tracking of restricted reserves. If reserves are needed for a restricted purpose they are transferred to a Designated Fund within the fund category with that particular purpose. Reserves restricted to a fund category may only be used within that category and may not be transferred to another category. For example, the new water supply fee and the “incremental” portion of the capacity fee are restricted reserves for a specific purpose, and may not be transferred to another category as no other category has the same purpose. However, the “buy-in” portion of the capacity fees and annexation fees are restricted for purposes that are shared by more than one category of funds and may therefore be transferred to a restricted fund within another fund category as long as it shares the same purpose. In many situations reserve transfers are expected as some fund categories will exceed their maximums or drop below their minimums. Only fund categories that are below the stated target are eligible to receive transferred reserves. Fund categories that exceed their maximums are first to be considered for transfers out, followed by funds that exceed their targets. Funds that exceed their minimums are also available for reserve transfers out, but only when other options are not available. The rationale for prioritizing reserve transfers is based on the immediacy of the need and the availability of reserves from other funding sources. For example, the General Fund is first to receive reserves when it drops below its target or minimum levels. This is because of the immediate and ongoing nature of the expenditures that are served by this fund. The operation of the District is first and foremost of the objectives of the District. On the other end of the spectrum, the Replacement Fund has a long-term perspective and will be used to partially finance replacement assets for many years to come. Debt financing is available to respond to this long term, foreseeable, and planned cash flow. This fund is less likely to have immediate needs and has other financing options. When making the determination of when transfers are necessary, all funds within a fund category work as a group. The combined balance of the restricted and designated funds is looked at when determining whether the fund category requires additional funding from the Restricted Capital Improvement Fund, Restricted Annexation Fund, Restricted Debt Fund, or the General Fund. Because the Capital Improvement Fund and Annexation Fund may finance expansion, replacement or betterment reserves may be transferred between these fund categories, but only back and forth within its own type of restricted fund. 236 Reserve Policy As an example, if during the rate model update process it was determined that the Expansion Funds (designated and restricted) would drop and stay below the minimum during the six-year planning horizon, this would trigger a bond sale, a transfer of general use reserves, and/or a transfer of restricted reserves. If in the cash planning process, it was anticipated that the General Fund would remain above target during the planning horizon and that the trend did not present a problematic underfunded status, then General Fund reserves would be considered available for transfer prior to making proceeds available from a bond sale. Also, if during this period the Betterment Fund category was anticipated to exceed its maximum, then reserves from either the Designated Betterment Fund, the Annexation Fund, or the Capital Improvement Fund would be transferred to the corresponding Expansion Fund prior to a bond sale. All funds are evaluated to determine which has the greatest need or availability of reserves before any reserve transfer recommendation is presented to the Board. 237 Glossary The Reserve Policy contains terminology that is unique to public finance and budgeting. The following glossary provides assistance in understanding these terms. Annexation Fees: When water service is requested for land outside the boundaries of the District, the land to be serviced must first be annexed. For sewer service the land must be annexed into an improvement district within the District. Assets: Resources owned or held by Otay Water District that has monetary value. Availability Fees: The District levies charges each year in developed areas to be used for upgrades, betterment, or replacement and in undeveloped areas to provide a source of funding for planning, mapping, and preliminary design of facilities to meet future development. Current legislation provides that any availability charge in excess of $10.00 per acre shall be used only for the purpose of the improvement district for which it was assessed. Betterment Fees: In addition to other applicable water rates and charges, water customers pay a fee based on water service zone or Improvement District. These fees are restricted for use in the area where they are collected and may be used for the construction and maintenance of facilities. Bond: A written promise to pay a sum of money on a specific date at a specified interest rate. The interest payments and the repayment of the principal are authorized in a District bond resolution. The most common types of bonds are General Obligation (GO) bonds and Certificates of Participation (COPs). These are frequently used for construction of large capital projects such as buildings, reservoirs, pipelines and pump stations. Capital Equipment: Fixed assets such as vehicles, marine equipment, computers, furniture, technical instruments, etc. which have a life expectancy of more than two years and a value over $10,000. Capital Improvement Program: A long-range plan of the District for the construction, rehabilitation and modernization of the District-owned and operated infrastructure. CWA: The County Water Authority was organized in 1944 under the State County Water Authority Act for the primary purpose of importing Colorado River water to augment the local water supplies of the Authority's member agencies. The Authority purchases water from the Metropolitan Water District of Southern California (MWD) which imports water from the Colorado River and the State Water Project. Debt Service: The District's obligation to pay the principal and interest of bonds and other debt instruments according to a predetermined payment schedule. 238 Glossary Expenditures/Expenses: These terms refer to the outflow of funds paid or to be paid for an asset, goods, or services obtained regardless of when actually paid for. (Note: An encumbrance is not an expenditure). An encumbrance reserves funds to be expended in a future period. Fund: An account used to track the collection and use of monies for a specifically defined purpose. Fund Balance: The current funds on hand resulting from the historical collection and use of monies. The difference between assets and liabilities reported in the District’s Operating Fund plus residual equities or balances and changes therein, from the results of operations. Interest Income: Earnings from the investment portfolio. Per District Policy Number 25, interest income will be allocated to the various funds each month based upon each fund’s prior month- ending balance. Late Charges/Penalties: Charges and penalties are imposed on customer accounts for late payments, returned payments, and other infringements of the District’s Code of Ordinances. 1% Property Tax: In 1978, Proposition 13 limited general levy property tax rates for all taxing authorities to a total rate of 1% of full cash value. Subsequent legislation, AB 8, established that the receipts from the 1% levy were to be distributed to taxing agencies according to approximately the same proportions received prior to Proposition 13. Funds received are to be used for facilities construction or debt service on bonds sold to build facilities. Operating Budget: The portion of the budget that pertains to daily operations that provide basic governmental services. The operating budget contains appropriations for such expenditures as personnel, supplies, utilities, materials, travel and fuel, and does not include purchases of major capital plant or equipment which is budgeted for separately in the Capital Budget. The Operating Budget also identifies planned non-operating revenues and expenses. Revenue: Monies that the District receives as income. It includes such items as water sales and sewer fees. Estimated revenues are those expected to be collected during the fiscal year. System Fees: Each water service customer pays a monthly system charge for water system replacement, maintenance, and operation expenses. The charge is based on the size of the meter and class of service. Taxes: California Water Code Section 72091 authorizes the District, as a municipal water district, to levy ad valorem property taxes which are equal to the amount required to make annual payments for principal and interest on General Obligation bonds approved by the voters prior to July 1, 1978. 239 Glossary Unit: A Unit of water is 100 cubic feet or 748 gallons of water. Water Rates: Rates vary among classes of service and are measured in Units. The water rates for residential customers are based on an accelerated block structure. As more Units are consumed, a higher Unit rate is charged. Effective in 2009, all non-residential customers are charged for water based on a tiered rate structure in which water rates are based on meter size and amount of Units consumed. 240 Investment Policy 1.0 POLICY It is the policy of the Otay Water District to invest public funds in a manner which will provide maximum security with the best interest return, while meeting the daily cash flow demands of the entity and conforming to all state statues governing the investment of public funds. 2.0 SCOPE This investment policy applies to all financial assets of the Otay Water District. The District pools all cash for investment purposes. These funds are accounted for in the District’s audited Comprehensive Annual Financial Report (CAFR) and include: 2.1) General Fund 2.2) Capital Project Funds 2.2.1) Designated Expansion Fund 2.2.2) Restricted Expansion Fund 2.2.3) Designated Betterment Fund 2.2.4) Restricted Betterment Fund 2.2.5) Designated Replacement Fund 2.2.6) Restricted New Water Supply Fund 2.3) Other Post Employment Fund (OPEB) 2.4) Debt Reserve Fund Exceptions to the pooling of funds do exist for tax-exempt debt proceeds, debt reserves and deferred compensation funds. Funds received from the sale of general obligation bonds, certificates of participation or other tax-exempt financing vehicles are segregated from pooled investments and the investment of such funds are guided by the legal documents that govern the terms of such debt issuances. 3.0 PRUDENCE Investments should be made with judgment and care, under current prevailing circumstances, which persons of prudence, discretion and intelligence, exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the “Prudent Person” and/or "Prudent Investor" standard (California Government Code 53600.3) and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment 241 Investment Policy policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 4.0 OBJECTIVE As specified in the California Government Code 53600.5, when investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds, the primary objectives, in priority order, of the investment activities shall be: 4.1) Safety: Safety of principal is the foremost objective of the investment program. Investments of the Otay Water District shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the District will diversify its investments by investing funds among a variety of securities offering independent returns and financial institutions. 4.2) Liquidity: The Otay Water District’s investment portfolio will remain sufficiently liquid to enable the District to meet all operating requirements which might be reasonably anticipated. 4.3) Return on Investment: The Otay Water District’s investment portfolio shall be designed with the objective of attaining a benchmark rate of return throughout budgetary and economic cycles, commensurate with the District’s investment risk constraints and the cash flow characteristics of the portfolio. 5.0 DELEGATION OF AUTHORITY Authority to manage the Otay Water District’s investment program is derived from the California Government Code, Sections 53600 through 53692. Management responsibility for the investment program is hereby delegated to the Chief Financial Officer (CFO), who shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and their procedures in the absence of the CFO. The CFO shall establish written investment policy procedures for the operation of the investment program consistent with this policy. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the CFO. 242 Investment Policy 6.0 ETHICS AND CONFLICTS OF INTEREST Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the General Manager any material financial interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the District. 7.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The Chief Financial Officer shall maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers who are authorized to provide investment services in the State of California. These may include “primary” dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1 (Uniform Net Capital Rule). No public deposit shall be made except in a qualified public depository as established by state laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the District with the following, as appropriate:  Audited Financial Statements.  Proof of National Association of Security Dealers (NASD) certification.  Proof of state registration.  Completed broker/dealer questionnaire.  Certification of having read the District’s Investment Policy.  Evidence of adequate insurance coverage. An annual review of the financial condition and registrations of qualified bidders will be conducted by the CFO. A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the District invests. 8.0 AUTHORIZED AND SUITABLE INVESTMENTS From the governing body perspective, special care must be taken to ensure that the list of instruments includes only those allowed by law and those that local investment managers are trained and competent to handle. The District is governed by the California Government Code, Sections 53600 through 53692, to invest in the following types of securities, as further limited herein: 243 Investment Policy 8.01) United States Treasury Bills, Bonds, Notes or those instruments for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no percentage limitation of the portfolio which can be invested in this category, although a five-year maturity limitation is applicable. 8.02) Local Agency Investment Fund (LAIF), which is a State of California managed investment pool, may be used up to the maximum permitted by State Law (currently $50 million). The District may also invest bond proceeds in LAIF with the same but independent maximum limitation. 8.03) Bonds, debentures, notes and other evidence of indebtedness issued by any of the following government agency issuers:  Federal Home Loan Bank (FHLB)  Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac")  Federal National Mortgage Association (FNMA or "Fannie Mae")  Government National Mortgage Association (GNMA or “Ginnie Mae”)  Federal Farm Credit Bank (FFCB)  Federal Agricultural Mortgage Corporation ( FAMCA or “Farmer Mac”) There is no percentage limitation of the portfolio which can be invested in this category, although a five-year maturity limitation is applicable. Government agencies whose implied guarantee has been reduced or eliminated shall require an “A” rating or higher by a nationally recognized statistical rating organization. 8.04) Interest-bearing demand deposit accounts and Certificates of Deposit (CD) will be made only in Federal Deposit Insurance Corporation (FDIC) insured accounts. For deposits in excess of the insured maximum of $250,000, approved collateral shall be required in accordance with California Government Code, Section 53652. Investments in CD’s are limited to 15 percent of the District’s portfolio. 8.05) Commercial paper, which is short-term, unsecured promissory notes of corporate and public entities. Purchases of eligible commercial paper may not exceed 10 percent of the outstanding paper of an issuing corporation, and maximum investment maturity will be restricted to 270 days. Investment is further limited as described in California Government Code, Section 53601(h). Purchases of commercial paper may not exceed 10 percent of the District’s portfolio and no more than 10 percent of the outstanding commercial paper of any single issuer. 8.06) Medium-term notes defined as all corporate debt securities with a maximum remaining maturity of five years or less, and that meet the further requirements of California Government Code, Section 53601(k). Investments in medium-term notes are limited to 10 percent of the District’s portfolio. 244 Investment Policy 8.07) Money market mutual funds that invest only in Treasury securities and repurchase agreements collateralized with Treasury securities, and that meet the further requirements of California Government Code, Section 53601(l). Investments in money market mutual funds are limited to 10 percent of the District's portfolio. 8.08) The San Diego County Treasurer’s Pooled Money Fund, which is a County managed investment pool, may be used by the Otay Water District to invest excess funds. There is no percentage limitation of the portfolio which can be invested in this category. 8.09) Under the provisions of California Government Code 53601.6, the Otay Water District shall not invest any funds covered by this Investment Policy in inverse floaters, range notes, interest-only strips derived from mortgage pools, or any investment that may result in a zero interest accrual if held to maturity. Also, the borrowing of funds for investment purposes, known as leveraging, is prohibited. 9.0 INVESTMENT POOLS/MUTUAL FUNDS A thorough investigation of the pool/fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed which will answer the following general questions:  A description of eligible investment securities, and a written statement of investment policy and objectives.  A description of interest calculations and how it is distributed, and how gains and losses are treated.  A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited.  A description of who may invest in the program, how often, and what size deposits and withdrawals are allowed.  A schedule for receiving statements and portfolio listings.  Are reserves, retained earnings, etc., utilized by the pool/fund?  A fee schedule, and when and how is it assessed.  Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds? 10.0 COLLATERALIZATION Collateralization will be required on certificates of deposit. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 102% of market value of principal and accrued interest. Collateral will always be held by an independent third party with whom the entity has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the entity and retained. The right of collateral substitution is granted. 245 Investment Policy 11.0 SAFEKEEPING AND CUSTODY All security transactions entered into by the Otay Water District shall be conducted on a delivery-versus- payment (DVP) basis. Securities will be held by a third party custodian designated by the District and evidenced by safekeeping receipts. 12.0 DIVERSIFICATION The Otay Water District will diversify its investments by security type and institution, with limitations on the total amounts invested in each security type as detailed in Paragraph 8.0, above, so as to reduce overall portfolio risks while attaining benchmark average rate of return. With the exception of U.S. Treasury securities, government agencies, and authorized pools, no more than 50% of the District’s total investment portfolio will be invested with a single financial institution. 13.0 MAXIMUM MATURITIES To the extent possible, the Otay Water District will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the District will not directly invest in securities maturing more than five years from the date of purchase. However, for time deposits with banks or savings and loan associations, investment maturities will not exceed two years. Investments in commercial paper will be restricted to 270 days. 14.0 INTERNAL CONTROL The Chief Financial Officer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. 15.0 PERFORMANCE STANDARDS The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. The Otay Water District’s investment strategy is passive. Given this strategy, the basis used by the CFO to determine whether market yields are being achieved shall be the State of California Local Agency Investment Fund (LAIF) as a comparable benchmark. 246 Investment Policy 16.0 REPORTING The Chief Financial Officer shall provide the Board of Directors monthly investment reports which provide a clear picture of the status of the current investment portfolio. The management report should include comments on the fixed income markets and economic conditions, discussions regarding restrictions on percentage of investment by categories, possible changes in the portfolio structure going forward and thoughts on investment strategies. Schedules in the quarterly report should include the following:  A listing of individual securities held at the end of the reporting period by authorized investment category.  Average life and final maturity of all investments listed.  Coupon, discount or earnings rate.  Par value, amortized book value, and market value.  Percentage of the portfolio represented by each investment category.  17.0 INVESTMENT POLICY ADOPTION The Otay Water District’s investment policy shall be adopted by resolution of the District’s Board of Directors. The policy shall be reviewed annually by the Board and any modifications made thereto must be approved by the Board. 18.0 GLOSSARY See Appendix A. 247 GLOSSARY APPENDIX A: GLOSSARY ACTIVE INVESTING: Active investors will purchase investments and continuously monitor their activity, often looking at the price movements of their stocks many times a day, in order to exploit profitable conditions. Typically, active investors are seeking short term profits. AGENCIES: Federal agency securities and/or Government-sponsored enterprises. BANKERS’ ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio’s investments. BROKER/DEALER: Any individual or firm in the business of buying and selling securities for itself and others. Broker/dealers must register with the SEC. When acting as a broker, a broker/dealer executes orders on behalf of his/her client. When acting as a dealer, a broker/dealer executes trades for his/her firm's own account. Securities bought for the firm's own account may be sold to clients or other firms, or become a part of the firm's holdings. CERTIFICATE OF DEPOSIT (CD): A short or medium term, interest bearing, FDIC insured debt instrument offered by banks and savings and loans. Money removed before maturity is subject to a penalty. CDs are a low risk, low return investment, and are also known as “time deposits”, because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from a few months to several years. COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMMERCIAL PAPER: An unsecured short-term promissory note, issued by corporations, with maturities ranging from 2 to 270 days. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the Otay Water District. It includes detailed financial information prepared in conformity with generally accepted accounting principles (GAAP). It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a detailed statistical section. 248 COUPON: (a) The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value. (b) A certificate attached to a bond evidencing interest due on a set date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L’s, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures deposits in member banks and thrifts, currently up to $100,000 per deposit. FEDERAL FARM CREDIT BANK (FFCB): The Federal Farm Credit Bank system supports agricultural loans and issues securities and bonds in financial markets backed by these loans. It has consolidated the financing programs of several related farm credit agencies and corporations. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations. 