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HomeMy WebLinkAboutOperating and Capital Budget FY 2014-2015 Otay Water District Adopted Operating and Capital Budget Fiscal Year 2014-2015 BOARD OF DIRECTORS Jose Lopez, Division 4 President David Gonzalez, Jr., Division 1 Vice President Mitchell Thompson, Division 2 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 Adolfo Segura Assistant Chief, Administrative Services and IT 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Budget Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Resolution No. 4235 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 History and Community Profile Past and Present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Current Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 The Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Water Rate Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Sewer Rate Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Service Area Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Ten Principal Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Ten Largest Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 San Diego Rainfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Financial Summaries Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Operating Budget Summary – General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Operating Budget Summary by System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 General Fund Revenues, Expenditures and Transfers . . . . . . . . . . . . . . . . . . . . . . . 43 Fund Balance Summary by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Revenues and Expenditures by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Revenues and Expenditures by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Five-Year Forecast Five-Year Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 General Fund Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Fund Balances Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Debt Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Schedule of Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Projected Principal Payments by Debt Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Projected Interest Payments by Debt Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 i Table of Contents Revenues and Expenditures Potable Revenues and Expenditures Potable Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Operating Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Classification of Water Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Water Sales Summary by Service Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Unit Sales History and Meter Count by Customer Class . . . . . . . . . . . . . . . . . . . . 62 System Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 MWD and CWA Fixed Fees (pass-through) . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Meter Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Revenue History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Water Purchases and Related Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Power Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Materials and Maintenance Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Potable Water Service Area Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Recycled Revenues and Expenditures Recycled Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Operating Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Classification of Water Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Water Sales Summary by Meter Size. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Unit Sales History and Meter Count by Customer Class. . . . . . . . . . . . . . . . . . . . 78 System Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Meter Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Revenue History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Water Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Power Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Materials and Maintenance Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Recycled Water Service Area Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Sewer Revenues and Expenditures Sewer Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Operating Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Sewer Charges Summary by Service Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Revenue History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Power Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Materials and Maintenance Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Formula for Sewer Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Sewer Service Area Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 ii Table of Contents General Revenues and Expenditures General Revenues and Expenses Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 General Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 General Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1100 Departmental Operating Budget Departmental Operating Budget Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Labor and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Labor and Benefits by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Position Count by Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Contract/Temporary Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Administrative Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Materials and Maintenance Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Operating Expenditures by Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Operating Expenditures by Object . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Departmental Budgets: Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 General Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Administrative Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 IT and Strategic Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Water Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 General Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Capital Budget Capital Improvement Program Narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Major CIP Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 CIP Projects in Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 CIP Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 CIP Funding Source and Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 CIP Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 CIP Justification and Impact on Operating Budget . . . . . . . . . . . . . . . . . . . . . . . . 194 Capital Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Policies Summary of Financial Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 Reserve Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Reserve Policy Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 Investment Policy Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Debt Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 Debt Policy Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 Appendix Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 iii September 3, 2014 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 2015. The budget supports the Otay Water District’s Strategic Plan to finance all of the District’s services, programs, and capital needs during the 2015 fiscal year as well as positioning the District for continued success in ensuing years. The coming years will continue to pose challenges for those in California’s water community. As you are aware, California is in the third year of a severe drought. This July, the State Water Resources Control Board (SWRCB) adopted an emergency regulation to increase water conservation practices for all Californians. The new conservation regulation targets outdoor water use in urban areas. The regulation also establishes the minimum level of conservation activity that residents, businesses, and water suppliers must meet as the drought deepens. Despite extensive local efforts to promote conservation and reduce waste, Governor Brown and the State Water Resources Control Board (SWRCB) are now calling on all Californians to conserve more water and are requiring cities and water agencies to do more to inform customers that water conservation goals are now mandatory. In addition to the drought, there is great uncertainty over the issues facing the Sacramento- San Joaquin Bay Delta, the source of 30 percent of Southern California’s water supply. Proposals to construct tunnels under the Bay Delta are extremely costly, face tremendous environmental obstacles, and will be tested and challenged in the court as well as at the ballot box. 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 fluctuations impact revenues and the District will continue to closely monitor sales as they affect overall iv District finances. The steep decline in sales has now ended and the District is seeing water sales stabilize. The District’s success as an organization throughout the economic recession, financial crisis, slowdown in housing construction, and now this severe drought 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. The management team is 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. FY 2015-2018 Strategic Plan We are now entering the first year of the FY 2015-2018 Strategic Plan. As with the FY 2012- 2014 plan, the focus has been on the District’s transformation from a growth-centric to a maintenance-based organization. Where rapid growth had been a significant focus in the early years of the District’s existence, and in its earlier strategic plans, today we are primarily focused on managing long-term maintenance and replacement of infrastructure. The change is based on the recognition that as an organization matures, fewer resources are needed to support growth; but more effort is required to maintain and upgrade infrastructure and assets. This is important because in this phase in its lifecycle, an organization derives income more from customer rates and less from developer fees, and the increased maintenance and replacement costs place increased pressure on customer rates. To balance the customer’s interest in minimizing rate increases while also maintaining an organization’s infrastructure investments and a strong financial position, the management team must place greater emphasis on internal efficiency and the development of technology assisted best practices. In effect, the organization must use investments in technology to do more with the same or even fewer resources. From a water supply perspective, this means determining the optimum mix of water supply, treatment, and delivery solutions for customers. From a daily operating perspective, efficiency improvements have become the primary source of competitive advantage and cost optimization for utilities. A goal of the District’s past strategic plans included capitalizing on technology investments and utilizing those technologies to continually improve efficiency and productivity. The success of this approach is evidenced by the gains in productivity and by the reduction in staffing the District has experienced. The following charts show that since 2007, the District v has reduced staffing by 34.75 full-time equivalent positions, or 19.9 percent, while the number of customer accounts increased by 1,905. With increased efficiency and higher employee productivity, the District has been able to continue absorbing some of the pass-through costs from its water suppliers, the San Diego County Water Authority (CWA) and Metropolitan Water District (MWD). This helps to address customer concerns about rising water rates. 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 11th lowest water rate out of the 23 member agencies in San Diego County and the 8th lowest sewer rate out of the 28 sewer service providers in San Diego County. The results of the water and sewer surveys are shown on page 28 and 29, respectively. The chart below shows that since 2007, the wholesale water supply costs have increased 90.6 percent while the District’s retail water rates have increased a lesser 82.4 percent. 17 2 . 7 5 16 8 . 7 5 16 6 15 9 15 6 14 8 14 3 14 0 52,903 53,492 40,000 45,000 50,000 55,000 60,000 0 20 40 60 80 100 120 140 160 180 200 2008 2009 2010 2011 2012 2013 2014 2015 Ac c o u n t s Em p l o y e e  Co u n t FISCAL YEAR Employee Count and Number of Accounts vi The District currently delivers water service to nearly 49,105 potable and 708 recycled water customer accounts. 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 its dependence on MWD water treatment facilities. For example, in 2009 the District entered into an agreement with 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 collects and recycles wastewater from approximately 4,679 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 continues purchasing up to 6 million gallons per day of recycled water from the City of San Diego’s South Bay Water Reclamation Plant. The use of recycled water for landscape irrigation and industrial processes reduces dependence on imported potable supplies, provides a local supply that is drought proof, and diversifies District resources. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Wholesale Water Supply Costs vs. District Retail Rate Increases  90.6% 82.4% vii Fiscal Year 2015 Operating Budget Summary Otay Water District’s operating expenditures consist of three major sectors: potable water, recycled water, and sewer budgeted at $91,640,000 for Fiscal Year 2015. Revenues from potable and recycled water are projected to be $80,785,700, about $5,514,100 (7.2%) more than the Fiscal Year 2014 budget. Water sales volumes are expected to increase slightly, by less than one percent over FY 2014 actual sales as the economy slowly improves and due to both hotter and drier than normal climatic conditions. Higher usage is expected to occur even as efforts to promote water conservation ramp-up due to the adoption of emergency drought regulations. Sewer revenues are projected to be $3,007,700, about $306,100 more than fiscal year 2014. This increase from higher sewer rates is necessary to cover $17.3 million of capital projects over the next six years. The remaining budgeted revenues of $7.8 million come from various special fees, assessments, and miscellaneous income. Significant aspects of the Operating Budget are:  A balanced budget supporting 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.  Ongoing water supply rate increases of 7.7 percent from MWD and CWA because of the high cost of supply programs, higher energy costs, and increasing 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 143 full-time equivalent positions to 140.  Of San Diego County’s 23 water agencies, Otay’s water rates are below the county- wide average. viii Fiscal Year 2015 Capital Improvement Program The Fiscal Year 2014-15 Capital Improvement Program (CIP) Budget consists of 73 projects and a budget of $10.6 million. The budget emphasizes long-term planning for ongoing programs to meet population growth while functioning within fiscal constraints. This year’s CIP budget decreased by $3.2 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. 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, for its annual budget for the fiscal year beginning July 1, 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.  The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Operating Budgeting for Fiscal Year 2013-2014.  The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Capital Budgeting for Fiscal Year 2013-2014. Conclusion The challenges presented this year were met by the Otay Water District’s Board of Directors’ resolve to keep the stability and financial strength of the District as one of its highest priorities. 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. ix 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 x 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 11.4% 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 13. 1 General Information For Fiscal Year 2015, the District will have a staff of 140 full-time equivalent employees under the leadership of the General Manager. The District provides water service to approximately 52% of its expected ultimate deliveries with a population of more than 213,000 people. This percentage increases as the District's service area continues to grow to ultimate build-out. The District is projected to deliver approximately 29,192 acre-feet of potable water to 49,257 potable customer accounts. By 2035, deliveries are expected to reach 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 1.6% per year over the next decade. Using historical data and considering current economic conditions, staff has moderated this projection to a growth rate of 0.25% for Fiscal Year 2015. 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 2,906 acre-feet per year of recycled water for fiscal year 2015, 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 4,679 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. Employees We see each individual as unique and important. We value diversity and open communication to promote fairness, dignity and respect. Teamwork We promote mutual trust by sharing information, knowledge and ideas to reach our common goals. 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 2013-2014. 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. 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 2013-2014. The California Society of Municipal Finance Officers (CSMFO) presented Otay Water District the Certificate of Award for Excellence in Capital Budget for Fiscal Year 2013-2014. 5 Awards Otay Water District has received the “District of Distinction” accreditation by the Special District Leadership Foundation (SDLF) for 2013/2014. By receiving this accreditation, the SDLF recognized Otay for demonstrating a strong commitment to practicing sound policies in the areas of governance, board conduct, District finances, transparency, reserve management, and continuing education for board members and staff. This is the first time Otay has received this biannual accreditation. The Special District Leadership Foundation presented the District Transparency Certificate of Excellence (2013/2015) to Otay Water District in recognition of the District's completion of all transparency program requirements designed to promote transparency in operations and governance to the public and other stakeholders. 6 Strategic Performance Management Plan Introduction The strategic plan is the core document which guides the District’s efforts to meet and positively adapt to change. The overall plan is extensively reviewed and revised every three to four years. This current edition (covering fiscal years 2015-2018) is the fifth in a series of updated plans. In order to develop the FY 2015-2018 Strategic Plan, the Senior Management Team carefully reviewed the previous strategic plans and, in an interactive environment, examined future opportunities and risks. After careful analysis, an overall direction is set for the plan. In this latest plan, the team elected to use a two phase approach. Phase 1 focuses on four key enterprise wide projects in FY 2015 that are critical to developing a solid foundation for the overall plan. Phase 2 (FY 2016-2018) will utilize this foundation to develop a more extensive and reliable performance measurement that quantifies the value created by these efforts. The General Manager presented the plan to the Board on May 19, 2014. With this plan, the Board is able to make more informed oversight decisions about the utility’s direction. 7 Strategic Performance Management Plan Mission To provide high quality and reliable water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner. Vision A District that is innovative in providing water services at affordable rates, with a reputation for outstanding customer service. Key Challenge Our key challenge, as District staff, is to quantify and demonstrate our commitment and ability to optimize our resources, business processeses, and technology to achieve the strategic plan goals. We, as a team, commit to regularly assess and document how our decisions and work practices accomplish our goals and objectives. Balanced Scorecard Goals CUSTOMER o Increase customer confidence in the District o Improve and expand communications o Provide effective water services FINANCIAL: Manage the financial issues that are critical to the District o Improve financial information and systems o Maintain District financial strength BUSINESS PROCESSES: Maximize efficiency and effectiveness o Actively manage water supply as well as support for water and sewer services o Identify and evaluate improvements to enterprise and departmental business processes LEARNING AND GROWTH: Provide leadership and management expertise o Reinforce a results-oriented and accountable culture o Focus on achieving a lean flexible workforce Object Legend Scorecard Strategy 8 Strategic Performance Management Plan Key Strategic Objectives - Phase 1 (FY 2015) The following items are top priority and require enterprise wide participation and resources. These are foundational items necessary to build required systems and infrastructure to support Phase 2. Water Operations - Implement Enterprise SCADA and Wireless Communications System Asset Management - Implement GIS Centric Work Order System Water Resources - Determine Infrastructure and Supply Needs to Support District Operations Business Continuity - Be Prepared for Emergencies and Disasters  Expand and clarify the District’s Emergency Response Plan Key Strategic Objectives - Phase 2 (FY 2016-2018) The Board approved a two phase approach to implementing stronger performance measurement, particularly as it relates to identifying and measuring items which documented the value that is being added through the improvement of business processes and procedures. Based upon the work done in Phase 1, and in consultation with the Management Team, additional or revised measures will be introduced in FY 2016 to accomplish the objectives stated in the key challenge. These items will be presented to the Board in conjunction with the FY 2016 budget. Ongoing Objectives (concurrent in phase 1 and phase 2)  Influence developers to use practical water efficient practices in new construction.  Streamline Accounts Payable business processes.  Develop an effective asset management program.  Streamline meter related work processes.  Improve the operating cost and efficiency of data center and network services.  Streamline Finance business processes.  Evaluate opportunities to combine or transfer similar work functions.  Develop and implement a comprehensive meter testing program.  Improve response to extended power outages.  Finalize and implement new MOU. 9 Strategic Performance Management Plan Strategic Plan Performance Measures FY 2015-2018 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. We will advise the Board in June when the measures have been thoroughly developed and meaningful targets have been identified.  Customer Satisfaction: Percent positive/Percent surveyed.  Health & Safety Severity Rate: Number of lost days/Number of injuries resulting in lost time.  Employee Turnover Rate: Number of voluntary terminations/Average number of employee.  Training Hours per Employee: Total qualified training hours for all employees/Average number of FTE.  Safety Training Program: Number of safety training hours /Number of field employees.  CIP Project Expenditures vs. Budget: Actual quarterly expenditures/Annual budget.  Construction Change Order Incidence: Total cost of change orders/Total original construction contract amount.  Markout Accuracy: Number of markouts performed without an at-fault hit.  Answer Rate: Number of all calls answered/Number of all calls received.  O&M Cost per Account: Total operations O&M costs/Number of accounts.  Billing Accuracy: Number of correct bills /Number of total bills.  Overtime Percentage: Actual overtime costs (including comp time)/Budgeted overtime costs.  Sewer Rate Ranking: Otay percentage ranking for the average bill for sewer among regional agencies.  Water Rate Ranking: Otay percentage ranking among regional agencies. 10 Strategic Performance Management Plan  Debt Coverage Ratio: Qualified net operating revenues/Debt service requirements.  Reserve Level: Number of reserve funds that meet or exceed fund target levels/Total number of reserve funds.  Distribution System Loss: 100 [volume purchased – (volume sold + volume used) /Volume purchased].  Customer Satisfaction with Website: % satisfied customers based on Customer Opinion and Awareness Survey.  Network Availability: % Time availability of core applications during business hours/Total time.  Website Hits: Average total visitors per month.  Unplanned Disruptions: Number of customer accounts experiencing unplanned disruptions  Technical Quality Complaint: 1000 X (number of technical quality–associated complaints )  Planned Potable Water Maintenance Ratio in $: Total planned maintenance cost/Total maintenance cost.  Planned Recycled Water Maintenance Ratio in $: Total planned maintenance cost/Total maintenance cost.  Planned Wastewater Maintenance Ratio in $: Total planned maintenance cost/Total maintenance cost.  Direct Cost of Treatment per MGD: Total O&M costs directly attributable to sewer treatment /Total volume (in MGD).  O&M Cost per MGP – Wastewater: Total O&M cost (less depreciation) /Volume in MG processed.  % PM’s Completed – Fleet Shop: Number of PM's completed/Number of PM's scheduled to be completed. 11 Strategic Performance Management Plan  % PM’s Completed – Reclamation Plant: Number of PM's completed/Number of PM's scheduled to be completed.  % PM’s Completed – Pump/Electric Section: Number of PM's completed /Number of PM's scheduled to be completed.  % PM’s Completed – Valve Maintenance Program: Number of PM's completed /Number of PM's scheduled to be completed.  Water Distribution System Integrity: 100 (annual total number of leaks or breaks / total miles of distribution pipes).  Planned Water Service Disruption Rate: Number of customers experiencing disruption per 1000 accounts.  Potable Water Compliance Rate: All primary health regulations are met.  Collection System Integrity: Collection system failure /Total miles of collection system piping.  Recycled Water System Integrity: Leaks or breaks/Number of miles of distribution system.  Sewer Overflow Rate: Total number of sewer overflows /Total miles of pipe in the sewage collection system.  Annual Recycled Water Site Inspections: Percentage of required recycled water use sites inspected per year.  Recycled Water Shutdown Testing: Percentage of recycled water use sites per year vs. the number required by the DOH.  Emergency Facility Testing: Number of facilities and generators tested on an annual basis.  Leak Detection Program: Percentage distribution system surveyed for leaks.  Reservoir Inspection and Cleaning: Number of water reservoirs cleaned annually.  