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HomeMy WebLinkAboutFY 2014 Comprehensive Annual Financial Report    Otay Water District Comprehensive Annual Financial Report for the years ended June 30, 2014 and 2013 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 DISTRICT FINANCIAL MANAGEMENT Mark Watton General Manager German Alvarez Assistant General Manager Joseph R. Beachem Chief Financial Officer PREPARED BY Finance Department Otay Water District, Spring Valley, California Table of Contents Introductory Section Letter of Transmittal…………………………………………………………………………………………………………………… 1 Organization Chart…………………………………………………………………………………………...……………………….. 10 List of Principal Officials……………………………………………………………………………………………………………… 11 GFOA Certificate of Achievement…………………………………………………………………………………………… 12 Financial Section Independent Auditors’ Report………………………………………………………………………………………………..…. 13 Management’s Discussion & Analysis…………………………………………………...……………………………… 16 Basic Financial Statements: Statements of Net Position..……………………………………………………………………………………………….…. 23 Statements of Revenues, Expenses, and Changes in Net Position…………..………………. 25 Statements of Cash Flows……………………………………………………………….……………………………………… 26 Notes to Financial Statements……………………………………………………………………………………………... 28 Required Supplementary Information: Schedule of Funding Progress for PERS………………………………………………...…………………………… 64 Schedule of Funding Progress for DPHP…………………………………………….....…………………………… 64 Statistical Section Net Position by Component………………………………………………………………………………………………….. 66 Changes in Net Position………………………………………………………………..…………………………………………. 67 Operating Revenues by Source…………………………………………………………………………………………….. 68 Operating Expenses by Function………………………………………………………..………………………………… 69 Non-Operating Revenues by Source…………………………………………………………………………………… 70 Non-Operating Expenses by Function……………………………………………………………………………… 71 Assessed Valuation of Taxable Property within the District………………………………………… 72 Water Purchases, Production, and Sales……………………………………………...………………………….… 73 Meter Sales by Type…………………………………………………………………….……………………………………………. 74 Number of Customers by Service Type……………………………………………………………………………….. 75 Property Tax Levies and Collections…………………………………………………………………………………….. 76 Water Fixed Rates ……….………………………………………………………………………………………………………….…. 77 Water Variable Rates…….…………………………………………………………………………………………………………... 78 Sewer Variable and Fixed Rates…….………………………………………………………………………..…………….. 79 Ten Largest Customers…………………………………………………………………………………………………………….. 80 Ratios of Outstanding Debt by Type…………………………………………………….……………………………….. 81 Pledged Revenue Coverage………………………………………………………………………………………………….... 82 Ratios of General Bonded Debt Outstanding…………………………………………………………………...… 83 Computation of Direct and Overlapping Bonded Debt………………………………………………… 84 Principal Employers…………………………..………………………………………......................................................... 85 Demographic and Economic Statistics……………………………………………………………………………….. 86 Number of Employees by Function………………………………………………………………………………………. 87 Active Meters by Size………………………………………………………………..………………………………………………. 88 Operating and Capital Indicators…………………………………………………………………………………………... 89 October 22, 2014 Honorable Board of Directors Otay Water District I am pleased to present the Otay Water District’s (the “District”) Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2014. This report was prepared by the District’s Finance Department following guidelines set forth by the Government Accounting Standards Board (GASB) and generally accepted accounting principles (GAAP). Responsibility for the accuracy of the data presented and the completeness and fairness of the presentation, including all disclosures, rests with the District’s management. We believe the data, as presented, is accurate in all material respects and that it is presented in a manner that provides a fair representation of the financial position and results of the District’s operations. Included are all disclosures we believe necessary to enhance your understanding of the financial condition of the District. GAAP requires that management provide a narrative introduction, overview, and analysis, to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A), which should be read in conjunction with this report. The District’s MD&A can be found immediately following the Independent Auditors’ Report. The District’s financial statements have been audited by Teaman, Ramirez & Smith Inc. a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the District for the fiscal year ended June 30, 2014, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. In the independent auditors’ opinion, the following District’s financial statements present fairly, in all material respects, the respective financial position of the Otay Water District as of June 30, 2014 and are presented in conformity with GAAP. The Independent Auditors’ Report is presented as the first component of the financial section of this report. 1 REPORTING ENTITY The District is a publicly-owned water and sewer agency, authorized on January 27, 1956 as a California special district by the State Legislature, with an entitlement to import water under the provisions of the Municipal Water District Act of 1911. Its ordinances, policies, taxes, and rates for service are set by five Directors, elected by voters in their respective divisions, to serve staggered four-year terms on its Governing Board. The District is a “revenue neutral” public agency, meaning that each end-user pays only their fair share of the District’s costs of water acquisitions, construction, operation, maintenance, betterment, renewal, and replacement of the public water and sewer facilities. The General Manager reports directly to the Board of Directors and, through the Assistant General Manager and the District management, oversee 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 10. Over the last 58 years, the District has grown from a handful of customers and two employees to become an organization operating a network of more than 916 miles of pipelines, 44 operational reservoirs, a reclaimed water facility, and one of the largest recycled water distribution networks in the State of California. The character of the service area has also changed from predominantly dry-land farming and cattle ranching, to businesses, high-tech industries, and large master- planned communities. Today the District provides water service to approxi- mately 49,260 potable and 713 recycled customers within 125.5 square miles of the southeastern San Diego metropolitan area. All of the potable water sold to customers is purchased through the San Diego County Water Authority (CWA). Much of this water is purchased from the region’s water importer, the Metropolitan Water District of Southern California (MWD), or Imperial Irrigation District. The District also has entered into an agreement to purchase treated water from CWA 2 directly and from Helix Water District via contract with CWA. These actions have brought regional water treatment closer to our customers and helped reduce dependence on water treatment facilities located outside of San Diego County. To deliver this locally treated water to customers, the District constructed a 5.1 mile, 36-inch diameter pipeline in 2010. Drinking water delivered by this new pipeline is stored in two 10 million gallon reservoirs. In addition to bringing water treatment closer to customers, this new source of water diversifies the District’s supply and improves reliability. The District also owns and operates a wastewater collection and recycling system providing public sewer service to approximately 4,679 customer accounts within portions of the communities of La Mesa, Rancho San Diego, El Cajon, Jamul, and Spring Valley. Wastewater collected is conveyed to the District’s Ralph W. Chapman Water Recycling Facility (RWCWRF), which is capable of recycling wastewater at a rate of 1.3 million gallons per day. The District also has the capability to purchase up to 6 million gallons per day of recycled water from the City of San Diego’s South Bay Reclamation Plant. Recycled water from these two sources is used to irrigate golf courses, schools, public parks, roadway landscapes, and various other approved uses in eastern Chula Vista. The use of recycled water reduces dependency on imported supplies and provides a local supply, thereby diversifying District resources. MISSION, CURRENT ECONOMIC CONDITIONS, AND OUTLOOK The mission of the District is to provide high value water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner. As with the past few years, we continue to face numerous challenges with the large economic slowdown however, this slowdown appears to have leveled off as the District’s Public Services Division approved on average 16 permits per month, and sold 195 water meters in fiscal 2013-2014. The coming years will continue to pose challenges for those in California’s water community. It is uncertain if the challenges facing the Sacramento-San Joaquin Bay Delta, the source of 30% of Southern California’s water supply, will be addressed. The passage of Proposition 1 will fund critical investment in regional water supply solutions including recycling and desalination. These constraints are being actively addressed by the State Water Project and the Bay Delta 927‐I Recycled Water Reservoir Cover and Liner Replacement 3 Balanced Scorecard Conservation Plan as a part of California’s overall water management portfolio. It is being developed as a 50-year habitat conservation plan with the goals of restoring the Sacramento-San Joaquin delta ecosystem and securing California water supplies. In addition, weather and rainfall always bring a level of uncertainty to the delivery of water to customers in the arid southwestern states. California is experiencing an unprecedented drought due to three years of lower than anticipated rainfall. In response, Governor Brown declared a statewide drought emergency conservation regulations. On July 15, 2014, the State Water Resources Board, in response to continued drought conditions, set forth emergency conservation regulations. The combination of these factors add to the cost of providing a stable supply of water as water providers look to new and more costly sources of water. Growth in San Diego County has slowed over the last four years, but is now expected to gradually improve. The population within the District’s service area continues to increase, albeit at a reduced rate. As of July 2014, it is estimated that the District served 213,000 residents. The San Diego Association of Governments (SANDAG), the regional planning agency, has estimated the District’s approximate growth will be 1.6% per year for the next decade. The District projects an ultimate customer population of 285,000 residents. STRATEGIC PLAN The Strategic Plan is the core document which guides the District’s efforts to meet and positively adapt to change. Every three years the District engages in a major revision of its Strategic Plan. The current plan (covering fiscal years 2015 – 2018) will take the District through it’s 16th year of strategic planning. The Strategic Plan is focused on the District’s transformation from a growth-centric to a maintenance-based organization. Where growth has been a significant focus in prior years, today we have become equally focused in managing long-term maintenance and replacement of our infrastructure. 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 metrics are designed to ensure the day-to-day operations of the utility are meeting agreed-upon expectations. Both performance metrics and objectives are revised from the prior year, updated quarterly, and reviewed by the Board on a semi- annual basis. 