249 FEDERAL AGRICULTURAL MORTAGE CORPORATION (FAMC or Farmer Mac): A stockholder owned, publicly-traded corporation that was established under the Agricultural Credit Act of 1987, which added a new Title VIII to the Farm Credit Act of 1971. Farmer Mac is a government sponsored enterprise, whose mission is to provide a secondary market for agricultural real estate mortgage loans, rural housing mortgage loans, and rural utility cooperative loans. The corporation is authorized to purchase and guarantee securities. Farmer Mac guarantees that all security holders will receive timely payments of principal and interest. FEDERAL HOME LOAN BANK (FHLB): Government sponsored wholesale banks (currently 12 regional banks), which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC or Freddie Mac): A stockholder owned, publicly traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issue securities and bonds in financial markets backed by those mortgages in secondary markets. Freddie Mac, like its competitor Fannie Mae, is regulated by the United States Department of Housing and Urban Development (HUD). FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae is a private stockholder-owned corporation. The corporation’s purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): A government owned agency which buys mortgages from lending institutions, securitizes them, and then sells them to investors. Because the payments to investors are guaranteed by the full faith and credit of the U.S. Government, they return slightly less interest than other mortgage-backed securities. INTEREST-ONLY STRIPS: A mortgage backed instrument where the investor receives only the interest, no principal, from a pool of mortgages. Issues are highly interest rate sensitive, and cash flows vary between interest periods. Also, the maturity date may occur earlier than that stated if all loans within the pool are pre- paid. High prepayments on underlying mortgages can return less to the holder than the dollar amount invested. 250 INVERSE FLOATER: A bond or note that does not earn a fixed rate of interest. Rather, the interest rate is tied to a specific interest rate index identified in the bond/note structure. The interest rate earned by the bond/note will move in the opposite direction of the index. An inverse floater increases the market rate risk and modified duration of the investment. LEVERAGE: Investing with borrowed money with the expectation that the interest earned on the investment will exceed the interest paid on the borrowed money. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase/reverse repurchase agreements that establish each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded. MUTUAL FUNDS: An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Mutual funds raise money by selling shares of the fund to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds, and money market instruments. MONEY MARKET MUTUAL FUNDS: An open-end mutual fund which invests only in money markets. These funds invest in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD): A self-regulatory organization of the securities industry responsible for the operation and regulation of the NASDAQ stock market and over-the- counter markets. Its regulatory mandate includes authority over firms that distribute mutual fund shares as well as other securities. 251 PASSIVE INVESTING: An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long term appreciation and limited maintenance, and typically don’t actively attempt to profit from short term price fluctuations. Also known as a buy-and- hold strategy. PRIMARY DEALER: A designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria, including capital requirements and participation in Treasury auctions. These dealers submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission registered securities broker/dealers, banks, and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state—the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. PUBLIC SECURITIES ASSOCIATION (PSA): A trade organization of dealers, brokers, and bankers who underwrite and trade securities offerings. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RANGE NOTE: An investment whose coupon payment varies and is dependent on whether the current benchmark falls within a pre-determined range. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REGIONAL DEALER: A securities broker/dealer, registered with the Securities & Exchange Commission (SEC), who meets all of the licensing requirements for buying and selling securities. REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security “buyer” in effect lends the “seller” money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection. 252 SECONDARY MARKET: A market made for the purchase and sale of outstanding securities issues following their initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, FAMCA, etc.), and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve. TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 253 Debt Policy 1.0 Policy It is the policy of the Otay Water District to finance the acquisition of high value assets that have an extended useful life through a combination of current revenues and debt financing. Regularly updated debt policies and procedures are an important tool to insure the use of the District’s resources to meet its commitments, to provide the highest quality of service to the District’s customers, and to maintain sound financial management practices. These guidelines are for general use and allow for exceptions as circumstances dictate. 2.0 Scope This policy is enacted in an effort to standardize the issuance and management of debt by the Otay Water District. The primary objective is to establish conditions for the use of debt, to minimize the District’s debt service requirements and cost of issuance, to retain the highest practical credit rating, maintain full and complete financial disclosure and reporting, and to maintain financial flexibility for the District. This policy applies to all debt issued by the District including general obligation bonds, revenue bonds, capital leases and special assessment debt. 3.0 Legal and Regulatory Requirements The Chief Financial Officer (CFO) and the District’s Legal Counsel will coordinate their activities to ensure that all securities are issued in full compliance with Federal and State law. 4.0 Capital Facilities Funding Financial Planning The District maintains a six-year financial projection that identifies operating requirements and public facility and equipment requirements, and has developed a Rate Model for funding the District’s Six-Year Capital Improvement Program (CIP). The District’s CIP Budget places the capital requirements in order of priority and schedules them for funding and implementation. It identifies a full range of capital needs, provides for the ranking of the importance of such needs, and identifies all the funding sources that are available to cover the costs of the projects. In cases where the program identifies project funding through the use of debt financing, the budget should provide information needed to determine debt capacity. The Rate Model and the CIP Budget give the Board part of the data needed to make informed judgments concerning the possibility of issuing debt. Funding Criteria The Chief Financial Officer (CFO) will evaluate all capital project requests and develop a proposed funding plan. Priority may be given to those projects that can be funded with current resources 254254254 Debt Policy (annual cash flow, fund balances or reserves). Those projects that cannot be funded with current resources may be deferred or the CFO may recommend that they be funded with debt financing. However, debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures. The issuance of short-term cash-flow instruments is excluded from this limitation. The General Manager will recommend the funding plan to the Board. The General Manager may deem it necessary or desirable in certain circumstances to convene a Finance Committee meeting to evaluate funding options presented by the Chief Financial Officer. Funding Sources The District’s capital improvements can be classified in three categories: those related to an expansion of the system (“expansion”), those related to upgrading the existing system (“betterment”) and those related to repairing or replacing existing infrastructure (“replacement”). In general, capital improvements for betterment or replacement are financed primarily through user charges, availability charges, and betterment charges. Capital improvements for expansion are financed through capacity fees. Accordingly, these fees are reviewed at least annually or more frequently as required and set at levels sufficient to ensure that new development pays its fair share of the costs of constructing necessary infrastructure. Additionally, the District will seek State and Federal grants and other forms of intergovernmental aid wherever possible. Pay-As-You-Go Projects The District’s capacity fees are the major funding source in financing additions to the water system and the recycled water system. Over time, the fees collected and the cost to construct the capital projects should balance. However, collection of these fees is subject to significant fluctuation based on the rate of new development. Accordingly, the Chief Financial Officer, in developing the funding plan for the CIP, will determine that current revenues and adequate fund balances are available so project phasing can be accomplished. If this is not the case, the Chief Financial Officer may recommend that: 1. The project be deferred until funds are available, or 2. Based on the priority of the project, long-term debt is issued to finance the project. Debt Financed Projects If a project or projects are to be financed with long-term debt, the District should use the following criteria to evaluate the suitability of the financing for the particular project or projects: 1. The life of the project or asset to be financed is 10 years or longer and its useful life is expected to exceed the term of the financing. 255255255 Debt Policy 2. Revenues available for debt service are deemed to be sufficient and reliable so that long- term financing can be marketed without jeopardizing the credit rating of the District. 3. Market conditions present favorable interest rates and demand for District financing. 4. The project is mandated by State and/or Federal requirements and current resources are insufficient or unavailable. 5. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. 5.0 Debt Structure General The District will normally issue debt with a maturity of not more than 30 years. The structure should approximate level debt service for the term where it is practical or desirable. There will be no debt structures that include increasing debt service levels in subsequent years, with the first and second year of a debt payoff schedule the exception and related to projected additional income to be generated by the project to be funded. There will be no "balloon" debt repayment schedules that consist of low annual payments and one large payment of the balance due at the end of the term. There will always be at least interest paid in the first fiscal year after debt issuance and principal starting no later than the first fiscal year after the date the facility or equipment is expected to be placed in service. Capitalized interest will not be for a period of more than necessary to provide adequate security for the financing. Limitations on the Issuance of Variable Rate Debt The District will normally issue debt with a fixed rate of interest. The District may issue variable rate for the purpose of managing its interest costs. At the same time, the District should protect itself from too much exposure to interest rate fluctuations. In determining that it is in the District’s best interest to issue certain debt at variable rates instead of fixed rates, at the time of issuing any variable rate debt, there should be at least a 10% estimated reduction in annual debt costs by issuing variable rate debt when compared to a similar issuance of fixed rate debt. If the estimated overall cost savings from issuing variable rate debt is not at least 10% at the time of issuance, relatively small fluctuations in rates could actually increase the District’s financing costs over the life of the bonds compared to a similar fixed rate financing. By using this 10% factor at the time of issuance, the District can be relatively assured that its variable rate financing will be cost-effective over the term of the bonds. The comparison will be based on the following criteria: 1. The interest rate used to estimate interest costs will be the 10 year average for weekly variable rates. 256256256 Debt Policy 2. The variable rate debt costs will include an estimate for annual costs such as letter of credit fees, liquidity fees, remarketing fees, monthly draw fees and annual rating fees applicable to the letter of credit. 