Main Flushing and Hydrant Maintenance: Number of mains flushed and fire hydrants maintained. 12 Organization Chart District Position Count - (140 Positions) GENERAL MANAGER (5) Assistant General Manager Administrative Services (14) Finance (34) Water Operations (56) Engineering (19) Human Resources Purchasing and Facilities Safety and Security Administration 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 Maintenance 13 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 set 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. 14 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. 15 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 1.4%  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’s budget system. 16 Budget Overview Budget Calendar February March April May July – January 2/01/14 Chiefs review Strategic Plan objectives and performance measures to ensure they are on target for FY 2014 2/12/14 Chiefs submit request for new personnel, personnel reclassification changes, advancements, and long-term staffing to HR 2/19/14 HR to complete preliminary review of new personnel, personnel reclassification changes, requests, and advancements 2/21/14 Project Managers submit CIP Budgets for new projects and changes to existing projects in CIP Budget application 2/25/14 Chiefs to submit Operating and Admin Budget; capital purchases and justifications; Labor Budget Worksheet 03/03/14 HR to review new personnel, reclassifications and change requests with GM Finance to review Operating Budget and reconciliation with departments 03/07/14 Finance to review preliminary CIP Budget with Chief of Engineering 03/13/14 Engineering Department reviews all CIP Budget requests with AGM 03/18/14 Finance review for question and answer of CIP eligibility and feasibility Finance to have second review of CIP Budget with AGM and Engineering 03/19/14 Finance to review Department Operating Budgets with GM and AGM 3/28/14 Finance to review personnel cost with Chiefs, AGM and GM and review CIP Budget with GM 04/04/13 Chiefs submit Position Analysis Questionnaire to HR for GM approval Personnel requests and request for reclassifications 04/14/14 Finance to review assumptions and rates with Chiefs, AGM, and GM 04/25/14 Preliminary budget review with General Manager 05/08/14 Practice run of budget presentation with Finance, Chiefs, AGM, and GM 05/19/14 Budget Workshop and Special Board Meeting presenting the 2015-2018 Strategic Plan and adopting the FY 2014-2015 Operating Budget, adopting the 2015- 2020 Capital Budget and the providing the draft water and sewer rate increase notices 08/07/14 Board approval of water and sewer rate increase notices 08/30/14 Chiefs provide FY 2014 performance measures and accomplishments for FY 2015 budget publication 09/08/14-09/30/14 Rate increase message inserted with water and sewer billing 01/01/15 Water and sewer rate increase 17 Budget Overview Personnel Budget The budgeting of salaries and benefits is performed in the position budgeting module of the Enterprise Resource Planning (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. 18 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 2015. 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 19 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 198, 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 20 21 22 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 obtain 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 726 miles of potable and 102 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 District continues to face numerous challenges with the slow recovery from the largest economic downturn since the Great Depression and now with the severe drought the State of California is facing. Additionally, the region experienced large water supply cost increases totaling more than 90% since 2007. Finally, the inaction in the State Capitol to address the crisis in the Sacramento – San Joaquin Bay Delta, the source of 30 percent of Southern California’s water supply adds further uncertainty to the future cost and availability of water. Fortunately, the District, as a member of the CWA, is well-positioned for water coming from the Colorado River due to the Quantification Settlement Agreements (QSA). 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. In addition, 1 mgd is produced at the District’s RWCWRF Plant. 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 replaced by recycled water in the years to come. La Presa County Water District (ca. 1957) 23 Current Economic Conditions The District services the needs of a growing population by purchasing water from the San Diego County Water Authority (CWA). The 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 addition to the treated water deliveries from CWA, the District has several emergency agreements with the City of San Diego, Helix Water District and Sweetwater Authority that allows agencies to have flexibility to deal with emergency shutdowns. Through innovative agreements like these, benefits can be achieved by both parties by using excess capacity of another agency and diversifying local supply, thereby increasing reliability. 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 213,000 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 11 years, the District has added more than 7,152 new customer connections, with 2,189 occurring in Fiscal Year 2004. In Fiscal Year 2014, the District sold 188 meters which is an average of 16 meters per month. 24 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 Units for Sale and Rental Otay Water District Service Area FY 2015 through FY 2020 Project FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Total Total Single-Family Units 129 288 419 634 693 793 2,956 Total Condominium 49 167 527 639 605 663 2,650 Total Rental 330 802 835 667 657 714 4,005 Total Units 508 1,257 1,781 1,940 1,955 2,170 9,611 % Multi-Family 75% 77% 76% 67% 65% 63% 69% Source: The London Group Realty Advisors, April 2014 Using the economist report, the District’s engineering staff projects that over the next six years the District will sell another 3,166 meters which translates to 4,380 equivalent dwelling units (EDUs). These projections have been incorporated in the Five-Year Forecast on page 48. Projected Meter Sales in EDUs 25 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 County 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 $2,014 and $2,257 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 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 26 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 4% is all other groups. In a recent economic forecast conducted by The London Group, 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 4% 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 Group, Claritas Demographics 27 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 2014, the District conducted a survey of the water rates of the water providers within San Diego County. The following chart shows that the District is in the top 11 of the lowest water rates. 114.71 112.76 107.71 107.40 96.88 91.32 89.86 89.05 87.68 84.04 83.84 83.57 81.66 79.68 78.03 76.93 76.22 75.24 74.45 74.41 71.55 70.27 62.99 $- $20 $40 $60 $80 $100 $120 Rainbow Padre Dam W Ramona Padre Dam E Valley Center Escondido Fallbrook Vista Sweetwater Del Mar Rincon San Diego Otay Carlsbad Olivenhain Helix Vallecitos Yuima Santa Fe Poway Oceanside San Dieguito Lakeside * At the time of the survey in June 2014, the member agency's FY 2015 rate was unavailable. The estimated increase is equal to the FY 2015 average rate increase. SURVEY OF MEMBER AGENCY WATER RATES BASED ON 14 UNITS OF WATER USE AND ¾ METER SIZE PROJECTED WATER BILL FOR FY 2015 * * * * * * * 28 Sewer Rate Comparison 123.32 86.11 84.92 81.68 79.74 72.67 69.40 68.58 66.67 62.58 60.91 59.82 59.82 58.31 57.87 56.54 56.31 56.24 54.08 50.26 45.16 45.19 37.45 35.06 33.88 29.57 26.03 23.67 $- $20 $40 $60 $80 $100 $120 Del Mar Fallbrook Olivenhain Padre Dam Rainbow Imperial Beach San Diego, City Encinitas Rancho Santa Fe Buena El Cajon La Mesa Lemon Grove Chula Vista Oceanside Escondido Ramona Vista Valley Center - MG Solana Beach Otay Poway Vallecitos Coronado, City National City San Diego, County Carlsbad Leucadia 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. * At the time of the survey in June 2014, the member agency's FY 2015 rate was unavailable. The estimated increase is equal to the FY 2015 average rate increase. SEWER RATE COMPARISON, SAN DIEGO COUNTY BASED ON 14 UNITS OF WATER USE AND ¾ RESIDENTIAL METER SIZE PROJECTED SEWER BILL FOR FY 2015 * * * * * * * * * * * * * 29 Service Area Assessed Valuation Actual Budget Source: County of San Diego Auditor and Controller Otay Water District’s service area encompasses property with over $23.3 billion of assessed valuation. Properties are assessed at 100% of their full value less exemption from taxation under the law and homeowner’s exemptions. The District receives its portion of the 1% property tax, according to Proposition 13 and AB8. With the very recent increases in the assessed valuation, the District will benefit by receiving its proportionate share of this increase. Five-Year Service Area Assessed Valuation, in millions ($) $- $4,000 $8,000 $12,000 $16,000 $20,000 $24,000 $28,000 2010 2011 2012 2013 2014 $24,199 $23,519 $23,145 $22,836 $23,304 30 Assessed Percent Value to Total 1. AVALON II CALIFORNIA VALUE IV LP 126,480,000$ 0.55% 2. GGP-OTAY RANCH LP 118,866,673 0.52% 3. REGULO PLACE APARTMENTS INVESTORS LLC 92,415,852 0.40% 4. CORRECTIONS CORP OF AMERICA 79,740,133 0.34% 5. SUNBOW PARTNERS LP 77,585,000 0.33% 6. SP LAVIDA REAL LLC 70,961,120 0.30% 7. CAMDEN USA INC. 65,411,407 0.28% 8. SSBTL CREV LLC 51,689,601 0.22% 9. BRE-FM CA LLC 51,478,982 0.22% 10. SPE TERRA NOVA VILLAS APARTMENT OWNER LLC 40,716,027 0.17% Total $ 775,344,795 3.33% Total Service Area Assessed Valuation $ 23,304,103,069 ,, Ten Principal Taxpayers 775,344,795$ Other Taxpayers 22,528,758,274 23,304,103,069$ Source: County of San Diego Auditor and Controller Organization Ten Principal Taxpayers as of June 30, 2014 31 Customer Customer Annual % of Water Name Type Revenues Sales 1. CITY OF CHULA VISTA Publicly Owned 3,595,360$ 4.4% 2. STATE OF CALIFORNIA Publicly Owned 1,130,281 1.4% 3. COUNTY OF SAN DIEGO Publicly Owned 935,465 1.2% 4. EASTLAKE III COMMUNITY Commercial 841,818 1.0% 5. EASTLAKE COUNTRY CLUB Commercial 618,403 0.8% 6. CHULA VISTA SCHOOL DISTRICT Publicly Owned 510,535 0.6% 7. HIGHLANDS GOLF COMPANY LLC Commercial 464,298 0.6% 8. SANDAG Commercial 404,250 0.5% 9. SWEETWATER SCHOOL DISTRICT Publicly Owned 390,445 0.5% 10. CITY OF SAN DIEGO Publicly Owned 362,662 0.4% Total 9,253,517$ 11.4% *Actual FY14 Water Sales 81,287,163$ Ten Largest Customers 9,253,517$ 11.4% Others 72,033,646 88.6% 81,287,163$ 100.0% Ten Largest Customers - Fiscal Year 2014 *Actuals unaudited 32 San Diego Rainfall Although San Diego received less than normal rainfall in Fiscal Year 2014, the District is expecting that San Diego's rainfall will return to its average pattern and volume for Fiscal Year 2015. The 10-year average of 9.24 inches for San Diego rainfall reflects the long-term drought conditions for our area. San Diego's rainfall average over 20 years is 8.96 inches; the 30-year average is 9.74 inches; and the 40-year average is 10.34 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 significantly 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. 22.50 5.42 3.85 7.49 9.17 11.01 12.66 8.03 6.48 5.74 0 5 10 15 20 25 30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 In c h e s Fiscal Year Fiscal Years 2005-2014 Annual Rainfall 10-Year Average Rainfall (9.24 inches) 33 Budget Summary The FY 2015 Operating Budget is summarized and presented in the Operating Budget Summary- General Fund on pages 40-41. 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 42 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; Revenues and Expenditures by Fund; and Revenues and Expenditures by Type - All Funds: and are presented on pages 43-47. For Fiscal Year 2015, the District has approved an increase in water rates primarily 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. Cost increases are being experienced by our neighboring water agencies and most are encountering similar rate increases. The Operating Budget for Fiscal Year 2015 is $91.6 million in comparison to the previous fiscal year budget of $86.1 million. The $5.5 million increase is a result of water supply rate increases of 2.5% from MWD and 3.6% from CWA. CWA’s increase is due to the high cost of supply programs, including the early delivery of Carlsbad desalination water. CWA also needs to secure a prudent financial position by achieving the rate stabilization fund targets and smoothing the water rates. GENERAL FUND REVENUES Potable Water Sales Potable water sales revenue collected from the sale of water including: system charges, energy charges, and penalties, accounts for 78.5% of the District’s operating revenues. It is estimated that 29,192.4 acre- feet of potable water will be sold during FY 2015, which is an increase of 207.5 from FY 2014. Budgeted revenues from water sales are projected to be $71.9 million, an increase of 7.3% from FY 2014, which is primarily due to necessary rate increases 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 generated from the sale of 3,955.5 acre-feet of recycled water. The recycled rate is 15% less than the potable irrigation rate. The FY 2015 sales revenue budget is $8.8 million which is an increase of $486,500 from FY 2014 and includes the incentive credits provided by MWD and the CWA. Sewer Revenues Sewer charges are the monthly fees collected 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 system. The FY 2015 Sewer Revenues are projected to be $3.0 million which is an increase from the prior year of $306,100. 34 Budget Summary Meter Fees Meter fees are charges collected for new water service connections. Fees vary depending upon meter size and the type of service. The FY 2015 revenue from meter fees is $51,500, which is $30,100 less than the FY 2014 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 the Engineering Department’s support for expansion functions. The FY 2015 capacity fee revenue is $1.1 million which is a decrease of $140,600 from FY 2014. Betterment Fees for Maintenance These fees are earned by the General Fund for the Water Operations Department’s maintenance of certain District assets. The FY 2015 Betterment Fees are $301,800, which is a decrease of $474,900 from FY 2014. These fees have decreased because collections within Improvement Districts 1 and 3 expired January 2013. The fees also decreased due to the discontinuation of collections within Improvement Districts 9, 10 and the North District effective January 1, 2015. Tax Revenues The District receives 1% property tax revenues 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 are remitted to the District annually. Based on the historical collections from the County of San Diego, the District’s projected tax revenues of $3.7 million an increase of $166,600 compared to FY 2014. Spending limits for the District are governed by the 1979 passage of California Proposition 4, Limitations of Government Appropriations (Article XIII B of the California Constitution, commonly known as the GANN limit). Proposition 4 places an appropriations limit on most spending from tax proceeds. The following table shows that the District is below the Gann Limit. Otay Water District Appropriations Limit (in thousands) Fiscal Year 2010 2011 2012 2013 2014 Gann Limit $ 3,826 $ 3,787 $ 3,917 $ 4,120 $ 4,392 Appropriations subject to the limit $ 3,008 $ 2,924 $ 2,890 $ 2,892 $ 2,968 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 $1.9 million in revenues for FY 2015 which is an increase of $101,800 compared to FY 2014. 35 Budget Summary 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 $77,400 in FY 2015 which is $8,300 more than in FY 2014. GENERAL FUND EXPENDITURES Potable Water Purchases Water purchases are the expenses of purchasing 30,793.3 acre-feet for the District's potable water supply. A provision has been made to allow 1,600.9 acre-feet of water for District usage, leakage, and evaporation. Total Potable Water Purchases are projected to be $34.5 million in FY 2015 which is an increase of $1.5 million compared to FY 2014. Recycled Water Purchases Recycled water purchases are the expenses of purchasing 2,906.4 acre-feet for the District's recycled water supply which is a slight decrease of 9.6 acre-feet. In addition to the purchases there is a contractual Take-or-Pay payment budgeted for 1,612.8 acre-feet which is 15.3 acre-feet more than FY 2014. Total Recycled Purchases remain the same in FY 2015 at $1.6 million. Infrastructure Access Charge This charge was established in FY 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 at $1.9 million in FY 2015. Customer Service Charge This charge was established in FY 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 remain at $1.8 million in FY 2015. 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 $4.7 million which is an increase of $225,700 compared to FY 2014. Capacity Reservation Charge This charge was established in FY 2002 by the MWD, as a fixed charge on a member agency's requested maximum daily 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 $701,400 which is an increase of $170,400 compared to FY 2014. 36 Budget Summary Readiness-to-Serve Charge This charge was established in FY 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 MWD on the tax bills of District customers. These charges are projected to be $1.8 million which is a slight increase of $59,500 compared to FY 2014. Power Costs Power costs are expenses 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 $2.8 million, which is an increase of $145,100 compared to FY 2014. Labor and Benefits Labor and benefits are the wages and fringe benefits for FY 2015 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 increased by $1,072,100 from $18.7 million to $19.7 million in FY 2015. Administrative Expenses Administrative expenses are costs incurred by various departments that are directly related to District operations. Administrative expenses are projected to be $5.4 million in FY 2015 which is an increase of $336,600 compared to FY 2014. Additional details are supplied in the Departmental Operating Budget section. Materials and Maintenance Expenses Materials and maintenance expenses are costs associated with the operation and maintenance of District facilities. Materials and maintenance expenses are projected to be $3.6 million in FY 2015 which is $86,900 more than FY 2014. Additional details are supplied in the Departmental Operating Budget section. 37 Budget Summary GENERAL FUND RESERVES 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. For FY 2015, these reserves will be funded with $2.5 million from Recycled Water. 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. For FY 2015, these reserves will be funded from Potable and Recycled Water for a total of $3.5 million. 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. For FY 2015, these reserves will be funded from Potable, Recycled Water, and Sewer Funds totaling $3.3 million. In addition, Potable Water will fund the Sewer Replacement Reserve with $127,000, a repayment of borrowed funds. 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. For FY 2015, this reserve will be funded with $705,000 from Potable Water. FUND TRANSFERS Fund 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. Transfer from Potable General Fund to Sewer General Fund For FY 2015, the Potable General Fund is budgeted to send $553,800 as a repayment to the Sewer General Fund. A corresponding transfer in to the Sewer General Fund is budgeted for the same amount. Transfer to OPEB Trust For FY 2015, the Potable General Fund is budgeted to fund the OPEB Trust $647,100 for retiree health liabilities. Transfer to Potable General Fund For 2015, the Potable General Fund balance is budgeted to receive $1.6 million. This is the excess of revenues, expenses, and fund transfers to meet reserve and debt coverage target levels. 38 Budget Summary 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. General Fund – Revenue, Expenditures, and Transfers This schedule shows the General Fund’s total revenues, expenditures, and transfers showing the prior year’s actuals, the prior year’s budget, and unaudited actuals, the current year’s budget, along with the variance from the prior year’s budget. Fund Balance Summary by Fund This schedule shows each fund’s balance at June 30, 2014, and the projected balance for June 30, 2015. These balances are 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 reflects 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. 39 FY 2013 FY 2014 FY 2014 FY 2015 11-Actual Budget Actual * Budget $ % REVENUES Potable Water Sales 63,669,294$ 67,033,500$ 71,272,396$ 71,959,100$ 4,925,600$ 7.3% Recycled Water Sales 8,488,486 8,340,100 10,014,767 8,826,600 486,500 5.8% Sewer Revenues 2,618,291 2,701,600 2,757,867 3,007,700 306,100 11.3% Meter Fees 108,538 81,600 78,465 51,500 (30,100) (36.9%) Capacity Fee Revenues 1,237,085 1,291,200 1,170,985 1,150,600 (140,600) (10.9%) Betterment Fees for Maintenance 612,663 776,700 485,738 301,800 (474,900) (61.1%) Tax Revenues 3,600,263 3,597,100 3,624,363 3,763,700 166,600 4.6% Non-operating Revenues 1,859,023 1,846,000 2,057,519 1,947,800 101,800 5.5% Interest 59,399 69,100 124,196 77,400 8,300 12.0% OTransfer from OPEB Reserve 879,500 149,800 149,800 - (149,800) (100.0%) ExTransfer from Potable General Fund - - - 553,800 553,800 100.0% General Fund Draw Down 1,541,900 214,400 214,400 - (214,400) (100.0%) TOTAL REVENUES 84,674,444$ 86,101,100$ 91,950,496$ 91,640,000$ 5,538,900$ 6.4% EXPENDITURES Potable Water Purchases 32,063,055$ 33,028,900$ 36,151,147$ 34,521,500$ 1,492,600$ 4.5% Recycled Water Purchases 1,391,947 1,599,500 1,661,887 1,601,500 2,000 0.1% CWA - Infrastructure Access Charge 1,818,204 1,856,100 1,856,202 1,901,400 45,300 2.4% CWA - Customer Service Charge 1,688,369 1,753,600 1,753,840 1,792,200 38,600 2.2% CWA - Emergency Storage Charge 4,086,425 4,515,500 4,515,596 4,741,200 225,700 5.0% MWD - Capacity Reservation Charge 503,873 531,000 531,318 701,400 170,400 32.1% MWD - Net RTS and Standby Charge 1,609,710 1,740,500 1,740,511 1,800,000 59,500 3.4% Subtotal - Water Costs 43,161,582$ 45,025,100$ 48,210,501$ 47,059,200$ 2,034,100$ 4.5% Power 2,430,461$ 2,693,300$ 2,808,846$ 2,838,400$ 145,100$ 5.4% Labor and Benefits 18,361,022 18,675,500 18,876,033 19,747,600 1,072,100 5.7% Administrative Expenses 4,254,758 5,082,600 4,085,394 5,419,200 336,600 6.6% Materials & Maintenance 3,727,095 3,532,900 3,157,876 3,619,800 86,900 2.5% Subtotal - Operations Costs 28,773,335$ 29,984,300$ 28,928,149$ 31,625,000$ 1,640,700$ 5.5% Expansion Reserve 3,936,000 3,428,000 3,428,000 2,538,900 (889,100) (25.9%) B Betterment Reserve 1,120,000 125,000 125,000 3,530,000 3,405,000 2724.0% R Replacement Reserve 743,000 4,230,000 4,230,000 3,270,200 (959,800) (22.7%) Transfer to Sewer General Fund 595,000 152,800 152,800 553,800 401,000 262.4% TOOPEB Trust - 1,242,900 1,242,900 647,100 (595,800) (47.9%) Potable General Fund 2,285,800 1,913,000 1,913,000 1,583,800 (329,200) (17.2%) Sewer Replacement 2,099,000 - - 127,000 127,000 - New Supply Reserve - - - 705,000 705,000 - Subtotal - Reserve Funding 10,778,800$ 11,091,700$ 11,091,700$ 12,955,800$ 1,864,100$ 16.8% TOTAL EXPENDITURES 82,713,717$ 86,101,100$ 88,230,350$ 91,640,000$ 5,538,900$ 6.4% EXCESS REVENUES (EXPENDITURES)1,960,727$ -$ 3,720,146$ -$ -$ (100.0%) Operating Budget Summary - General Fund Budget to Budget 40 Operating Budget Summary - General Fund Potable Water Sales 71,959,100$ 78.5% Recycled Water Sales 8,826,600 9.6% Sewer Revenues 3,007,700 3.3% Meter Fees 51,500 0.1% Capacity Fee Revenues 1,150,600 1.3% Betterment Fees for Maintenance 301,800 0.3% Tax Revenues 3,763,700 4.1% Non-operating Revenues 1,947,800 2.1% Interest 77,400 0.1% Transfers 553,800 0.6% 91,640,000$ 100.0% Potable Water Purchases 45,457,700$ 49.6% Recycled Water Purchases 1,601,500 1.8% Power 2,838,400 3.1% Labor and Benefits 19,747,600 21.5% Administrative Expenses 5,419,200 5.9% Materials & Maintenance 3,619,800 4.0% Reserve Funding 12,955,800 14.1% 91,640,000$ 100.0% FY 2015 Operating Revenues FY 2015 Operating Expenditures 41 Potable Recycled Sewer Total REVENUES Water Sales 71,959,100$ -$ -$ 71,959,100$ Recycled Water Sales - 8,826,600 - 8,826,600 Sewer Revenues - - 3,007,700 3,007,700 Meter Fees 51,100 400 - 51,500 Capacity Fee Revenues 1,150,600 - - 1,150,600 B Betterment Fees for Maintenance 301,800 - - 301,800 Tax Revenues 3,712,100 - 51,600 3,763,700 Non-operating Revenues 1,914,000 - 33,800 1,947,800 Interest 65,400 7,400 4,600 77,400 TF Transfer from Betterment - - 553,800 553,800 TOTAL REVENUES 79,154,100$ 8,834,400$ 3,651,500$ 91,640,000$ EXPENDITURES Water Costs Water Purchases 34,521,500$ 1,601,500$ -$ 36,123,000$ CWA - Infrastructure Access Charge 1,901,400 - - 1,901,400 CWA - Customer Service Charge 1,792,200 - - 1,792,200 CWA - Emergency Storage Charge 4,741,200 - - 4,741,200 MWD - Capacity Reservation Charge 701,400 - - 701,400 MWD - Net RTS and Standby Charges 1,800,000 - - 1,800,000 Subtotal - Water Costs 45,457,700$ 1,601,500$ -$ 47,059,200$ Operations Costs Power 2,188,400 469,400 180,600 2,838,400 Labor and Benefits 17,663,500 1,181,800 902,300 19,747,600 Administrative Expenses 4,927,100 285,600 206,500 5,419,200 Materials & Maintenance 1,921,800 295,900 1,402,100 3,619,800 Subtotal - Operations Costs 26,700,800$ 2,232,700$ 2,691,500$ 31,625,000$ Reserve Funding #Expansion Reserve - 2,538,900 - 2,538,900 B Betterment Reserve 2,805,000 725,000 - 3,530,000 ReReplacement Reserve 675,000 1,679,000 916,200 3,270,200 Sewer General Fund 553,800 - - 553,800 TOOPEB Trust 546,000 57,300 43,800 647,100 Potable General Fund 1,583,800 - - 1,583,800 Sewer Replacement 127,000 - - $127,000 New Supply Reserve 705,000 - - 705,000 Subtotal - Reserve Funding 6,995,600$ 5,000,200$ 960,000$ 12,955,800$ TOTAL EXPENDITURES 79,154,100$ 8,834,400$ 3,651,500$ 91,640,000$ EXCESS REVENUES (EXPENDITURES)-$ -$ -$ -$ FY 2015 Operating Budget Summary by System 42 FY 2013 FY 2014 FY 2014 FY 2015 11-Actual Budget Actual * Budget $ % REVENUES Water/Sewer Rates 74,776,072$ 78,075,200$ 84,045,030$ 83,793,400$ 5,718,200$ 7.3% #Meter Fees 108,538 81,600 78,465 51,500 (30,100) (36.9%) #Capacity Fee Revenues 1,237,085 1,291,200 1,170,985 1,150,600 (140,600) (10.9%) #Betterment Fees for Maintenance 612,663 776,700 485,738 301,800 (474,900) (61.1%) Tax Revenues 3,600,263 3,597,100 3,624,363 3,763,700 166,600 4.6% #Non-operating Revenues 1,859,023 1,846,000 2,057,519 1,947,800 101,800 5.5% #Interest 59,399 69,100 124,196 77,400 8,300 12.0% Transfers 2,421,400 364,200 364,200 553,800 189,600 52.1% TOTAL REVENUES 84,674,444$ 86,101,100$ 91,950,496$ 91,640,000$ 5,538,900$ 6.4% EXPENDITURES Water Costs 43,161,582$ 45,025,100$ 48,210,501$ 47,059,200$ 2,034,100$ 4.5% #Power 2,430,461 2,693,300 2,808,846 