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 4 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. BUDGETING CONTROLS The District views the budget as an essential tool for proper financial management and is adopted prior to the start of each fiscal year. The budget is developed by combining the District’s strategic objectives and measures with input from the various departments of the organization. By incorporating these strategic measures and objectives the budget becomes a direct reflection of the District’s strategic plan. The budget is designed and presented for the general needs of the District, its staff, and customers. It is a comprehensive and balanced financial plan that features District services, resources and their allocation, financial policies, strategic objectives, and other useful information that allows the users to gain a general understanding of the District’s financial status and future. To monitor the District’s performance monthly comparison reports of budget to actual are prepared and distributed to all department heads, with top level information provided to the Board at the monthly board meetings. BUDGET SUMMARY The Otay Water District’s operating expenditures consist of three major sectors: potable water, recycled water, and sewer. The total budget is $91,640,000 for Fiscal Year 2015. Revenues from potable and recycled water are projected to be $80,785,700, about $5,412,100 (7.2%) more than the Fiscal Year 2014 budget. Water sales volumes are expected to increase by less than .7% versus FY 2014. This slight increase in volume is the net result of the economic recovery and conservation efforts. The remaining 6.5% increase is due to rate increases that are essential to keep pace with rising wholesale water costs. MWD and CWA water supply rate increased 7.7% due to high cost of supply programs, higher energy costs and increasing operating costs. Sewer revenues are projected to be $3,007,700, about $306,100 more than the Fiscal Year 2014. This increase, from higher sewer rates, is primarily to cover $1.6 million of capital projects in Fiscal Year 2015. The remaining budgeted revenues of $7.8 million come from various special fees, assessments, and miscellaneous income. 5 The 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 on-going programs while functioning within fiscal constraints and population growth. This year’s CIP budget decreased by $3.2 million compared to last year’s projection. The decrease is due to the completion of some large projects and the deferment of several projects to match the timing of land development. THE FUTURE The coming years will continue to pose challenges for those in California’s water community. For instance, the ongoing drought due to lower rainfall and the challenges facing the Sacramento-San Joaquin Bay Delta, the source of 30 percent of Southern California’s water supply, are being addressed by the Bay Delta Conservation Plan (BDCP); however, the impact to end users has not been fully determined at this time. The District, as a member of the CWA, is well positioned for water coming from the Colorado River thanks to the Quantification Settlement Agreement (QSA). As the cost of water has increased to the retail customer, sales volumes have decreased. As one would expect, water sales reductions have impacted revenues and will continue to affect the District finances. However, these volume decreases have moderated as the economy continues to recover and the District is seeing slight increases in water volumes. Our success as an organization is significantly enhanced by the practices and policies put in place by the Board of Directors to ensure the strength and stability of the District. We are fully confident that with these policies and practices, supported by dedicated and talented staff, we will achieve continued success as an organization and thus, assure the well-being of the people we serve. SAN DIEGO COUNTY WATER SUPPLY San Diego County is a semi-arid region, local surface water and groundwater supplies comprise about 10 percent of the regional demand. With conservation and recycled water comprising 15 percent, the remaining 75 percent is imported from sources outside the region, including the Colorado River and Northern California. Since the Colorado River and Northern California sources face legal and environmental constraints the region has been exploring other ways to ensure adequate supply programs for the region, such as increased water storage, groundwater desalination, and seawater desalination. 624‐2 Reservoir Exterior  6 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 County 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 the 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. ACCOUNTING SYSTEM The Finance Department is responsible for providing financial services to the District including financial accounting; reporting; payroll; accounts payable; investment of funds; billing and collection of water and wastewater charges; taxes; and other revenues. The District’s books and records are maintained on an enterprise basis, matching revenues against the costs of providing Rosarito Desalination Project rendering 7 services. Revenues and expenses are recorded on the accrual basis in the period in which revenues are earned and expenses are incurred. INTERNAL CONTROLS Otay Water District operates within a system of internal controls established and periodically reviewed by management. This provides reasonable assurance that assets are adequately safeguarded and transactions are recorded correctly according to District policies and procedures. When establishing or reviewing controls, management must also consider the cost of the control and the value of the benefit derived from its utilization. Management maintains and implements all sensitive controls, and those controls whose value adequately exceeds their cost. Management believes the District’s internal controls, procedures, and policies adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. In addition, the District maintains controls to provide for compliance with all finance related legal and contractual provisions. Management believes the activities reported within the presented Comprehensive Annual Financial Report comply with these finance related legal and contractual provisions, including bond covenants and fiduciary responsibilities. AWARDS AND ACKNOWLEDGMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Otay Water District for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2013. This was the tenth consecutive year that the District has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government agency must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. In addition to the Certificate of Achievement for Excellence in Financial Reporting, Otay Water District has received the following awards: The Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to Otay Water District, California for its annual budget for the fiscal year beginning July 1, 2013. In order to receive this award, a 8 9     Organization Chart GENERAL MANAGER Assistant General Manager Administrative Services Finance Water Operations Engineering 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 BOARD OF DIRECTORS Meter Maintenance 10 List of Principal Officials 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. 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 staggered terms on the Board. 11 CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Otay Water District for its CAFR for the fiscal year ended June 30, 2013. This is the tenth year that the District has achieved this prestigious award. In order to be awarded a Certificate of Achievement, the District had to publish an easily readable and comprehensive report. This report must satisfy both Generally Accepted Accounting Principles (GAAP) and applicable legal requirements. This award is valid for a period of one year only. We believe our current CAFR continues to meet the Certificate of Achievement Program’s requirements, and will be submitting it to GFOA to determine its eligibility for another certificate. 12 ::re>cs TEAMAN, RAMIREZ & SMITH, INC. •• I ~ c E R T I F I E D p u B L I c A c c 0 u N T A N T s Board ofDirectors Otay Water District Spring Valley, California Report on Financial Statements INDEPENDENT AUDITORS' REPORT We have audited the accompanying fmancial statements of the business-type activities of the Otay Water District (the "District"), as of and for the year ended June 30, 2014, and the related notes to the fmancial statements, which collectively comprise the District's basic fmancial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these fmancial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of fmancial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these fmancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and the State Controller's Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the fmancial statements, whether due to fraud or error. fu making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Richard A. Teaman, CPA • David M. Ramirez, CPA • Javier H. Carrillo , CPA 4201 Brockton Ave. S uite 100, Riverside C A 92501 • 951.274.9500 • 951 .274.7828 FAX • www.trscpas.com 13 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Otay Water District as of June 30, 2014, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America, as well as the accounting systems prescribed by the California State Controller’s Office and California regulations governing Special Districts. Other Matters Prior Period Financial Statements The financial statements of the District as of June 30, 2013, were audited by other auditors whose report dated October 22, 2013, expressed an unqualified opinion on those statements. Additionally, those statements included an emphasis of matter paragraph describing the implementation of GASB standards and an other matter paragraph relating to required supplementary information and other information. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and required supplementary information on pages 16-22 and 64 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the District’s basic financial statements. The introductory section and statistical section are presented for purposes of additional analysis and are not required part of the basic financial statements. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 22, 2014, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that 14 testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance. Riverside, California October 22, 2014 15 Management’s Discussion and Analysis As management of the Otay Water District (the “District”), we offer readers of the District’s financial statements this narrative overview and analysis of the District’s financial performance during the fiscal year ending June 30, 2014. Please read it in conjunction with the District’s financial statements that follow Management’s Discussion and Analysis. All amounts, unless otherwise indicated, are expressed in millions of dollars. Financial Highlights  The assets of the District exceeded its liabilities at the close of the most recent fiscal year by $444.8 million (net position). Of this amount, $83.0 million (unrestricted net position) may be used to meet the District’s ongoing obligations to citizens and creditors.  Total assets decreased by $5.7 million or 1.0% during Fiscal Year 2014, to $576.6 million, due primarily to depreciation offset by investments in capital infrastructure, contributions and improved operating results. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements, which are comprised of the following: 1) Statements of Net Position, 2) Statements of Revenues, Expenses and Changes in Net Position, 3) Statements of Cash Flows, and 4) Notes to the Financial Statements. This report also contains other supplementary information in addition to the basic financial statements. The Statements of Net Position presents information on all of the District’s assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net positions may serve as a useful indicator of whether the financial position of the District is improving or weakening. The Statements of Revenues, Expenses and Changes in Net Position presents information showing how the District’s net position changed during the most recent fiscal year. All changes in net positions are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). The Statements of Cash Flows presents information on cash receipts and payments for the fiscal year. The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data supplied in each of the specific financial statements listed above. 