3. Any potential reserve fund earnings will reduce the fixed rate debt service or variable rate debt service, as applicable. Periodically, using the criteria described above, the Chief Financial Officer will compare the estimated annual debt service costs to maturity of any variable rate debt with estimated debt service if the debt was converted to fixed rates. If this analysis produces a break even in total payments over the life of the issue, the Chief Financial Officer will recommend converting such variable rate debt to fixed rate. Variable rate debt should not represent more than 25% of the District’s total debt portfolio. This level of exposure to interest rate fluctuations is considered to be manageable in an environment of increasing interest rates. At a higher ratio than this, the District might be faced with an unplanned water rate increase to meet its Rate Covenants. Rating agencies use this ratio in their analysis of the District’s overall credit rating. Further, Rate Covenants applicable to variable rate debt shall not compromise the issuance of additional debt planned by the District and variable rate debt should always contain a provision to allow conversion to a fixed rate at the District’s option. 6.0 Credit Objectives The Otay Water District seeks to maintain the highest possible credit ratings for all categories of long-term debt that can be achieved without compromising delivery of basic services and achievement of District policy objectives. Factors taken into account in determining the credit rating for a financing include: 1. Diversity of the District’s customer base. 2. Proven track record of completing capital projects on time and within budget. 3. Strong, professional management. 4. Adequate levels of staffing for services provided. 5. Reserves. 6. Ability to consistently meet or exceed Rate Covenants. The District recognizes that external economic, natural, or other events may from time to time affect the creditworthiness of its debt. Nevertheless, the District is committed to ensuring that actions within its control are prudent and well planned. 257257257 Debt Policy 7.0 Competitive and Negotiated Sale Criteria Competitive Sale The District will use a competitive bidding process in the sale of debt unless the nature of the issue or specific circumstances warrants a negotiated sale. The CFO will determine the best bid in a competitive sale by calculating the true interest cost (TIC) of each bid. Negotiated Sale Types of debt that would typically lend themselves to the negotiated sale format are variable rate debt and unrated debt. Circumstances that might warrant a negotiated sale may occur when the issue is of a limited size that would not attract wide-spread investor interest, during periods of high levels of issuance by other entities in the State, or during periods of market volatility. In the event the District decides to use a negotiated sale, it will pay management fees only to those firms that place orders for bonds. If the size of the District’s proposed issue is not cost effective, the District may also consider issuing its debt though the California Statewide Communities Development Authority, which provides a mechanism for pooling financings with similar issuers to obtain economies of scale. 8.0 Refunding Debt Purpose Periodic reviews of all outstanding debt will be undertaken by the Chief Financial Officer to determine refunding (refinancing) opportunities. The purpose of the refinancing may be to: 1. Lower annual debt service by taking advantage of lower current interest rates. 2. Update or revise covenants on outstanding debt issue if a Rate Covenant appears to be too high, has precluded the District from implementing its financing plan, or has caused the District to increase rates to customers. 3. Restructure debt service associated with an issue to facilitate the issuance of additional debt, usually in order to smooth out peaks in total debt service which can occur frequently as one debt issue is layered on top of existing debt issues. 4. Alter bond characteristics such as call provisions or payment dates. 5. Pay for conversion costs such as funding a reserve fund or paying for credit enhancement when converting variable rate debt to fixed rate debt. Restrictions on Refunding Tax-exempt bonds typically have provisions that preclude early redemption of the bonds for a period of years after issuance. The number of times a tax-exempt bond can be refinanced prior to 258258258 Debt Policy its Optional Redemption date (known as Advance Refunding) is limited by the IRS. For debt issued after 1986, issuers may only provide for Advance Refunding of obligations in advance of the Optional Redemption date one time. There is no limit by the IRS on the ability of issuers to redeem bonds early once the Optional Redemption date has been reached. Savings Criteria In cases where an Advance Refunding is intended to provide debt service savings, the District may commence the refinancing process if a minimum five percent (5%) present value savings net of issuance costs and any cash contributions can be demonstrated. Since interest rates may fluctuate between the time when a refinancing is authorized and when the debt is issued, beginning the process with at least a 5% savings should provide the District with some level of protection that it can achieve a minimum of three percent (3%) net present value savings of the refunding bonds when and if the debt is issued. These minimum standards are intended to protect the District staff from spending time on refinancings that become marginally cost-effective after the entire issuance process is complete. The savings target may be waived, however, if sufficient justification for lowering the savings target can be provided by meeting one or more of the other refunding objectives described above. 9.0 Subordinate Lien Debt The District will issue subordinate lien debt only if it is financially beneficial to the District or consistent with creditworthiness objectives. Subordinate lien debt is structured to be payable second in priority to the District’s other outstanding debt. Typically, subordinate lien debt might be issued if the District desired a more flexible Rate Covenant with respect to its new obligations and did not want to refinance all of its existing debt to obtain that less restrictive Rate Covenant. 10.0 Derivatives The District may consider the use of derivative products on a case-by-case basis, consistent with State statute and financial prudence. The most common derivatives include transactions known as “swaps,” in which the District, by contract with an investment bank (known as a “provider”), swaps its fixed rate debt payments for variable rate debt payments or vice versa, and “forwards,” in which the District enters into a purchase contract with an underwriter to purchase refunding bonds at a future date at interest rates locked in today (not at today’s rates, but at rates locked in today). Derivative products introduce an additional risk factor into a financing, called “third-party risk.” Once a derivative product is entered into, the District must rely upon the financial stability of the provider to perform under the contract. Because the nature of derivatives is speculative, that is, the District is assuming that rates will either go up or down over the period of the contract and therefore expects to lock in a financial benefit today based on that assumption, the financial benefits actually obtained from any derivative contract need to be monitored periodically to 259259259 Debt Policy determine if it is in the District’s interest to terminate the contract and what the penalty might be for early termination. This requires a certain level of vigilance, and impartial advice in this area is actually difficult to obtain since the derivative market is not particularly liquid or price-transparent and is currently made up of a small handful of reputable providers. There must be an overwhelming demonstrable financial benefit to the District based on reasonable assumptions concerning future interest rates in order for the District to use derivative products. 11.0 Financing Participants The District’s purchasing guidelines provide the process for securing professional services related to individual debt issues. The solicitation and selection process include encouraging participation from qualified service providers, both local and national, and securing services at competitive prices. Financial Advisor: The use of a Financial Advisor is necessary for the sale of debt by a competitive bid process and is desirable when issuing debt through a negotiated sale. The Financial Advisor has a fiduciary duty to the District and will seek to structure the District’s debt in the manner that is saleable, yet meets the District’s objectives for the financing. The Financial Advisor will advise the District on alternative structures for its debt, the cost of different debt structures and potential pricing mechanisms that can be expected from underwriters (such as call features, term bonds and premium and discount bond pricing) and, at the District’s direction, will write the offering document (preliminary official statement). With respect to competitive sales, the Financial Advisor will arrange for distributing the preliminary official statement, accepting bids via the internet, verifying the lowest bid and provide detailed instructions for the flow of funds at closing to the winning Underwriter, the Trustee and the District. In a negotiated sale, the Financial Advisor will provide independent confirmation on the Underwriter’s proposed pricing to ensure that interest rates and Underwriter’s compensation are appropriate for the credit quality of the issue and competitive in the overall public finance market in California. Underwriter: The Underwriter markets the bonds for sale to investors. While the District’s preference is to select the Underwriter for the debt via sale of the debt at competitive bid, there are circumstances when a negotiated issue is in the best interests of the District. Negotiated sales are preferable if the security features are particularly complex or market conditions are volatile. The Chief Financial Officer will recommend whether the method of sale is competitive or negotiated based on the type of issue and other market conditions. In the case of negotiated sales, the Underwriter will be required to demonstrate sufficient capitalization and sufficient experience related to the specific type of debt issuance. The Underwriter will work in connection with the District’s Financial Advisor on structuring the issue and offering different pricing ideas. 260260260 Debt Policy Bond Counsel : The District’s Bond Counsel provides the primary legal documents that detail the security for the bonds and the authority under which bonds are issued. The Bond Counsel also provides an opinion to bond holders that the bonds are tax-exempt under both State and Federal law. All closing documents in connection with an issue are also prepared by Bond Counsel. Disclosure Counsel: The District’s Disclosure Counsel provides legal advice to the District regarding the adequacy of the District’s disclosure of financial information or risks of investing in the District’s debt issue to the investing public. The Disclosure Counsel can prepare the official statement or review the official statement and gives the District an opinion that there is no information missing from the official statement of a material nature that would be necessary for an investor to make an informed decision about investing in the District’s bonds. Trustee: The Trustee is a financial institution selected by the District to administer the collection of revenues pledged to repay the bonds and to distribute those funds to bondholders. Letter of Credit Bank: The Letter of Credit Bank is a U.S. or foreign bank that has issued a letter of credit providing both credit enhancement (the Letter of Credit Bank will pay the debt in the event that the District defaults on the payment) and liquidity for a variable rate bond issue. These banks have their own short-term credit rating, which is generally higher than the District’s short-term credit rating. Liquidity is needed because variable rate bondholders are allowed to “put” their bonds back to the District if they do not like the interest rate currently being offered. The District’s Remarketing Agent then finds a new buyer for those bonds, but in the event that no buyer is found, a draw is made under the letter of credit to purchase the bonds that have been “put.” As soon as the bonds are remarketed to another buyer, the letter of credit is repaid. The letter of credit fees are paid annually. Letter of credits are typically issued for 5-7 years and must be renewed during the life of the bonds. Credit enhancement is discussed further under the heading “CREDIT ENHANCEMENT.” Municipal Bond Insurer: The Municipal Bond Insurer can be one of several insurance companies that provide municipal bond insurance policies securing payment of the District’s debt. These policies provide that the Municipal Bond Insurer will pay the District’s debt in the event that the District defaults on its payments. Debt which is insured carries the Municipal Bond Insurer’s credit rating, in most cases, AAA. The insurance premium for the bond insurance policy is paid one time at the issuance of the debt and is non-cancelable for the term of the debt. Unlike a letter of credit, bond insurance policies do not provide liquidity and are most typically purchased for fixed rate debt. Remarketing Agent: The Remarketing Agent is an investment bank that, each week, determines the interest rate for the District’s variable rate obligations. The rate is set at the rate at which the obligations could be sold on the open market at 100% of their face value. The Remarketing Agent also finds new buyers for any of the obligations that are “put” back to the District. 