2,838,400 145,100 5.4% #Labor and Benefits 18,361,022 18,675,500 18,876,033 19,747,600 1,072,100 5.7% #Administrative Expenses 4,254,758 5,082,600 4,085,394 5,419,200 336,600 6.6% #Materials & Maintenance 3,727,095 3,532,900 3,157,876 3,619,800 86,900 2.5% Transfers 10,778,800 11,091,700 11,091,700 12,955,800 1,864,100 16.8% TOTAL EXPENDITURES 82,713,717$ 86,101,100$ 88,230,350$ 91,640,000$ 5,538,900$ 6.4% 1,960,727$ -$ 3,720,146$ -$ -$ (100.0%) General Fund - Revenues, Expenditures and Transfers Budget to Budget EXCESS REVENUES (EXPENDITURES) General Fund Revenues, Expenditures and Transfers, in millions ($) $60 $80 $100 Actual Budget Actual * Budget FY 2013 FY 2014 FY 2014 FY 2015 Total Revenues Total Expenditures *Actuals unaudited 43 Actual*Projected Balance Interfund Balance June 30, 2014 Revenues Expenditures Transfers (1)June 30, 2015 GENERAL FUND Potable 19,778,730$ 79,154,100$ 79,154,100$ 1,583,800$ 21,362,530$ Recycled 5,326,085 8,834,400 8,834,400 (1,995,900) 3,330,185 Sewer 2,249,433 3,651,500 3,651,500 (1,088,300) 1,161,133 Total General Fund 27,354,248 91,640,000 91,640,000 (1,500,400) 25,853,848 EXPANSION FUND Potable and Recycled (2)4,396,988 1,903,900 6,127,200 40,000 213,688 Sewer 66,206 200 - (40,500) 25,906 Total Expansion Fund 4,463,194 1,904,100 6,127,200 (500) 239,594 (3) BETTERMENT FUND Potable 3,737,710 1,098,500 3,699,800 2,805,000 3,941,410 Recycled (393,039) 4,200 175,400 725,000 160,761 Sewer 1,228,079 42,100 305,000 (530,000) 435,179 Total Betterment Fund 4,572,750 1,144,800 4,180,200 3,000,000 4,537,350 REPLACEMENT FUND Potable 29,690,621 1,022,900 6,852,300 5,145,000 29,006,221 Recycled 3,829,668 27,500 831,400 1,679,000 4,704,768 Sewer 9,230,143 37,700 1,275,000 2,668,000 10,660,843 Total Replacement Fund 42,750,432 1,088,100 8,958,700 9,492,000 44,371,832 NEW SUPPLY FUND Potable 333,403 191,500 467,600 705,000 762,303 Recycled 12,809 1,600 4,800 25,000 34,609 Sewer - - - - - Total New Supply Fund 346,212 193,100 472,400 730,000 796,912 (3) OPEB FUND 307,279 600 958,000 647,100 (3,021) (4) DEBT RESERVE FUND 4,617,959 655,000 750,100 34,000 4,556,859 TOTAL 84,412,074$ 96,625,700$ 113,086,600$ 12,402,200$ 80,353,375$ 3,915,002$ (1)The total for interfund transfers does not net to $0 because some transfers are already reflected in the Operating Revenues and Expenditures for General Fund as follows: General Fund 1,583,800$ Expansion Reserve 2,538,900 Betterment Reserve 3,530,000 Replacement Reserve 3,397,400 New Supply Reserve 705,000 OPEB Reserve 647,100 Total 12,402,200 ## (2)Potable and Recycled funds are combined for expansion purposes. (3)The fund balance is anticipated to change more than 10% due to the Districts 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 198-231. (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 2015 Budget Fund Balance Summary by Fund *Actual unaudited 44 FY 2013 FY 2015 Actual Budget Actual* Budget GENERAL FUND Potable 71,775,592$ 74,687,600$ 78,857,522$ 79,154,100$ Recycled 8,767,111 8,407,800 10,093,330 8,834,400 Sewer 4,131,742 3,005,700 2,999,644 3,651,500 Total General Fund (1)84,674,445 86,101,100 91,950,496 91,640,000 EXPANSION FUND Potable 1,947,226 2,332,400 4,158,840 1,788,700 Recycled 1,554,732 843,100 1,698,412 115,200 Sewer 406 - 7,803 200 Total Expansion Fund 3,502,364 3,175,500 5,865,055 1,904,100 BETTERMENT FUND Potable 2,724,182 2,950,800 3,294,249 1,098,500 Recycled 73,192 112,900 - 4,200 Sewer 43,861 41,500 37,336 42,100 Total Betterment Fund 2,841,235 3,105,200 3,331,585 1,144,800 REPLACEMENT FUND Potable 1,798,381 1,738,900 9,296,348 1,022,900 Recycled 24,950 122,300 122,907 27,500 Sewer 29,562 33,300 48,764 37,700 Total Replacement Fund 1,852,893 1,894,500 9,468,019 1,088,100 NEW SUPPLY FUND Potable 174,964 986,500 385,982 191,500 Recycled 53,520 77,000 - 1,600 Sewer - - - - Total New Supply Fund 228,484 1,063,500 385,982 193,100 OPEB FUND 3,056 800 4,829 600 DEBT RESERVE FUND 734,278 664,800 663,497 655,000 TOTAL REVENUES 93,836,755$ 96,005,400$ 111,669,463 96,625,700$ -$ -$ Revenues and Expenditures by Fund FY 2014 *Actual unaudited 45 FY 2013 FY 2015 Actual Budget Actual* Budget Revenues and Expenditures by Fund FY 2014 GENERAL FUND Potable 70,968,083$ 74,687,600$ 77,443,338$ 79,154,100$ Recycled 7,526,709 8,407,800 8,411,776 8,834,400 Sewer 4,218,924 3,005,700 2,375,236 3,651,500 Total General Fund 82,713,716 86,101,100 88,230,350 91,640,000 EXPANSION FUND Potable 5,828,937 5,167,000 4,658,990 4,843,000 Recycled 2,270,550 2,399,500 1,557,915 1,284,200 Sewer 153,541 61,600 3,580 - Total Expansion Fund 8,253,028 7,628,100 6,220,485 6,127,200 BETTERMENT FUND Potable 4,219,470 4,802,100 3,352,161 3,699,800 Recycled 98,039 204,000 516,151 175,400 Sewer 1,155,420 333,000 180,310 305,000 Total Betterment Fund 5,472,929 5,339,100 4,048,622 4,180,200 REPLACEMENT FUND Potable 4,903,562 7,308,800 5,640,438 6,852,300 Recycled 269,474 450,900 1,181,130 831,400 Sewer 1,343,206 2,117,000 777,199 1,275,000 Total Replacement Fund 6,516,242 9,876,700 7,598,767 8,958,700 NEW SUPPLY FUND Potable 752,144 751,600 427,719 467,600 Recycled 56,106 134,400 500,023 4,800 Sewer - - - - Total New Supply Fund 808,250 886,000 927,742 472,400 OPEB FUND 634,221 991,400 940,355 958,000 DEBT RESERVE FUND 3,287,611 3,753,700 13,650,886 750,100 TOTAL EXPENDITURES 107,685,997 114,576,100 121,617,207 113,086,600 SURPLUS (DEFICIT) (1)(13,849,242)$ (18,570,700)$ (9,947,744) (16,460,900)$ *Actual unaudited 46 FY 2013 FY 2015 Actual Budget Actual* Budget REVENUES AND FUND SOURCES Water Sales 72,157,781 75,373,600 81,287,163 80,785,700 Sewer Revenues 2,618,291 2,701,600 2,757,867 3,007,700 Meter Fees 108,538 81,600 78,465 51,500 Capacity Fee Revenues 3,098,524 3,530,000 2,703,862 2,293,500 Betterment Fee Revenues 770,672 904,800 709,986 340,500 New Supply Fee Revenue 329,192 321,800 225,038 180,300 Capacity Fees for Maintenance 1,237,085 1,291,200 1,170,985 1,150,600 Betterment Fees for Maintenance 612,663 776,700 485,738 301,800 Tax Revenues 3,600,263 3,597,100 3,624,363 3,763,700 Availability Fees 502,283 474,100 549,409 441,500 Non-Operating Revenues 1,859,023 1,846,000 2,057,519 1,947,800 GO Bond Debt Tax Revenues 650,587 597,000 641,798 651,700 Sewer Debt Tax Revenues 2,626 1,100 962 500 COPs Proceeds 3,365,724 3,762,900 14,395,229 770,400 Grants 183,565 92,000 209,873 111,100 Interest 318,537 289,700 407,006 273,600 Transfer from OPEB 879,500 149,800 149,800 - General Fund Draw Down 946,900 61,600 61,600 - Interfund Transfers 595,000 152,800 152,800 553,800 Total Revenues and Fund Sources 93,836,755$ 96,005,400$ 111,669,463 96,625,700$ EXPENDITURES AND USES OF FUNDS Water Purchases 43,161,583 45,025,100 48,210,501 47,059,200 Power 2,430,461 2,693,300 2,808,846 2,838,200 Administrative Expenses 4,254,758 5,082,600 4,085,394 5,419,200 Materials and Maintenance 3,727,095 3,532,900 3,157,876 3,619,800 Labor Expenses 18,361,022 18,675,500 18,876,033 19,747,600 CIP Expenses 11,384,302 13,863,100 8,497,568 10,575,900 Debt Service 8,564,448 8,549,000 8,563,487 8,460,300 Capacity Fees for Maintenance 1,237,085 1,291,200 1,170,985 1,150,600 Betterment Fees for Maintenance 616,502 776,700 485,739 301,800 OPEB Retiree Health Expenses 634,221 991,400 940,355 958,000 COPs Proceeds Distribution 2,535,724 3,003,600 13,728,724 - General Fund Transfers 2,880,800 2,065,800 2,065,800 2,137,600 Interfund Transfers 7,898,000 9,025,900 9,025,900 10,818,400 Total Expenditures and Uses of Funds 107,685,999 114,576,100 121,617,207 113,086,600 SURPLUS (DEFICIT) (13,849,244)$ (18,570,700)$ (9,947,745) (16,460,900)$ Revenues and Expenditures by Type - All Funds FY 2014 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 2013 and 2014 shown above. *Actuals unaudited 47 Five-Year Forecast – FY 2016 through FY 2020 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 18. 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 726 miles of potable pipelines, 102 miles of recycled pipelines, 88 miles of sewer mains, 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 program 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). Projected Cost of Water per acre-foot 48 REVENUES FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Water/Sewer Rates 87,701,600 92,533,400 97,920,700 103,680,500 109,924,700 Meter Fees 117,100 159,400 241,800 260,600 295,600 Capacity Fee Revenues 1,156,400 1,168,000 1,179,700 1,191,500 1,203,400 Non-operating Revenues 2,477,900 2,009,400 2,042,900 2,077,300 2,113,000 Tax Revenues 3,860,200 3,960,900 4,067,300 4,245,600 4,435,200 Interest Income 80,300 128,200 166,000 197,100 230,200 TOTAL 95,393,500$ 99,959,300$ 105,618,400$ 111,652,600$ 118,202,100$ 31,343,700$ 30,944,500$ 31,721,900$ 33,046,300$ EXPENDITURES AND TRANSFERS FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Water Cost 49,414,100$ 54,042,400$ 58,692,600$ 62,990,100$ 67,699,900$ Power 4,161,900 4,348,900 4,558,700 4,789,100 5,045,900 Labor and Benefits 20,120,300 20,384,300 20,589,400 20,881,900 21,180,300 Administrative Expenses 5,588,200 5,764,000 5,946,300 6,131,900 6,323,700 Materials & Maintenance 3,767,400 3,920,700 4,080,600 4,246,900 4,420,200 Reserve Funding , Net 12,341,600 11,499,000 11,750,800 12,612,700 13,532,100 TOTAL 95,393,500$ 99,959,300$ 105,618,400$ 111,652,600$ 118,202,100$ EXCESS REVENUES -$ -$ -$ -$ -$ General Fund Forecast - FY 2016 through FY 2020 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 2016 FY 2017 FY 2018 FY 2019 FY 2020 $9 5 $1 0 0 $1 0 6 $1 1 2 $1 1 8 $9 5 $1 0 0 $1 0 6 $1 1 2 $1 1 8 Revenues and Expenditures Forecast, in millions ($) Revenues Expenditures 49 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 General Fund 18,090,900$ 18,143,900$ 18,114,200$ 17,925,500$ 17,731,200$ Betterment Fund 5,531,000 3,276,900 1,822,700 774,800 783,100 Replacement Fund 32,090,500 18,889,100 18,038,600 20,783,500 31,172,900 Expansion Fund 792,300 1,689,600 1,745,700 3,258,200 3,260,000 New Supply Fund 1,706,300 1,706,600 1,183,900 2,900 8,500 Debt Reserve 532,600 403,900 294,300 314,500 354,000 TOTAL 58,743,600$ 44,110,000$ 41,199,400$ 43,059,400$ 53,309,700$ (600) (600) (500) (417) (460) Fund Balances Forecast - FY 2016 through FY 2020 $0 $20 $40 $60 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Fund Balances Forecast, in millions ($) General Fund Betterment Fund Replacement Fund Expansion Fund Debt Reserve 50 Debt Management The District has been successful in financing capital improvements through a combination of long- term and short-term financing plans. Financial tool used 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. 51 Debt Management The District achieved a 148% actual debt coverage ratio for fiscal year 2013, which exceeded the debt covenant minimum ratio of 125%. To meet the bond indebtedness obligation and maintain stable rates, the rate model is used to forecast revenues and operating requirements. In the next six years, the District does not anticipate the need to issue new debt and expects the District’s financial performance to yield strong levels prior to any debt issued. The chart below show the District’s projected debt coverage ratio from FY 2015 through FY 2020. The debt coverage ratios are growing as rates are set to ensure adequate funding of the reserves. The District’s Board of Directors believes that a strong debt coverage ratio will benefit the ratepayers as it reduces the cost of water infrastructure; and therefore have been willing to support this with necessary rate increases. 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. Projected Debt Coverage Ratio 1.66 2.14 2.31 2.73 2.95 3.31 - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Co v e r a g e R a t i o Actual Ratio Minimum Ratio = 1.25 52 Outstanding Year Maturity Original Balance # Incurred Description Date Amount 6/30/2015 1 1996 Certificates of Participation (COPs)September 1, 2026 15,400,000$ 9,900,000$ 2 2007 Certificates of Participation (COPs)September 1, 2036 42,000,000 36,790,000 3 2009 General Obligation (GO) Bonds August 31, 2022 7,780,000 5,700,000 4 2010 Certificates of Participation Series A (COPs)September 1, 2024 13,840,000 11,435,000 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$ 107,915,000$ Total Assessed Valuation - FY 2014 Percentage of Original Debt to Assessed Valuation 0.53%0.08% Debt Limit per District Debt Policy (% of Assessed Valuation)15.00%15.00% Total Outstanding Debt, in millions ($) Schedule of Outstanding Debt 10,226,148,004$ 23,304,103,069$ All Debts GO Bonds Note: The accounting for debt proceeds and payments is described in the District's Reserve Policy found on pages 198-231. $0 $15 $30 $45 $60 $75 $90 1996 COPs 2009 GOBs 2007 COPs 2010A COPs 2010B BABs 2013 WRRBs Principal Interest 53 1996 COPs 2009 GOBs 2007 COPs 2010A COPs 2010B BABs 2013 WRRBs Total 500,000 550,000 995,000 845,000 - 605,000 3,495,000 600,000 570,000 1,035,000 870,000 - 615,000 3,690,000 600,000 585,000 1,075,000 900,000 - 635,000 3,795,000 600,000 605,000 1,115,000 940,000 - 660,000 3,920,000 700,000 635,000 1,155,000 975,000 - 685,000 4,150,000 700,000 650,000 1,200,000 1,015,000 - 715,000 4,280,000 700,000 680,000 1,250,000 1,065,000 - 745,000 4,440,000 800,000 705,000 1,300,000 1,120,000 - 775,000 4,700,000 800,000 720,000 1,355,000 1,175,000 - 805,000 4,855,000 900,000 - 1,410,000 1,235,000 - 835,000 4,380,000 900,000 - 1,470,000 1,295,000 - - 3,665,000 1,000,000 - 1,530,000 - 1,365,000 - 3,895,000 1,100,000 - 1,595,000 - 1,450,000 - 4,145,000 - - 1,665,000 - 1,545,000 - 3,210,000 - - 1,735,000 - 1,640,000 - 3,375,000 - - 1,810,000 - 1,745,000 - 3,555,000 - - 1,890,000 - 1,855,000 - 3,745,000 - - 1,970,000 - 1,975,000 - 3,945,000 - - 2,055,000 - 2,105,000 - 4,160,000 - - 2,150,000 - 2,245,000 - 4,395,000 - - 2,245,000 - 2,390,000 - 4,635,000 - - 2,340,000 - 2,550,000 - 4,890,000 - - 2,445,000 - 2,715,000 - 5,160,000 - - - - 2,895,000 - 2,895,000 - - - - 3,085,000 - 3,085,000 - - - - 3,290,000 - 3,290,000 - - - - 3,505,000 - 3,505,000 9,900,000$ 5,700,000$ 36,790,000$ 11,435,000$ 36,355,000$ 7,075,000$ 107,255,000$ 2040 2041 TOTAL Combined Debt Service Through Maturity, in millions ($) 2039 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2015 2027 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Projected Principal Payments by Debt Issuance FY $- $1 $2 $3 $4 $5 $6 $7 $8 $9 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 Interest Principal 54 1996 COPs (1)2009 GOBs 2007 COPs 2010A COPs 2010B BABs 2013 WRRBs (2)Total 14,225 198,663 1,504,864 508,563 2,371,868 237,275 4,835,458 13,350 181,663 1,466,301 478,488 2,371,868 213,033 4,724,703 12,450 162,969 1,425,791 443,088 2,371,868 186,800 4,602,966 11,550 139,633 1,383,674 406,288 2,371,868 159,567 4,472,580 10,525 114,433 1,339,316 367,988 2,371,868 131,167 4,335,297 9,475 88,533 1,292,856 323,113 2,371,868 101,567 4,187,412 8,425 61,533 1,243,390 271,113 2,371,868 70,767 4,027,096 7,250 33,500 1,191,723 216,488 2,371,868 38,767 3,859,596 6,050 4,800 1,136,760 159,113 2,371,868 5,567 3,684,158 4,725 - 1,079,326 98,863 2,371,868 - 3,554,782 3,375 - 1,019,160 33,994 2,371,868 - 3,428,397 1,900 - 955,504 - 2,328,345 - 3,285,749 275 - 888,304 - 2,238,589 - 3,127,168 - - 818,038 - 2,143,093 - 2,961,131 - - 744,796 - 2,041,540 - 2,786,336 - - 668,402 - 1,933,609 - 2,602,011 - - 588,644 - 1,818,823 - 2,407,467 - - 505,485 - 1,694,728 - 2,200,213 - - 416,609 - 1,560,558 - 1,977,167 - - 323,240 - 1,417,508 - 1,740,748 - - 225,714 - 1,265,086 - 1,490,800 - - 124,031 - 1,102,634 - 1,226,665 - - 17,828 - 929,495 - 947,323 - - - - 745,010 - 745,010 - - - - 548,357 - 548,357 - - - - 338,716 - 338,716 - - - - 115,262 - 115,262 103,575$ 985,727$ 20,359,756$ 3,307,099$ 48,311,901$ 1,144,510$ 74,212,568$ (1)Interest on the 1996 Certificates of Participation is variable and is projected using an interest rate of .15%. (2)The 2013 Water Revenue Refunding Bonds were an advanced refunding of the 2004 COPs, which was a refunding of the 1993 COPs. Projected Interest Payments by Debt Issuance FY 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2036 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2037 2038 2039 2040 2041 TOTAL 55 Potable Revenues and Expenditures Potable Revenues The District will provide water service to approximately 49,257 potable customers by the end of Fiscal Year 2015. Ninety-one percent of the potable customers are residential and the remaining nine 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 0.25% for Fiscal Year 2015. Unit sales are anticipated to increase 0.7% 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. These unit sales represent approximately 65% 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, the MWD and CWA fixed charge, and the District system fee. These fixed charges are 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. Energy charges are set so as to recover the power costs associated with pumping. This charge is adjusted based on an annual 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. 624-2 Potable Reservoir 56 Potable Revenues and Expenditures Potable Expenditures In Fiscal Year 2015, the District estimates to purchase 30,793.3 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 1,600.9 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 which gives the District redundancy in water supply. The reliability is necessary to ensure water deliveries can continue in an emergency situation such as earthquakes or other natural disasters. The District’s agreement 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 58 effects the extent to which it can perform the various functions, as does the individual agencies’ operational plan implemented at each location. Concrete spool being disinfected for installation at the 624-2 Potable Reservoir. 57 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. 58 FY 2013 FY 2014 FY 2014 FY 2015 11-Actual Budget Actual * Budget $ % REVENUES #Water Sales 63,669,294$ 67,033,500$ 71,272,396$ 71,959,100$ 4,925,600$ 7.3% #Meter Fees 107,836 79,400 77,503 51,100 (28,300) (35.6%) #Capacity Fee Revenues 1,083,545 1,229,600 1,167,405 1,150,600 (79,000) (6.4%) #Betterment Fees for Maintenance 612,663 776,700 485,738 301,800 (474,900) (61.1%) Tax Revenues 3,547,497 3,545,500 3,580,042 3,712,100 166,600 4.7% #Non-operating Revenues 1,823,671 1,812,200 2,024,615 1,914,000 101,800 5.6% #Interest 51,585 60,900 100,023 65,400 4,500 7.4% O Transfer from OPEB 879,500 149,800 149,800 - (149,800) (100.0%) TOTAL REVENUES 71,775,591$ 74,687,600$ 78,857,522$ 79,154,100$ 4,466,500$ 6.0% EXPENDITURES Potable Water Purchases 32,063,055 33,028,900 36,151,147 34,521,500 1,492,600 4.5% #CWA - Infrastructure Access Charge 1,818,204 1,856,100 1,856,202 1,901,400 45,300 2.4% #CWA - Customer Service Charge 1,688,369 1,753,600 1,753,840 1,792,200 38,600 2.2% #CWA - Emergency Storage Charge 4,086,425 4,515,500 4,515,596 4,741,200 225,700 5.0% #MWD - Capacity Reservation Charge 503,873 531,000 531,318 701,400 170,400 32.1% #MWD-Net RTS and Standby Charges 1,609,710 1,740,500 1,740,511 1,800,000 59,500 3.4% Subtotal - Water Costs 41,769,636$ 43,425,600$ 46,548,614$ 45,457,700$ 2,032,100$ 4.7% #Power 1,775,213 2,068,100 2,057,945 2,188,400 120,300 5.8% #Labor and Benefits 16,356,331 16,259,300 16,967,071 17,663,500 1,404,200 8.6% #Administrative Expenses 3,622,171 4,480,500 3,616,667 4,927,100 446,600 10.0% #Materials & Maintenance 1,969,932 1,855,700 1,654,641 1,921,800 66,100 3.6% 11 Subtotal - Operations Costs 23,723,647$ 24,663,600$ 24,296,324$ 26,700,800$ 2,037,200$ 8.3% #Expansion Reserve - 3,418,000 3,418,000 - (3,418,000) (100.0%) B Betterment Reserve 495,000 - - 2,805,000 2,805,000 100.0% ReReplacement Reserve - - - 675,000 675,000 100.0% swTransfer to Sewer General Fund 595,000 152,800 152,800 553,800 401,000 262.4% TOTransfer to OPEB - 1,114,600 1,114,600 546,000 (568,600) (51.0%) G Transfer to General Fund Reserve 2,285,800 1,913,000 1,913,000 1,583,800 (329,200) (17.2%) SwTransfer to Sewer Replacement 2,099,000 - - 127,000 127,000 0.0% N Transfer to New Supply Fund - - - 705,000 705,000 100.0% Subtotal - Reserve Funding 5,474,800$ 6,598,400$ 6,598,400$ 6,995,600$ 397,200$ 6.0% TOTAL EXPENDITURES 70,968,083$ 74,687,600$ 77,443,338$ 79,154,100$ 4,466,500$ 6.0% EXCESS REVENUES (EXPENDITURES)807,508$ -$ 1,414,184$ -$ -$ - Operating Budget Summary - Potable Budget to Budget Variance * Actuals unaudited 59 FY 2014 FY 2014 FY 2015 Actual* Budget Budget $ % Water Sales 46,856,253$ 42,668,000$ 45,669,500$ 3,001,500$ 7.0% System Fees 11,152,291 11,184,200 12,337,500 1,153,300 10.3% Energy Fees 2,114,844 1,958,100 2,145,600 187,500 9.6% MWD and CWA Fixed Fees 10,309,983 10,399,700 10,936,200 536,500 5.2% Penalties 839,025 823,500 870,300 46,800 5.7% Total Water Sales 71,272,396$ 67,033,500$ 71,959,100$ 4,925,600$ 7.3% Water Sales 45,669,500$ 64.0% System Charges 12,337,500 17.0% MWD and CWA Fixed Charges 10,936,200 15.0% Energy Charges 2,145,600 3.0% Penalties 870,300 1.0% Total 71,959,100$ 100.0% 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 calculated to recover the 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 $ .050 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 *Actual unaudited 60 Current Approved*Accounts Units Amount Residential 44,943 7,674,100 26,702,500$ Conservation Tier (< 5 hcf)1.86$ 1.95$ 6 - 10 2.90 3.04 11 - 22 3.77 3.95 over 23 hcf 5.80 6.08 Master Meter 798 1,427,500 5,180,000 0 - 4 2.86 3.00 5 - 9 3.71 3.89 over 10 hcf 5.73 6.00 Public and Commercial 1,439 1,853,100 5,862,900 Tier I 3.06 3.21 Tier II 3.14 3.26 Tier III 3.19 3.31 Agriculture, Landscaping, and Construction 1,339 1,761,700 7,524,600 Tier I 4.17 4.37 Tier II 4.25 4.42 Tier III 4.32 4.47 Total 48,519 12,716,400 45,270,000$ Government Fee 0.31 0.32 - - 399,500 Total Water Sales 48,519 12,716,400 45,669,500$ Residential 7,674,100 60% Master Meter 1,427,500 12%Public and Commercial 1,853,100 14%Agricultural and Landscaping 1,761,700 14% 12,716,400 100% Water Sales Summary by Service Class - Potable FY 2015 Sales BudgetWater Rates FY 2015 Unit Sales by Service Class *Approved rates for water billed beginning in January 2015. 61 Budget Customer Class FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Residential 7,679,494 7,486,069 7,507,214 7,836,873 8,050,828 7,674,100 Master Meters 1,371,244 1,389,616 1,409,515 1,495,057 1,536,902 1,427,500 Public and Commercial 1,798,277 1,771,396 1,859,571 2,031,253 2,056,075 1,853,100 Agricultural and Landscaping 1,644,130 1,537,304 1,581,243 1,723,839 1,931,856 1,590,400 Temporary and Fire Services 254,016 179,472 153,351 102,020 144,458 171,300 Total Unit Sales 12,747,161 12,363,857 12,510,894 13,189,042 13,720,119 12,716,400 Budget Customer Class FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Residential 43,619 43,903 44,396 44,670 44,826 44,945 Master Meters 797 797 799 800 798 798 Public and Commercial 1,431 1,434 1,433 1,493 1,449 1,439 Agricultural and Landscaping 1,127 1,223 1,227 1,227 1,229 1,232 Temporary and Fire Services 790 797 810 772 846 843 Total Unit Sales 47,764 48,154 48,665 48,962 49,148 49,257 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 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget Potable Meters Potable Unit Sales 62 Meter Current Approved (1) Size Estimated 6/30/2014 FY 2015 Growth Rates Rates Estimated 6/30/2014 FY 2015 Growth FY 2015 Budget 0.75 43,667 150 16.19$ 19.39$ 9,322,000$ 18,100$ 9,340,100$ 1.00 2,406 - 22.87 27.39 725,600 - 725,600 1.50 941 1 39.58 47.40 491,100 300 491,400 2.00 1,082 - 59.62 71.39 850,500 - 850,500 3.00 72 - 113.08 135.41 107,300 - 107,300 4.00 177 1 173.22 207.43 404,300 1,300 405,600 6.00 16 - 340.29 407.50 71,800 - 71,800 8.00 3 - 540.76 647.56 21,400 - 21,400 10.00 5 - 774.64 927.63 51,100 - 51,100 Sub-total 48,369 152 12,045,100 19,700 12,064,800 0.63 684 - 21.14 25.32 190,700 - 190,700 0.75 9 - 21.14 25.32 2,500 - 2,500 1.00 27 - 21.14 25.32 7,500 - 7,500 2.00 16 - 25.32 25.32 6,000 - 6,000 3.00 - - 28.49 34.12 - - - 4.00 - - 28.49 34.12 - - - 10.00 - - 28.49 34.12 - - - Sub-total 736 - 206,700 206,700 Turn Over Fees 550 10.00 10.00 66,000 - 66,000 Total 49,105 152 12,317,800$ 19,700$ 12,337,500$ (1)Approved rates for water billed beginning in January 2015. System Fees System Fees - Potable Meter Count Historical System Fees, in millions ($) All Service Types Fire Services $- $2 $4 $6 $8 $10 $12 $14 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget 63 Meter Current Approved(1) Size Estimated 6/30/2014 FY 2015 Growth Rates Rates Estimated 6/30/2014 FY 2015 Growth FY 2015 Budget 0.75 43,660 150 14.45$ 13.67$ 7,366,300$ 13,400$ 7,379,700$ 1.00 2,397 - 26.79 25.35 749,900 - 749,900 1.50 935 1 60.61 57.35 661,800 400 662,200 2.00 1,080 - 103.08 97.53 1,300,000 - 1,300,000 3.00 72 - 219.23 207.44 184,300 - 184,300 4.00 94 1 351.09 332.20 385,400 2,200 387,600 6.00 16 - 718.69 680.02 134,300 - 134,300 8.00 3 - 1,160.59 1,098.15 40,700 - 40,700 10.00 5 - 1,670.55 1,580.67 97,500 - 97,500 Total 48,262 152 10,920,200$ 16,000$ 10,936,200$ (1)Approved rates for water billed beginning in January 2015. Note: Contruction meters, Fire Services, and Recycled Meters are exempt from MWD and CWA Fixed Fees. Landscape Publicly-Owned Agriculture Historical MWD and CWA Fixed Fees, in millions ($) MWD & CWA - Fixed ChargesMeter Count MWD and CWA Fixed Fees (Pass-Through) - Potable $- $2 $4 $6 $8 $10 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget 64 Meter Meter Installation Meter Total Budgeted Size Sales Fee Fee Fees Amount 0.75 150 100.05$ 210.84$ 310.89$ 46,600$ 1.00 - 100.05 272.07 372.12 - 1.50 1 100.05 442.23 542.28 500 2.00 - 100.05 633.66 733.71 - 3.00 - 602.41 1,974.74 2,577.15 - 4.00 1 602.41 3,429.81 4,032.22 4,000 6.00 - 951.55 5,924.22 6,875.77 - 8.00 - 1,459.11 7,401.87 8,860.98 - 10.00 - 1,459.11 10,645.27 12,104.38 - Total 152 51,100$ 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 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget *Actual unaudited65 Budget FY 2010 FY 2011 FY 2012 FY 2013 FY 2014*FY 2015 Water Sales 31,326,151$ 32,236,451$ 35,615,558$ 40,845,630$ 46,856,253$ 45,669,500$ System Fees 9,342,732 9,490,904 9,583,563 10,315,199 11,152,291 12,337,500 Energy Fees 1,662,233 1,693,186 1,881,776 1,964,062 2,114,844 2,145,600 MWD and CWA Fixed Fees 6,359,939 7,421,386 9,000,267 9,747,977 10,309,983 10,936,200 Penalties 853,279 665,931 703,081 796,426 839,025 870,300 Total Potable Revenues 49,544,334$ 51,507,858$ 56,784,245$ 63,669,294$ 71,272,396$ 71,959,100$ Revenue History - Potable Revenue History - Potable, in millions ($) Actual $- $20 $40 $60 $80 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget Water Sales System Fees Energy Fees MWD & CWA Fees Penalties *Actual unaudited 66 FY 2014 Actual* FY 2015 Budget FY 2014 Actual* FY 2015 Budget Acre Feet Acre Feet Rate (1) Potable Water Purchases (CWA): Budgeted Sales 31,650.5 29,192.4 $1,103/$1,143 34,287,306$ 32,710,200$ District & Unbilled Usage 55.2 61.2 $1,103/$1,143 62,278 69,100 Water Loss 1,701.2 1,539.7 $1,103/$1,143 1,798,711 1,725,300 Budgeted Sales (CSD)2.3 - 2,852 16,900 Total Variable Charges 33,409.2 30,793.3 36,151,147$ 34,521,500$ MWD and CWA Fixed Charges: Infrastructure Access Charge 1,856,202$ 1,901,400$ Customer