16 Management’s Discussion and Analysis In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the District’s progress in funding its obligation to provide pension benefits to its employees. Financial Analysis: As noted, net position may serve, over time, as a useful indicator of an entity’s financial position. In the case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $444.8 million at the close of the most recent fiscal year. By far the largest portion of the District’s net position, $357.9 million (80%), reflects its investment in capital assets, less any remaining outstanding debt used to acquire those assets. The District uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the District’s investment in its capital assets is reported effectively as a resource, it should be noted that the resources needed to repay the debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Statements of Net Position (In Millions of Dollars) 2014 2013 2012 Assets Current and Other Assets $ 109.9 $ 106.3 $ 109.9 Capital Assets 466.7 476.0 480.8 Total Assets 576.6 582.3 590.7 Deferred Outflows of Resources Deferred Amount on Refunding 0.1 0.4 0.0 Total Deferred Outflows of Resources 0.1 0.4 0.0 Liabilities Long-Term Debt Outstanding 105.3 109.0 112.0 Other Liabilities 26.6 25.5 24.6 Total Liabilities 131.9 134.5 136.6 Net Position Net Investment in Capital Assets 357.9 376.5 381.7 Restricted for Debt Service 3.9 4.6 4.7 Unrestricted 83.0 67.1 67.7 Total Net Position $ 444.8 $ 448.2 $ 454.1 17 Management’s Discussion and Analysis While the District’s operations and population continue to grow, albeit at slower rates than in prior years, the pattern of reduced growth of the District’s Net Position is indicative of the reduction in new development projects within the District. This reduction is a result of the ongoing national housing slump and slow recovery from financial crisis. In FY-2014 the District has fully used the remainder of the $51.2 million proceeds from the issuance of its 2010 Water Revenue Bonds program (See Note 4 in the Notes to Financial Statements) for its CIP program (See Note 3 in the Notes to Financial Statements) as seen by the increase in Capital Assets of $3.4 million before accumulated depreciation. The District also saw a decrease in Long-Term Debt of $3.7 million due to the annual payments of long-term debt. Certain planning and environmental study costs associated with capital projects such as the Otay Mesa Desalination and Disinfection System or San Miguel Habitat Management/Mitigation Area do not qualify as capital costs under Generally Accepted Accounting Principles and are included in the miscellaneous expenses of the District. For FY-2013 and FY-2014 those expenses were $1.6 million and $2.9 million, respectively. For the entire financial reporting period, Fiscal Years 2014 and 2013, Total Net Position decreased approximately $3.4 million for FY-2014, to $444.8 million, as compared to FY-2013 when Net Position decreased by $5.9 million. At the end of FY-2014 the District is able to report positive balances in all categories of net position. This situation also held true for the prior two fiscal years. Statements of Revenues, Expenses, and Changes in Net Position (In Millions of Dollars) 2014 2013 2012 Water Sales $ 81.3 $ 72.2 $ 63.8 Wastewater Revenue 2.8 2.6 2.4 Connection and Other Fees 1.9 2.1 2.2 Non-operating Revenues 7.8 7.7 8.4 Total Revenues 93.8 84.6 76.8 Depreciation Expense 16.1 16.5 15.2 Other Operating Expense 76.5 70.8 65.8 Non-operating Expense 8.0 6.0 5.7 Total Expenses 100.6 93.3 86.7 Loss Before Capital Contributions (6.8) (8.7) (9.9) Capital Contributions 3.4 2.8 6.8 Change in Net Position (3.4) (5.9) (3.1) Beginning Net Position 448.2 454.1 457.2 Ending Net Position $ 444.8 $ 448.2 $ 454.1 18 Management’s Discussion and Analysis Water Sales increased by $9.1 million in FY-2014 and $8.4 million in FY-2013, mainly due to rate increases in both years and an increase in units sold in FY-2014 due to the ongoing drought conditions. The slowdown in District growth, as a result of the economic crisis, continues to impact the District as Connection and Other Fees revenues declined by $0.2 million in FY-2014 and $0.1 million in FY-2013. Other Operating Expense increased predominantly due to the increase in Cost of Water Sales, from a combination of the increased price-per-acre-foot of water obtained from the Los Angeles Metropolitan Water District of 7.7%, and 4.0% from San Diego County Water Authority, brought on by the high cost of supply programs as well as higher energy and operating costs. Increases in units purchased in FY-2014 also contributed to the increases in Operating Expenses. The slowdown in the economy appears to have leveled off. However, during the nationwide housing mortgage crisis, developers had either slowed down or totally stopped work on many projects until economic conditions improve and the demand for growth returns. The development that has returned has done so at a much slower rate. This has resulted in Capital Contributions remaining low over the last three years, compared to the extended growth of the previous 10 years. While this slowdown now appears to have stabilized, the District was also aided in its Capital Contributions through the receipt of additional federal grant monies and state reimbursements of $169,000 in FY-2014 and $184,000 in FY-2013. Non-operating Revenues Non-operating Revenues by Major Source (In Millions of Dollars) 2014 2013 2012 Taxes and Assessments $ 3.5 $ 3.5 $ 3.5 Rents and Leases 1.3 1.3 1.2 Other Non-operating Revenue 3.0 2.9 3.7 Total Non-operating Revenues $ 7.8 $ 7.7 $ 8.4 The District’s other non-operating revenues increased by $0.1 million in FY-2014 and decreased by $0.8 million in FY-2013. The decrease in FY-2013 was primarily a result of decreased miscellaneous and investment earnings. Capital Assets and Debt Administration The District’s capital assets (net of accumulated depreciation) as of June 30, 2014, totaled $466.7 million. Included in this amount is land. The District’s capital assets decreased by 2.0% for FY-2014 and by 1.0% in FY-2013. 19 Management’s Discussion and Analysis Capital Assets (In Millions of Dollars) 2014 2013 2012 Land $ 13.7 $ 13.7 $ 13.7 Construction in Progress 11.7 17.1 17.5 Water System 465.9 458.8 452.1 Recycled Water System 110.3 108.9 108.0 Sewer System 41.2 41.2 37.8 Field Equipment 8.8 8.9 8.6 Buildings 18.9 18.8 18.6 Transportation Equipment 3.3 3.5 3.2 Communication Equipment 2.9 2.6 2.5 Office Equipment 17.5 17.3 17.2 694.2 690.8 679.2 Less Accumulated Depreciation (227.5) (214.8) (198.4) Net Capital Assets $ 466.7 $ 476.0 $ 480.8 As indicated by figures in the table above, the majority of capital assets added during both fiscal years were related to the potable and recycled water systems. In addition, the majority of the cost of construction-in-progress is also related to these water systems. Additional information on the District’s capital assets can be found in Note 3 of the Notes to Financial Statements. At June 30, 2014, the District had $105.3 million in outstanding debt (net of $3.5 million of maturities occurring in FY-2015), which consisted of the following: General Obligation Bonds $ 5.3 Certificates of Participation 45.0 Revenue Bonds 55.0 Total Long-Term Debt $ 105.3 In June 2013, the District issued $7.7 million of 2013 Water Revenue Refunding Bonds for an advance refunding of its 2004 Certificates of Participation, which will be called on September 1, 2014. Excluding costs of issuance the District received $8.5 million in proceeds, including a $1.0 million premium, to fund the $8.1 million of outstanding principal and $0.4 million of remaining interest payments. In accordance with GASB Nos. 23 and 65, the remaining interest payments of $0.1 million in FY-2014 and $0.4 million in FY-2013 are reflected as a deferred outflow of resources on the Statement of Net Position. Additional information on the District’s long-term debt can be found in Note 4 of the Notes to Financial Statements. 20 Management’s Discussion and Analysis Fiscal Year 2014-2015 Budget Economic Factors Growth in the San Diego area has declined over the last five years, but is now slowly improving. This modest shift is also being reflected in the demand for housing. 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 in the coming years. Water sales volumes are expected to increase slightly, by less than one percent over FY-2014 actual sales as the economy improves and both hotter and drier than normal climatic conditions persist. Higher usage is expected to occur even as efforts to promote water conservation ramp-up due to the adoption of emergency drought regulations. The coming years will continue to pose challenges for those in California’s water community. It is uncertain if the challenges facing the Sacramento-San Joaquin Bay Delta, the source of 30% of Southern California’s water supply, will be addressed. In addition, 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 combination of these factors add to the cost of providing a stable supply of water as water providers look to new and more costly sources of water. The District is currently at about 75% of its projected ultimate population, serving approximately 213,000 people. Long-term, this percentage should continue to increase as the District's service area continues to develop and grow. Ultimately, the District is projected to serve approximately 285,000 people, with an average daily demand of 46 million gallons per day (MGD). Currently, the District services the needs of this growing population by purchasing water from CWA, who in turn purchases its water from MWD and the Imperial Irrigation District (IID). Otay takes delivery of the water through several connections of large diameter pipelines owned and operated by CWA. The District currently receives treated water from CWA directly and from Helix Water District via contract with CWA. In addition, the District has an emergency agreement with the City of San Diego to purchase water in the case of a shutdown of the main treated water source. The City of San Diego also has a long-term contract with the District to provide recycled water for landscape and irrigation usage. Through innovative agreements like these, benefits can be achieved by both parties by using excess capacity of another agency, and diversifying local supply, thereby increasing reliability. Financial The District is projected to deliver approximately 29,192 acre-feet of potable water to 49,257 potable customer accounts during Fiscal Year 2014-2015. Management feels that these projections are realistic after accounting for low growth, supply changes, and a focus on conservation. A combination of factors, including the ongoing drought and recession, have created challenges in developing economic projections for the current fiscal year. Both unemployment and levels of distressed activity in the commercial and residential resale market have improved from their economic crisis peaks. However, both economic indicators remain significantly above the levels of the boom years from 2001 to 2005. The ongoing negative impacts to the District of the economic indicators and conservation are partially offset by 21 Management’s Discussion and Analysis growth as the District’s commercial and residential permits have shown slow and steady improvement from the lows of the economic crisis. While all of these factors impact the region’s water usage, people’s need for water remains an underlying constant. Staff continues working diligently on developing new water supplies as they work through the financial impacts of conservation and the modest economic turnaround. Management is unaware of any other conditions that could have a significant impact on the District’s current financial position, net position, or operating results. Contacting the District’s Financial Management This financial report is designed to provide a general overview of the Otay Water District’s finances for the Board of Directors, citizens, creditors, and other interested parties. Questions concerning any of the information provided in the report or requests for additional information should be addressed to the District’s Finance Department, 2554 Sweetwater Springs Blvd., Spring Valley, CA 91978-2004. 