261261261 Debt Policy Rating Agencies:: Currently, there are three rating agencies that rate municipal debt in the United States: Standard & Poor’s, Moody’s Investors Service, and Fitch Investors Service. Rating agencies establish objective criteria under which each type of financing undertaken by the District is to be analyzed. Upon request, a rating agency will rate the underlying strength of the District’s financings, without regard to the purchase of any credit enhancement. The rating is released to the general public and thereafter, the rating agency will periodically update its analysis of a particular issue, and may raise or lower the rating if circumstances warrant. Investment-grade ratings range from “AAA” to “BBB.” A rating below “BBB” is not investment grade. Many mutual funds cannot buy bonds that do not carry an investment grade. Verification Agent : In a refunding, the District will deposit funds with an escrow agent (usually the trustee) in an amount sufficient, together with earnings thereon, to pay the debt service and redemption price of the debt being refunded through and including the call date. The Verification Agent verifies the mathematical accuracy of calculation of the amount to be deposited in escrow and the bond counsel relies on this verification in giving their opinion that the debt is defeased within the meaning of the indenture and that the lien of the debt on the revenues pledged to the debt being refunded is released. 12.0 Conflict of Interest and Standards of Conduct Members of the District, the Board of Directors and its consultants, service providers and underwriters shall adhere to standards of conduct and conflict of interest rules as stipulated by the California Political Reform Act or the Municipal Securities Rulemaking Board (MSRB), as applicable. All debt financing participants shall maintain the highest standards of professional conduct at all times, in accordance with MSRB Rules, including Rule G-37. There shall be no conflict of interest with the District with any debt financing participant. 13.0 Continuing Disclosure The District acknowledges the responsibilities of the underwriting community and pledges to make all reasonable efforts to assist underwriters in their efforts to comply with SEC Rule 15c2-12 and MSRB Rule G-36. The District will file its official statements with the MSRB and the nationally recognized municipal securities information repositories. The District will also post copies of its comprehensive financial reports on the Internet and provide hard copies of these documents to interested parties upon request, and will disseminate other information that it deems pertinent to the market in a timely manner. While initial bond disclosure requirements pertain to underwriters, the District will provide financial information and notices of material events on an ongoing basis throughout the life of the issue. Material events are defined as those events which are considered to likely reflect on the credit supporting the securities. The events considered material according to the SEC are: 262262262 Debt Policy 1. Rating changes. 2. Non-payment related defaults. 3. Adverse tax opinions or events affecting the tax exempt status. 4. Unscheduled draws on debt service reserves or credit enhancements reflecting financial difficulties. 5. Modifications to the rights of securities holders. 6. Defeasance. 7. Bond calls. 8. Release, substitution, or sale of property securing repayment of the securities. 9. Substitution of credit or liquidity providers, or their failure to perform. 10. Principal and interest payment delinquencies. 14.0 Investment and Arbitrage Compliance Tax-exempt bonds are required to meet certain provisions of the federal tax code in order to maintain their tax-exempt status. In order to prevent municipal issuers from borrowing money at tax-exempt rates solely for the purpose of investing the proceeds in higher yielding investments and making a profit (“arbitrage”), the federal tax code contains a provision that requires issuers to compare the interest earned on any bond funds held (such as a reserve fund) with interest that would theoretically be earned if the funds were invested at the yield of the bonds, and to “rebate” to the federal government any interest earned in excess of the theoretical earnings limit. The Chief Financial Officer shall invest the bond proceeds subject to the District’s Investment Policy in a timely manner, to ensure the availability of funds to meet operational requirements. In doing so, the CFO will maintain a system of record keeping and reporting to meet the arbitrage rebate compliance requirements of the federal tax code. 15.0 Types of Debt Financing General Obligation Bonds General obligation bonds are secured by a pledge of the ad-valorem taxing power of the issuer and are also known as a full faith and credit obligations. Bonds of this nature must serve a public purpose to be considered lawful taxation of the property owners within the District and require a two third’s majority vote in a general election. The benefit of the improvements or assets constructed and acquired as a result of this type of bond must be generally available to all property owners. The District can issue general obligation bonds up to but not in excess of 15% of the assessed valuation under Article XVI, Section 18 of the State constitution. An annual amount of the levy necessary to meet debt service requirements is calculated and placed on the tax roll through the 263263263 Debt Policy County of San Diego. The District also has a policy that the ad-valorem tax to be used to pay debt service on general obligation bonds will not exceed $.10 per $100 of assessed value. Voters within Improvement District No. 27 of the District authorized $100 million general obligation bonds in 1989. The District issued $11,500,000 general obligation bonds in 1992 and refinanced the bonds in 1998. The District also has approximately $29 million in general obligation bonds authorized between 1960 and 1978 for various Improvement Districts throughout the District, but unissued. General obligation bonds can only be issued under these existing authorizations to the extent necessary to fund the improvements specified by each ballot measure. General obligation bonds generally are regarded as the broadest and soundest security among tax-secured debt instruments. An unlimited-tax pledge would enable a trustee to invoke mandamus to force the District to raise the tax rate as much as necessary to pay off the bonds. General obligation bonds have other credit strengths as well: the property tax tends to be a steady and predictable revenue source, and when a vote is required to issue them, bondholders have some indication of taxpayers’ willingness to pay. General obligation bonds carry the highest credit rating that a public agency can achieve and therefore, the lowest interest cost. General obligation bonds typically are issued to finance capital facilities and not for ongoing operational or maintenance costs. The District will use an objective analytical approach to determine whether it can afford to assume new general obligation debt for the improvement districts, or in the case of projects not approved by the original ID 27 vote, prior to any submission of a general obligation bond ballot measure to voters. This process will compare generally accepted standards of affordability to the current values for the District. These standards will include debt per capita, debt as a percent of taxable value, debt service payments as a percent of current revenues and current expenditures, and the level of overlapping net debt of all local taxing jurisdictions. The process will also examine the direct costs and benefits of the proposed expenditures. The decision on whether or not to assume new debt will be based on these costs and benefits, the current conditions of the municipal bond market, and the District’s ability to "afford" new debt as determined by the aforementioned standards. Revenue Bonds Revenue bonds are limited-liability obligations that pledge net revenues of the District to debt service. The net revenue pledge is after payment of all operating costs. Though revenue bonds are not generally secured by the full faith and credit of the District, the financial markets require coverage ratios of the pledged revenue stream and a covenant to levy rates and charges sufficient to produce net income at some level in excess of debt service (a Rate Covenant). 264264264 Debt Policy Also there may be a test required to demonstrate that future revenues will be sufficient to maintain debt service coverage levels after any proposed additional bonds are issued. The District will strive to meet industry and financial market standards with such ratios. Annual adjustments to the District’s rate structure may be necessary to maintain these coverage ratios. The underlying credit of revenue bonds is judged on the ability of the District’s existing rates to provide sufficient net income to pay debt service and the perceived willingness of the District to raise rates and charges in accordance with its Rate Covenant. Actual past performance also plays a role in evaluating the credit quality of revenue bonds, as well as the diversity of the customer base. Revenue bonds generally carry a credit rating one or two investment grades below a general obligation bond rating. The District may use a debt structure called “Certificates of Participation” to finance capital facilities. However, if the certificates contain a pledge of net revenues and a Rate Covenant, they are treated as essentially the same as a revenue bond. Lease/Purchase Agreements Over the lifetime of a lease, the total cost to the District will generally be higher than purchasing the asset outright. As a result, the use of lease/purchase agreements in the acquisition of vehicles, equipment and other capital assets will generally be avoided, particularly if smaller quantities of the capital asset(s) can be purchased on a "pay-as-you-go" basis. The District may utilize lease-purchase agreements to acquire needed equipment and facilities. Criteria for such agreements should be that the asset life is three years or more, the minimum value of the agreement is $50,000 and interest costs must not exceed the interest rate earned by the District’s portfolio for the average of the past 6 months. Lease payments of this type are considered operating expenses and would reduce net operating income available to pay any District revenue bonds. There are no coverage requirements or rate covenants associated with lease/purchase agreements. State Water Loans The State Water Resources Control Board makes certain funds available to water districts throughout the State. These loans typically carry a below-market rate of interest and are short term in nature. While State loans should be incorporated into the District’s debt portfolio for the financing of capital improvements, the payment of the loan should not compromise the District’s ability to issue other planned debt or cause the District to violate its rate covenants or make it necessary for the District to increase rates to maintain existing rate covenants. 