Service Charge 1,753,840 1,792,200 Emergency Storage Charge 4,515,596 4,741,200 Capacity Reservation Charge 531,318 701,400 Readiness-to-Serve Charge 1,740,511 1,800,000 Total Fixed Charges 10,397,467$ 10,936,200$ Total Variable and Fixed Charges 46,548,614 45,457,700 Average Cost Per Acre-Foot 1,393$ 1,476$ (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 2014 Actual* FY 2015 Budget Historical Potable Water Purchases, in acre-feet *Actual unaudited 67 Power Costs - Potable Budget FY 2010 FY 2011 FY 2012 FY 2013 FY 2014*FY 2015 Administrative and Operations Buildings 177,651$ 158,657$ 165,099$ 164,785$ 179,919$ 189,600$ Potable Transmission 1,622,773 1,468,322 1,463,075 1,610,428 1,878,026 1,998,800 Total Potable Power Costs 1,800,424$ 1,626,979$ 1,628,174$ 1,775,213$ 2,057,945$ 2,188,400$ Historical Power Costs, in thousands ($) Actual $0 $500 $1,000 $1,500 $2,000 $2,500 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget Potable Transmission Administrative and Operations Buildings *Actual unaudited 68 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Administrative Expenditures Directors' Fees 19,900$ 30,000$ 19,834$ 30,000$ -$ - Travel and Meetings 126,979 190,900 147,068 207,700 16,800 8.8% Conservation and Outreach 199,479 206,600 136,743 174,900 (31,700) (15.3%) General Office Expense 290,648 321,200 258,732 280,800 (40,400) (12.6%) Equipment 969,967 905,100 942,826 1,133,300 228,200 25.2% Fees 476,561 491,400 489,867 498,700 7,300 1.5% Services 1,280,658 2,047,800 1,286,792 2,042,300 (5,500) (0.3%) Training 56,258 107,700 65,818 123,500 15,800 14.7% Utilities 12,796 16,000 12,929 14,000 (2,000) (12.5%) Bad Debt Expense 117,228 140,000 149,213 148,000 8,000 5.7% Total 3,550,474$ 4,456,700$ 3,509,822$ 4,653,200$ 196,500$ 4.4% Less: Overhead Allocation (781,755) (920,400) (737,254) (767,100) 153,300 0.0% Subtotal 2,768,719$ 3,536,300$ 2,772,568$ 3,886,100$ 349,800$ 9.9% General Expenses 853,452 944,200 844,099 1,041,000 96,800 10.3% Total Expenditures 3,622,171$ 4,480,500$ 3,616,667$ 4,927,100$ 446,600$ 10.0% 4,403,925$ ######## 4,353,921$ 5,694,200$ Directors' Fees 30,000$ 0.5% Travel and Meetings 207,700 3.6% Conservation and Outreach 174,900 3.1% General Office Expense 280,800 4.9% Equipment 1,133,300 19.9% Fees 498,700 8.8% Services 2,042,300 35.9% Training 123,500 2.2% Utilities 14,000 0.2% Miscellaneous 148,000 2.6% General Expenses 1,041,000 18.3% Subtotal 5,694,200$ 100.0% Less: Overhead Allocation (767,100) Total Administrative Expenses 4,927,100$ Administrative Expenditures - Potable FY 2015 Administrative Expenditures - Potable Budget to Budget Variance * Actuals unaudited 69 Materials and Maintenance Expenditures - Potable FY 2013 FY 2015 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 188,902$ 281,000$ 187,861$ 289,300$ 8,300$ 3.0% Meters and Materials 93,825 130,400 63,345 113,100 (17,300) (13.3%) Fleet Parts and Equipment 151,767 131,000 111,271 128,400 (2,600) (2.0%) Infrastructure Equipment & Supplies 443,642 381,600 358,877 367,900 (13,700) (3.6%) Chemicals 259,981 241,000 208,743 223,500 (17,500) (7.3%) Safety Equipment 31,381 26,300 31,888 41,300 15,000 57.0% Laboratory Equipment and Supplies 33,276 35,000 35,057 35,000 - 0.0% Other Materials and Supplies 127,727 150,700 126,227 126,300 (24,400) (16.2%) Building and Grounds Materials 64,586 55,500 55,608 46,500 (9,000) (16.2%) Contracted Services 574,845 423,200 475,764 550,500 127,300 30.1% Total Expenditures 1,969,932$ 1,855,700$ 1,654,641$ 1,921,800$ 66,100$ 3.6% Fuel and Oil 289,300$ 15.1% Meters and Materials 113,100 5.9% Fleet Parts and Equipment 128,400 6.7% Infrastructure Equipment and Supplies 367,900 19.1% Chemicals 223,500 11.6% Safety Equipment 41,300 2.2% Laboratory Equipment and Supplies 35,000 1.8% Other Materials and Supplies 126,300 6.6% Building and Grounds Materials 46,500 2.4% Contracted Services 550,500 28.6% $1,921,800 100.0% FY 2015 Materials and Maintenance Expenditures - Potable FY 2014 Budget to Budget Variance * Actuals unaudited 70 Potable Water Service Area 71 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 to treat 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 aeration 72 Recycled Revenues and Expenditures 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 into 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 11.4 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. 73 Recycled Revenues and Expenditures The District operates the largest recycled water distribution system in San Diego County and will supply approximately 3,955 acre-feet of recycled water to 709 landscaping and construction customers by the end of Fiscal Year 2015. The recycled water customer base consists primarily of irrigation at golf courses, schools, parks, and open space. The geographic area of this water use includes Eastlake, Otay Ranch, Rancho Del Rey, and other areas of eastern Chula Vista. 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 entered into a new agreement which allows 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. 927-1 Recycled Water Reservoir 74 FY 2013 FY 2014 FY 2014 FY 2015 31-Actual Budget Actual * Budget $% REVENUES #Recycled Water Sales 8,488,486$ 8,340,100$ 10,014,767$ 8,826,600$ 486,500$ 5.8% #Meter Fees 703 2,200 962 400 (1,800) (81.8%) #Interest 2,121 3,900 16,001 7,400 3,500 89.7% General Fund Draw Down 275,800 61,600 61,600 - (61,600) 0.0% TOTAL REVENUES 8,767,111$ 8,407,800$ 10,093,330$ 8,834,400$ 426,600$ 5.1% EXPENDITURES Recycled Water Purchases 1,391,947$ 1,599,500$ 1,661,887$ 1,601,500$ 2,000$ 0.1% #Power 471,139 523,600 591,883 469,400 (54,200) (10.4%) #Labor and Benefits 1,141,404 1,259,900 1,144,717 1,181,800 (78,100) (6.2%) #Administrative Expenses 321,637 310,400 298,562 285,600 (24,800) (8.0%) #Materials & Maintenance 264,582 282,500 282,827 295,900 13,400 4.7% 11 Subtotal - Operations Costs 3,590,710$ 3,975,900$ 3,979,876$ 3,834,200$ (141,700)$ (3.6%) #Expansion Reserve 3,936,000 10,000 10,000 2,538,900 2,528,900 25289.0% B Betterment Reserve - 125,000 125,000 725,000 600,000 480.0% ReReplacement Reserve - 4,230,000 4,230,000 1,679,000 (2,551,000) (60.3%) TOTransfer to OPEB - 66,900 66,900 57,300 (9,600) (14.3%) Subtotal - Reserve Funding 3,936,000$ 4,431,900$ 4,431,900$ 5,000,200$ 568,300$ 12.8% TOTAL EXPENDITURES 7,526,710$ 8,407,800$ 8,411,776$ 8,834,400$ 426,600$ 5.1% 1,240,401$ -$ 1,681,554$ -$ -$ - EXCESS REVENUES/ (EXPENDITURES) Operating Budget Summary - Recycled Budget to Budget Variance * Actuals unaudited 75 FY 2014 FY 2014 FY 2015 Actual* Budget Budget $ % Water Sales 7,416,631$ 6,103,900$ 6,506,000$ 402,100$ 6.6% System Fees 356,806 355,900 438,600 82,700 23.2% Energy Fees 383,513 315,400 322,300 6,900 2.2% MWD and CWA Rebates 1,828,134 1,526,600 1,522,800 (3,800) -0.2% Penalties 29,682 38,300 36,900 (1,400) -3.7% Total Recycled Water Sales 10,014,767$ 8,340,100$ 8,826,600$ 486,500$ 5.8% Water Sales 6,506,000 73% System Charges 438,600 4% Energy Charges 322,300 4% MWD and CWA Rebates 1,522,800 18% Penalties 36,900 1% Total 8,826,600 100% 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 $ .050 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 $185 from MWD for every acre-foot (AF) of recycled water sold. Penalties: Charges and penalties are imposed on customer accounts for late payments and returned checks. Classification of Water Sales - Recycled Budget to Budget Variance *Actual unaudited 76 Fiscal Year 2015 Sales Budget Current Approved* Accounts Units Amount 102 49,300 181,000$ Tier I3.56$ 3.73$ Tier II 3.61 3.79 Tier III 3.68 3.84 591 1,253,400 4,588,500 Tier I3.56 3.73 Tier II 3.61 3.79 Tier III 3.68 3.84 Recycled 3.0" and 4.0" Meter 12 87,100 318,700 Tier I3.56 3.73 Tier II 3.61 3.79 Tier III 3.68 3.84 4 333,300 1,223,900 Tier I3.56 3.73 Tier II 3.61 3.79 Tier III 3.68 3.84 709 1,723,100 6,312,100$ Government Fee 0.31 0.32 - - 193,900 Total Water Sales 709 1,723,100 6,506,000$ *Approved rates for water billed beginning in January 2015. Recycled .75" and 1.0" Meter 49,300 3% Recycled 1.5" and 2.0" Meter 1,253,400 73% Recycled 3.0" and 4.0" Meter 87,100 5% Recycled more than 6.0" Meter 333,300 19% 1,723,100 100% Water Rates Total FY 2015 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 77 Budget Customer Class FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Recycled .75" & 1.0" Meter 49,393 46,328 47,699 59,698 68,523 49,300 Recycled 1.5" & 2.0" Meter 1,295,264 1,220,953 1,201,012 1,366,238 1,474,879 1,253,400 Recycled 3.0" & 4.0" Meter 73,737 74,444 93,899 100,991 134,386 87,100 Recycled > 6.0" Meter 355,567 333,866 310,223 352,023 390,542 333,300 Total Unit Sales 1,773,961 1,675,591 1,652,833 1,878,950 2,068,330 1,723,100 Budget Customer Class FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Recycled .75" & 1.0" Meter 96 95 101 103 100 102 Recycled 1.5" & 2.0" Meter 574 576 581 587 588 591 Recycled 3.0" & 4.0" Meter 10 11 11 11 11 12 Recycled > 6.0" Meter 3 3 3 3 3 4 Total Meter Count 683 685 696 704 702 709 Unit Sales History and Meter Count by Customer Class - Recycled Unit Sales History (in hcf) Meter Count Unit Sales (in thousands) and Meter Count Trends Actual Actual 650 675 700 725 100 500 900 1,300 1,700 2,100 2,500 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget Meter Count Recycled Unit Sales 78 Meter Current Approved* Size Estimated 6/30/2014 FY 2015 Growth Rates Rates Estimated 6/30/2014 FY 2014 Growth FY 2015 Budget 0.75 2 - 16.19$ 19.39$ 400$ -$ 400$ 1.00 99 1 22.87 27.39 29,900 300 30,200 1.50 396 - 39.58 47.40 206,700 - 206,700 2.00 195 - 59.62 71.39 153,300 - 153,300 3.00 4 - 113.08 135.41 6,000 - 6,000 4.00 8 - 173.22 207.43 18,300 - 18,300 6.00 3 - 340.29 407.50 13,500 - 13,500 8.00 - - 540.76 647.56 - - - 10.00 1 - 774.64 927.63 10,200 - 10,200 Total 708 1 438,300$ 300$ 438,600$ Budgeted Recycled System Fees 438,600$ *Approved rates for water billed beginning in January 2015. Meter Count Budgeted System Fees System Fees - Recycled Historical System Fees, in thousands ($) - 100 200 300 400 500 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget 79 Meter Meter Installation Meter Total Total Size Sales Fee Fee Fees Amount 0.75 - 100.05$ 210.84$ 310.89$ -$ 1.00 1 100.05 272.07 372.12 400 1.50 - 100.05 442.23 542.28 - 2.00 - 100.05 633.66 733.71 - 3.00 - 602.41 1,974.74 2,577.15 - 4.00 - 602.41 3,429.81 4,032.22 - 6.00 - 951.55 5,924.22 6,875.77 - 8.00 - 1,459.11 7,401.87 8,860.98 - 10.00 - 1,459.11 10,645.27 12,104.38 - Total 1 400$ 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 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual FY 2015 Budget 80 Budgeted FY 2010 FY 2011 FY 2012 FY 2013 FY 2014*FY 2015 Water Sales 4,417,995$ 4,645,719$ 4,999,441$ 6,148,619$ 7,416,631$ 6,506,000$ System Fees 261,946 266,547 268,937 292,201 356,806 438,600 Energy Fees 266,599 274,608 303,867 346,064 383,513 322,300 MWD and CWA Rebates 1,583,801 1,482,019 1,413,335 1,660,736 1,828,134 1,522,800 Penalties 92,545 93,146 33,323 40,867 29,682 36,900 Total Recycled Revenue 6,622,886$ 6,762,039$ 7,018,903$ 8,488,486$ 10,014,767$ 8,826,600$ Revenue History - Recycled Revenue History - Recycled, in millions ($) Actual $- $2 $4 $6 $8 $10 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget Water Sales System Fees Energy Fees MWD and CWA Rebates Penalties *Actual unaudited 81 FY14 Actual*FY15 Budget FY14 Actual*FY15 Budget Acre Feet Acre Feet Rate Purchase Costs Purchase Costs % of Total SBWRP Recycled Water Purchases (CSD) Recycled Water Purchases 3,821.5 2,906.4 350.00$ 1,337,489$ 1,017,200$ 63.6% Meter Fee - - 1,646.50 18,107 19,800 1.2% Take-or-pay contract (1)875.1 1,612.8 306,291 564,500 35.2% Total 4,696.5 4,519.1 1,661,887$ 1,601,500$ 100.00% Average Cost Per Acre-Foot (Effective Rate)434.87$ 551.03$ (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 HISTORICAL RECYCLED WATER PURCHASES, IN ACRE-FEET - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget *Actual unaudited 82 Power Costs - Recycled Budget FY 2010 FY 2011 FY 2012 FY 2013 FY 2014*FY 2015 Treatment and Recycled Transmission 422,780$ 462,031$ 440,069$ 471,139$ 591,883$ 469,400$ Historical Power Costs, in thousands ($) Actual $0 $100 $200 $300 $400 $500 $600 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget *Actual unaudited 83 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Administrative Expenditures Travel and Meetings -$ -$ 42$ -$ -$ - Equipment 685 1,300 327 1,300 - - Fees 32,572 35,300 27,046 24,000 (11,300) (32.0%) Services 99,885 64,200 70,021 65,100 900 1.4% Total 133,142$ 100,800$ 97,436$ 90,400$ (10,400)$ (10.3%) Add: Overhead Allocation 188,496 209,600 201,126 195,200 (14,400) (6.9%) Total Expenditures 321,638$ 310,400$ 298,562$ 285,600$ (24,800)$ (8.0%) Equipment 1,300$ 0.5% Fees 24,000 8.4% Services 65,100 22.8% Overhead Allocation 195,200 68.3% 285,600$ 100.0% FY 2014 Administrative Expenditures - Recycled Budget to Budget Variance Administrative Expenditures - Recycled * Actuals unaudited 84 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 1,621$ 15,000$ 11,336$ 15,000$ -$ 0.0% Meters and Materials 4,590 4,500 2,793 700 (3,800) (84.4%) Infrastructure Equipment & Supplies 82,178 67,400 85,660 87,500 20,100 29.8% Chemicals 161,867 180,600 160,146 169,100 (11,500) (6.4%) Safety Equipment 1,585 - - 1,000 1,000 100.0% Laboratory Equipment and Supplies 4,311 4,000 3,945 4,000 - - Other Materials and Supplies 4,307 5,300 7,056 5,300 - - Contracted Services 4,123 5,700 11,891 13,300 7,600 133.3% Total Expenditures 264,582$ 282,500$ 282,827$ 295,900$ 13,400$ 4.7% Fuel and Oil 15,000$ 5.1% Meters and Materials 700 0.2% Infrastructure Equipment & Supplies 87,500 29.6% Chemicals 169,100 57.1% Safety Equipment 1,000 0.3% Laboratory Equipment and Supplies 4,000 1.4% Other Materials and Supplies 5,300 1.8% Contracted Services 13,300 4.5% 295,900$ 100.0% Materials and Maintenance Expenditures - Recycled FY 2015 Materials and Maintenance Expenditures - Recycled Budget to Budget Variance * Actuals unaudited 85 Recycled Water Service Area 86 Sewer Revenues and Expenditures The District provides sewer service to approximately 15,200 customers through 4,679 accounts 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, all within the Upper Sweetwater River Basin. This basin is 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 2015. Wastewater collection within the Jamacha Basin is provided by two agencies: the Otay Water District and the County of San Diego, (formerly the Spring Valley Sanitation District). Customers in the basin, not served by either agency, dispose of their sewage through septic tanks. After the sewage 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 72 outlining the sewer process. The by-product of the treatment process is called sludge and it is discharged through the City of San Diego Metropolitan Wastewater (Metro) and the County of San Diego 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 $1,020,300 for Fiscal Year 2015. 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 2015. 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 11.3% of the total sewer charges. The formula for sewer rates is shown on pages 94 and 95. 87 FY 2013 FY 2014 FY 2014 FY 2015 21-Actual Budget Actual * Budget $ % REVENUES #Sewer Revenues 2,618,291$ 2,701,600$ 2,757,867$ 3,007,700$ 306,100$ 11.3% #Capacity Fee Revenues 153,541 61,600 3,580 - (61,600) (100.0%) Tax Revenues 52,766 51,600 44,321 51,600 - 0.0% #Non-operating Revenues 35,352 33,800 32,904 33,800 - 0.0% #Interest 5,692 4,300 8,172 4,600 300 7.0% TF Transfer from Potable General Fund - - - 553,800 553,800 100.0% General Fund Draw Down 1,266,100 152,800 152,800 - (152,800) (100.0%) TOTAL REVENUES 4,131,742$ 3,005,700$ 2,999,644$ 3,651,500$ 645,800$ 21.5% EXPENDITURES #Power 184,108$ 101,600$ 159,018$ 180,600$ 79,000$ 77.8% #Labor and Benefits 863,286 1,156,300 764,245 902,300 (254,000) (22.0%) #Administrative Expenses 310,949 291,700 170,165 206,500 (85,200) (29.2%) #Materials & Maintenance 1,492,581 1,394,700 1,220,408 1,402,100 7,400 0.5% 11 Subtotal - Operations Costs 2,850,924$ 2,944,300$ 2,313,836$ 2,691,500$ (252,800)$ (8.6%)DS B Betterment Reserve 625,000 - - - - 0.0% ReReplacement Reserve 743,000 - - 916,200 916,200 100.0% TOTransfer to OPEB - 61,400 61,400 43,800 (17,600) (28.7%) Subtotal - Reserve Funding 1,368,000$ 61,400$ 61,400$ 960,000$ 898,600$ 1463.5% TOTAL EXPENDITURES 4,218,924$ 3,005,700$ 2,375,236$ 3,651,500$ 645,800$ 21.5% (87,183)$ -$ 624,408$ -$ -$ - EXCESS REVENUES (EXPENDITURES) Operating Budget Summary - Sewer Budget to Budget Variance * Actuals unaudited 88 FY 2015 Accounts Current Approved(1)Current Approved(1)Budget Single-Family 4,554 14.38$ 15.89$ 2.35$ 2.46$ 2,397,700$ Multi-Family 50 2.35 2.46 272,800 Commercial Low Strength 55 2.35 2.46 221,600 Medium Strength 13 3.37 3.53 44,700 High Strength 7 5.37 5.63 41,100 Meter Size 0.75"25.83 27.07 1"38.03 39.86 1.5"68.53 71.82 2"105.12 110.17 3"190.52 199.66 4"312.51 327.51 6"617.48 647.12 8"983.46 1,030.67 10"1,410.42 1,478.12 Penalties 29,800 TOTAL SEWER CHARGES 4,679 3,007,700$ (1)Approved rates for sewer service beginning in January 2015. Single-Family 2,397,700$ 79.7% Multi-Family 272,800 9.1% Commercial 307,400 10.2% Penalties 29,800 1.0% 3,007,700$ 100.0% Sewer Charges Summary by Service Class Usage Fee Sewer Charges by Service Class FY 2015 System Fee 89 Budget FY 2010 FY 2011 FY 2012 FY 2013 FY 2014*FY 2015 Sewer Charges 2,271,879$ 2,363,313$ 2,368,192$ 2,588,991$ 2,736,867$ 2,977,900$ Penalties 39,707 23,287 27,173 29,300 21,000 29,800 Total 2,311,586$ 2,386,600$ 2,395,365$ 2,618,291$ 2,757,867$ 3,007,700$ Penalties Revenue History - Sewer Revenue History - Sewer, in thousands ($) Actual $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget Sewer Charges Penalties *Actual unaudited 90 Power Costs - Sewer Budget FY 2010 FY 2011 FY 2012 FY 2013 FY 2014*FY 2015 Sewer Lifts Station 84,408$ 81,347$ 70,431$ 184,108$ 159,018$ 180,600$ Historical Power Costs, in thousands ($) Actual $0 $40 $80 $120 $160 $200 FY 2010 Actual FY 2011 Actual FY 2012 Actual FY 2013 Actual FY 2014 Actual* FY 2015 Budget *Actual unaudited 91 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Administrative Expenditures Equipment -$ 500$ -$ 5,000$ 4,500$ 900.0% Fees 1,571 2,000 292 2,000 - 0.0% Services 160,869 94,500 30,664 44,900 (49,600) (52.5%) Bad Debt Expense 3,105 6,700 5,380 7,000 300 4.5% Total 165,545$ 103,700$ 36,336$ 58,900$ (44,800)$ (43.2%) Add: Overhead Allocation 145,404 188,000 133,829 147,600 (40,400) (21.5%) Total Expenditures 310,949$ 291,700$ 170,165$ 206,500$ (85,200)$ (29.2%) Equipment 5,000$ 2.4% Fees 2,000 1.0% Services 44,900 21.7% Miscellaneous 7,000 3.4% Overhead Allocation 147,600 71.5% 206,500$ 100.0% Administrative Expenditures - Sewer FY 2015 Administrative Expenditures - Sewer Budget to Budget Variance * Actuals unaudited 92 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 17,343$ -$ -$ -$ -$ - Fleet Parts and Equipment 1,623 1,500 1,006 1,500 - - Infrastructure Equipment & Supplies 169,014 50,000 51,627 69,600 19,600 39.2% Chemicals 3,130 4,500 3,705 4,500 - - Safety Equipment - - 77 1,900 1,900 100.0% Laboratory Equipment and Supplies 5,591 5,000 4,936 5,000 - - Other Materials and Supplies 1,613 200 198 200 - - Contracted Services 24,102 35,500 36,335 24,500 (11,000) (31.0%) Materials and Maintenance 222,416$ 96,700$ 97,884$ 107,200$ 10,500$ 10.9% Sewer Charges Metro O&M Costs 1,009,692$ 1,023,400$ 1,021,724$ 1,020,300$ (3,100)$ (0.3%) Spring Valley Sewer Charge 260,473 274,600 100,800 274,600 - - Total Sewer Charges 1,270,165 1,298,000 1,122,524 1,294,900 (3,100) (0.2%) Total Expenditures 1,492,581$ 1,394,700$ 1,220,408$ 1,402,100$ 7,400$ 0.5% Fleet Parts and Equipment 1,500$ 0.1% Infrastructure Equipment & Supplies 69,600 5.0% Chemicals 4,500 0.3% Safety Equipment 1,900 0.1% Laboratory Equipment & Supplies 5,000 0.4% Other Materials and Supplies 200 0.0% Contracted Services 24,500 1.7% Metro O&M Costs 1,020,300 72.8% Spring Valley Sewer Charge 274,600 19.6% 1,402,100$ 100.0% Materials and Maintenance Expenditures - Sewer FY 2015 Materials and Maintenance Expenditures - Sewer Budget to Budget Variance * Actuals unaudited 93 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 is the sewer bill formula for residential and multi-residential customers: ((Winter Average X .85) x Usage Fee) + System Fee The current usage fee and system fee for single-family residential customers $2.35 and $14.38, respectively. Effective January 1, 2015 the usage fee and system fee will be $2.46 and $15.89. The current usage fee for multi-residential customers is $2.35 and effective January 1, 2015 it will be $2.46. The system fee for multi-residential is based on meter size and is shown on page 89. 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. The following is the sewer formula for commercial and industrial customers: (((Average Annual Consumption x .85 x Usage Fee x Strength Factor) + System Fee The District calculates the monthly bill based on the customer’s water use, sewer strength and the size of the customer’s water meter which is more equitable among customer classes. The rates and charges by meter size are shown on page 89. 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. 94 Formula for Sewer Rates 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 SFR, with a SFR having a strength factor of 1. The following are the Strength Factors: 1.000 Low-Strength Commercial * 2.000 Medium-Strength Commercial 4.000 High-Strength Commercial *Schools and churches are categorized as Low Strength Commercial customers. 95 Sewer Service Area 96 General Revenues and Expenses 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 fees may cover costs including but not limited to planning, design, construction, and financing associated with 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. For FY 2015, capacity fees are projected to be $1,150,600 which is $140,600 less than FY 2014. 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 or 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. Tax Revenues are projected to increase by $167,900 to $3,077,900. The District levies availability charges each year in developed areas to be used for upgrades and betterment and in undeveloped areas to provide 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. Availability fees are projected to be $685,800. 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. 97 General Revenues and Expenses In addition to the cell-site leases, the District leases land to the Highlands Golf Co., LLC. The lease 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 (CCV), the City of Chula Vista 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 expenses 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 7.8% 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. 98 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual * Budget $% Fee Revenues Capacity Fee Revenues 1,237,085$ 1,291,200$ 1,170,985$ 1,150,600$ (140,600)$ (10.9%) Betterment Fees for Maintenance 612,663 776,700 485,738 301,800 (474,900) (61.1%) Subtotal Fee Revenues 1,849,748 2,067,900 1,656,723 1,452,400 (615,500) (29.8%) Tax Revenues 1% General Tax 2,892,382 2,910,000 2,894,402 3,077,900 167,900 5.8% Availability Fees 707,881 687,100 729,961 685,800 (1,300) (0.2%) Subtotal Tax Revenues 3,600,263 3,597,100 3,624,363 3,763,700 166,600 4.6% General Revenues 5,450,011$ 5,665,000$ 5,281,086$ 5,216,100$ (448,900)$ (7.9%) FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual * Budget $% Property Rental 1,276,914$ 1,279,700$ 1,317,736$ 1,302,500$ 22,800 1.8% Sewer Billing Fees 370,195 371,400 372,473 372,400 1,000 0.3% Set-up Fee for Lease Site 4,000 - 22,500 - - 0.0% Grants 13,944 - 40,867 - - 0.0% Revenue from Shared Facility 35,352 33,800 32,152 33,800 - 0.0% Miscellaneous 158,618 161,100 271,791 239,100 78,000 48.4% Non-Operating Revenues 1,859,023$ 1,846,000$ 2,057,519$ 1,947,800$ 101,800$ 5.5% Potable Recycled Sewer Total Fee Revenues Capacity Fee Revenues 1,150,600$ -$ -$ 1,150,600$ Betterment Fees for Maintenance 301,800 - - 301,800 Total Fee Revenues 1,452,400 - - 1,452,400 Tax Revenues 1% General Tax 3,077,900 - - 3,077,900 Availability Fees 634,200 - 51,600 685,800 Total Tax Revenues 3,712,100 - 51,600 3,763,700 Non-Operating Revenues Property Rental 1,302,500 - - 1,302,500 Sewer Billing Fees 372,400 - - 372,400 Revenue from Shared Facility - - 33,800 33,800 Miscellaneous 239,100 - - 239,100 Total Non-Operating Revenues 1,914,000 - 33,800 1,947,800 Total General and Non-Operating Revenues 7,078,500$ -$ 85,400$ 7,163,900$ Note: For General and Non-Operating Revenues, the Potable Fund serves as the District's General Fund for accounting purposes. Budget to Budget Variance General and Non-Operating Revenues by Business FY 2015 Budget General Revenues Budget to Budget Variance Non-Operating Revenues * Actuals unaudited 99 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Administrative Expenditures Legal Fees 279,625$ 380,000$ 280,069$ 410,000$ 30,000$ 7.9% General Insurance 573,827 564,200 549,869 631,000 66,800 11.8% Fees - - 14,161 - - 0.0% Training - - 2,566 - Total Expenditures 853,452 944,200 846,665 1,041,000 96,800 10.3% Benefits Benefits (1)1,490,161 1,205,400 1,367,499 1,290,800 85,400 7.1% Total General Expense 2,343,613$ 2,149,600$ 2,214,164$ 2,331,800$ 182,200$ 8.5% General Expense Budget to Budget Variance (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 2014 and FY 2015 is $266,900 and $185,600 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. * Actuals unaudited 100 Departmental Operating Budget Labor and Benefits Labor and Benefits represent 21.5% of the total Operating Budget. 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 2015 Budget includes funding for labor and benefits for 140 Full-time Equivalent (FTE) employees. The staffing level for Fiscal Year 2015 had a decrease of three (3) FTE employees from Fiscal Year 2014. The District has chosen to eliminate vacant positions in areas that have experienced a reduction of workload requirements. Since 2007, the District has reduced FTEs by 19.9% 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 7.8% 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 $1,728,600. Administrative Expenses Administrative Expenses represent 5.9% of the District's total operating costs. A detailed listing of the Administrative Expenses for Fiscal Year 2015 is shown on page 108. The increase of $336,600 is due to one-time equipment purchases, higher property insurance premiums, and a lower overhead allocation to work orders. This increase is offset by decreased postage and printing costs as well as the completion of some outside services contracts. 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. 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 4.0% increase in Materials and Maintenance Expenses totaling $90,000. This increase is mainly due to emergency contracted services for breaks, fixes, and related materials. 