22 2014 2013 ASSETS Current Assets: Cash and cash equivalents (Notes 1 and 2)30,493,474$ 33,958,281$ Restricted cash and cash equivalents (Notes 1 and 2)116,639 4,087,042 Investments (Note 2)27,631,622 16,258,960 Board designated investments (Note 2)21,605,368 14,860,502 Restricted investments (Notes 1 and 2)4,564,972 13,560,004 Accounts receivable, net 12,879,121 11,856,029 Accrued interest receivable 83,679 53,950 Taxes and availability charges receivable, net 333,589 431,159 Restricted taxes and availability charges receivable, net 41,091 41,657 Inventories 775,007 800,085 Prepaid items and other receivables 1,047,708 1,072,706 Total Current Assets 99,572,270 96,980,375 Non-current Assets: Net OPEB asset (Note 7)10,385,336 9,345,437 Capital Assets (Note 3): Land 13,714,963 13,714,963 Construction in progress 11,642,506 17,110,048 Capital assets, net of depreciation 441,293,934 445,203,648 Total capital assets, net of depreciaton 466,651,403 476,028,659 Total Non-current Assets 477,036,739 485,374,096 Total Assets 576,609,009 582,354,471 DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding 78,118 390,591 Total Deferred Outflows of Resources 78,118$ 390,591$ See accompanying independent auditors' report and notes to financial statements. Statements of Net Position June 30, 2014 and 2013 23 2014 2013 LIABILITIES Current Liabilities: Current maturities of long-term debt (Note 4)3,495,000$ 3,470,000$ Accounts payable 11,906,026 11,733,543 Accrued payroll liabilities 3,054,520 2,755,421 Other accrued liabilities 3,397,500 3,487,430 Customer and developer deposits 2,418,754 1,756,983 Accrued interest 1,564,992 1,518,651 Liabilities payable from restricted assets: Restricted accrued interest 70,804 76,154 Total Current Liabilities 25,907,596 24,798,182 Non-current Liabilities: Long-term debt (Note 4): General obligation bonds 5,283,563 5,849,918 Certificates of participation 44,980,314 46,465,525 Revenue bonds 55,058,490 56,678,987 Other non-current liabilities 649,344 718,543 Total Non-current Liabilities 105,971,711 109,712,973 Total Liabilities 131,879,307 134,511,155 NET POSITION Net investment in capital assets 357,912,154 376,549,168 Restricted for debt service 3,855,673 4,612,890 Unrestricted 83,039,993 67,071,849 Total Net Position 444,807,820$ 448,233,907$ See accompanying independent auditors' report and notes to financial statements. June 30, 2014 and 2013 - Continued Statements of Net Position 24 Statements of Revenues, Expenses and Changes in Net Position 2014 2013 OPERATING REVENUES Water sales 81,287,164$ 72,187,081$ Wastewater revenue 2,791,523 2,625,087 Connection and other fees 1,946,886 2,069,220 Total Operating Revenues 86,025,573 76,881,388 OPERATING EXPENSES Cost of water sales 56,068,147 50,600,551 Wastewater 1,834,465 1,638,354 Administrative and general 18,608,603 18,550,811 Depreciation 16,055,808 16,545,622 Total Operating Expenses 92,567,023 87,335,338 Operating Income (Loss)(6,541,450) (10,453,950) NON-OPERATING REVENUES (EXPENSES) Investment earnings 522,286 22,155 Taxes and assessments 3,537,162 3,545,595 Availability charges 729,961 707,881 Gain (loss) on sale of capital assets (426,140) (546,799) Rents and leases 1,317,736 1,276,914 Miscellaneous revenues 2,088,132 2,780,603 Donations (119,687)(120,684) Interest expense (4,872,060) (3,977,538) Miscellaneous expenses (3,054,447) (1,917,389) Total Non-operating Revenues (Expenses)(277,057) 1,770,738 Income (Loss) Before Capital Contributions (6,818,507) (8,683,212) Capital Contributions 3,392,420 2,775,132 Changes in Net Position (3,426,087) (5,908,080) Total Net Position, Beginning, 448,233,907 454,141,987 Total Net Position, Ending 444,807,820$ 448,233,907$ See accompanying independent auditors' report and notes to financial statements. For the Years Ended June 30, 2014 and 2013 25 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 83,717,366$ 73,425,100$ Receipts from connections and other fees 1,946,886 2,069,220 Other receipts 2,088,132 2,780,603 Payments to suppliers (57,217,950) (50,206,581) Payments to employees (19,974,636) (20,491,758) Other payments (3,231,510) (2,038,073) Net Cash Provided By (Used For) Operating Activities 7,328,288 5,538,511 CASH FLOWS FROM NON-CAPITAL AND RELATED FINANCING ACTIVITIES Receipts from taxes and assessments 3,635,298 3,612,045 Receipts from property rents and leases 1,202,050 1,276,914 Net Cash Provided By (Used For) Non-capital and Related Financing Activities 4,837,348 4,888,959 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital contributions 1,903,528 1,515,238 Proceeds from sale of capital assets 102,574 - Proceeds from debt related taxes and assessments 729,961 707,881 Net proceeds from issuance of long-term debt - 8,329,385 Retirement of long-term debt - (8,100,000) Principal payments on long-term debt (3,470,000) (3,320,000) Interest payments and fees (4,518,596) (5,201,467) Acquisition and construction of capital assets (5,718,373) (10,035,376) Net Cash Provided By (Used For) Capital and Related Financing Activities (10,970,906) (16,104,339) CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 492,557 395,773 Proceeds from sale and maturities of investments 52,121,219 68,832,000 Purchase of investments (61,243,716) (60,638,762) Net Cash Provided By (Used For) Investing Activities (8,629,940) 8,589,011 Net Increase (Decrease) in Cash and cash equivalents (7,435,210) 2,912,142 Cash and cash equivalents, Beginning 38,045,323 35,133,181 Cash and cash equivalents, Ending 30,610,113$ 38,045,323$ See accompanying independent auditors' report and notes to financial statements. Statements of Cash Flows For the Years Ended June 30, 2014 and 2013 26 2014 2013 Reconciliation of operating income (loss) to net cash flows provided by (used for) by operating activities: Operating income (loss)(6,541,450)$ (10,453,950)$ Adjustments to reconcile operating income to net cash provided by (used for) operating activities: Depreciation 16,055,808 16,545,622 Miscellaneous revenues 2,088,132 2,780,603 Miscellaneous expenses (3,231,510) (2,038,073) (Increase) decrease in accounts receivable (1,023,092) (1,280,059) (Increase) decrease in inventory 25,078 (10,316) (Increase) decrease in net OPEB asset (1,039,899) (1,023,535) (Increase) decrease in prepaid items and other receivables 20,997 153,997 Increase (decrease) in accounts payable 172,483 1,255,177 Increase (decrease) in accrued payroll and related expenses 299,099 164,149 Increase (decrease) in other accrued liabilities (89,930) (445,012) Increase (decrease) in customer deposits 661,771 (107,009) Increase (decrease) in prepaid capacity fees (69,199) (3,083) Net Cash Provided By (Used For) Operating Activities 7,328,288$ 5,538,511$ Schedule of Cash and Cash Equivalents: Current assets: Cash and cash equivalents 30,493,474$ 33,958,281$ Restricted cash and cash equivalents 116,639 4,087,042 Total Cash and Cash Equivalents 30,610,113$ 38,045,323$ Supplemental Disclosures: Non-cash Investing and Financing Activities Consisted of the Following: Contributed Capital for Water and Sewer System 1,488,893$ 1,259,894$ Change in Fair Value of Investments and Recognized Gains/Losses 201,891 (353,950) Amortization Related to Long-Term Debt 177,063 154,246 See accompanying independent auditors' report and notes to financial statements. For the Years Ended June 30, 2014 and 2013 - Continued Statements of Cash Flows 27 Notes to Financial Statements See Independent Auditors’ report NOTE DESCRIPTION PAGE 1 Reporting Entity and Summary of Significant Accounting Policies..…………. 29 2 Cash and Investments……………………………………………………………………….…………..……... 35 3 Capital Assets……………………………………………………………………………………………….…..……... 42 4 Long–Term Debt…………………………………………………………………………………………..……….. 44 5 Net Position………………………………………………………………………………………………………….…… 50 6 Defined Benefit Pension Plan………………………………………….…………………………………... 51 7 Other Post Employment Benefits………………………………………………………...…………..... 53 8 Water Conservation Authority……………………………………………………………………………... 56 9 Commitments and Contingencies……………………………………………………………..……... 57 10 Risk Management……………………………………………………………………………………………….….. 58 11 Interest Expense………………………………………………………………………………………………..…..... 60 12 Segment information………………………………………………………………………………….….......... 60 28 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Reporting Entity The reporting entity Otay Water District (the “District”) includes the accounts of the District and the Otay Water District Financing Authority (the “Financing Authority”). The Otay Water District (the “District”) is a public entity established in 1956 pursuant to the Municipal Water District Law of 1911 (Section 711 et. Seq. of the California Water Code) for the purpose of providing water and sewer services to the properties in the District. The District is governed by a Board of Directors consisting of five directors elected by geographical divisions based on District population for a four-year alternating term. The District formed the Financing Authority on March 3, 2010 under the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code. The Financing Authority was formed to assist the District in the financing of public capital improvements. The financial statements present the District and its component units. The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority of the component unit’s board, or because the component unit will provide a financial benefit or impose a financial burden on the District. The District has accounted for the Financing Authority as a “blended” component unit. Despite being legally separate, the Financing Authority is so intertwined with the District that it is in substance, part of the District’s operations. Accordingly, the balances and transactions of this component unit are reported within the funds of the District. Separate financial statements are not issued for the Financing Authority. B) Measurement Focus, Basis of Accounting and Financial Statement Presentation Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. The accompanying financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or noncurrent) associated with these activities are included on the Statements of Net Position. The Statements of Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. 29 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued The District reports its activities as an enterprise fund, which is used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the District is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting financial reporting purposes. Net position of the District is classified into three components: (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. These classifications are defined as follows: Net Investment in Capital Assets This component of net position consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of notes or borrowing that are attributable to the acquisition of the assets, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of the net investment in capital assets. Restricted Net Position This component of net position consists of net position with constrained use through external constraints imposed by creditors (such as through debt covenants), grantors, contributions, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of net position that do not meet the definition of “net investment in capital assets” or “restricted net position”. 