265265265 Debt Policy Land Based Financing The District may consider developer or property owner initiated applications requesting the formation of community facilities or assessment districts and the issuance of bonds to finance eligible District facilities necessary to serve newly developing commercial, industrial and/or residential projects. Facilities will be financed in accordance with the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915, or the Mello-Roos Community Facilities Act of 1982. Typically, the bonds issued would be used to prepay, in a lump-sum, the District’s capacity fees with respect to a large tract of land under development, or to finance in-tract infrastructure that will eventually be dedicated to the District. The bonds are secured by a special tax or assessment to be levied on property within the boundaries established for the community facilities district (sometimes known as a “Mello-Roos” district) or the assessment district. If the District becomes the sponsoring public agency for such financing district and the issuance of debt, the District will be required to enter into a Funding, Construction and Acquisition agreement for any of the facilities to be dedicated to the District upon completion. This agreement governs the type of facilities to be constructed with bond proceeds and how the facilities will be accepted by the District. In some cases, the District may not be asked to be the sponsoring agency for the formation of a financing district, rather, the developer or property owner may approach a school district or a city to be the sponsoring agency. Nonetheless, the property owner may want to include lump-sum payment of District fees in the financing or construction of certain facilities to be dedicated to the District upon completion. In this case, if the District desired to participate, the District would enter into a Joint Financing Agreement with the sponsoring agency, again governing the type of facilities to be constructed with bond proceeds and how the facilities will be accepted by the District. On a case-by-case basis, the Board shall make the determination as to whether a proposed district will proceed under the provisions of the Assessment Acts or the Mello-Roos Community Facilities Act. The Board may confer with other consultants and the applicant to learn of any unique district requirements, such as long-term development phasing, prior to making any final determination. All District and District consultant costs incurred in the evaluation of new development, district applications and the establishment of districts will be paid by the applicant(s) by advance deposits in those instances where a party or parties other than the District have initiated a proposed district. Expenses not legally reimbursable by the financing district will be borne by the applicant. The District may incur expenses for analyzing proposed assessment or community facilities districts where the District is the principal proponent of the formation or financing of the district. Prior to the issuance of any land secured financing and in accordance with State law, the Board will adopt policies and procedures with criteria to be met before any special tax bonds or assessment district bonds may be issued. These criteria include the qualifications of the appraiser, 266266266 Debt Policy the minimum value to lien ratio to be achieved prior to issuing the land secured debt and the maximum tax to be levied on different categories of property. 16.0 Rating Agency Applications The District may seek a rating on all new issues that are being sold in the public market. To ensure a fair rating, more than one rating agency shall be considered to rate the District’s issues. These rating agencies include, but are not limited to, Fitch Investors Service, Moody’s Investors Service, and Standard and Poor’s. When applying for a rating on an issue over $1 million or more, the District shall make a formal presentation of the finances and positive developments within the District to the rating agencies. The District will report all financial information to the rating agencies as they are published and upon request. This information shall include, but shall not be limited to, the District’s Comprehensive Annual Financial Report (CAFR), and the Adopted Operating and Capital Budget. 17.0 Use of Credit Enhancement Credit enhancement is a generic term that means any third-party guarantee of debt service. Credit enhancement providers include municipal bond insurance companies or financial institutions. The purchase of credit enhancement allows the District’s bond issue to carry the same credit rating as the credit provider. The District will seek to use credit enhancement when such credit enhancement proves cost-effective. Selection of credit enhancement providers will be subject to a competitive bid process using the District’s purchasing guidelines. Fixed Rate Bonds Credit enhancement for fixed rate bonds is obtained by the purchase of bond insurance. With few exceptions, bond insurance companies are rated AAA. If a commitment for bond insurance is obtained for a particular issue, the District will estimate the annual debt service for the issue based on current AAA-rated bond interest rates with the cost of issuance including the payment of the bond insurance premium. If the estimated debt service on this basis is less than or equal to estimated debt service for the issue based on interest rates for bonds with the District’s underlying or stand-alone credit rating, the District will purchase the bond insurance. Any intention of the District to prepay the debt ahead of its scheduled maturity will be taken into account in the analysis. Credit enhancement may be used to improve or establish a credit rating on a District debt obligation even if such credit enhancement is not cost effective if, in the opinion of the Chief Financial Officer, the use of such credit enhancement meets the District’s debt financing goals and objectives. 267267267 Debt Policy Variable Rate Bonds Credit enhancement for variable rate bonds is comprised of two components: credit support and liquidity. The interest on variable rate bonds is based on a 7-day investment rate. Any investor can tender their bonds back to the District to be repurchased on 7 days’ notice. Because of the short- term nature of the investment, the securities that the District is “competing” with for investors are AAA-rated or AA-rated mutual funds. Therefore, variable debt needs to have credit enhancement to achieve a comparable AAA or AA rating, as well as liquidity support to provide the District with a mechanism to purchase any bonds that are tendered before they can be remarketed to new investors. A limited number of financial institutions offer letters of credit that combine both credit support and liquidity for one fee. An alternative is to purchase bond insurance to provide credit support and enter into a separate purchase agreement with a financial institution to provide liquidity. The difference in cost between the two structures will be analyzed before either alternative is selected for variable rate debt. 268268268 Glossary Ad Valorem Tax: A tax calculated “according to the value” of property. Such a tax is based on the assessed valuation of tangible personal property. In most jurisdictions, the tax is a lien on the property enforceable by seizure and sale of the property. General restrictions, such as overall restrictions on rates, or the percent of charge allowed, sometimes apply. As a result, ad valorem taxes often function as the balancing element in local budgets. Advance Refunding: A procedure whereby outstanding bonds are refinanced by the proceeds of a new bond issue prior to the date on which outstanding bonds become due or are callable. Typically an advance refunding is performed to take advantage of interest rates that are significantly lower than those associated with the original bond issue. At times, however, an advance refunding is performed to remove restrictive language or debt service reserve requirements required by the original issue. Amortization: The planned reduction of a debt obligation according to a stated maturity or redemption schedule. Arbitrage: The gain that may be obtained by borrowing funds at a lower (often tax-exempt) rate and investing the proceeds at higher (often taxable) rates. The ability to earn arbitrage by issuing tax-exempt securities has been severely curtailed by the Tax Reform Act of 1986, as amended. Assessed Valuation: The appraised worth of property as set by a taxing authority through assessments for purposes of ad valorem taxation. Basis Point: One one-hundredth of one percent. Bond: A security that represents an obligation to pay a specified amount of money on a specific date in the future, typically with periodic interest payments. Bond Counsel: An attorney (or firm of attorneys) retained by the issuer to give a legal opinion concerning the validity of the securities. The bond counsel’s opinion usually addresses the subject of tax exemption. Bond counsel may prepare, or review and advise the issuer regarding authorizing resolutions or ordinances, trust indentures, official statements, validation proceedings and litigation. Bond Insurance: A type of credit enhancement whereby a monocline insurance company indemnifies an investor against a default by the issuer. In the event of a failure by the issuer to pay principal and interest in-full and on-time, investors may call upon the insurance company to do so. Once assigned, the municipal bond insurance policy generally is irrevocable. The insurance company receives an up-front fee, or premium, when the policy is issued. Call Option: A contract through which the owner is given the right but is not obligated to purchase the underlying security or commodity at a fixed price within a limited time frame. 269269269 Glossary Cap: A ceiling on the interest rate that would be paid. Capital Lease: The acquisition of a capital asset over time rather than merely paying rent for temporary use. A lease-purchase agreement, in which provision is made for transfer of ownership of the property for a nominal price at the scheduled termination of the lease, is referred to as a capital lease. Certificates of Participation: A financial instrument representing a proportionate interest in payments such as lease payments by one party (such as the District acting as a lessee) to another party (often a trustee). CIP: Capital Improvement Program. Competitive Sale: The sale of securities in which the securities are awarded to the bidder who offers to purchase the issue at the best price or lowest cost. Continuing Disclosure: The requirement by the Securities and Exchange Commission for most issuers of municipal debt to provide current financial information to the informational repositories for access by the general marketplace. Debt Service: The amount necessary to pay principal and interest requirements on outstanding bonds for a given year or series of years. Defeasance: Providing for payment of principal of premium, if any, and interest on debt through the first call date or scheduled principal maturity in accordance with the terms and requirements of the instrument pursuant to which the debt was issued. A legal defeasance usually involves establishing an irrevocable escrow funded with only cash and U.S. Government obligations. Derivative: A financial product that is based upon another product. Generally, derivatives are risk mitigation tools. Discount: The difference between a bond’s par value and the price for which it is sold when the latter is less than par. Financial Advisor: A consultant who advises an issuer on matters pertinent to a debt issue, such as structure, sizing, timing, marketing, pricing, terms and bond ratings. General Obligation Bonds: Debt that is secured by a pledge of the ad valorem taxing power of the issuer. Also known as a full faith and credit obligation. Municipal Securities Rulemaking Board (MSRB): The MSRB, comprised of representatives from investment banking firms, dealer bank representatives, and public representatives, is entrusted with the responsibility of writing rules of conduct for the municipal securities market. 