101 Departmental Operating Budget The Water Operations Department uses an Infrastructure Management System (IMS) which allows for better maintenance of existing assets and enhanced monitoring of all assets including new assets coming on-line. It also facilitates planning for repair and replacement as well as assessing the condition of infrastructures. The District is in the process of replacing IMS with a GIS Centric Work Order System that will further improve the tracking and management of the Materials and Maintenance Expenses. Strategic Plan Implementation Strategic goals and objectives as presented to the Board of Directors are incorporated into departmental operating budgets to ensure adequate funds are available to implement the Strategic Plan. The District updates its performance measurement program each fiscal year to provide measurable results of progress on both strategic and key operational goals and objectives. (See the plan objectives and measures in the department sections that follow.) Performance measures have been developed by comparing key District activities with functional and available operational data that provide reliable feedback on progress. Developed cooperatively with staff and the help of outside consultants, the measures are designed to be comparable to measures commonly found in similar industries. The performance measures focus on “best practice” as applied to the District. Measures are collected and reviewed quarterly by the Senior Management Team and reviewed by the Board at least twice a year. Results are used to set new targets for the following fiscal year and to hold staff accountable for the current fiscal year. 102 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% Information Technology and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% Departmental Operating Budget Total FY 2015 Departmental Operating Budget $29,937,900 103 FY13 FY 2015 Actual Budget Actual* Budget Labor Costs 11,015,847$ 11,344,700$ 11,029,405$ 11,337,400$ Benefits Pension 2,941,200 3,095,900 3,096,070 3,596,600 Employee Assistance Program 3,882 5,000 3,827 4,000 Workers' Compensation 165,713 247,700 230,015 267,300 Health/Dental/Life Insurance/OPEB 3,418,245 3,666,900 3,542,644 3,825,600 Social Security/Medicare 941,551 955,600 909,150 945,200 Salary Continuation Insurance 64,082 63,400 64,304 65,000 State Unemployment Insurance 39,656 60,000 43,492 60,000 Vacation/Sick/Holiday/Other Leave 2,193,636 2,101,800 2,140,833 2,103,800 Total Fringe Benefits 9,767,965 10,196,300 10,030,335 10,867,500 Total Labor and Benefits 20,783,812 21,541,000 21,059,740 22,204,900 Less: Non-Operating Labor and Benefits Labor Costs 1,056,826 1,233,600 949,323 1,001,100 Fringe Benefits Allocation 598,471 736,100 544,962 729,200 Total Work Order Allocation 1,655,297 1,969,700 1,494,285 1,730,300 Operating Labor & Benefits 19,128,515 19,571,300 19,565,455 20,474,600 Total Overhead Allocation 1,215,350 1,418,600 1,091,721 1,151,300 Less: Overhead Allocation Personnel Portion 767,494 895,800 689,422 727,000 Admin Portion of Overhead (36.85%)447,856 522,800 402,299 424,300 Net Operating Labor and Benefits 18,361,021$ 18,675,500$ 18,876,033$ 19,747,600$ Labor and Benefits FY 2014 Full-Time Equivalent (FTE) Comparison by Department 0 40 80 120 160 5 16 29 12 61 20 143 5 14 34 12 56 19 140 FY 2014 FY 2015 104 Potable Sewer Recycled Developer Reimbursed- CIP Total Operating Labor Costs 9,527,200$ 348,500$ 460,600$ -$ 10,336,300$ Benefits 9,451,000 300,600 386,700 - 10,138,300 Overhead Allocation-Personnel (1,314,600) 253,100 334,500 - (727,000) Total Operating Labor and Benefits 17,663,600 902,200 1,181,800 - 19,747,600 CIP Labor Costs 599,000 186,100 84,800 131,200 1,001,100 Benefits 442,200 125,800 59,700 101,500 729,200 Overhead Allocation-Personnel 435,000 135,100 61,600 95,300 727,000 Total CIP Labor and Benefits 1,476,200 447,000 206,100 328,000 2,457,300 Total Labor and Benefits 19,139,800$ 1,349,200$ 1,387,900$ 328,000$ 22,204,900$ Potable-Operating 17,663,600$ 79.6% Potable-CIP 1,476,200 6.6% Sewer-Operating 902,200 4.1% Sewer-CIP 447,000 2.0% Recycle-Operating 1,181,800 5.3% Recycle-CIP 206,100 0.9% Develeper Reimbursed-CIP 328,000 1.5% 22,204,900$ 100.0% Labor and Benefits by Fund - FY 2015 105 FY 2013 FY 2014 FY 2015 General Manager 5 5 5 Total FTE - General Manager 55 5 Administrative Services Management 3 3 3 Human Resources 4 4 3 (1) Purchasing 7 7 7 Safety 1 1 1 Conservation 2 1 0 (1), (2) Total FTE - Administrative Services 17 16 14 Finance Financial Management 3 3 3 Controller and Budgetary Services 4 5 5 (2) Payroll and Accounts Payable 3 0 0 (2) Treasury and Accounting Services 5 6 6 (2) Meter Maintenance 0 0 8 (2) Customer Service 15 15 12 (2) Total FTE - Finance 30 29 34 IT and Strategic Planning IT and Strategic Planning Applications 4 5 4 (2) IT Operations 4 3 4 (2) Geographic Information Systems 4 4 4 Total FTE - IT and Strategic Planning 12 12 12 Operations Management 22 2 Water System Operations 27 26 21 (2) Utility Maintenance/Construction 28 26 26 Collection/Treatment/Reclamation Operations 8 7 7 Total FTE - Operations 65 61 56 Engineering Management 3 3 3 Engineering 16 17 16 (1) Total FTE - Engineering 19 20 19 District Total FTE Position Count 148 143 140 Position Count by Department (1) The District’s strategic planning efforts of streamlining 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. 106 FY 2013 FY 2014 FY 2015 Water Conservation Technician 0 1 0 (1) Utility Construction Assistant 1 0 0 Sr. Civil Engineer 1 0 1 (2) Total Contract/Temporary Employees 2 1 1 General Manager 5 3% Administrative Services 14 10% Finance 34 24% IT and Strategic Planning 12 9% Operations 56 40% Engineering 19 14% 140 100% (2) Temporary positions to fill interim needs are identified and filled on an as-needed basis. Contract / Temporary Employees (1) The District’s strategic planning efforts of streamlining business processes enabled the District to be more efficient and provided an opportunity to reduce staffing. FY 2015 Position Count 107 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Administrative Expenditures Directors' Fees 19,900$ 30,000$ 19,834$ 30,000$ -$ - Travel and Meetings 126,978 190,900 147,110 207,700 16,800 8.8% Conservation and Outreach 199,479 206,600 136,743 174,900 (31,700) (15.3%) General Office Expense 290,648 321,200 258,732 280,800 (40,400) (12.6%) Equipment 970,652 906,900 943,153 1,139,600 232,700 25.7% Fees 510,704 528,700 517,205 524,700 (4,000) (0.8%) Services 1,541,412 2,206,500 1,387,477 2,152,300 (54,200) (2.5%) Training 56,258 107,700 65,818 123,500 15,800 14.7% Utilities 12,796 16,000 12,929 14,000 (2,000) (12.5%) Bad Debt Expense 120,333 146,700 154,593 155,000 8,300 5.7% Total 3,849,160$ 4,661,200 3,643,594 4,802,500 141,300 3.0% Less: Overhead Allocation (447,855) (522,800) (402,299) (424,300) 98,500 - Subtotal 3,401,306$ 4,138,400 3,241,295 4,378,200 239,800 5.8% General Expenses 853,452 944,200 844,099 1,041,000 96,800 10.3% Total Expenditures 4,254,758$ 5,082,600$ 4,085,394$ 5,419,200$ 336,600$ 6.6% 4,702,612$ 5,605,400$ 4,487,693$ 5,843,500$ Directors' Fees 30,000$ 0.5% Travel and Meetings 207,700 3.6% Conservation & Outreach 174,900 3.0% General Office Expense 280,800 4.8% Equipment 1,139,600 19.5% Fees 524,700 9.0% Services 2,152,300 36.8% Training 123,500 2.1% Utilities 14,000 0.2% General Expense 1,041,000 17.8% Bad Debt Expense 155,000 2.7% 5,843,500 100.0% Less: Overhead Allocation (424,300) Total Administrative Expenses 5,419,200$ Administrative Expenditures - Total FY 2015 Total Administrative Expenditures, in thousands ($) Budget to Budget Variance * Actuals unaudited 108 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget $ % Materials and Maintenance Fuel and Oil 207,866$ 296,000$ 199,197$ 304,300$ 8,300$ 2.8% Meters and Materials 98,415 134,900 66,138 113,800 (21,100) (15.6%) Fleet Parts and Equipment 153,390 132,500 112,277 129,900 (2,600) (2.0%) Infrastructure Equipment & Supplies 694,834 499,000 496,164 525,000 26,000 5.2% Chemicals 424,978 426,100 372,594 397,100 (29,000) (6.8%) Safety Equipment 32,966 26,300 31,965 44,200 17,900 68.1% Laboratory Equipment and Supplies 43,178 44,000 43,938 44,000 - - Other Materials and Supplies 133,647 156,200 133,481 131,800 (24,400) (15.6%) Building and Grounds Materials 64,586 55,500 55,608 46,500 (9,000) (16.2%) Contracted Services 603,070 464,400 523,990 588,300 123,900 26.7% Materials and Maintenance 2,456,930$ 2,234,900$ 2,035,352$ 2,324,900$ 90,000$ 4.0% Sewer Charges Metro O&M Costs 1,009,692$ 1,023,400$ 1,021,724$ 1,020,300$ (3,100)$ (0.3%) Spring Valley Sewer Charge 260,473 274,600 100,800 274,600 - 0.0% Total Sewer Charges 1,270,165$ 1,298,000$ 1,122,524$ 1,294,900$ (3,100)$ (0.2%) Total Expenditures 3,727,095$ 3,532,900$ 3,157,876$ 3,619,800$ 86,900$ 2.5% Fuel and Oil 304,300$ 8.4% Meters and Materials 113,800 3.1% Fleet Parts and Equipment 129,900 3.6% Infrastructure Equipment and Supplies 525,000 14.5% Chemicals 397,100 11.0% Safety Equipment 44,200 1.2% Laboratory Equipment and Supplies 44,000 1.2% Other Materials and Supplies 131,800 3.6% Building and Grounds Materials 46,500 1.3% Contracted Services 588,300 16.3% Sewer Charges 1,294,900 35.8% 3,619,800$ 100.0% Materials and Maintenance Expenditures - Total FY 2015 Materials and Maintenance Expenditures Budget to Budget Variance * Actuals unaudited 109 FY 2013 FY 2014 FY 2014 FY 2015 Budget to Budget Actual Budget Actual* Budget Variance Departmental Expenditures B Board of Directors 87,128$ 108,700$ 100,367$ 115,100$ 6,400$ GGeneral Manager 1,419,489 1,444,500 1,353,831 1,562,300 117,800 GGeneral Expense 2,343,613 2,149,600 2,214,164 2,331,800 182,200 A Administrative Services 3,292,343 3,069,700 2,915,571 2,995,600 (74,100) F Finance 4,650,792 5,863,200 5,463,210 5,816,700 (46,500) IT IT and Strategic Planning 2,932,601 3,135,600 3,021,303 3,373,800 238,200 WWater Operations 11,015,311 10,912,500 10,314,869 11,384,100 471,600 E Engineering 1,816,946 2,025,800$ 1,827,709$ 2,358,500$ 332,700 T Total Departmental Expenditures 27,558,223 28,709,600$ 27,211,024$ 29,937,900$ 1,228,300 Less: Overhead Allocation (1,215,350) (1,418,600) (1,091,721) (1,151,300) 267,300 Net Departmental Expenditures 26,342,873$ 27,291,000$ 26,119,303$ 28,786,600$ 1,495,600 Non-Departmental Expenditures Water Purchases 43,161,584$ 45,025,100$ 48,209,099$ 47,059,200$ 2,034,100$ Power 2,430,461 2,693,300 2,808,846 2,838,400 145,100 Expansion Reserve 3,936,000 3,428,000 - 2,538,900 (889,100) Betterment Reserve 1,120,000 125,000 125,000 3,530,000 3,405,000 Replacement Reserve 743,000 4,230,000 4,230,000 3,270,200 (959,800) Transfer to Sewer General Fund 595,000 152,800 152,800 553,800 401,000 Transfer to General Fund Reserve 2,285,800 1,913,000 1,913,000 1,583,800 (329,200) Transfer to Sewer Replacement 2,099,000 - - 127,000 127,000 Transfer to OPEB - 1,242,900 1,242,900 647,100 (595,800) Transfer to New Supply Reserve - - - 705,000 705,000 Total Non-Departmental Expenditures 56,370,845 58,810,100$ 58,681,645$ 62,853,400$ 4,043,300 Total Operating Expenditures 82,713,717$ 86,101,100$ 84,800,948$ 91,640,000$ 5,538,900 Operating Expenditures by Department * Actuals unaudited 110 Operating Expenditures by Object FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Variance Departmental Expenditures Labor and Benefits 19,128,515$ 19,571,300$ 19,565,455$ 20,474,600$ 903,300$ Director's Fees 19,900 30,000 19,834 30,000 - Travel and Meetings 126,979 190,900 147,110 207,700 16,800 Conservation and Outreach 199,479 206,600 136,743 174,900 (31,700) General Office Expense 290,648 321,200 258,732 280,800 (40,400) Equipment 970,652 907,000 943,153 1,139,600 232,600 Fees 1,364,156 1,472,800 1,361,304 1,565,700 92,900 Services 1,541,412 2,206,500 1,387,477 2,152,300 (54,200) Training 56,258 107,700 65,818 123,500 15,800 Materials & Maintenance 2,456,930 2,234,900 2,035,352 2,324,900 90,000 Power and Utilities 12,796 16,000 12,929 14,000 (2,000) Sewer Charges 1,270,165 1,298,000 1,122,524 1,294,900 (3,100) Bad Debt Expense 120,333 146,700 154,593 155,000 8,300 Total Departmental Expenditures 27,558,223 28,709,600 27,211,024 29,937,900 1,228,300 Less: Overhead Allocation (1,215,350) (1,418,600) (1,091,721) (1,151,300) 267,300 Net Departmental Expenditures 26,342,873$ 27,291,000$ 26,119,303$ 28,786,600$ 1,495,600$ Non-Departmental Expenditures Water Purchases 43,161,584$ 45,025,100$ 48,209,099$ 47,059,200$ 2,034,100 Power 2,430,461 2,693,300 2,808,846 2,838,400 145,100 Expansion Reserve 3,936,000 3,428,000 - 2,538,900 (889,100) Betterment Reserve 1,120,000 125,000 125,000 3,530,000 3,405,000 Replacement Reserve 743,000 4,230,000 4,230,000 3,270,200 (959,800) Transfer to Sewer General Fund 595,000 152,800 152,800 553,800 401,000 Transfer to General Fund Reserve 2,285,800 1,913,000 1,913,000 1,583,800 (329,200) Transfer to Sewer Replacement 2,099,000 - - 127,000 127,000 Transfer to OPEB - 1,242,900 1,242,900 647,100 (595,800) Transfer to New Supply Fund - - - 705,000 705,000 Total Non-Departmental Expenditures 56,370,845$ 58,810,100$ 58,681,645$ 62,853,400$ 4,043,300$ Total Operating Expenditures 82,713,717$ 86,101,100$ 84,800,948$ 91,640,000$ 5,538,900$ Budget to Budget * Actuals unaudited 111 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 Treasurer Division 2 Gary Croucher Division 3 David Gonzalez, Jr. Vice President 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. The District does, however, answer to the public through a five-member Board of Directors. Each Director is elected by voters within their respective division boundaries to represent the public's interest with regard to rates for service, taxes, policies, ordinances, and other matters related to the management and operation of the Otay Water District. Directors serve four- year, alternating terms on the Board. 112 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Board of Directors 87,128$ 108,700$ 100,367$ 115,100$ Board of Directors Board of Directors , $115,100 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 113 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual*Budget Benefits 62,475$ 62,100$ 71,935$ 68,500$ Director's Fees 19,900 30,000 19,834 30,000 Travel and Meetings 4,753 16,600 7,798 16,600 Training - - 800 - Total 87,128$ 108,700$ 100,367$ 115,100$ Budget vs. Actual, in thousands ($) Board of Directors $- $30 $60 $90 $120 2010 2011 2012 2013 2014 2015 98 87 10 7 11 2 10 9 11 5 63 75 75 87 10 0 Budget Actual * Actuals unaudited 114 Director’s Division Boundaries 115 General Manager Mission Statement To provide high value water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner. Key Challenge Our key District challenge is to add increased value by improving our core business processes. From a water supply perspective, this means determining the optimum mix of water supply, treatment, and delivery solutions for our customers. From a daily operating perspective, efficiency improvements have become the primary source of competitive advantage and cost optimization for utilities. Adding value from this perspective means the entire team focusing on not only the highest priority goals but also examining the details of what we do every day and be willing to alter how we do it if it makes a positive difference. Our employees voice a high degree of personal and professional satisfaction with our direction and the entire team is committed to meeting this key challenge with distinction. General Manager’s Vision “A District that is at the forefront in innovations to provide water services at affordable rates, with a reputation for outstanding customer service.” CE 116 Position Title FY 2013 FY 2014 FY 2015 General Manager 1 1 1 Assistant General Manager 1 1 1 District Secretary 1 1 1 Sr. Confidential Executive Secretary 1 1 1 Communications Officer 1 1 1 Total 5 5 5 District Position Count - 140 General Manager Department - (5 Positions) General Manager - Position Count Board of Directors 1111 General Manager 1211 District Secretary 1211 Sr. Confidential Executive Secretary 1211 Communications Officer 1211 Assistant General Manager 2111 117 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget TOTAL General Manager/Assistant General Manager 1,419,489$ 1,444,500$ 1,353,831$ 1,562,300$ General Manager General Manager, $1,562,300 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 118 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Labor and Benefits 1,105,281$ 1,106,200$ 1,112,599$ 1,128,400$ Travel and Meetings 46,630 50,900 42,804 54,600 Conservation and Outreach 2,695 7,000 3,421 7,000 General Office Expense 4,390 5,300 3,164 5,300 Equipment - 1,500 2,700 4,000 Fees 59,993 48,000 47,303 64,000 Services 200,500 225,600 141,689 199,000 Materials & Maintenance - - - 100,000 Miscellaneous - - 151 - Total 1,419,489$ 1,444,500$ 1,353,831$ 1,562,300$ Budget vs. Actual, in thousands ($) General Manager $1,000 $1,300 $1,600 $1,900 2010 2011 2012 2013 2014 2015 1, 6 6 7 1, 7 9 1 1, 7 2 1 1, 4 8 8 1, 4 4 5 1, 5 6 2 1, 5 3 0 1, 6 8 2 1, 6 6 9 1, 4 1 9 1,3 5 4 Budget Actual * Actuals unaudited 119 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 – Strategic Plan FY 2012-2014 Accomplishments – Fiscal Year 2013-2014  Otay continues to be one of the lower cost water and sewer service providers among San Diego’s 23 water agencies and 28 sewer agencies.  Decreased labor costs by participating with other departments to reduce three (3) full-time positions by instituting efficiency programs, which minimize the impact of higher water costs from wholesalers, resulting in District-wide annual cost-savings of approximately $448,000.  Completed a review, evaluation and update of the District’s current Emergency Response Programs: National Incident Management System (NIMS); Standardized Emergency Management System (SEMS); and Incident Command System (ICS).  For the tenth consecutive year, the District has met nationally recognized guidelines and has been awarded the Distinguished Budget Presentation award for the Fiscal Year 2013-2014 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 operations guide, and as a communications device. This CUSTOMER 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. 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 120 General Manager award is a significant achievement and is the highest form of recognition in governmental budgeting.  For the tenth 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, 2013. 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.  Standard & Poor’s (S&P) affirmed the District’s AA (Double A) rating and revised its outlook to stable from negative. The outlook revision was based on S&P’s view of the District’s improved financial performance during the past two fiscal years.  Continue to meet all water quality standards and provided continuous services to our customers. Proactively maintained the sewer collection system resulting in no sewer overflows.  Continued the alignment studies for the Rosarito Desalination Facility Conveyance and Disinfection System project. Environmental surveys for the alignments have been completed. Worked with the CDPH to determine the permit requirements. Worked with Consolidated Water to align the CDPH requirements vs. plant design. Submitted the Presidential Permit Application for the project to the State Department which was published in the Federal Register.  Completed construction on a number of notable Capital Improvement Projects including the 944- 1R Recycled Pump Station Upgrade & System Enhancements project, the 927-1 Recycled Water Reservoir Cover and Liner Replacement project, the 12-Inch Potable Pipeline in Orange Avenue Bridge, Crossing I-805 project, and the 803-3 & 832-2 Reservoir Coating and Upgrades.  Since 2007, the District has seen a reduction of 34.75 FTE positions or 19.9%. In addition, by achieving greater efficiency the number of customers served per FTE has increased 29.2%. 121 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, 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, and Safety and Risk Administration. It also coordinates assigned activities with other departments and outside agencies, and provides highly responsible and complex administrative support to the District, General Manager, and Board of Directors. 122 Position Title FY 2013 FY 2014 FY 2015 Chief, Administrative Services (Assistant Chief, Administrative Services and IT) 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 0 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 Specialist 1 1 1 Water Conservation Manager 100 Water Conservation Specialist 1 0 0 Senior Water Conservation Specialist (2)010 Total 17 16 14 Administrative Services - Position Count District Position Count - 140 Administrative Services Department - (14 Positions) (2) Beginning in FY 2015, Senior Water Conservation Specialist position was moved to Finance. (1) Interim position oversees Administrative Services and Information Technology (IT). Purchasing and Facilities 2231 (7) Safety and Security Administration 2241 (1) Human Resources 2221 (3) Assistant Chief, Administrative Services and IT 2211 (3) (1) 123 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Administrative Chief 461,568$ 489,800$ 481,371$ 463,800$ Human Resources 679,097 882,300 720,522 703,300 Purchasing and Facilities 1,514,838 1,407,000 1,452,526 1,455,800 Safety and Security 208,676 290,600 261,152 372,700 Water Conservation (1)- - - - TOTAL 2,864,179$ 3,069,700$ 2,915,571$ 2,995,600$ Administrative Services (1) Beginning in FY 2015, Water Conservation has been moved to Finance. For comparative purposes, prior year budget and actual expenses have been moved to Finance. Administrative Services, $2,995,600 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 124 FY 2013 FY 2014 FY 2014 FY 2015 Actual (1)Budget (1)Actual*Budget (1) Labor and Benefits 1,965,789$ 2,075,500$ 2,027,956$ 2,044,500$ Travel and Meetings 7,574 14,600 5,052 16,700 General Office Expense 132,071 145,400 106,291 108,000 Equipment 72,960 56,000 64,074 75,500 Services 219,538 376,500 294,272 316,000 Training 39,852 81,200 41,446 92,600 Materials & Maintenance 413,599 304,500 363,551 328,300 Power and Utilities 12,796 16,000 12,929 14,000 TOTAL 2,864,179$ 3,069,700$ 2,915,571$ 2,995,600$ Budget vs. Actual, in thousands ($) (1) Beginning in FY 2015, Water Conservation has been moved to Finance. For comparative purposes, prior year budget and actual expenses have been moved to Finance. Administrative Services $- $1,000 $2,000 $3,000 $4,000 2010 2011 2012 2013 2014 2015 3, 9 1 3 3, 9 3 5 3, 7 2 7 3, 6 7 9 3, 0 7 0 2,9 9 6 3, 3 8 8 3, 4 0 9 3, 3 4 5 2, 8 6 4 2, 9 1 6 Budget Actual * Actuals unaudited 125 Administrative Services – Human Resources Administrative Services Objectives - Strategic Plan FY 2012-2014 Completed Objectives: CUSTOMER 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. BUSINESS PROCESSES  Enhance security processes and planning. LEARNING AND GROWTH Update performance evaluation categories/program to ensure a results-oriented workforce and update and provide training, if needed.  Evaluate pay-for-performance program to ensure the District is rewarding employees for innovations and business processes. Objectives behind schedule: LEARNING AND GROWTH Negotiate a successor Memorandum of Understanding (MOU) for represented employees for 2014 and beyond, and related compensation and benefits for unrepresented employees. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 126 Administrative Services – Human Resources 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 – Strategic Plan FY 2012-2014 LEARNING AND GROWTH Turnover Rate Annual percent of voluntary terminations. (Excludes retirement) 0.0% 1.5% 3.0% 4.5% 6.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected LEARNING AND GROWTH Training Hours per Employee Measures the quantity of general and management formal training hours employees are completing. 0 5 10 15 20 25 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 127 Administrative Services – Human Resources Accomplishments – Fiscal Year 2013-2014  Decreased labor costs by participating with other departments to reduce three (3) full-time positions by instituting efficiency programs, which minimize the impact of higher water costs from wholesalers, resulting in District-wide annual cost-savings of approximately $448,000.  Developed management initiatives, policy updates, and conducted a comprehensive compensation and benefits survey in preparation for negotiations of a successor Memorandum of Understanding with the Employees’ Association with the goal of streamlining business processes and increasing efficiency within the organization.  Worked with benefits consultant to price ancillary benefits in the market and changed Life and Accidental Death and Dismemberment coverage, which resulted in a savings of approximately $12,000 per year with a three-year rate guarantee.  Coordinated and received credit for the Special District Risk Management Authority’s (SDRMA) Credit Incentive Program (CIP). The District received a combined credit of approximately $95,700 for the Property and Liability and Workers’ Compensation premiums. These credits included CIP, longevity distribution, and a 5% multi-program discount. In addition to these credits, the District also received a high-volume discount in the amount of $302,660. 128 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. Also, as needed, provides complex purchasing related analysis and consultation to the District and General Manager. Performance Measures – Strategic Plan FY 2012-2014 (1) Performance Measure discontinued in Strategic Plan FY 2015 Phase 1 Accomplishments – Fiscal Year 2013-2014  A total of 155 blanket purchase orders were maintained totaling $13,071,663 in value; and 807 regular purchase orders were processed totaling $2,938,713.  Directed the replacement of defective and hazardous heat exchanges at the Administration Building’s HVAC rooftop units 2, 3, and 5.  Facilitated the replacement of defective fire sprinkler pipes and sprinkler heads in the Administration Building to meet five-year fire/life/safety certification requirements.  Refreshed the paint at the 30 MG Reservoir and Treatment Plant buildings including doors, windows, louvers, roll-up doors and metal roof fascia at the Laboratory and Effluent Pump Station buildings. Removed and replaced decayed roof fascia at the Reservoir chlorine/aqua and vault building.  Facilitated the upgrade of building alarm systems at the Administration Building, Water Operations Building, Warehouse, 30 MG Reservoir, 8 MG, 1200, 850-2 and 850-4 tanks. FINANCIAL Blanket Order Activity Percentage of material purchases acquired via blanket purchase orders. Industry Best Practice Target is at least 15%. 0.0% 10.0% 20.0% 30.0% 40.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected (1) 129 Administrative Services – Purchasing  Assisted in the upgrade of SCADA monitoring systems at the 1200 tank, 1004 Pump Station and tank, 850-1 and 850-4 tanks, 980-1 and 980-2 tanks, 944/680 Recycle Pump Station, 30 MG Reservoir, and Treatment Plant dissipation box.  To enhance security, completed the re-key of south District external buildings with "0" keys.  