30 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued Unrestricted Net Position - Continued The District distinguishes operating revenues and expenses from those revenues and expenses that are non-operating. Operating revenues are those revenues that are generated by water sales and wastewater services while operating expenses pertain directly to the furnishing of those services. Non- operating revenues and expenses are those revenues and expenses generated that are not associated with the normal business of supplying water and wastewater treatment services. The District recognizes revenues from water sales, wastewater revenues, and meter fees as they are earned. Taxes and assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego, net of allowance for delinquencies of $41,631 and $52,535 at June 30, 2014 and 2013, respectively. Additionally, capacity fee contributions received which are related to specific operating expenses are offset against those expenses and included in Cost of Water Sales in the Statements of Revenues and Expenses and Changes in Net Position. Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s practice to consider restricted - net position to have been depleted before unrestricted - net position is applied, however it is at the Board’s discretion. C) New Accounting Pronouncements Implemented The GASB has issued Statement No. 66, “Technical Corrections – 2012; an amendment of GASB Statements No. 10 and No. 62.” The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2012. Currently, the Statement is not applicable to the District. 31 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Pending Accounting Standards GASB has issued the following statements which impact the District’s financial reporting requirements in the future:  GASB 68 - “Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No. 27”, effective for the fiscal years beginning after June 15, 2014.  GASB 69 - “Government Combinations and Disposals of Government Operations”, effective for periods beginning after December 15, 2013.  GASB 70 - “Accounting and Financial Reporting for Nonexchange Financial Guarantees”, effective for the periods beginning after June 15, 2013. D) Deferred Outflows / Inflows of Resources In addition to assets, the statements of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has one item that qualifies for reporting in this category, deferred amount on refunding, which resulted from the difference in the carrying value of refunded debt and its reacquisition price. This amount is shown as deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statements of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The District does not have any type of these items as of June 30, 2014 or June 30, 2013. E) Statements of Cash Flows For purposes of the Statements of Cash Flows, the District considers all highly liquid investments (including restricted assets) with a maturity period, at purchase, of three months or less to be cash equivalents. 32 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued F) Investments Investments are stated at their fair value, which represents the quoted or stated market value. Investments that are not traded on a market, such as investments in external pools, are valued based on the stated fair value as represented by the external pool. All investments are stated at their fair value, the District has not elected to report certain investments at amortized costs. G) Inventory and Prepaids Inventory consists primarily of materials used in the construction and maintenance of the water and sewer system and is valued at weighted average cost. Both inventory and prepaids use the consumption method whereby they are reported as an asset and expensed as they are consumed. H) Capital Assets Capital assets are recorded at cost, where historical records are available, and at an estimated historical cost where no historical records exist. Infrastructure assets in excess of $20,000 and other capital assets in excess of $10,000 are capitalized if they have an expected useful life of two years or more. The District will also capitalize individual purchases under the capitalization threshold if they are part of a new capital program. The cost of purchased and self-constructed additions to utility plant and major replacements of property are capitalized. Costs include materials, direct labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, overhead, and interest incurred during the construction period. Repairs, maintenance, and minor replacements of property are charged to expense. Donated assets are capitalized at their approximate fair market value on the date contributed. The District capitalizes interest on construction projects up to the point in time that the project is substantially completed. Capitalized interest for fiscal years ending June 30, 2014 and 2013 of $176,782 and $995,721, respectively, is included in the cost of water system assets and is depreciated on the straight-line basis over the estimated useful lives of such assets. Depreciation is calculated using the straight-line method over the following estimated useful lives: Water System 15-70 Years Field Equipment 2-50 Years Buildings 30-50 Years Communication Equipment 2-10 Years Transportation Equipment 2-4 Years Office Equipment 2-10 Years Recycled Water System 50-75 Years Sewer System 25-50 Years 33 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued I) Compensated Absences It is the District’s policy to record vested or accumulated vacation and sick leave as an expense and liability as benefits accrue to employees. As of June 30, 2014 and 2013, total accrued paid time off was $2,352,861 and $2,120,399, respectively. J) Classification of Liabilities Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be funded from restricted assets. K) Allowance for Doubtful Accounts The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that the accounts will be uncollectible. Uncollectible accounts are determined by the allowance method based upon prior experience and management’s assessment of the collectibility of existing specific accounts. The allowance for doubtful accounts was $152,680 and $150,000 for 2014 and 2013, respectively. L) Property Taxes Tax levies are limited to 1% of full market value (at time of purchase) which results in a tax rate of $1.00 per $100 assessed valuation, under the provisions of Proposition 13. Tax rates for voter-approved indebtedness are excluded from this limitation. The County of San Diego (the “County”) bills and collects property taxes on behalf of the District. The County’s tax calendar year is July 1 to June 30. Property taxes attach as a lien on property on January 1. Taxes are levied on July 1 and are payable in two equal installments on November 1 and February 1, and become delinquent after December 10 and April 10, respectively. M) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 34 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued N) Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 2) CASH AND INVESTMENTS The primary goals of the District’s Investment Policy are to assure compliance with all Federal, State, and Local laws governing the investment of funds under the control of the organization, protect the principal of investments entrusted, and generate income under the parameters of such policies. Cash and Investments are classified in the accompanying financial statements as follows: 2014 2013 Statement of Net Position: Cash and Cash Equivalents $ 30,493,474 $ 33,958,281 Restricted Cash and Cash Equivalents 116,639 4,087,042 Investments 27,631,622 16,258,960 Board Designated Investments 21,605,368 14,860,502 Restricted Investments 4,564,972 13,560,004 Total Cash and Investments $ 84,412,075 $ 82,724,789 Cash and Investments consist of the following: 2014 2013 Cash on Hand $ 2,950 $ 2,950 Deposits with Financial Institutions 2,065,122 1,107,051 Investments 82,344,003 81,614,788 Total Cash and Investments $ 84,412,075 $ 82,724,789 35 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 2) CASH AND INVESTMENTS - Continued Investments Authorized by the California Government Code and the District’s Investment Policy The table below identifies the investment types that are authorized for the District by the California Government Code (or the District’s Investment Policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District’s Investment Policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District’s Investment Policy. Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity Of Portfolio In One Issuer U.S. Treasury Obligations 5 years None None U.S. Government Sponsored Entities 5 years None None Certificates of Deposit 5 years 15% None Corporate Medium-Term Notes 5 years 15% None Commercial Paper 270 days 15% 10% Money Market Mutual Funds N/A 15% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None (1) Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. Investments Authorized by Debt Agreements Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District’s Investment Policy. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the District manages its exposure to interest rates risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows (1) 36 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 2) CASH AND INVESTMENTS - Continued Disclosures Relating to Interest Rate Risk – Continued from maturities, so that a portion of the portfolio is maturing or coming close to maturity evenly over time, as necessary, to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the District’s investments to market interest rate fluctuations are provided by the following tables that show the distribution of the District’s investments by maturity as of June 30, 2014 and 2013. June 30, 2014 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 53,716,144 $ 3,005,760 $ 7,001,050 $ 43,709,334 $ - Local Agency Investment Fund (LAIF) 11,368,272 11,368,272 - - - San Diego County Pool 17,143,000 17,143,000 - - - Money Market Funds 116,587 116,587 - - - Total $ 82,344,003 $ 31,633,619 $ 7,001,050 $ 43,709,334 $ - June 30, 2013 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 44,599,731 $ 3,002,850 $ 17,974,890 $ 23,621,991 $ - Local Agency Investment Fund (LAIF) 17,032,057 17,032,057 - - - San Diego County Pool 19,983,000 19,983,000 - - - Total $ 81,614,788 $ 40,017,907 $ 17,974,890 $ 23,621,991 $ - Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code or the District’s Investment Policy, or debt agreements, and the Moody’s ratings as of June 30, 2014 and 2013 for each investment type. 37 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 2) CASH AND INVESTMENTS - Continued Disclosures Relating to Credit Risk - Continued June 30, 2014 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated June 30, 2013 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA Rated U.S. Government Sponsored Entities $ 44,599,731 N/A $ 44,599,731 $ - $ - Local Agency Investment Fund (LAIF) 17,032,057 N/A - - 17,032,057 San Diego County Pool 19,983,000 N/A - - 19,983,000 Total $ 81,614,788 $ 44,599,731 $ - $ 37,015,057 Concentration of Credit Risk The investment policy of the District contains various limitations on the amounts that can be invested in any one type or group of investments and in any issuer, beyond that stipulated by the California Government Code, Sections 53600 through 53692. Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total District investments as of June 30, 2014 and 2013 are as follows: U.S. Government Sponsored Entities $ 53,716,144 N/A $ 53,716,144 $ - $ - $ - Local Agency Investment Fund (LAIF) 11,368,272 N/A - - - 11,368,272 San Diego County Pool 17,143,000 N/A - - - 17,143,000 Money Market Funds 116,587 N/A - - 116,587 - Total $ 82,344,003 $ 53,716,144 $ - $ 116,587 $ 28,511,272 38 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 2) CASH AND INVESTMENTS - Continued Concentration of Credit Risk - Continued June 30, 2014 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 19,723,794 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 17,997,640 Federal National Mortgage Association U.S. Government Sponsored Entities $ 7,986,280 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 8,008,430 June 30, 2013 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 12,961,010 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 9,720,091 Federal National Mortgage Association U.S. Government Sponsored Entities $ 4,976,820 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 14,955,390 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District’s Investment Policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local government units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2014, $1,553,944 of the District’s deposits with financial institutions in excess of federal depository insurance limits were held in collateralized accounts. As of June 30, 2013, $1,063,279 of the 39 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 2) CASH AND INVESTMENTS - Continued Custodial Credit Risk - Continued District’s deposits with financial institutions in excess of federal depository insurance limits were held in collateralized accounts. Local Agency Investment Fund (LAIF) The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the District’s investment in this pool is reported in the accompanying financial statements at amounts based upon District’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost-basis. San Diego County Pooled Fund The San Diego County Pooled Investment Fund (SDCPIF) is a pooled investment fund program governed by the County of San Diego Board of Supervisors, and administered by the County of San Diego Treasurers and Tax Collector. Investments in SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty. The County of San Diego’s bank deposits are either federally insured or collateralized in accordance with the California Government Code. Pool detail is included in the County of San Diego Comprehensive Annual Financial Report (CAFR). Copies of the CAFR may be obtained from the County of San Diego Auditor- Controller’s Office - 1600 Pacific Coast Highway, San Diego California 92101. Collateral for Deposits All cash is entirely insured or collateralized. Under the provisions of the California Government Code, California banks and savings and loan associations are required to secure the District’s deposits by pledging government securities as collateral. The market value of the pledged securities must equal at least 110% of the District’s deposits. California law also allows financial institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the District’s total deposits. The District may waive the 110% collateral requirement for deposits which are insured up to $250,000 by the FDIC. 40 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 2) CASH AND INVESTMENTS - Continued Board Designated Investments Investments are Board restricted for the cost of the following District projects: 2014 2013 New Water Supply $ 322,087 $ 863,973 Expansion 6,078 369,791 Replacement 21,277,203 13,626,738 Total $ 21,605,368 $ 14,860,502 Restricted Cash and Cash Equivalents 2014 2013 Debt Service: Water Revenue Bond Series 2010 $ 116,639 $ 4,087,042 Total $ 116,639 $ 4,087,042 Restricted Investments 2014 2013 Debt Service: General Obligation Bond ID No. 27-2009 $ 812,239 $ 917,708 Water Revenue Bond Series 2010A 1,026,909 1,029,999 Water Revenue Bond Series 2010B 2,696,849 11,602,893 Construction: Betterment 28,975 9,404 Total $ 4,564,972 $ 13,560,004 41 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 3) CAPITAL ASSETS The following is a summary of changes in Capital Assets for the year ended June 30, 2014: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated Land $ 13,714,963 $ - $ - $ 13,714,963 Construction in Progress 17,110,048 8,498,574 (13,966,116) 11,642,506 Total Capital Assets Not Depreciated 30,825,011 8,498,574 (13,966,116) 25,357,469 Capital Assets, Being Depreciated Infrastructure 608,634,474 11,562,280 (2,848,379) 617,348,375 Field Equipment 8,934,034 144,207 (265,548) 8,812,693 Buildings 18,849,509 79,370 - 18,928,879 Transportation Equipment 3,497,789 422,566 (611,753) 3,308,602 Communication Equipment 2,562,480 428,140 (110,479) 2,880,141 Office Equipment 17,298,342 274,011 (59,160) 17,513,193 Total Capital Assets Being Depreciated 659,776,628 12,910,574 (3,895,319) 668,791,883 Less Accumulated Depreciation: Infrastructure 181,997,301 13,313,914 (2,086,011) 193,225,204 Field Equipment 7,579,663 181,393 (265,548) 7,495,508 Buildings 7,832,547 504,021 - 8,336,568 Transportation Equipment 2,615,775 295,826 (611,753) 2,299,848 Communication Equipment 1,448,152 408,940 (110,479) 1,746,613 Office Equipment 13,099,542 1,351,714 (57,048) 14,394,208 Total Accumulated Depreciation 214,572,980 16,055,808 (3,130,839) 227,497,949 Total Capital Assets Being Depreciated, Net 445,203,648 (3,145,234) (764,480) 441,293,934 Total Capital Assets, Net $ 476,028,659 $ 5,353,340 $ (14,730,596) $ 466,651,403 Depreciation expense for the year ended June 30, 2014 was $16,055,808. 42 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 3) CAPITAL ASSETS - Continued The following is a summary of changes in Capital Assets for the year ended June 30, 2013: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated Land $ 13,703,463 $ 11,500 $ - $ 13,714,963 Construction in Progress 17,452,274 11,751,086 (12,093,312) 17,110,048 Total Capital Assets Not Depreciated 31,155,737 11,762,586 (12,093,312) 30,825,011 Capital Assets, Being Depreciated Infrastructure 597,894,929 11,620,876 (881,331) 608,634,474 Field Equipment 8,602,060 331,974 - 8,934,034 Buildings 18,649,209 200,300 - 18,849,509 Transportation Equipment 3,221,249 277,860 (1,320) 3,497,789 Communication Equipment 2,514,151 81,670 (33,341) 2,562,480 Office Equipment 17,201,420 209,037 (112,115) 17,298,342 Total Capital Assets Being Depreciated 648,083,018 12,721,717 (1,028,107) 659,776,628 Less Accumulated Depreciation: Infrastructure 169,258,402 12,993,086 (254,187) 181,997,301 Field Equipment 7,373,481 206,182 - 7,579,663 Buildings 7,347,820 484,727 - 7,832,547 Transportation Equipment 2,306,300 310,796 (1,321) 2,615,775 Communication Equipment 1,035,846 445,648 (33,342) 1,448,152 Office Equipment 11,086,817 2,105,183 (92,458) 13,099,542 Total Accumulated Depreciation 198,408,666 16,545,622 (381,308) 214,572,980 Total Capital Assets Being Depreciated, Net 449,674,352 (3,823,905) (646,799) 445,203,648 Total Capital Assets, Net $ 480,830,089 $ 7,938,681 $ (12,740,111) $ 476,028,659 Depreciation expense for the year ended June 30, 2013 was $16,545,622. 43 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT Long-term liabilities for the year ended June 30, 2014 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 - 2009 $ 6,235,000 $ - $ 535,000 $ 5,700,000 $ 550,000 Unamortized Bond Premium 149,918 - 16,355 133,563 - Net General Obligation Bonds 6,384,918 - 551,355 5,833,563 550,000 Certificates of Participation: 1996 Certificates of Participation 10,400,000 - 500,000 9,900,000 500,000 2007 Certificates of Participation 37,745,000 - 955,000 36,790,000 995,000 1996 COPS Unamortized Discount (10,432) - (745) (9,687) - 2007 COPS Unamortized Discount (214,043) - (9,044) (204,999) - Net Certificates of Participation 47,920,525 - 1,445,211 46,475,314 1,495,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 12,255,000 - 820,000 11,435,000 845,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 7,735,000 - 660,000 7,075,000 605,000 2010 Series A Unamortized Premium 837,019 - 74,402 762,617 - 2013 Bonds Unamortized Premium 976,968 - 96,095 880,873 - Net Revenue Bonds 58,158,987 - 1,650,497 56,508,490 1,450,000 Total Long-Term Liabilities $ 112,464,430 $ - $ 3,647,063 $ 108,817,367 $ 3,495,000 44 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT - Continued Long-term liabilities for the year ended June 30, 2013 are as follows: Beginning Balance Ending Due Within (As Restated) Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 - 2009 $ 6,755,000 $ - $ 520,000 $ 6,235,000 $ 535,000 Unamortized Bond Premium 166,271 - 16,353 149,918 - Net General Obligation Bonds 6,921,271 - 536,353 6,384,918 535,000 Certificates of Participation: 1996 Certificates of Participation 10,900,000 - 500,000 10,400,000 500,000 2004 Certificates of Participation 8,680,000 - 8,680,000 - - 2007 Certificates of Participation 38,665,000 - 920,000 37,745,000 955,000 1996 COPS Unamortized Discount (11,178) - (746) (10,432) - 2007 COPS Unamortized Discount (223,087) - (9,044) (214,043) - 2004 COPS Unamortized Premium 13,005 - 13,005 - - Net Certificates of Participation 58,023,740 - 10,103,215 47,920,525 1,455,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 13,055,000 - 800,000 12,255,000 820,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2010 Series A Unamortized Premium 911,421 - 74,402 837,019 - 2013 Water Revenue Refunding Bonds - 7,735,000 - 7,735,000 660,000 2013 Bonds Unamortized Premium - 984,976 8,008 976,968 - Net Revenue Bonds 50,321,421 8,719,976 882,410 58,158,987 1,480,000 Total Long-Term Liabilities $ 115,266,432 $ 8,719,976 $ 11,521,978 $ 112,464,430 $ 3,470,000 45 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT - Continued General Obligation Bonds In June 1998, the District issued $11,835,000 of General Obligation Refunding Bonds. The proceeds of this issue, together with other lawfully available monies, were to be used to establish an irrevocable escrow to advance refund and defease in their entirety the District’s previous outstanding General Obligation Bond issue. In November 2009, the District issued $7,780,000 of General Obligation Refunding Bonds Improvement District No. 27-2009 to refund the 1998 issue. The proceeds from the bond issue were $7,989,884, which included an original issue premium of $209,884. An amount of $7,824,647, which consisted of unpaid principal and accrued interest, was deposited into an escrow fund. Pursuant to an optional redemption clause in the 1998 bonds, the District was able to redeem the 1998 bonds, without premium at any time after September 1, 2009. On December 15, 2009 the 1998 bonds were refunded. These bonds are general obligations of Improvement District No. 27 (ID 27) of the District. The Board of Directors has the power and is obligated to levy annual ad valorem taxes without limitation, as to rate or amount for payment of the bonds and the interest upon all property which is within ID 27 and subject to taxation. The General Obligation Bonds are payable from District-wide tax revenues. The Board may utilize other sources for servicing the bond debt and interest. The Improvement District No. 27-2009 General Obligation Refunding Bonds have interest rates from 3.00% to 4.00% with maturities through Fiscal Year 2023. Future debt service requirements for the bonds are as follows: For the Year Ended June 30, Principal Interest Total 2015 $ 550,000 $ 204,162 $ 754,162 2016 570,000 187,362 757,362 2017 585,000 169,306 754,306 2018 605,000 147,700 752,700 2019 635,000 122,900 757,900 2020-2023 2,755,000 225,100 2,980,100 $ 5,700,000 $ 1,056,530 $ 6,756,530 46 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT - Continued Certificates of Participation (COPS) In June 1996, COPS with face value of $15,400,000 were sold by the Otay Service Corporation to finance the cost of design, acquisition, and construction of certain capital improvements. An installment purchase agreement between the District, as Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. The installment payments are to be paid from taxes and “net revenues,” as described in the installment agreement. The certificates bear interest at a variable weekly rate not to exceed 12%. The variable interest rate is tied to the 30-day LIBOR index and the Securities Industry and Financial Markets Association (SIFMA) index. An irrevocable letter of credit facility is necessary to market the District’s variable rate debt. This facility is with Union Bank and covers the outstanding principal and interest. The facility expires on June 29, 2017. The interest rate at June 30, 2014 was 0.15%. The installment payments are to be paid annually at $350,000 to $900,000 from September 1, 1996 through September 1, 2026. In July 2004, Refunding Certificates of Participation (COPS) with a face value of $12,270,000 were sold by the Otay Service Corporation to advance refund $11,680,000 of outstanding 1993 COPS. An installment agreement between the District, as Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. In March 2007, Revenue Certificates of Participation (COPS) with face value of $42,000,000 were sold by the Otay Service Corporation to improve the District’s water storage system and distribution facilities. An installment purchase agreement between the District, as a Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the COPS. The installment payments are to be paid from taxes and “net revenues,” as described in the installment agreement. The certificates are due in annual installments of $785,000 to $2,445,000 from September 1, 2007 through September 1, 2036; bearing interest at 3.7% to 4.47%. Defeased Certificate of Participation (COPS) In June 2013, the July 2004 COPS were refunded with the issuance of the 2013 Water Revenue Refunding Bonds (see Revenue Bonds on page 49). Proceeds of $8,575,519, which consisted of unpaid principal and accrued interest, were used to establish an irrevocable escrow to advance refund and defease in their entirety the District’s 2004 COPS. Pursuant to an optional redemption clause in the 2004 COPS, the District will be able to redeem the 2004 bonds, without premium at any time after September 1, 2014. As a result, the 2004 COPS are considered to be defeased and the liability of those bonds has been removed from long- term liabilities. The outstanding balance at June 30, 2014 is $7,500,000. 