270270270 Glossary Negotiated Sale: A sale of securities in which the terms of sale are determined through negotiation between the issuer and the purchaser, typically an underwriter, without competitive bidding. Official Statement: A document published by the issuer that discloses material information on a new issue of municipal securities including the purposes of the issue, how the securities will be repaid, and the financial, economic and social characteristics of the issuing government. Investors may use this information to evaluate the credit quality of the securities. Option: A derivative contract. There are two primary types of options (see Put Option and Call Option). An option is considered a wasting asset because it has a stipulated life to expiration and may expire worthless. Hence, the premium could be wasted. Optional Redemption: The redemption of an obligation prior to its stated maturity, which can only occur on dates specified in the bond indenture. Overlapping Debt: The legal boundaries of local governments often overlap. In some cases, one unit of government is located entirely within the boundaries of another. Overlapping debt represents the proportionate share of debt that must be borne by one unit of government because another government with overlapping or underlying taxing authority issued its own bonds. Par Value: The face value or principal amount of a security. Pay-as-you-go: To pay for capital improvements from current resources and fund balances rather than from debt proceeds. Put Option: A contract that grants to the purchaser the right but not the obligation to exercise. Rate Covenant: A covenant between the District and bondholders, under which the District agrees to maintain a certain level of net income compared to its debt payments, and covenants to increase rates if net income is not sufficient to meet such level. Refunding: A procedure whereby an issuer refinances an outstanding bond issue by issuing new bonds. Revenue Bonds: A bond which is payable from a specific source of revenue and to which the full faith and credit of an issuer with taxing power is not pledged. Revenue bonds are payable from identified sources of revenue, and do not permit the bondholders to compel a jurisdiction to pay debt service from any other source. Pledged revenues often are derived from the operation of an enterprise. Generally, no voter approval is required prior to issuance. Special Assessments: A charge imposed against property or parcel of land that receives a special benefit by virtue of some public improvement that is not, or cannot be enjoyed by the public at 271271271 Glossary large. Special assessment debt issues are those that finance such improvements and are repaid by the assessments charged to the benefiting property owners. Swap: A customized financial transaction between two or more counterparties who agree to make periodic payments to one another. Swaps cover interest rate, equity, commodity and currency products. They can be simple floating for fixed exchanges or complex hybrid products with multiple option features. True Interest Cost (TIC): A method of calculating the overall cost of a financing that takes into account the time value of money. The TIC is the rate of interest that will discount all future payments so that the sum of their present value equals the issue proceeds. Underwriter: The term used broadly in the municipal market, to refer to the firm that purchases a securities offering from a governmental issuer. Yield Curve: Refers to the graphical or tabular representation of interest rates across different maturities. The presentation often starts with the shortest-term rates and extends towards longer maturities. It reflects the market’s views about implied inflation/deflation, liquidity, economic and financial activity, and other market forces. 272272272 Glossary The Fiscal Budget contains terminology that is unique to public finance and budgeting. The following budget glossary provides assistance in understanding these terms. Accrual Basis of Accounting: The basis of accounting under which transactions are recognized when they occur, regardless of the timing of cash receipts and disbursements. Acre-Foot: The volume of water that will cover one acre to a depth of one foot. One acre-foot equals 435.6 units or 325,850 gallons. Additional Systems Fees: Effective May 1, 1986, each customer receiving water service in the Improvement District 9 water service zone pays an additional monthly meter system charge of $2.00 for each meter in service. Annexation Fees: Whenever water service is requested for land outside the boundaries of the District it must first be annexed into the District. The annexation fee for water service was set at $1,477 per EDU on July 1, 2009. Whenever sewer service is requested for land outside the boundaries of an improvement district (ID) it must first be annexed into the ID. The fee for sewer annexation was set at $3,819 on December 16, 1998. These base rates are adjusted quarterly according to a cost of living index. The rates as of July 1, 2013 are $1,556.69 and $5,743.42 for water and sewer, respectively. Appropriation: The annual budget adopted by the District’s Board for monitoring and control purposes, serving as a financial plan. Assets: Resources owned or held by the District that have monetary value. Availability Fees: The District levies charges each year in developed areas to be used for general purposes for construction of facilities, and in undeveloped areas to provide a source of funding for planning, mapping, and preliminary design of facilities to meet future development. Current legislation provides that any availability charge in excess of $10.00 per acre shall be restricted only for the purpose of constructing facilities in the improvement district for which it was assessed. Balanced Budget: A balanced financial plan, for a specified period of time that matches all planned revenues and expenditures with various services. The District uses a fiscal year beginning July 1 and ending June 30 for budgetary and financial reporting purposes. Betterment Fees: In addition to other applicable water rates and charges, certain water customers pay a fee based on water service zone or improvement district. These are restricted for the use in the area where they are collected and may be used for the construction and maintenance of facilities. 273 Glossary Betterment Fees for Maintenance: The Operating Budget earns betterment fees for maintenance work performed on infrastructure within special betterment zones, where fees are collected for the construction and maintenance of these specific assets. Bond: A written promise to pay a sum of money on a specific date at a specified interest rate. The interest payments and the repayment of the principal are authorized in a District bond resolution. The most common types of bonds are general obligation (GO) bonds and Certificates of Participation (COPs). These are frequently used for construction of large capital projects such as buildings, reservoirs, pipelines and pump stations. Budget Basis: The budget and accounting basis for the District is recognized on an accrual basis. Accrual basis means that revenues are recognized when earned and expenses are recognized when incurred. Capacity Fee: A connection fee is charged when a new water meter is placed into service. This fee is based on the estimated construction cost of expansion of the system to meet the needs of all future customers. This fee covers the cost including, but is not limited to, planning, design, construction, and financing of expansion of the system. Capacity Fee Revenues: These fees are earned by the Operating Budget as the Engineering Department supports expansion functions. Capacity Reservation Charge: An MWD charge passed on by CWA to individual agencies. This fee is paid based on the District’s peak water demand. Capital Budget: The portion of the annual budget that appropriates funds for the purchase of capital equipment items and capital improvements. These expenditures are separated from regular operating items, such as salaries, utilities and office supplies. The Capital Budget includes funds for capital equipment purchases over $10,000, such as vehicles, furniture, machinery, microcomputers and special tools or $20,000 for infrastructure related items (as explained in the note below), which are distinguished from operating items according to their value and projected useful life. Capital Equipment: Fixed assets such as vehicles, marine equipment, computers, furniture, technical instruments, etc. which have a life expectancy of more than two years and a value over $10,000 or $20,000 for infrastructure related items (this cost may not extend useful life of the water or sewer infrastructure, but without the purchase of the item, the whole asset is rendered useless and the dollar value to replace the item is $20,000 or more, as described in the District’s Capitalization Policy). Capital Improvement Program: A long-range plan of the District for the construction, rehabilitation and modernization of the District-owned and operated infrastructure. 274 Glossary Class of Service: All customers are classified based on the type of service used. For example, the water rate per unit is determined by a classification such as residential versus business. CWA: The County Water Authority was organized in 1944 under the State County Water Authority Act for the primary purpose of importing Colorado River water to augment the local water supplies of the Authority's member agencies. The Authority purchases water from MWD which imports water from the Colorado River and the State Water Project. Deannexation Fees: Each request for detachment of land from an improvement district is reviewed on a case-by-case basis. The fees are determined based on the present value of future debt service requirements. Debt Coverage Ratio: The ratio of net revenue to annual interest and principal payments on debt. Debt Service: The District's obligation to pay the principal and interest of bonds and other debt instruments according to a predetermined payment schedule. Depreciation: An expense recorded to allocate a tangible asset’s cost over its useful life. Desalination: The removal of dissolved minerals (including salts) from seawater or brackish water. Engineered water desalination processes, which produce potable water from seawater or brackish water, have become important because many regions throughout the world suffer from water shortages. Energy Fees: Water customers are charged an energy pumping charge based on the quantity of water used and the elevation to which the water has been lifted to provide service. The energy pumping charge rate is $.045 (decreases on January 1, 2013 to $.042) per 100 cubic feet of water for each 100 feet of lift above the base elevation of 450 feet. All water customers are in one of 29 zones based on elevation. Enterprise Fund: Fund that provides goods or services to the public for a fee that makes the entity self- supporting. Expenditures/Expenses: These terms refer to the outflow of funds paid or to be paid for an asset, goods or services obtained regardless of when actually paid for. (Note: An encumbrance is not expenditure). An encumbrance reserves funds to be expended in a future period. Fire Service: Water service is provided by the District solely for use in fire hydrants or fire sprinkler systems from lines or laterals connected to the District’s water mains. The monthly system charge is $34.57 per month for each connection for fire protection service. 