With the assistance of IT, established automatic monthly reports giving the project manager notification of contracts expiring within 120 days. 130 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 – Strategic Plan FY 2012-2014 (1) Targets changed from 32 to 24 hours in FY 2012 0 10 20 30 40 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected LEARNING AND GROWTH Safety Training Program Safety & Security Administration will provide a minimum of 24 safety training programs/hours annually to all field employees. CUSTOMER SERVICE Health & Safety Severity Rate Quantifies the rate of employee days lost from work due to illness or injury. (1) 0 10 20 30 40 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 131 Administrative Services – Safety and Security Accomplishments – Fiscal Year 2013-2014  Completed a review, evaluation and update of the District’s current Emergency Response Programs: National Incident Management System (NIMS); Standardized Emergency Management System (SEMS); and Incident Command System (ICS). In addition, provided an introduction to the SEMS/NIMS/ICS emergency response programs to Operations, Engineering, Administration, and Finance staff.  Implemented a consolidated and streamlined program for the District’s Emergency Response Plans by combining NIMS and SEMS into one District document under a three-part Emergency Response Plan, which includes: o District-specific Emergency Response Action Plans o Completion of all required employee training o District's Emergency Command and Operations staff, review and development of group specific organizational charts and individual areas of responsibility  Developed and completed a District-wide training plan to have all staff complete the initial SEMS/NIMS/ICS courses (ICS 100 and 700).  Completed initial review of employee current safety training requirements and provided suggestions and options.  Completion of safety training by staff on the following topics: Hazardous Communication Global Harmonization System, First Aid/AED/CPR, Hearing Conservation, Confined Space, Fall Protection, and Reporting Injuries and Illness. The HAZWOPER Team also completed Confined Space Rescue, First Responders Emergency Incident Command System, and an 8-hour annual refresher.  Participated in monthly WebEOC exercises sponsored and hosted by the San Diego County Water Authority and County of San Diego’s Office of Emergency Services.  Developed a tracking tool for ease of evaluating the completion of safety training hours by groups.  Reviewed an updated key District safety programs, with a focus on high hazard areas such as: Confined Space, Fall Protection, Heat Illness Prevention, Hazard Communications, Chemical Safety Data Sheets and Illness and Injury Prevention Program, which provides the foundation for our safety program. The revised and approved programs are located on SharePoint and the updated policies and procedures were communicated to Operations, Engineering and Customer Service field personnel.  Reviewed and updated the District's Noise Conservation Program to include only those employees who qualify and meet the noise threshold exposure of 85dB or above during an 8 hour time weighed average period.  Installed Cal/OSHA compliant First Aid Kits and upgraded AED units.  Coordinated a tour visit of the Treatment Plant with the County of San Diego’s Hazardous Incident Response Team and developed a site-specific Emergency Response BMP informational document for the Treatment Plant, which is to be used as guide by emergency first responders (Fire, Sheriff, etc.) when responding to emergencies at the Treatment Plant. 132 Administrative Services – Safety and Security  Completed the Unified Program Facility reporting requirements for the District’s 25 qualified facilities. Under the California Environmental Reporting System (CERS) and as required by the Environmental Protection Agency via the County of San Diego’s Department of Environmental Health, all regulated businesses are required by law (Assembly Bill 2286) to submit and update business information electronically.  Completed a review and update of the District's fuel island documentation requirements in preparation for the County of San Diego’s annual Underground Storage Tank inspection.  Successful completion of the County of San Diego’s regulatory California Accidental Release Program (CalARP) and Spill Prevention Control and Countermeasure (SPCC) Program inspections at the Treatment Plant, Regulatory, 30 MG Reservoir, and Central Area facilities.  Implemented access and gate control at key District facilities.  Completed an evaluation and assessment program for the District's electric gates and implemented safety upgrades and enhancements as required.  Implemented remote video capability for burglar and fire alarms at the Treatment Plant. 133 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 Department, under the general direction of the Chief Financial Officer, provides the following support services: Controller and Budgetary Services, Treasury and Accounting Services, Payroll and Accounts Payable, and Customer Service. The Department ensures the District’s conformance with modern finance, accounting theory and practices, and compliance with applicable state and federal laws. In addition, it provides customer support, meter reading and maintenance, and water conservation outreach programs. The Finance staff provides highly responsible and complex administrative and technical support to the District, General Manager, and Board of Directors. Meter Maintenance Finance Customer Service 134 Position Title FY 2013 FY 2014 FY 2015 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 100 Customer Service Manager 2 2 2 Senior Accountant 4 4 4 Accountant 3 3 3 Accounting Technician 222 Lead Customer Service Representative 2 2 2 Customer Service Representative I, II and III 7 7 7 Lead Customer Service Field Representative 1 1 1 Customer Service Field Representative I and II 333 Lead Cross Connection/Meter Maintenance Worker (1)001 Meter Maintenance Worker I & II (1)003 Senior Conservation Specialist (2)001 Total 30 29 34 (1) Beginning in FY 2015, Meter Maintenance was moved to Finance. (2) Beginning in FY 2015, Senior Conservation Specialist Position was moved to Finance. Finance - Position Count District Position Count - 140 Finance Department - (34 Positions) Treasury and Accounting Services 2331 (6) Customer Service 2341/2343 (12) Controller and Budgetary Services 2321 (5) Chief Finance Officer - 2311 (3) Meter Maintenance 2342 (8) 135 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual*Budget (1) Finance Chief 519,012$ 508,600$ 503,297$ 517,100$ Controller and Budgetary Services 977,807 853,900 820,598 827,600 Treasury and Accounting Services 1,162,894 1,274,600 1,283,993 1,293,900 Customer Service 1,991,078 2,148,200 2,048,685 2,148,900 Meter Shop (1)576,034 610,500 542,089 606,300 Water Conservation (1)428,164 467,400 264,548 422,900 TOTAL 5,654,989$ 5,863,200$ 5,463,210$ 5,816,700$ Finance (1) Beginning in FY 2015, Meter Shop and Water Conservation have been moved to Finance. For comparative purposes, prior year budget and actual expenses for these divisions have been moved to Finance. Finance, $5,816,700 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 136 FY 2013 FY 2014 FY 2014 FY 2015 Actual (1)Budget (1)Actual*Budget (1) Labor and Benefits 4,478,908$ 4,417,800$ 4,374,755$ 4,567,800$ Travel and Meetings 12,914 22,700 14,990 25,100 Conservation and Outreach 196,784 199,600 133,322 167,900 General Office Expense 152,322 167,700 147,820 164,700 Equipment - - - 200 Fees 347,545 365,900 368,200 362,200 Services 203,334 370,600 171,379 237,900 Materials & Maintenance 142,848 172,200 98,151 135,900 Bad Debt Expense 120,334 146,700 154,593 155,000 Total 5,654,989$ 5,863,200$ 5,463,210$ 5,816,700$ Budget vs. Actual, in thousands ($) (1) Beginning in FY 2015, Meter Shop and Water Conservation have been moved to Finance. For comparative purposes, prior year budget and actual expenses for these divisions have been moved to Finance. Finance $2,500 $4,000 $5,500 2010 2011 2012 2013 2014 2015 4, 8 6 9 4, 7 3 0 4, 7 1 2 4, 8 8 7 5, 8 6 3 5, 8 1 7 4, 6 1 7 4, 5 5 9 4, 5 4 0 5, 6 5 5 5, 4 6 3 Budget Actual * Actuals unaudited137 Finance – General Finance Department Objectives – Strategic Plan FY 2012-2014 Objectives Completed: CUSTOMER o Continued promoting the Water Conservation Garden as a venue for new homeowners, developers, businesses, and existing homeowners.  BUSINESS PROCESSES o Ensured best practices were followed in meeting the 20 by 2020 conservation targets including reclassification of industrial and commercial customers. o Educated and worked with local agencies and others to influence developers and builders, to incorporate practical water efficient practices in new construction. o Improved and streamlined meter related processes. Objectives on Schedule: BUSINESS PROCESSES  Streamline Finance business processes.  Streamline accounts payable business processes. FINANCIAL  Improve financial planning and communication regarding the expenditure of District funds.  Evaluate the feasibility of replacing the existing customer information system or migrating to the new version of the Eden software. Objectives behind Schedule: CUSTOMER  Enhance communications with customers using our new phone system. Objectives on Hold: FINANCIAL Develop water and sewer capacity fees for expansion. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 138 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 proposing rate changes. Staff 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 140 full-time and temporary employees using the District’s Integrated Financial Eden System. Timesheets and pay stubs are collected and distributed electronically. Benefits and deductions are processed bi-weekly. Federal and state tax returns are filed on a quarterly basis and W2s are filed annually. Performance Measures – Strategic Plan FY 2012-2014 FINANCIAL O&M Cost per Account Operations & Maintenance (O&M) cost per account/per customer. (QualServe) FINANCIAL Overtime Percentage Comparing actual to budgeted overtime to monitor costs. $0 $100 $200 $300 $400 $500 $600 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% FY 11‐12 FY 12‐13 FY 13‐14 FY 14‐15 Target Actual & Projected 139 Finance – Controller and Budgetary Services FINANCIAL Sewer Rate Ranking District's average customer bill as compared to other agencies in San Diego County. Otay is ranked 8th of 28 agencies. FINANCIAL Water Rate Ranking District's average customer bill as compared to other agencies in San Diego County. Otay is ranked 11th of 23 agencies. BUSINESS PROCESSES Distribution System Loss Percentage for unaccounted Water. (QualServe) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 0 4 8 12 16 20 24 28 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 5 8 11 14 17 20 23 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 140 Finance – Controller and Budgetary Services Accomplishments – Fiscal Year 2013-2014  For the tenth consecutive year, the District has met nationally recognized guidelines and has been awarded the Distinguished Budget Presentation award for the Fiscal Year 2013-2014 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 operations guide, and as a communications device. This award is a significant achievement and is the highest form of recognition in governmental budgeting.  For the eighth consecutive year, the District has been awarded the Operating Budget Excellence Award for the Fiscal Year 2013-2014 Operating Budget by the California Society of Municipal Finance Officers (CSMFO). CSMFO recognizes agencies that have prepared a budget document or a communication tool that meets established criteria.  For the ninth consecutive year, the District has been awarded the Capital Budget Excellence Award for the Fiscal Year 2013-2014 Capital Improvement Program Budget by the CSMFO. The CSMFO recognizes agencies that have prepared a Capital Improvement Budget document or a communication tool that meets established criteria. 141 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. The division is responsible for the accounts payable process which pays approximately 750 invoices on a monthly basis. It is also responsible for completing the District’s annual financial audit and publishing of the Comprehensive Annual Financial Report (CAFR). The division conducts an annual review of the District’s Investment Policy, as required by law, with approval by the Board of Directors. It provides financial analysis and review of staff projects and operational business proposals. It also 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 – Strategic Plan FY 2012-2014 FINANCIAL Debt Coverage Ratio Measures level of debt coverage ratio (ability to pay debt). (QualServe) Includes growth related revenue. The minimum legal level is 125%. FINANCIAL Reserve Level Measures all of the District's reserves against the Board adopted Reserve Policy levels. 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 100.0% 125.0% 150.0% 175.0% 200.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 142 Finance – Treasury and Accounting Services Accomplishments – Fiscal Year 2013-2014  For the tenth 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, 2013. 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.  Standard & Poor’s (S&P) affirmed the District’s “AA” rating and revised its outlook to stable from negative. The outlook revision was based on S&P’s view of the District’s improved financial performance during the past two fiscal years. 143 Finance – Customer Service Customer Service Services We Provide The Customer Service Division is responsible for providing billing, receipting, collections, and customer care for water and sewer services in addition to assisting with water conservation. The billing and customer care teams handle the coordination of billing and receipting of approximately 49,000 accounts per month. Customers have the choice of receiving either a paper bill or an electronic bill. 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 give customers 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. The water conservation staff promotes and conducts residential and large landscape surveys, promotes the Water Conservation Garden as a resource, participates in outreach events throughout the community, helps fund and promote a variety of incentive and other programs available to its customers, and manages the District’s Water Shortage Response Plan as well as its water waste reporting program. Performance Measures – Strategic Plan FY 2012-2014 CUSTOMER Answer Rate Percentage of calls as a measure of all calls received. The targets are set by industry standards. FINANCIAL Billing Accuracy Percentage of correct bills issued. (QualServe) The targets are set by industry standards. 95.0% 96.0% 97.0% 98.0% 99.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 144 Finance – Customer Service Accomplishments – Fiscal Year 2013-2014  Continued process improvements by implementing on-line check lists for the most critical processes in the department. The advent of a formal process and review points ensures a high level of efficiency and thoroughness.  Switched IVR payment processors which will save the District approximately $12,000 annually.  Created a formal process to notify customers of leak alarms gathered from AMR meters. This new process allows for earlier notification to customers and is less time intensive then when utilizing only pre-billing reviews.  Integrated Water Conservation staff into the Finance Department creating synergies and improved customer outreach.  Efficiencies implemented in the Customer Service Department resulted in a Customer Service position being transferred to the IT department to work on various projects. CUSTOMER 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. 100 120 140 160 180 200 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 145 Finance – Meter Maintenance Meter maintenance Services We Provide As part of the Finance Department, the Meter Shop is responsible for the installation and maintenance of all meters in the District. They manage the District’s backflow/cross-connection prevention which includes annual tests of devices and water meters to ensure the continued safety of the potable water system. Staff responds to customer issues regarding meter accuracy, conducts site audits, and maintains records as required by various regulatory agencies. The Meter Reading team reads approximately 49,000 potable, recycled, and District meters a month using automatic meter reading technology. Accomplishments – Fiscal Year 2013-2014  Integrated Meter Shop staff into the Finance Department which will allow them to work closely with the meter readers to eliminate duplicate efforts related to meter installations and inspections.  Received a 100% compliance from the California Department of Public Heath which oversees the District’s backflow program. This audit is conducted every three years.  Incorporated essential portions from Title 17 into the District’s Code of Ordinances to ensure the cross-connection program is easily referenced. 146 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; and complex administrative and technical support to the District, General Manager, and Board of Directors. 147 Position Title FY 2013 FY 2014 FY 2015 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 Total 121212 (1) Interim position is budgeted in Administative Services and oversees Administrative Services and IT. IT and Strategic Planning - Position Count District Position Count - 140 Information Technology & Strategic Planning Department - (12 Postions) IT Applications 2411 (4) IT Operations 2421 (3) GIS 2431 (4) Chief Information Officer 2411 (1) Assistant Chief, Administrative Services and IT 2411 (1) 148 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget IT Chief/Applications 939,325$ 973,500$ 899,920$ 957,000$ IT Operations 1,271,205 1,390,400 1,384,713 1,462,400 Geographic Information System 722,071 771,700 736,670 954,400 TOTAL 2,932,601$ 3,135,600$ 3,021,303$ 3,373,800$ IT and Strategic Planning IT and Strategic Planning, $3,373,800 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 149 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual*Budget Labor and Benefits 1,937,986$ 2,028,000$ 2,056,743$ 2,042,200$ Travel and Meetings 10,393 26,700 20,276 26,700 General Office Expense 1,139 1,500 426 1,500 Equipment 864,973 812,900 844,062 1,017,700 Services 110,766 259,500 88,456 278,700 Training 7,344 7,000 11,340 7,000 Total 2,932,601$ 3,135,600$ 3,021,303$ 3,373,800$ Budget vs. Actual, in thousands ($) IT and Strategic Planning $1,000 $1,900 $2,800 2010 2011 2012 2013 2014 2015 2, 8 5 6 2, 9 6 4 3, 0 8 0 2, 9 9 6 3, 1 3 6 3, 3 7 4 2, 8 6 4 2, 9 7 7 2,8 7 2 2, 9 3 3 3, 0 2 1 Budget Actual * Actuals unaudited 150 IT and Strategic Planning – Strategic Plan Objectives IT and Strategic Plan Objectives – Strategic Plan FY 2012-2014 Objectives Completed: BUSINESS PROCESSES  Update District-wide Records Management program. Objectives on Schedule: BUSINESS PROCESSES  Implement GIS-centric work order system.  Improve the operating cost and efficiency of data center and network services.  Develop a complete Asset Management Program. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 151 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; and information system support to the District. The department also provides highly responsible and complex administrative and technical support to the District, General Manager, and Board of Directors. Accomplishments – Fiscal Year 2013-2014  The FY 2015-2018 Strategic Plan was developed over the last year and approved by the Board as part of the FY 2015 budget. The planning process was extensive, involving a complete analysis of past plans, analysis of the mission, vision, and values of the previous plan. The plan cycle was extended from three to four years with the addition of a one year high priority plan to ensure the foundation needed for change is in place and receives appropriate support. The existing performance measures program is included. The Senior Management Team met repeatedly over a six month period to develop and finally approve the plan. The strategic planning process has been in place since 2003 and is the foundation for most of our efforts to improve and adapt to our changing business environment.  Completed the collection of core recycled assets such as pump stations and reservoirs. The database for asset management was refined to include modifications necessary to support the new work order system. In addition, a rating system for sewer pipes using a visual detection mechanism and industry standard condition assessment methodology was implemented.  Staff developed an online Meter Reading Edit Checklist for Customer Service for the purpose of streamlining the meter reads/edits process. The checklist includes a number of integrity checks and automated functions to ensure the accuracy of each bill mailed to our customers. Key benefits of this improved process are enhanced knowledge via staff cross- training, reduction in time spent reviewing reads and bills, and greater accuracy.  Staff successfully launched the District’s work order management system replacement project, Cityworks. The project included enterprise participation from Operations, Finance, Engineering, and IT departments. The project is expected to be complete by March 2015.  In conjunction with the Operations department, staff successfully launched the District’s SCADA system replacement project, GE iFIX. The project is expected to be complete by March 2015. 152 IT and Strategic Planning – IT Operations Customer Satisfaction with Website Tracks customer satisfaction with website through surveys. 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; telecommunications; mobile and wireless networks; website; and help desk. IT Operations has collateral responsibilities for access security control and video surveillance. Performance Measures – Strategic Plan FY 2012-2014 CUSTOMER 99.0% 99.2% 99.4% 99.6% 99.8% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected BUSINESS PROCESSES Network Availability Percentage of uptime for network during normal business hours. (1) Did not include customer online bill payment services prior to 2015. LEARNING & GROWTH Website Hits Tracks the number of visitors to our website per month. (1) 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 10,000 15,000 20,000 25,000 30,000 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 153 IT and Strategic Planning – IT Operations Accomplishments – Fiscal Year 2013-2014  Configured architecture and search capabilities of the District’s SharePoint site allowing users to fully take advantage of the ability to search for documents, within documents, and locate documents across network file shares.  Upgraded the District’s Enterprise Resource Planning (ERP) solution to version 5.10.1.1. This system provides core ERP financial and customer billing services, key results, improved performance and reliability, and data optimization benefits.  Initiated the redesign of the District’s public facing website. The new website will leverage the latest technology of HTML5, have a new look and feel, employ social media functions, and Google type navigation and search features.  IT staff continues to streamline data center operations by reducing the amount of physical servers. Leveraging virtualization technologies, staff has consolidated over 60% of our server environment averaging ten virtual servers per physical servers resulting in over $200,000 in server hardware savings.  Completed a comprehensive infrastructure upgrade of the District’s core network to include replacement of existing Cisco switches, firewall and end-point support devices. The upgrade also included a redesign of the network architecture to ensure data, voice, and Internet service redundancy across Otay’s network.  Implemented Zetta enterprise backup and disaster recovery solution. This solution provides backup and recovery of District application servers and user data. The deployment of this solution helps to meet additional disaster recovery objectives.  Implemented Meraki wireless technology throughout the District for enhanced wireless service and simplified administration. 154 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 2013-2014  Completed the implementation of the new GIS mobile solution, InfraMap (field utility work solution), and its associate end-user training. InfraMap provides new and improved mobile utility technology, which replaced the District’s legacy Field Mapplet solution. The new mobile solution provides enhanced field and activity collection functionality and optimized communication architecture for improved connection reliability.  Completed the enterprise ArcGIS Suite upgrade from multiple versions to 10.1. This also included the migration of the District’s ArcSDE database, or the core database management system, for GIS.  Deployed the new web-based Automatic Vehicle Location (AVL) system, GPS Insight, and completed end-user training. The new AVL system provides enhanced reporting and fleet management features.  Upgraded the AutoDesk/CAD application to 2014 version to meet Engineering’s new design requirements. Also completed department staff training.  GIS software and data models were used to create the new Water Resource and Sewer Master Plan Sewer Master Plan. The Engineering Department updates the Water Resource Master Plan periodically and the GIS based models are the primary templates for them to perform network analysis and demand/supply studies to project future capital improvement plans.  The District hosted the ESRI Fall Water/Wastewater User Group Meeting. Close to 70 GIS professionals from the mid/south California region participated in the meeting. Otay’s GIS efforts were acknowledged and well received by ESRI and the attendees.  Served as the U.S. Geological Survey (USGS) image acquisition steward for mid/south San Diego County. Participants in the USGS Cooperative Agreement were Otay Water District, City of Chula Vista, Sweetwater Authority, City of Coronado, City of El Cajon, City of Imperial Beach, City of La Mesa, City of Lemon Grove, and City of Santee. Via the coordinator role of the project, Otay saved more than $30,000 on image cost. 155 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 of Water Operations, provides the following support services: Potable and Recycled Water System Operations, Construction Maintenance, Sewer Collection, and Wastewater Treatment. The department provides highly responsible and complex technical and administrative support to the District, General Manager, and Board of Directors. 