275 Glossary Fiscal Year: Twelve-month term designating the beginning and ending period for recording financial transactions. The District has specified July 1 to June 30 as its fiscal year. Fund Balance: The current funds on hand resulting from the historical collection and use of monies. The difference between assets and liabilities reported in the District’s Operating Fund plus residual equities or balances and changes therein, from the result of operations. General Fund: The District’s general fund is an enterprise fund – one for each of the District’s three business lines Potable, Recycled and Sewer services. Each is an accounting entity with a self- balancing set of accounts established to record the financial position and results that pertain to a specific activity. The activities of enterprise funds closely resemble those of ongoing businesses in which the purpose is to conserve and add to basic resources while meeting operating expenses from current revenues. Enterprise funds account for operations that provide services on a continuous basis and are substantially financed by revenues derived from user charges. Grants: Contributions or gifts of cash or other assets from another governmental agency to be used or expended for a specified purpose, activity, or facility. Capital grants are restricted by the grantor for the acquisition and/or construction of fixed assets. Operating grants are restricted by the grantor for operating purposes or may be used for either capital or operating purposes at the discretion of the grantee. Infrastructure Access Charge (IAC): A pass-through charge from CWA to each member agency. The charge is to finance a portion of CWA’s fixed annual costs including the construction, operation and maintenance of aqueducts and emergency storage projects. The fee was adopted in January of 1999. Interest Income: Earnings from the investment portfolio. Per District Policy Number 25, interest income will be allocated to improvement districts each month based upon each fund’s prior month-ending balance. Late Charges/Penalties: Charges and penalties are imposed on customer accounts for late payments, returned payments, and other infringement of the District’s Code of Ordinances. Meter and Lateral Fees: Charge includes the material costs for the meter, meter box, and the labor cost for installation to connect a new service to the distribution system. Metropolitan Water District (MWD) Standby Charges: Revenue generated from property taxes by MWD to cover the Readiness-to-Serve (RTS) Charge for the new debt service for construction projects necessary to meet reliability and quality needs. The RTS Charge was adopted in 1996. 276 Glossary Net Assets: The difference between total assets and total liabilities. Increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District is strengthening or weakening. 1% Property Tax: In 1978, Proposition 13 limited general levy property tax rates for all taxing authorities to a total rate of 1% of full cash value. Subsequent legislation, AB 8, established that the receipts from the 1% levy were to be distributed to taxing agencies according to approximately the same proportions received prior to Proposition 13. Funds received are to be used for facilities construction or debt service on bonds sold to build facilities. Operating Budget: The portion of the budget that pertains to daily operations that provide basic governmental services. The operating budget contains appropriations for such expenditures as personnel, supplies, utilities, materials, travel and fuel, and does not include purchases of major capital plant or equipment which is budgeted for separately in the Capital Budget. Other Income: Revenues that are not directly related to the business of providing water and sewer services. For example, contract billing service for the City of Chula Vista and the City of San Diego to bill their sewer customers based on water consumption. Property Rental Income: Rent or lease agreements for the use of District property. QualServe: a voluntary quality improvement program designed exclusively for water and wastewater utilities. Recycled Water Rates: Non-potable water service provided from water produced by the District’s reclamation plant and other non-potable sources. Recycled water is not used for domestic purposes and all other uses must comply with federal, state and local laws and regulations regarding the use of recycled water. Reserve Fund: The District maintains Reserve Funds per the District’s policy for both designated and restricted balances. Designated Reserve Funds are “general use” funds designated by the Board. Restricted reserves are those that are legally set aside for a particular purpose and cannot be used for any other purpose. Residential Conservation: The water rates for residential customers are based on an accelerated block structure; as more units are consumed, a higher unit rate is charged. The District has established a water conservation program to promote water conservation and planning. Revenue: Monies that the District receives as income. It includes such items as water sales and sewer fees. Estimated revenues are those expected to be collected during the fiscal year. 277 Glossary Readiness-to-Serve Charge (RTS): was adopted by MWD in Fiscal 1996. The charge serves as a foundation of fixed revenue for MWD. It covers the new debt service for construction projects necessary to meet reliability and quality needs of current water-users as opposed to new customers. Sale of Fixed Assets: District equipment, which has been determined by the Board to be of no use, obsolete and/or beyond the useful life and therefore, may be sold. Set-up Fees for Accounts: A charge of $10 is added for each account transferred to another customer. System Fees: Each water service customer pays a monthly system charge for water system replacement, maintenance and operation expenses. The charge is based on the size of the meter and class of service. Taxes: California Water Code Section 72091 authorizes the District, as a municipal water district, to levy ad valorem property taxes which are equal to the amount required to make annual payments for principal and interest on general obligation bonds approved by the voters prior to July 1, 1978. Temporary Water Charge: The rate for temporary water service is two times the rate for permanent service. The additional charge is to offset the cost of construction of facilities for larger capacity. Tier 2 Charge: An MWD charge passed on by CWA to individual agencies. This is an added charge on all water sales by CWA in excess of the District’s 90% baseline water usage. Unit: A Unit of water is 100 cubic feet or 748 gallons of water. Water Capacity Fees: Charges paid by customers to connect to a District water system for potable or recycled water service. Fees are determined by multiplying the demand factor for the meter size by the total of the District-wide capacity fee and applicable zone charge Water Rates: Rates vary among classes of service and are measured in units. The water rates for residential customers are based on an accelerated block structure. As more units are consumed, a higher unit rate is charged. Effective in 2009, all non-residential customers are charged for water based on a tiered rate structure in which water rates are based on meter size and amount of units consumed. Working Capital: A financial measure which represents available operating liquidity. It is calculated as current assets minus current liabilities. 278 AF Acre-Foot/Feet AMR Automated Meter Reader/Reading APCD Air Pollution Control District APWA American Public Works Association ASCE American Society of Civil Engineers ASU Assigned Service Unit AWWA American Water Works Association BABS Build America Bonds BMP Best Management Practices BOD Biological Oxygen Demand CAD Computer Aided Design CAFR Comprehensive Annual Financial Report CCV City of Chula Vista CDFG California Department of Fish and Game CEQA California Environmental Quality Act CIP Capital Improvement Program COD Chemical Oxygen Demand COPS Certificates of Participation CRC Capacity Reservation Charge CSC Customer Service Charge CSD City of San Diego CSDA California Special Districts Association CSMFO California Society of Municipal Finance Officers CMMS Computerized Maintenance Management System CUWCC California Urban Water Conservation Council CWA County Water Authority (San Diego) DOT Department of Transportation DVP Delivery-versus-Payment EBPP Electronic Bill Pay and Presentment EDU Equivalent Dwelling Unit ESC Emergency Storage Charge FCF Flow Control Facility FEMA Federal Emergency Management Association FTE Full-time Equivalent FY Fiscal Year GAAP Generally Accepted Accounting Principles GASB Government Accounting Standards Board List of Acronyms 279 List of Acronyms GF General Funds GFOA Government Finance Officers Association GIS Geographic Information System GO General Obligation (bonds) GPCD Gallons per Capita per Day GPM Gallons per Minute GPS Global Positioning System HCF Hundred Cubic Foot HCP Habitat Conservation Plan HR Human Resources HVAC Heating Ventilation and Air Conditioning HWD Helix Water District IAC Infrastructure Access Charge ID Improvement District IID Imperial Irrigation District IMS Infrastructure Management System IRP Integrated Water Resources Plan IRS Internal Revenue Service IT Information Technology IVR Interactive Voice Response LAIF Local Agency Investment Fund MBR Membrane Bioreactor MG Million Gallons MGD Million Gallons per Day MND Mitigated Negative Declaration MOU Memorandum of Understanding MWD Metropolitan Water District NCCP Natural Community Conservation Plan NIMS National Incident Management System NOC Notice of Completion NOSC Notice of Substantial Completion O&M or O/M Operations and Maintenance OPEB Other Post Employee Benefits OWD Otay Water District PB Pacific Bay PERS Public Employees' Retirement System PL Pipeline 280 List of Acronyms PRS Pressure Reducing Station PRV Pressure Reducing Valve PS Pump Station RFP Request for Proposal RSD Rancho San Diego RTS Readiness-to-Serve RWCWRF Ralph W. Chapman Water Recycling Facility SAMP Sub-Area Master Plan SANDAG San Diego Association of Governments SBWRP South Bay Water Reclamation Plant SCADA Supervisory Control and Data Acquisition SDG&E San Diego Gas & Electric SS Suspended Solids SVSD Spring Valley Sanitation District SWRCB State Water Resources Control Board UML Unified Modeling Language USFWS United States Fish and Wildlife Service UWMP Urban Water Management Plan VFD Variable Frequency Drive VOIP Voice Over Internet Protocol WRMP Water Resources Master Plan WTP Water Treatment Plant 281 Index Administrative Expenses 75,92,102,118 At-A-Glance 1 Awards 4-6 Budget Calendar 20 Budget Guide 17-18 Budget Process and Overview 19-23 Budget Summary 39-43 Capital Improvement Program Narrative 191-192 Capital Purchases Budget 204 CIP Projects in Construction 194-198 CIP Funding Source and Category 200 CIP Justification and Impact on Operating Budget 203 CIP Major Projects 193 CIP Projects 201-202 CIP Reserve Funds 199 Classification of Water Sales 66,84 Current Economic Conditions 29 Debt Management 55-56 Debt Policy 254 Debt Policy Glossary 269-272 Demographics 32 Department Budgets: Administrative Services 132-143 Board of Directors 122-125 Engineering 179-187 Finance 144-155 General Expense 188-189 General Manager 126-131 IT and Strategic Planning 156-164 Water Operations 165-179 Departmental Operating Budget Narrative 111-112 Five-Year Forecast 52 Formula for Sewer Rates 104-105 Fund Balance Summary by Fund 48 Fund Balances 54 Future, The 30-31 General Fund Forecast 53 General Information 2 General Expenses 110 General Revenues 109 282 Index General Revenues and Expenses Narrative 107-108 Glossary 273-278 Investment Policy 241-247 Investment Policy Glossary 248-253 Labor and Benefits 114-115 Letter of Transmittal iv-ix List of Acronyms 279-281 Materials and Maintenance Expenses 76,93,103,119 Meter Fees 71,88 MWD and CWA Fixed Fees (Pass-Through) 70 Operating Budget Summary 65,83,98 Operating Budget Summary by System 46 Operating Budget Summary – General Fund 44-45 Operating Expenditures by Department 120 Operating Expenditures by Object 121 Operating Revenues, Expenditures and Transfers 47 Organization Chart 16 Past and Present 26 Position Count by Department 116 Potable Narrative 60-62 Power Costs 74,91,101 Projected Interest Payments by Debt Issuance 59 Projected Principal Payments by Debt Issuance 58 Recycled Narrative 78-80 Reserve Policy 207-237 Reserve Policy Glossary 238-240 Resolution 4210 24-25 Revenue History 72,89,100 Revenues and Expenditures by Fund 49-50 Revenues and Expenditures by Type 51 San Diego Rainfall 38 Schedule of Outstanding Debt 57 Service Area Assessed Valuation 35 Service Area Maps 77,94,106,125 Sewer Charges Summary by Service Class 99 Sewer Narrative 95 Sewer Rate Comparison 34 Statement of Values 3 Strategic Performance Management Plan 7-15 Summary of Financial Policies 205-206 283 Index System Fees 69,87 Table of Contents i-iii Ten Largest Customers 37 Ten Principal Taxpayers 36 Timeline 27,28,63,64,81,82,96,97 Unit Sales History and Meter Count by Customer Class 68,86 Water Purchases - Recycled 90 Water Purchases and Related Costs - Potable 73 Water Rate Comparison 33 Water Sales Summary by Meter Size 85 Water Sales Summary by Service Class 67 284