156 Water Operations - Position Count District Position Count - 140 Water Operations Department - (56 Positions) Utility Maintenance/Construction 3231 (1) Utility Maintenance 3232 (16) Fleet Maintenance 3233 (4) Pump & Electrical 3236 (5) Water System Operations 3221 (1) Water System 3225 (15) Recycled System 3226 (5) SCADA System 3227 (2) Laboratory 3243 (1) Reclamation Plant 3244 (4) Chief, Water Operations 3211 (2) 157 Position Title FY 2013 FY 2014 FY 2015 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 0 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 0 Meter Maintenance Worker I and II (1)4 4 0 Utility Services Manager 1 1 1 Utility Maintenance Supervisor 2 2 2 Utility Crew Leader 4 3 3 Utility Workers I and II 9 8 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 2 2 Recycled Water Distribution Operator 4 4 4 Laboratory Analysts 1 1 1 Total 65 61 56 (1) Beginning in FY 2015, Meter Maintenance was moved to Finance. Water Operations - Position Count District Postion Count - 140 Water Operations Department - (56 Positions) 158 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Water Operations Chief 416,786$ 432,600$ 426,459$ 445,900$ Water Systems 5,856,340 6,035,500 5,723,947 6,329,200 Construction Maintenance (2)4,166,144 4,444,400 4,164,463 4,609,000 TOTAL 10,439,270$ 10,912,500$ 10,314,869$ 11,384,100$ Water Operations Water Operations, $11,384,100 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 159 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual*Budget (2) Labor and Benefits (1)6,789,741$ 7,321,200$ 7,160,946$ 7,744,600$ Travel and Meetings 34,923 46,500 38,385 49,300 General Office Expense 404 300 74 300 Equipment 32,719 36,500 32,317 42,200 Fees 62,429 72,800 75,652 65,500 Services 341,963 365,500 301,853 415,600 Training 6,446 13,500 9,096 11,000 Materials & Maintenance 1,900,480 1,758,200 1,574,022 1,760,700 Sewer Charges 1,270,165 1,298,000 1,122,524 1,294,900 Total 10,439,270$ 10,912,500$ 10,314,869$ 11,384,100$ (1) Excludes CIP labor and benefits. Budget vs. Actual, in thousands ($) (2) Beginning in FY 2015, Meter Shop has been moved to Finance. For comparative purposes, prior year budget and actual expenses have been moved to Finance. Water Operations $- $4,000 $8,000 $12,000 2010 2011 2012 2013 2014 2015 11 , 4 7 9 11 , 4 2 1 12 , 6 8 9 11 , 8 5 3 10 , 9 1 3 11 , 3 8 4 10 , 5 8 5 11 , 5 6 6 10 , 9 3 6 10 , 4 3 9 10 , 3 1 5 Budget Actual * Actuals unaudited 160 Water Operations – Water System Operations Water Operations Objectives – Strategic Plan FY 2012-2014 Completed Objectives: BUSINESS PROCESSES 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 strategies. Develop gen-set load bank testing. Objectives on Schedule: BUSINESS PROCESSES  Develop data collection and condition assessment for collection system facilities. Objectives behind Schedule BUSINESS PROCESSES  Replace SCADA software system.  Implement the recommendation for improving response to extended power outages.  Implement wireless radio and data network for field operations. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 161 Water Operations – Water System Operations Water System Operations Services We Provide The Water Systems Operations Division encompasses five sections which are responsible for operations and monitoring of the potable and recycled water distribution systems as well as the Ralph W. Chapman Water Recycling Facility. The water system operators monitor and operate the water distribution system to ensure it provides 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 monitor and operate the recycled water distribution system to ensure it provides adequate supply to the District’s recycled water customers and periodically conduct cross- connection tests to ensure that the potable distribution system is completely isolated from the recycled water system. 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. Performance Measures - Strategic Plan FY 2012-2014 (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. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected BUSINESS PROCESSES 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) 162 Water Operations – Water System Operations 0 2 4 6 8 10 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 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. BUSINESS PROCESSES BUSINESS PROCESSES Planned Recycled Water Maintenance Ratio in Dollars Compares how effectively the District is investing in planned maintenance. BUSINESS PROCESSES Planned Wastewater Maintenance Ratio in Dollars Percentage of planned maintenance costs compared to combined planned and corrective maintenance costs. 50% 60% 70% 80% 90% 100% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 163 Water Operations – Water System Operations . BUSINESS PROCESSES 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) BUSINESS PROCESSES O&M Cost per MG Measure for the full operation and maintenance cost to treat one million gallons of wastewater. (QualServe) LEARNING AND GROWTH Percentage of Preventative Maintenance (PM) Completed in the Reclamation Plant Tracks the percentage of scheduled PMs that are completed in the Reclamation Plant. $800 $900 $1,000 $1,100 $1,200 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected $1,000 $1,300 $1,600 $1,900 $2,200 $2,500 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 164 Water Operations – Water System Operations (1) Due to low staffing levels. . (2) Due to low staffing levels. (3) Performance Measure discontinued in Strategic Plan FY 2015 Phase 1 0 1,000 2,000 3,000 4,000 5,000 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 50.0% 80.0% 110.0% 140.0% 170.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected LEARNING AND GROWTH 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. BUSINESS PROCESSES 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. BUSINESS PROCESSES 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) (2) (1) 0.0 5.0 10.0 15.0 20.0 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected (3) 165 Water Operations – Water System Operations Recycled Water System Integrity Tracks number of leaks or breaks per 100 miles of water distribution system. BUSINESS PROCESSES BUSINESS PROCESSES BUSINESS PROCESSES 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) 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) 0 2 4 6 8 10 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 80.0% 90.0% 100.0% 110.0% 120.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 0 2 4 6 8 10 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 166 Water Operations – Water System Operations Accomplishments – Fiscal Year 2013-2014  Spearheaded the revision of the District Emergency Preparedness Plan and recommended organizing it into three volumes. Reviewed and expanded Volume I. Completely revised and created fourteen (14) specific Incident Action Plans into Volume III and currently developing Volume II to standardize it for all the departments.  Facilitated completion of the chlorine and ammonia Cal-ARP manuals by working with the consultant and the Safety and Security Specialist. Participated in the Cal-ARP inspection by the County of San Diego, which resulted in no violations and only a few recommendations.  Managed the leak detection survey in southeast Chula Vista. A total of 53 gpm of leaks were found, which equates to 90 af/year. Trained the water systems supervisor, the lead water system operators, and several water system operator IIIs on the operation of the leak-noise correlation system. Also performed leak detection on the recycled force main, with no leaks found.  Staff participated in the 2013 Master Reclamation Permit Inspection at the treatment plant by the Regional Water Quality Control Board. No violations were noted and only a couple of minor recommendations were made.  Wrote the Public Health Goals Report to obtain the Board or Directors’ approval for the recommendation to take no further actions to reduce the seven constituents detected to levels at or below the public health goals.  Obtained approval of a five-year Reservoir Floating Cover Maintenance Contract.  Transferred the Meter Maintenance/Cross Connection staff to Customer Service.  Completed the installation of a screenings compactor at the treatment plant which will provide approximately 0.1 MGD more recycled water and reduce disposal costs paid to the City of San Diego.  Completed installation of nitrate and total suspended solids analyzers at the treatment plant to improve process control and reduced the time reclamation plant operators spent performing lab analysis by 12 hours per week.  Continue to meet all water quality standards and provided continuous services to our customers. 167 Water Operations – Water System Operations Performance Measures - Strategic Plan FY 2015 Phase 1 The division will be implementing the following performance measures as part of Phase 1 of the FY 2015-2018 Strategic Plan: BUSINESS PROCESSES Performance Measure Description Annual Recycled Water Site Inspections Percentage of required recycled water use sites inspected per year. Recycled Water Shutdown Testing Percentage of recycled water use sites tested per year vs. the number required by the Department of Occupational Health. Leak Detection Program Percentage distribution system surveyed for leaks. Reservoir Inspection and Cleaning Number of water reservoirs cleaned annually. Main Flushing & Hydrant Maintenance Number of mains flushed and fire hydrants maintained. Critical Valve Exercising Program Number of critical valves exercised annually. 168 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. Planned Potable Water Maintenance Ratio in Dollars Compares how effectively the District is investing in planned maintenance. (QualServe) Utility Services Maintenance Services We Provide The Utility Maintenance and Construction Division has three sections which provide vital maintenance functions to ensure continuity of the drinking water, recycled water, and wastewater services to District customers while adhering to all applicable regulatory compliance requirements. Utility Maintenance staff maintains all collection and potable distribution and recycled distribution systems, including regular inspection and cleaning of the wastewater collection system. They also exercise valves, install and/or repair main pipelines and service lines expediently, while following all established safety rules and regulations. The Fleet Maintenance staff implements active preventative maintenance practices and repairs on all District 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 – Strategic Plan FY 2012-2014 BUSINESS PROCESSES LEARNING AND GROWTH (1) The actual and projected maintenance is 100% complete. 75.0% 80.0% 85.0% 90.0% 95.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected (1) 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 169 Water Operations – Utility Services Maintenance 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) 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. BUSINESS PROCESSES (1) The actual and projected number of system failures for FY 2012-FY 2015 is 0.0. BUSINESS PROCESSES (2) Both actual/projected and targets are at 0.0%. LEARNING AND GROWTH (3) The actual and projected maintenance is 100% complete. 0 1 2 3 4 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 0.0% 0.5% 1.0% 1.5% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected (2) (1) (3) 170 Water Operations – Utility Services Maintenance Accomplishments – Fiscal Year 2013-2014  Oversaw the emergency repairs of the 16-inch steel pipeline on Campo Road and the 30-inch steel pipeline on Cuyamaca College Drive East.  Over $111,000 of surplus items were auctioned, which does not include the money earned from scrap and credit from vehicle parts that were returned. This surplus effort should result in the transfer of more non-inventory items into the warehouse and additional internal controls in the future.  Continue to proactively perform vibration analyses and pump efficiency tests on more than 75 pumps and motors throughout the District.  Oversaw the coordination of an electrical upgrade required at the Administration building.  Proactively maintained the sewer collection system resulting in no sewer overflows. Performance Measures – Strategic Plan FY 2015 Phase 1 The division will be implementing the following performance measures as part of Phase 1 of the FY 2015-2018 Strategic Plan. BUSINESS PROCESSES Performance Measure Description Emergency Facility Testing Number of facilities and generators tested on an annual basis. 171 Engineering - General Mission Statement To provide Engineering, Construction, and Environmental services for the District and for the development community, quality control of future District assets, and expediting of the permitting process, through the use of our dedicated employees and innovative technology with the goal of attaining 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. The department is responsible for strategic planning; the 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. It provides highly responsible and complex administrative and technical support to the District, General Manager, and the Board of Directors. 172 Position Title FY 2013 FY 2014 FY 2015 Chief, Engineering 1 1 1 Executive Secretary 1 1 1 Secretary 1 1 1 Engineering Manager 2 2 2 Senior Civil Engineer 2 2 2 Associate Civil Engineer 1 0 0 Construction Management Specialist 0 1 0 Assistant Civil Engineer I and II 1 1 1 Environmental Compliance Specialist 1 1 1 Permit Technicians 2 2 2 Senior Engineering Technician 2 2 2 Inspection Supervisor 1 1 1 Construction Inspectors I and II 2 3 3 Supervising Land Surveyor 1 1 1 Assistant Survey Technician 1 1 1 Total 19 20 19 Engineering - Position Count District Position Count - 140 Engineering Department - (19 Positions) Planning, Design & Water Resources 3321, 3331, 3341 (6) Environmental Services 3451 (1) Public Services 3421 (3) Construction Services 3431 (4) Survey Services 3441 (2) Chief, Engineering 3311 (3) 173 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Engineering Chief 313,610$ 259,200$ 302,990$ 371,900$ Planning 168,754 285,000 74,454 305,000 Design 279,410 262,900 358,800 495,300 Water Resources 117,707 127,300 64,312 35,000 Public Services 340,605 340,400 340,682 363,800 Construction Services 158,080 202,800 185,958 228,600 Survey Services 249,053 327,100 322,950 356,400 Environmental Services 189,727 221,100 177,563 202,500 TOTAL 1,816,946$ 2,025,800$ 1,827,709$ 2,358,500$ Engineering Engineering, $2,358,500 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 174 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual*Budget Labor and Benefits (1)1,298,168$ 1,355,100$ 1,392,475$ 1,587,800$ Travel and Meetings 9,792 12,900 17,805 18,700 General Office Expense 322 1,000 957 1,000 Fees 40,737 42,000 26,050 33,000 Services 465,311 608,800 389,828 705,100 Training 2,616 6,000 570 12,900 Materials & Maintenance - - 32 - Total 1,816,946$ 2,025,800$ 1,827,717$ 2,358,500$ (1) Excludes CIP labor and benefits. Budget vs. Actual, in thousands ($) Engineering - 500 1,000 1,500 2,000 2,500 2, 0 7 1 2, 0 2 4 1, 8 3 7 1,8 6 2 2, 0 2 6 2, 3 5 9 1, 9 1 7 1, 9 8 4 1, 8 1 7 1, 8 1 7 1, 8 2 8 Budget Actual * Actuals unaudited 175 Engineering - Strategic Plan Objectives Engineering Strategic Plan Objectives – Strategic Plan FY 2012-2014 Objectives Completed: BUSINESS PROCESSES  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.  Evaluate incorporating selected San Diego Sanitation District Islands into Otay service territory.  Strengthen CIP planning, budgeting, and cost-tracking processes. Objectives on Schedule: BUSINESS PROCESSES  Re-negotiate the South Bay Water Reclamation Plant (SBWRP) recycled water supply agreement with the City of San Diego. Objectives behind Schedule: BUSINESS PROCESSES  Update the 2007 Integrated Water Resources Plan (IRP) to acquire and/or additional potable and recycled water supplies and enhanced resource reliability.  Update Water Facilities Master Plan. Objectives on Hold: BUSINESS PROCESSES  To evaluate and implement the recommended options for waste water disposal in contract with the City of San Diego Metro System disposal option while considering recycled water system supply requirements.. Legend Completed On Schedule Behind Schedule On Hold No Reports Not Scheduled to Start Yet 176 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, staff 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 2013 -2014  Continued the alignment studies for the Rosarito Desalination Facility Conveyance and Disinfection System project. Environmental surveys for the alignments have been completed. Worked with the CDPH to determine the permit requirements. Worked with Consolidated Water to align the CDPH requirements vs. plant design. Submitted the Presidential Permit Application for the project to the State Department which was published in the Federal Register.  Completed the Draft Environmental Impact Report 45-day public comment period as part of the Otay Interconnect Pipeline (also known as North District – South District Interconnection) project. Then, gained the support of Supervisor Cox to resume work on the Corral Canyon Alignment as part of the Pipeline project (previously titled: “North District – South District Interconnection System”) through extensive coordination with three active community groups and the San Diego County Water Authority.  Prepared four Water Supply Assessment and Verification Reports for projects in the County of San Diego, City of San Diego, and the City of Chula Vista. The report for the City of San Diego was for the Otay Mesa Community Plan Update.  Completed the design of the 624-2 Reservoir Interior and Exterior Coating and Upgrades project. This project removes and replaces deteriorating reservoir coatings and provides upgrades to increase the service life and maintain compliance with drinking water standards. The reservoir is scheduled to be placed into service in July 2014. The estimated total cost of the project is $1,199,000. 177 Engineering – Planning, Design  Completed the design of the State Route 11 (SR-11) Potable Water Utility Relocations – Sequence 1 project. This project consists of relocating existing water facilities to clear the right of way for SR-11. Construction began in February 2014.  Completed the design of the 458-2 Reservoir Interior Coating and Upgrade project. Structural modifications are being added to replace aging equipment and bring the tank up to current AWWA and Cal-OSHA standards. The total CIP budget for this project is $425,000.  Completed the design for the first phase of the Sewer Rehabilitation project for spot repairs and sewer main replacement in the Calavo basin.  Completed the final design and acquired a permanent and temporary construction easement for the 624 Pressure Zone Pressure Reducing Stations project. This project will provide two PRSs feeding the 485 Pressure Zone and 458 Pressure Zone from the 624 Pressure Zone to improve fire flow and enhance system reliability.  Completed the CEQA documents for the 870-1 Access Road Paving Project Mitigated Negative Declaration.  Completed the first year of work on the enhancement of Cactus Wren Habitat under a SANDAG TransNet Environmental Mitigation Program Grant for $88,840 at the District’s San Miguel Habitat Management area. To date the District has received $38,223 of the grant funds. This is a three year grant.  Prepared and approved two Mitigated Negative declarations for the Regulatory Site Access Road Improvement project.  Completed the assessment and repairs of the Administration Building’s Fire Sprinkler System, which resulted in a 5 year certification. Also completed the installation of a treatment system which will reduce future corrosion of the fire protection system.  Coordinated with SDG&E to verify energy savings at the Hillsdale Pump Station allowing the station to draw from the 640 Reservoirs rather than the 520 Reservoirs. SDG&E issued an incentive payment in the amount of $33,373.80. 178 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 – Strategic Plan FY 2012-2014 (1) Both actual/projected and targets are at 100%. BUSINESS PROCESSES 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. 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 110.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected FINANCIAL CIP Project Expenditures vs. Budget Compares quarterly CIP expenditures with budget. (1) 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 110.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 179 Engineering – Public Services Construction Change Order Measures the rate of change orders for CIP projects under construction. FINANCIAL Accomplishments – Fiscal Year 2013-2014  Generated revenue in meter sales in excess of $2.26 million and sold 184 meters equating to 245.5 EDU’s and 50 permits.  Generated revenue in cell sites in excess of $1.13 million and maintained 33 cell site leases.  The Survey Division completed 3,714 USA Mark-out tickets with an accuracy rate of 100%. District surveyors also completed 25 surveys related to various CIP’s.  The Inspection Division performed QA/QC on 13,401 linear feet of pipeline. District inspectors also performed 172 meter sets and 22 plan checks that consisted of fire services, backflows, and developer pipeline projects.  Completed construction of the 944-1R Recycled Pump Station Upgrade & System Enhancements project. The project consisted of the installation Phase 1 upgrades to the 944-1 Pump Station which included the installation of a third pump and motor system which required a variety of electrical and instrumentation upgrades to the Pump Station. The project also included the construction of three Pressure BUSINESS PROCESSES 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. 0 20 40 60 80 100 120 FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected -10.0% -6.0% -2.0% 2.0% 6.0% FY 11-12 FY 12-13 FY 13-14 FY 14-15 Target Actual & Projected 180 Engineering – Public Services Reducing Stations (PRS) which were constructed in Olympic Parkway, Eastlake Parkway, and Otay Lakes Road. The total cost of the project was $1,252,928.  Completed the design and construction of the 927-1 Recycled Water Reservoir Cover and Liner Replacement project. This project replaced a deteriorating reservoir cover and liner for this 16.3 MG reservoir to increase the service life of the reservoir. The total cost of the project was $878,958.  Completed construction of the 12-Inch Potable Pipeline in Orange Avenue Bridge, Crossing I-805 project. This project installed 2,000 linear feet of new pipeline over the I-805 freeway, and serves as a replacement while the pipeline in the East Palomar Bridge is out of service. The total cost of the project was $891,290.  Completed construction of the 803-3 & 832-2 Reservoir Coating and Upgrades project which included removing and replacing the interior and exterior coatings of both steel tanks. Structural modifications were also added to replace aging equipment and bring the tank up to current safety standards. The total cost of the project was $873,561. 181 Board of Directors 115,100$ 0.4% General Manager 1,562,300 5.2% General Expense 2,331,800 7.8% Administrative Services 2,995,600 10.0% Finance 5,816,700 19.4% IT and Strategic Planning 3,373,800 11.3% Water Operations 11,384,100 38.0% Engineering 2,358,500 7.9% 29,937,900$ 100.0% FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget TOTAL 2,343,613$ 2,149,600$ 2,214,164$ 2,331,800$ 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 7.8% of the total Department Budget. General Expense, $2,331,800 FY 2015 Total Departmental Budget $29.9 Million * Actuals unaudited 182 FY 2013 FY 2014 FY 2014 FY 2015 Actual Budget Actual* Budget Labor and Benefits (1)1,490,161$ 1,205,400$ 1,367,499$ 1,290,800$ Fees 853,452 944,200 844,099 1,041,000 Training - - 2,566 - Total 2,343,613$ 2,149,600$ 2,214,164$ 2,331,800$ (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 2014 and FY 2015 is $266,900 and $185,600 respectively. Additionally, the labor and benefits shown on this schedule are those related to operating costs and does not include CIP labor Budget vs. Actual, in thousands ($) General Expense $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 2010 2011 2012 2013 2014 2015 86 6 88 8 79 2 2,1 7 6 2, 1 5 0 2, 3 3 2 1, 3 1 5 1, 1 8 8 1, 6 1 2 2, 3 4 4 2, 2 1 4 Budget Actual * Actuals unaudited 183 Capital Improvement Program The District provides water service to a population of approximately 213,000 which is expected to ultimately increase to 298,000 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 growth requires that the District invest $283 million in capital assets through ultimate build-out. The Fiscal Year 2015 Capital Budget is $10.6 million and the six-year Capital Improvement Program (CIP) totals $103.5 million. A separate CIP Budget document 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. 184 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 Vehicles, Office Equipment, Furniture, and Field Equipment purchases. The details of these purchases can be found on page 195. Capital Facility Projects are items that exceed $10,000 or $20,000 for infrastructure related items (as defined under Capital Equipment on page 264 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. 185 Major CIP Projects Capital Improvement Projects The Fiscal Year 2015 CIP Budget contains 79 projects. The cost of the work planned for 73 of these projects fall within Fiscal Year 2015 and total $10.6 million. Of the 73 projects planned for Fiscal Year 2015, seven are designated as reimbursable projects with estimated costs totaling $7,000. These projects are built by developers and reimbursed by the District. The following shows how the $10.6 million of projects are broken down into four categories: 1. Capital facilities $ 3.1 million 2. Replacement or renewal projects $ 6.7 million 3. Capital purchase projects $ .7 million 4. Developer reimbursement projects $ .1 million The Six-Year CIP and Fiscal Year 2015 Capital Budget are consistent with the District's Water Resources Master Plan, current capacity fees, and the District's strategic financial objectives. 186 CIP Projects in Construction 624-2 Reservoir Interior/Exterior Coating and Upgrades (P2493)  Remove and Replace Deteriorating Reservoir Coating  Structural Modifications Including Level Indicator Replacement and Anode Replacement  $1.95M Budget  Start: January 2014  Estimated Completion: July 2014 187 CIP Projects in Construction 927-1 Recycled Water Reservoir Cover and Liner Replacement (R2108)  Removal and Replacement of the reservoir liner and cover  $1.40M Budget  Start: November 2013  Completed: June 2014 188 CIP Projects in Construction SR-II Utility Relocations Sequence I (P2453)  Relocate Existing Water Facilities to support SR-11 Construction  $2.25M Budget  Start: February 2014  Completed: July 2016 189 (Thousand $000s)FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total Beginning Balance 50,713$ 48,522$ 40,121$ 25,565$ 22,794$ 24,823$ Capacity Fees 1,577$ 3,998$ 5,662$ 8,692$ 9,795$ 11,521$ 41,245$ Debt financing - 1,960 1,735 - - 1,425 5,120 Grants 111 2,663 254 - - - 3,028 Interest 188 191 228 220 259 376 1,462 Betterment Charges 302 - - - - - 302 Temporary Meters 716 716 718 721 725 727 4,323 Availability (Betterment Portion) 480 490 499 508 516 524 3,017 New Supply Fee 180 473 675 1,001 1,124 1,317 4,770 COPS 2010B Reimbursement 770 770 770 770 770 770 4,620 Transfer from General Fund 13,223 12,725 11,355 11,618 12,591 13,468 74,980 Interfund Transfers 1 1 1 - - - 3 Total Sources 17,548 23,987 21,897 23,530 25,780 30,128 142,870 Total CIP Projects 10,576 23,400 27,436 17,188 14,477 10,455 103,532 Betterment Fees for Maintenance 302 - - - - - 302 Debt Service 7,710 7,831 7,850 7,934 8,083 8,066 47,474 Developer Services 1,151 1,157 1,167 1,179 1,191 1,203 7,048 Total Uses 19,739 32,388 36,453 26,301 23,751 19,724 158,356 Net Sources (Uses)(2,191)$ (8,401)$ (14,556)$ (2,771)$ 2,029$ 10,404$ (15,486)$ Ending Balance 48,522$ 40,121$ 25,565$ 22,794$ 24,823$ 35,227$ 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 $50,000 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Reserve Fund Balances, in thousands ($) Betterment Replacement Expansion New Supply 48,522 40,121 25,565 22,794 24,823 35,227 190 CIP Funding Source (Thousands $000s)FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 TOTAL Expansion 892$ 803$ 1,568$ 3,371$ 3,488$ 6,510$ 16,633$ Betterment 1,881 3,655 8,661 6,462 3,546 1,426 25,630 Replacement 7,373 17,543 13,807 3,955 5,083 2,519 50,279 New Supply 430 1,400 3,400 3,400 2,360 - 10,990 TOTAL 10,576$ 23,400$ 27,436$ 17,188$ 14,477$ 10,455$ 103,532$ CIP Category (Thousands $000s)FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 TOTAL Capital Facility Projects 3,122$ 11,774$ 18,078$ 9,831$ 6,338$ 7,451$ 56,594$ Replacement/Renewal Projects 6,687 10,595 7,669 3,202 2,658 2,019 32,830 Capital Purchase Projects 760 955 715 773 639 825 4,667 Developer Reimbursement Projects 7 56 419 2,072 2,352 - 4,906 Subtotal 10,576 23,380 26,881 15,878 11,987 10,295 98,997 FY 2016 Through FY 2020 Projects - 20 555 1,310 2,490 160 4,535 TOTAL 10,576$ 23,400$ 27,436$ 17,188$ 14,477$ 10,455$ 103,532$ CIP Funding Source and Category $0 $10,000 $20,000 $30,000 $40,000 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Six-Year CIP by Funding Source, in thousands ($) Betterment Replacement Expansion New Supply $0 $10,000 $20,000 $30,000 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Six-Year CIP by Category, in thousands ($) Capital Facility Projects Replacement/Renewal Projects Capital Purchase Projects Developer Reimbursement Projects 191 CIP No Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total P2083 PS - 870-2 Pump Station Replacement $650 $7,500 $7,500 $15,650 P2267 36-Inch Main Pumpouts and Air/Vacuum Ventilation Installations $195 $5 $200 P2434 Rancho Del Rey Groundwater Well Development $75 $75 P2451 Otay Mesa Desalination Conveyance and Disinfection System $1,000 $3,500 $8,500 $8,500 $5,900 $27,400 P2466 Regional Training Facility $3 $6 $5 $14 P2486 Asset Management Plan Condition Assessment and Data Acquisition $75 $75 $75 $28 $253 P2511 Otay Interconnect Pipeline $100 $1 $1 $1 $1 $1 $105 P2537 Operations Yard Property Acquisition Improvements $100 $170 $50 $320 P2541 624 Pressure Zone PRSs $425 $425 P2547 District Administration Vehicle Charging Stations $45 $5 $50 P2548 Sump Pump Installation at the 980-1 & 2 Reservoirs $35 $35 P2549 Fuel System Upgrade $30 $30 P2551 Blossom Lane Helix WD and Otay WD Interconnection $5 $145 $250 $400 P2552 South Barcelona Helix WD and Otay WD Interconnection $5 $145 $250 $400 R2048 RecPL - Otay Mesa Distribution Pipelines and Conversions $1 $1 $1 $1 $1 $50 $55 R2058 RecPL - 16-Inch, 860 Zone, Airway Road - Otay Mesa/Alta $1 $1 $1 $1 $1 $50 $55 R2077 RecPL - 24-Inch, 860 Zone, Alta Road - Alta Gate/Airway $25 $5 $600 $600 $425 $1,655 R2087 RecPL - 24-Inch, 927 Zone, Wueste Road - Olympic/Otay WTP $5 $5 $5 $5 $5 $5,925 $5,950 R2107 RWCWRF Screening Compactor and Chlorine Injectors Enclosure $85 $85 R2108 Res - 927-1 Reservoir Cover Replacement $50 $5 $145 $200 R2110 RecPS - 944-1 Optimization and Pressure Zone modifications $50 $100 $150 R2113 Chlorine 1-ton Cyliner Emergency Close Valve $37 $37 R2114 Large Recycle Pump Replacement at the RWCWRF 927-1 Pump Station $100 $100 R2117 RWCWRF Contact Basin Expansion Project $20 $100 $690 $690 $1,500 S2043 RWCWRF Sludge Handling System $5 $5 $5 $5 $5 $1,425 $1,450 25 Total Capital Facility Projects $3,122 $11,774 $18,078 $9,831 $6,338 $7,451 $56,594 CIP No Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total P2366 APCD Engine Replacements and Retrofits $5 $300 $300 $157 $118 $78 $958 P2382 Safety and Security Improvements $192 $200 $200 $200 $230 $200 $1,222 P2440 I-905 Utility Relocations $5 $12 $17 P2453 SR-11 Utility Relocations $600 $600 $200 $200 $200 $191 $1,991 P2477 Res - 624-1 Reservoir Cover Replacement $5 $45 $50 P2485 SCADA Communication System and Software Replacement $655 $125 $125 $905 P2493 624-2 Reservoir Interior/Exterior Coating $50 $5 $35 $90 P2494 Multiple Species Conservation Plan $90 $18 $108 P2495 San Miguel Habitat Management/Mitigation Area $180 $190 $200 $200 $200 $200 $1,170 P2496 Otay Lakes Road Utility Relocations $5 $20 $25 P2504 Regulatory Site Access Road and Pipeline Relocation $20 $5 $545 $570 P2507 East Palomar Street Utility Relocation $175 $135 $310 P2508 Pipeline Cathodic Protection Replacement Program $125 $125 $39 $289 P2515 870-1 Reservoir Paving $415 $45 $460 P2518 803-3 Reservoir Interior/Exterior Coating $30 $35 $65 P2519 832-2 Reservoir Interior/Exterior Coating $30 $35 $65 P2520 Motorola Mobile Radio Upgrade $50 $50 P2529 711-2 Reservoir Interior & Exterior Coating $5 $670 $45 $5 $35 $760 P2530 711-1 Reservoir Interior & Exterior Coating $10 $825 $65 $5 $35 $940 CIP Projects ($1,000s) The 2015 Fiscal Year CIP Budget contains 79 projects. 73 of the projects fall within Fiscal Year 2015 with a cost of $10.6 million. Of the 73 projects planned for Fiscal Year 2015, seven are designated as reimbursable projects with an estimated cost of $7 thousand. These projects are built by a developer and reimbursed by the District. CAPITAL FACILITY PROJECTS REPLACEMENT/RENEWAL PROJECTS 192 CIP Projects ($1,000s) CIP No Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total P2531 944-1 Reservoir Interior & Exterior Coating $190 $5 $35 $230 P2532 944-2 Reservoir Interior & Exterior Coating $900 $5 $35 $940 P2535 458-2 Reservoir Interior & Exterior Coating & Upgrades $585 $5 $35 $625 P2538 Administration and Operations Building Fire Sprinkler Replacement Program $65 $65 P2539 South Bay Bus Rapid Transit (BRT) Utility Relocations $30 $150 $175 $355 P2542 850-3 Reservoir Interior Coating $5 $435 $5 $35 $480 P2550 Fuel Island Upgrade 75 $75 P2553 Heritage Road Bridge Replacement and Utility Relocation $5 $5 $100 $500 $590 $1,200 R2109 Sweetwater River Wooden Trestle Improvement for the Recycled Water Forcemain $50 $200 $340 $590 R2111 RWCWRF - RAS Pump Replacement $310 $310 $620 R2112 450-1 Disinfection Facility Rehabilitation $150 $40 $190 R2116 RecPL - 14-Inch, 927 Zone, Forcemain Assessment and Repair $100 $100 $650 $650 $1,500 S2012 San Diego County Sanitation District Outfall and RSD Outfall Replacement $150 $150 $250 $450 $450 $450 $1,900 S2024 Campo Road Sewer Main Replacement $600 $2,000 $2,790 $5,390 S2027 Rancho San Diego Pump Station Rehabilitation $150 $2,500 $500 $3,150 S2033 Sewer System Rehabilitation $675 $1,300 $1,000 $800 $800 $900 $5,475 35 Total Renewal & Replacements $6,687 $10,595 $7,669 $3,202 $2,658 $2,019 $32,830 CIP No Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total P2282 Vehicle Capital Purchases $105 $600 $300 $275 $217 $434 $1,931 P2285 Office Equipment and Furniture Capital Purchases $15 $15 $15 $15 $14 $74 P2286 Field Equipment Capital Purchases $65 $40 $100 $83 $68 $16 $372 P2469 Information Technology Network and Hardware $175 $100 $100 $200 $200 $275 $1,050 P2470 Financial System Enhancements $100 $100 $100 $100 $100 $100 $600 P2540 Work Order Management System Replacement $300 $100 $100 $100 $40 $640 6 Total Capital Purchase $760 $955 $715 $773 $639 $825 $4,667 CIP No Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total R2028 RecPL - 8-Inch, 680 Zone, Heritage Road - Santa Victoria/Otay Valley $1 $1 $1 $597 $600 R2042 RecPL - 8-Inch, 927 Zone, Rock Mountain Road - SR- 125/EastLake $1 $1 $15 $123 $140 R2047 RecPL - 12-Inch, 680 Zone, La Media Road - Birch/Rock Mountain $1 $50 $399 $450 R2082 RecPL - 24-Inch, 680 Zone, Olympic Parkway - Village 2/Heritage $1 $1 $1 $1,000 $743 $1,746 R2083 RecPL - 20-Inch, 680 Zone, Heritage Road - Village 2/Olympic $1 $1 $1 $1 $396 $400 R2084 RecPL - 20-Inch, 680 Zone, Village 2 - Heritage/La Media $1 $1 $1 $350 $617 $970 R2085 RecPL - 20-Inch, 680 Zone, La Media - State/Olympic $1 $1 $1 $1 $596 $600 7 Total Reimbursement Projects $7 $56 $419 $2,072 $2,352 $0 $4,906 CIP No Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total 73 Total- FY2015 Projects $10,576 23,380 26,881 15,878 11,987 10,295 $98,997 6 Total- FY2016 Through FY 2020 Projects - 20 555 1,310 2,490 160 $4,535 79 Grand Totals $ 10,576 $ 23,400 $ 27,436 $ 17,188 $ 14,477 $ 10,455 $103,532 CAPITAL PURCHASE PROJECTS DEVELOPER REIMBURSEMENT PROJECTS SUMMARY REPLACEMENT/RENEWAL PROJECTS, continued 193 CIP #Description Cost Cat. (2) Funding Source (3) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 TOTAL P2451 Otay Mesa Desalination Conveyance and Disinfection System M/E/C N/B $ - $ - $ - $ 31,000 $ 52,000 $ 125,000 $ 208,000 P2466 Regional Training Facility M E/B - 1,000 1,000 1,000 1,000 - 4,000 P2537 Operations Yard Property Acquisition Improvements M/E E - - - 700 800 851 2,351 P2547 District Administration Vehicle Charging Stations M/E E/B - 700 700 700 700 700 3,500 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 R2109 Sweetwater River Wooden Trestle Improvement for the Recycled Water Forcemain M R 3,000 3,100 3,200 3,300 3,400 3,500 19,500 S2043 RWCWRF Sludge Handling System M/E/C B - - - - - 30,000 30,000 $3,000 $4,800 $4,900 $36,700 $61,700 $161,351 $272,451 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 TOTAL $ 3,000 $ 4,300 $ 4,400 $ 9,500 $ 18,400 $ 75,001 $ 114,601 - 500 500 26,200 36,300 66,350 129,850 - - - 1,000 7,000 20,000 28,000 $ 3,000 $ 4,800 $ 4,900 $ 36,700 $ 61,700 $ 161,351 $ 272,451 (1) (2) (3) Note:See pages 192-193 for complete description of CIP projects. 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 (/): 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 (M), energy cost (E), or chemical cost (C), 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 194 Item#Amount Grand Total : P2286 Field 36,000$ P2262 Vehicl 69,000 105,000$ 105,000$ 1 Replacement of F150 pick-up truck, to be purchased out of P2262 - Vehicle Capital Purchases. 34,500 Total of Vehicles 69,000 Vehicles Engineering Planning 2 New F150 pick-up truck for Inspection to be purchased out of P2262 - Vehicle Capital Purchases 34,500 Operations 4 Truck Mounted Crane (Pump/Electric)21,000 Total of Field Equipment 36,000 FY 2015 Capital Purchases Summary by Project Capital purchases are non-recurring operating expense items for District-wide use that cost more than $10,000 each and have an estimated useful life of two years or more. The Capital Purchase Projects include Field Equipment, Office Equipment and Furniture, and Vehicle purchases. Description Field Equipment Finance 3 Portable Meter Test Program/hardware 15,000$ Operations 195 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. This policy was adopted by the Board in November 2010. The District periodically reviews the policy to ensure it reflects current policies and financial practices. The Reserve Policy was updated and adopted by the Board in August 2012. 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 196 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. In August 2007, the District received a Certification of Excellence Award from the Association of Public Treasurers of the United States and Canada (APT US&C) for this policy. The investment policy was updated and adopted by the Board in May 2014. 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. In August 2007, the District received a Certification of Excellence award from the Association of Public Treasurers of the United States and Canada (APT US&C) for this policy. The Debt Policy was updated and adopted by the Board in September 2013. 197 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 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 198 Reserve Policy 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 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 199 Reserve Policy 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 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 200 Reserve Policy 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. 201 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 that reserve levels need to be in context of the organization’s overall business model and capital improvement plan. 202 Reserve Policy 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.  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. 203 Reserve Policy 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). 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. 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. 204 Reserve Policy 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 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. 205 Reserve Policy 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 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 3 Code of Ordinances, Section 9. 4 Code of Ordinances, Section 28 206 Reserve Policy 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. 207 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  Meter  Installation   Charges  Developer  Deposits  Restricted Funds  Annexation  Fees  Capacity   Fees  New Water  Supply Fees  Diagram 2.0: Flow of Funds - Developer Sources Unrestricted and  Undesignated  (General Use) Funds 208 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. 209 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 for the purpose for which they are collected, they must be returned to the property owners that paid 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 210 Reserve Policy 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 211 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 for the construction of those facilities identified in the GO bond issuance. Occasionally, 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  212 Reserve Policy 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” 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. 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 213 Reserve Policy 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). 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 214 Reserve Policy 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 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 215 Reserve Policy 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 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. 216 Reserve Policy 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 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. 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 217 Reserve Policy 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. 218 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 Fund, Capital Improvement Fund, and the Designated Replacement Fund. The Unrestricted and   Undesignated Funding             Sources  Diagram 3.3: Expansion Fund Category Funding Source 2x  Water  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 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% 219 Reserve Policy 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. 220 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 221 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. 222 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 Restricted Funds  Betterment   Annexation  Fund  Debt  Proceed Restricted Funds  Annexation   Fund  Bond   Debt  Designated  Betterment Fund Betterment  Fund Betterment   Capital  Improvement  Fund  59.4% Betterment  Fund  Category  223 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 224 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, Replacement, or Betterment Debt Funds as they are expended for various facilities within 225 Reserve Policy 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 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 226 Reserve Policy 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. 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 227 Reserve Policy 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. 228 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. 229 Glossary DEBT SERVICE: The District's obligation to pay the principal and interest of bonds and other debt instruments according to a predetermined payment schedule. 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. 230 Glossary 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. 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. 231 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 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. 232 Investment Policy 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. 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 233 Investment Policy 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: 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. 234 Investment Policy 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 applicable FDIC insured maximum, 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. 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. 235 Investment Policy 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 exceeding the applicable FDIC insured maximum. 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. 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. 236 Investment Policy 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. 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. 237 Investment Policy  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. 238 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. 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. 239 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. 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 240 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. 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. 241 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. 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. 242 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. SECONDARY MARKET: A market made for the purchase and sale of outstanding securities issues following their initial distribution. 243 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. 244 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 (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. 245 Debt Policy 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. 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. 246 Debt Policy 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. 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. 247 Debt Policy 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. 248 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 or with relatively new financing techniques. 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 by private placement or through any qualified Joint Power Authority (JPA) in the State of California whose principal business is issuing bonds. 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 its 249 Debt Policy 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 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 250 Debt Policy 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. 251 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. 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 252 Debt Policy 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: 1. Rating changes. 2. Non-payment related defaults. 3. Adverse tax opinions or events affecting the tax exempt status. 253 Debt Policy 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 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 254 Debt Policy 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). 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. 255 Debt Policy 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. 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 256 Debt Policy 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, 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. 257 Debt Policy 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. 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. 258 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. CAP: A ceiling on the interest rate that would be paid. 259 Glossary 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. 260 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 261 Glossary at 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. 262 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 the land 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) the land 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, 2014 are $1,622 and $5,986 for water and sewer, respectively. APPROPRIATION: The annual budget adopted by the District’s Board appropriates funds for monitoring and control purposes, and serves 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. This fee is levied 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 in which it was assessed. BALANCED BUDGET: A financial plan, for a specified period of time that matches all planned revenues and expenditures with various services. This plan has sufficient sources of funds to support the planned expenditures. 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. 263 Glossary BETTERMENT FEES FOR MAINTENANCE: The Operating Budget earns betterment fees for maintenance work performed on infrastructure within special betterment zones. Betterment 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 a contribution of capital to either reimburse existing customers for the available capacity in the existing system, or to help finance planned future growth-related capacity improvements. 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, computer systems, and special tools. The capital budget also includes funds for infrastructure related items over $20,000 (as explained below) which are distinguished from operating items according to their value and projected useful life. CAPITAL EQUIPMENT: Fixed assets such as vehicles, equipment, furniture, technical instruments, etc. which have a life expectancy of more than two years and a value over $10,000. This category may include items over $20,000 that are 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, 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. 264 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. ENTERPRISE RESOURCE PLANNING: Systems with a shared database that supports multiple functions used by different business units. 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. 265 Glossary 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. 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 net 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. 266 Glossary METROPOLITAN WATER DISTRICT (MWD) STANDBY CHARGES: Revenue generated from property taxes by MWD to cover the Readiness-to-Serve (RTS) Charge. This charge pays for the debt service for construction projects necessary to meet reliability and quality needs. The RTS Charge was adopted in 1996. 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 are 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 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 use 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. 267 Glossary 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. READINESS-TO-SERVE CHARGE (RTS): 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 expansion facilities. 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. The water rates for residential customers use 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. The calculation is current assets minus current liabilities. 268 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 ERP Enterprise Resource Planning 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 List of Acronyms 269 List of Acronyms GASB Government Accounting Standards Board 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 270 List of Acronyms PL Pipeline PRS Pressure Reducing Station PRV Pressure Reducing Valve PS Pump Station QSA Quantitative Settlement Agreements 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 271 Index Administrative Expenses 69,84,92,108 At-A-Glance 1 Awards 4-6 Budget Calendar 17 Budget Guide 14-15 Budget Process and Overview 16-20 Budget Summary 34-39 Capital Improvement Program Narrative 184-185 Capital Purchases Budget 195 CIP Projects in Construction 187-189 CIP Funding Source and Category 191 CIP Justification and Impact on Operating Budget 194 CIP Major Projects 186 CIP Projects 192-193 CIP Reserve Funds 190 Classification of Water Sales 60,76 Current Economic Conditions 24 Debt Management 51-52 Debt Policy 245 Debt Policy Glossary 259-262 Demographics 27 Department Budgets: Administrative Services 122-133 Board of Directors 112-115 Engineering 172-181 Finance 134-146 General Expense 182-183 General Manager 116-121 IT and Strategic Planning 147-155 Water Operations 156-171 Departmental Operating Budget Narrative 101-103 Five-Year Forecast 48 Formula for Sewer Rates 94-95 Fund Balance Summary by Fund 44 Fund Balances 50 Future, The 25-26 General Fund Forecast 49 General Fund Revenues, Expenditures and Transfers 43 General Information 2 General Expenses 100 272 Index General Revenues 99 General Revenues and Expenses Narrative 97-98 Glossary 263-268 Investment Policy 232-238 Investment Policy Glossary 239-244 Labor and Benefits 104-105 Letter of Transmittal iv-x List of Acronyms 269-271 Materials and Maintenance Expenses 70,85,93,109 Meter Fees 65,80 MWD and CWA Fixed Fees (Pass-Through) 64 Operating Budget Summary 59,75,88 Operating Budget Summary by System 42 Operating Budget Summary – General Fund 40-41 Operating Expenditures by Department 110 Operating Expenditures by Object 111 Organization Chart 13 Past and Present 23 Position Count by Department 106 Potable Narrative 56-58 Power Costs 68,83,91 Projected Interest Payments by Debt Issuance 55 Projected Principal Payments by Debt Issuance 54 Recycled Narrative 72-74 Reserve Policy 198-228 Reserve Policy Glossary 229-231 Resolution 4235 21-22 Revenue History 66,81,90 Revenues and Expenditures by Fund 45-46 Revenues and Expenditures by Type 47 San Diego Rainfall 33 Schedule of Outstanding Debt 53 Service Area Assessed Valuation 30 Service Area Maps 71,86,96,115 Sewer Charges Summary by Service Class 89 Sewer Narrative 87 Sewer Rate Comparison 29 Statement of Values 3 Strategic Performance Management Plan 7-12 Summary of Financial Policies 196-197 273 Index System Fees 63,79 Table of Contents i-iii Ten Largest Customers 32 Ten Principal Taxpayers 31 Unit Sales History and Meter Count by Customer Class 62,78 Water Purchases - Recycled 82 Water Purchases and Related Costs - Potable 67 Water Rate Comparison 28 Water Sales Summary by Meter Size 77 Water Sales Summary by Service Class 61 274