47 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT - Continued Defeased Certificates of Participation (COPS) – Continued There is no aggregate reserve requirement for the COPS. Future debt service requirements for the certificates are as follows: For the Year 1996 COPS 2007 COPS Ended June 30, Principal Interest* Principal Interest 2015 $ 500,000 $ 14,225 $ 995,000 $ 1,517,301 2016 600,000 13,350 1,035,000 1,479,239 2017 600,000 12,450 1,075,000 1,439,408 2018 600,000 11,550 1,115,000 1,397,798 2019 700,000 10,525 1,155,000 1,354,234 2020-2024 3,900,000 35,925 6,515,000 6,031,444 2025-2029 3,000,000 5,550 7,995,000 4,538,196 2030-2034 - - 9,875,000 2,644,028 2035-2036 - - 7,030,000 470,094 $ 9,900,000 $ 103,575 $ 36,790,000 $ 20,871,742 *Variable Rate - Interest reflected at June 30, 2014 at a rate of 0.15%. The two COP debt issues contain various covenants and restrictions, principally that the District fix, prescribe, revise and collect rates, fees and charges for the Water System which will be at least sufficient to yield, during each fiscal year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal year ended June 30, 2014. Water Revenue Bonds In April 2010, Water Revenue Bonds with a face value of $50,195,000 were sold by the Otay Water District Financing Authority to provide funds for the construction of water storage and transmission facilities. The bond issue consisted of two series; Water Revenue Bonds, Series 2010A (Non-AMT Tax Exempt) with a face value of $13,840,000 plus a $1,078,824 original issue premium, and Water Revenue Bonds Series 2010B (Taxable Build America Bonds) with a face value of $36,355,000. The Series 2010A bonds are due in annual installments of $785,000 to $1,295,000 from September 1, 2012 through September 1, 2025; bearing interest at 2% to 5.25%. The Series 2010B bonds are due in annual installments of $1,365,000 to $3,505,000 from 48 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued September 1, 2026 through September 1, 2040; bearing interest at 6.377% to 6.577%. Interest on both Series is payable on September 1, 2010 and semiannually thereafter on March 1st and September 1st of each year until maturity or earlier redemption. The installment payments are to be made from Taxes and Net Revenues of the Water System as described in the installment purchase agreement, on parity with the payments required to be made by the District for the 1996, and 2007 Certificates of Participation described above and the 2013 Water Revenue Refunding Bonds described below. The proceeds of the bonds will be used to fund the project described above as well as to fund reserve funds of $1,030,688 (Series 2010A) and $2,707,418 (Series 2010B). $542,666 was used to fund various costs of issuance. The original issue premium is being amortized over the 14 year life of the Series 2010A bonds. Amortization for the year ending June 30, 2014 was $74,402 and is included in interest expense. The unamortized premium at June 30, 2014 is $762,617. The 2010 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe, revise and collection rates, fees and charges for the Water System which will be at least sufficient to yield, during each fiscal year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in compliance with these rate covenants for the fiscal year ended June 30, 2014. In June 2013, the 2013 Water Revenue Refunding Bonds were issued to defease the 2004 Refunding Certificates of Participation. The bonds were issued with a face value of $7,735,000 plus a $984,975 original issue premium. The bonds are due in annual installments of $660,000 to $835,000 from September 1, 2013 through September 1, 2023; bearing interest at 1% to 4%. The installment payments are to be made from Taxes and Net Revenues of the Water System, on parity with the payments required to be made by the District for the 1996, and 2007 Certificates of Participation and the 2010A and 2010B described above. The original issue premium is being amortized over the 11 year life of the Series 2013 bonds. Amortization for the year ending June 30, 2014 was $96,095 and is included in interest expense. The unamortized premium at June 30, 2014 is $880,873. 49 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 4) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued The total amount outstanding at June 30, 2014 and aggregate maturities of the revenue bonds for the fiscal years subsequent to June 30, 2014, are as follows: 5) NET POSITION Designations of Net Position In addition to the restricted net position, a portion of unrestricted net position, have been designated by the Board of Directors for the following purposes as of June 30, 2014 and 2013: 2014 2013 Designated Betterment $ 4,543,776 $ 3,629,786 Expansion Reserve 4,457,117 623,834 Replacement Reserve 21,473,229 24,182,442 Designated New Supply Fund 24,125 24,000 Employee Benefits Reserve 307,279 149,705 Total $ 30,805,526 $ 28,609,767 For the Year Ended June 30, 2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B 2013 Water Revenue Refunding Bonds Principal Interest Principal Interest Principal Interest 2015 $ 845,000 $ 508,563 $ - $ 2,371,868 $ 605,000 $ 258,700 2016 870,000 478,488 - 2,371,868 615,000 243,425 2017 900,000 443,088 - 2,371,868 635,000 221,500 2018 940,000 406,288 - 2,371,868 660,000 195,600 2019 975,000 367,988 - 2,371,868 685,000 168,700 2020-2024 5,610,000 1,068,687 - 11,859,342 3,875,000 399,500 2025-2029 1,295,000 33,994 6,000,000 11,123,436 - - 2030-2034 - - 9,925,000 8,425,226 - - 2035-2039 - - 13,635,000 4,590,582 - - 2040-2042 - - 6,795,000 453,978 - - $ 11,435,000 $ 3,307,096 $ 36,355,000 $ 48,311,904 $ 7,075,000 $ 1,487,425 50 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 6) DEFINED BENEFIT PENSION PLAN Plan Description The District’s defined plan, (the “Plan”), provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The Plan is part of the Public Agency portion of the California Public Employees’ Retirement System (CalPERS), an agent multiple-employer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements is established by State statute within the Public Employees’ Retirement Law. The Plan selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through District resolution. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814. Funding Policy Active classic members in the Plan are required to contribute 8% of their annual covered salary. By agreement between the Employee Association and the District, the represented employees paid 5.25% of covered salaries beginning August 15, 2011. Also by agreement, the unrepresented employees began paying 4.5% of covered salaries as of July 15, 2011. Prior to these agreements all employees paid 1% of covered salaries. In these same agreements, all employees, after June 30, 2012, contributed an additional 3.5% of covered salaries. Effective January 1, 2013, classic represented employees contribution was reduced to an additional 2.75% of covered salaries. For new members (employees hired on or after January 1, 2013 and are new entrants to the PERS System), employees pay a 6.25% contribution. The District is required to contribute the actuarially determined remaining amounts necessary to fund the 2.7% at age 55 retirement plan benefits for its classic members and 2.0% at age 62 for its new members under the California Employees’ Pension Reform Act (PEPRA) provisions. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for the fiscal year ended June 30, 2014 was 25.435%. The contribution requirements of the Plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS. Annual Pension Costs For the fiscal year ended June 30, 2014, the District’s annual pension cost and actual contribution was $3,294,341. The required contribution for the fiscal year ended June 30, 2014 was determined as part of the June 30, 2011 actuarial valuation. 51 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 6) DEFINED BENEFIT PENSION PLAN - Continued Annual Pension Costs - Continued The following is a summary of the actuarial assumptions and methods: Valuation Date June 30, 2011 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Average Remaining Period 21 Years as of the Valuation Date Asset Valuation Method 15-Year Smoothed Market Actuarial Assumptions: Investment Rate of Return 7.50% (Net of Administrative Expenses) Projected Salary Increase 3.30% to 14.20% Depending on Age, Service, and Type of Employment Inflation 2.75% Payroll Growth 3.00% Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed annual inflation component of 2.75% and an annual production growth of 0.25%. Initial unfunded liabilities are amortized over a closed period that depends on the Plan’s date of entry into CalPERS. Subsequent Plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a 30 year rolling period, which results in an amortization of 6% of unamortized gains and losses each year. If the plan’s accrued liability exceeds the actuarial value of the plan assets, then the amortization payment of the total unfunded liability may not be lower than the payment calculated over a 30-year amortization period. THREE-YEAR TREND INFORMATION FOR PERS Fiscal Annual Pension Percentage of Net Pension Year Cost (APC) APC Contributed Obligation 6/30/14 $ 3,294,341 100% $ - 6/30/13 $ 3,130,754 100% $ - 6/30/12 $ 2,951,409 100% $ - Fund Status and Funding Progress As of June 30, 2012, the most recent actuarial valuation date, the plan was 69.4% funded. The actuarial accrued liability (AAL) for benefits was $95,927,777, and the actuarial value of assets was $66,578,121, resulting in an unfunded actuarial accrued liability (UAAL) of $29,349,656. The covered payroll (annual 52 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 6) DEFINED BENEFIT PENSION PLAN - Continued Fund Status and Funding Progress - Continued payroll of active employees covered by the plan) was $11,474,462, and the ratio of the UAAL to the covered payroll was 255.8%. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over the time relative to the actuarial accrued liability for benefits. 7) OTHER POST EMPLOYMENT BENEFITS Plan Description The District’s defined benefit postemployment healthcare plan, (DPHP), provides medical benefits to eligible retired District employees and beneficiaries. DPHP is part of the Public Agency portion of the California Employers’ Retiree Benefit Trust Fund (CERBT), an agent multiple-employer plan administered by California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for participating public employers within the State of California. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814. Prior to the plan agreements signed in 2011, the eligibility in the plan was broken into 3 tiers, employees hired before January 1, 1981, employees hired between January 1, 1981 but before July 1, 1993 and employees hired on or after July 1, 1993. Board members elected before January 1, 1995 are also eligible for the plan. Eligibility also includes age and years of service requirements which vary by tier. Benefits include 100% medical and dental premiums for life for the retiree for Tier I, II or III employees, and up to 100% spouse premium for life and dependent premium up to age 19 depending on the tier. The plan also includes survivor benefits to Medicare. Subsequent to the agreements in 2011 and 2012 all employees are eligible for the plan after 20 years of consecutive service and unrepresented employees hired before January 1, 2013 are eligible after 15 years. Survivor benefits are covered beyond Medicare. Funding Policy The contribution requirements of plan members and the District are established and may be amended by the Board of Directors. Effective January 1, 2013, represented employees hired prior to January 1, 2013 or 53 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 7) OTHER POST EMPLOYMENT BENEFITS - Continued Funding Policy- Continued hired on or after January 1, 2013 from another public agency that has reciprocity without having a break in service of more than six months, contribute .75% of covered salaries. In addition, unrepresented and represented employees hired on or after January 1, 2013, and do not have reciprocity from another public agency, contribute 1.75% and 2.5% of covered salaries, respectively. DPHP members receiving benefits contribute based on their selected plan options of EPO, HMO or PPO and whether they are outside the State of California. Contributions by plan members range from $0 to $154 per month for coverage to age 65, and from $0 to $154 per month, respectively, thereafter. Annual OPEB Cost and Net OPEB Obligation/Asset The District’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis is projected to cover the normal annual cost. Any unfunded actuarial liability (or funding excess) is amortized over a period not to exceed thirty years. The current ARC rate is 12.0% of the annual covered payroll. The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation/asset: 2014 2013 Annual Required Contribution (ARC) $ 1,439,000 $ 1,287,000 Interest on Net OPEB Asset (677,544) (603,338) Adjustment to Annual Required Contribution (ARC) 625,000 543,000 Annual OPEB Cost (Expense) 1,386,456 1,226,662 Contributions Made 2,426,355 2,250,198 Increase in Net OPEB Asset (1,039,899) (1,023,535) Net OPEB Asset - Beginning of Year (9,345,437) (8,321,902) Net OPEB Asset - End of Year $ (10,385,336) $ (9,345,437) For 2014, in addition to the ARC, the District contributed cash benefit payments outside the trust (healthcare premium payments for retirees to Special District Risk Management Authority (SDRMA) in the amount of $940,355, which is included in the $2,426,355 of contributions shown above. For 2013 this amount was $877,196, which is included in the $2,250,198 of contributions shown above. 54 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 7) OTHER POST EMPLOYMENT BENEFITS - Continued Annual OPEB Cost and Net OPEB Obligation/Asset - Continued The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation/asset for the fiscal years 2014, 2013 and 2012 were as follows: THREE-YEAR TREND INFORMATION FOR CERBT Fiscal Annual OPEB Percentage of Net OPEB Year Cost (AOC) OPEB Cost Contributed Obligation 6/30/14 $ 1,386,456 175% $ (10,385,336) 6/30/13 $ 1,226,662 183% $ (9,345,437) 6/30/12 $ 1,239,315 173% $ (8,321,902) Funded Status and Funding Progress The funded status of the plan as of June 30, 2013, the most recent actuarial valuation date, was as follows: Actuarial Accrued Liability (AAL) $ 22,891,000 Actuarial Value of Plan Assets $ 11,831,000 Unfunded Actuarial Accrued Liability (UAAL) $ 11,060,000 Funded Ratio (Actuarial Value of Plan Assets/AAL) 51.68% Covered Payroll (Active Plan Members) $ 11,969,000 UAAL as a Percentage of Covered Payroll 92.41% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 55 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 7) OTHER POST EMPLOYMENT BENEFITS - Continued Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following is a summary of the actuarial assumptions and methods: Valuation Date June 30, 2013 Actuarial Cost Method Entry Age Normal Cost Method Amortization Method Level Percent of Payroll Remaining Amortization Period 24-Year Fixed (Closed) Period as of the Valuation Date Asset Valuation Method 5-Year Smoothed Market Actuarial Assumptions: Investment Rate of Return 7.25% (Net of Administrative Expenses) Projected Salary Increase 3.25% Inflation 3.00% Individual Salary Growth CalPERS 1997-2007 Experience Study Healthcare Cost Trend Rate Medical: 10% per annum graded down in approximately one-half percent increments to an ultimate rate of 5%. Dental: 4% per annum. 8) WATER CONSERVATION AUTHORITY In 1999 the District formed the Water Conservation Garden Authority (the “Authority”), a Joint Powers Authority, with other local entities to construct, maintain and operate a xeriscape demonstration garden in the furtherance of water conservation. The authority is a non-profit public charity organization and is exempt from income taxes. During the years ended June 30, 2014 and 2013, the District contributed $119,687 and $120,684, respectively, for the development, construction and operation costs of the xeriscape demonstration garden. 56 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 8) WATER CONSERVATION AUTHORITY - Continued A summary of the Authority’s June 30, 2013 audited financial statement is as follows (latest report available): 9) COMMITMENTS AND CONTINGENCIES Construction Commitments The District had committed to capital projects under construction with an estimated cost to complete of $8,488,804 at June 30, 2014. Litigation Certain claims, suits and complaints arising in the ordinary course of operation have been filed or are pending against the District. In the opinion of the staff and counsel, all such matters are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involved such amounts, as would not have significant effect on the financial position or results of operations of the District if disposed of unfavorably. Refundable Terminal Storage Fees The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee in order to provide the District with the funds necessary to build additional storage capacity. The agreement further allows the developers to relinquish all or a portion of such water storage capacity. If the District grants to another property owner the relinquished storage capacity, the District shall refund to the applicable developer $746 per equivalent dwelling unit (EDU). There were 17,867 EDUs that were subject to this agreement. At June 30, 2013, 1,751 EDUs had been relinquished and refunded, 15,031 EDUs had been connected, and 1,085 EDUs have neither been relinquished nor connected. At June 30, 2014, 1,751 EDUs had been relinquished and refunded, 15,073 EDUs had been connected, and 1,043 EDUs have neither been relinquished nor connected. Assets $ 1,555,790 Liabilities 3,750 Net Assets $ 1,552,040 Revenues, Gains and Other Support $ 135,000 Expenses 238,551 Changes in Net Assets $ (103,551) 57 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 9) COMMITMENTS AND CONTINGENCIES - Continued Developer Agreements The District has entered into various Developer Agreements with developers towards the expansion of District facilities. The developers agree to make certain improvements and after the completion of the projects the District agrees to reimburse such improvements with a maximum reimbursement amount for each developer. Contractually, the District does not incur a liability for the work until the work is accepted by the District. As of June 30, 2014, none of the outstanding developer agreements had been accepted, however, it is anticipated that the District will be liable for an amount not to exceed $221,320 at the point of acceptance. Accordingly, the District has accrued a liability as of year end. 10) RISK MANAGEMENT General Liability The District is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omissions, and natural disasters. Beginning in July 2003, the District began participation in an insurance pool through the Special District Risk Management Authority (SDRMA). SDRMA is a not-for-profit public agency formed under California Government Code Sections 6500 et. Seq. SDRMA is governed by a board composed of members from participating agencies. The mission of SDRMA is to provide renewable, efficiently priced risk financing and risk management services through a financially sound pool. The District pays an annual premium for commercial insurance covering general liability, excess liability, property, automobile, public employee dishonesty, and various other claims. Accordingly, the District retains no risk of loss. Separate financial statements of SDRMA may be obtained at Special District Risk Management Authority, 1112 “I” Street, Suite 300, Sacramento, CA 95814. General and Auto Liability, Public Officials’ Errors and Omissions and Employment Practices Liability: Total risk financing limits of $10 million combined single limit at $10 million per occurrence, subject to the following deductibles:  $500 per occurrence for third party general liability property damage;  $1,000 per occurrence for third party auto liability property damage;  50% co-insurance of cost expended by SDRMA, in excess of $10,000 up to $50,000, per occurrence, as respects any employment practices claim or suit arising in whole or any part out of any action involving discipline, demotion, reassignment or termination of any employee of the member. . 58 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 10) RISK MANAGEMENT - Continued General Liability – Continued Employee Dishonesty Coverage: Total of $400,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and Theft, Disappearance and Destruction coverage’s effective July 1, 2013 Property Loss: Replacement cost, for property on file, if replaced, and if not replaced within two years after the loss, paid on an actual cash value basis, to a combined total of $1 billion per occurrence, subject to a $2,000 deductible per occurrence, effective July 1, 2013. Boiler and Machinery: Replacement cost up to $100 million per occurrence, subject to a $1,000 deductible, effective July 1, 2013. Public Officials Personal Liability: $500,000 each occurrence, with an annual aggregate of $500,000 per each elected/appointed official to which this coverage applies, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage’s, deductible of $500 per claim, effective July 1, 2013. Comprehensive and Collision: On selected vehicles, with deductibles of $250/$500 or $500/$1,000, as elected; ACV limits; fully self-funded by SDRMA; Policy No. LCA - SDRMA - 201314, effective July 1, 2013. Workers’ Compensation Coverage and Employer’s Liability: Statutory limits per occurrence for Workers’ Compensation and $5.0 million for Employer’s Liability Coverage, subject to the terms, conditions and exclusions as provided in the Memorandum of Coverage, effective July 1, 2013. Health Insurance Beginning in January 2008, the District began providing health insurance through SDRMA covering all of its employees, retirees, and other dependents. SDRMA is a pooled medical program, administered in conjunction with the California State Association of Counties (CSAC). Adequacy of Protection During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. 59 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 11) INTEREST EXPENSE Interest expense for the years ended June 30, 2014 and 2013, is as follows: 2014 2013 Amount Expensed $ 4,872,060 $ 3,977,538 Amount Capitalized as a Cost of Construction Projects 176,782 995,721 Total Interest $ 5,048,842 $ 4,973,259 12) SEGMENT INFORMATION During the June 30, 2011 fiscal year, the District issued Revenue Bonds to finance certain capital improvements. While water and wastewater services are accounted for jointly in these financial statements, the investors in the Revenue Bonds rely solely on the revenues of the water services for repayment. 60 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 12) SEGMENT INFORMATION - Continued Summary financial information for the water services is presented for June 30, 2014: Condensed Statement of Net Position June 30, 2014 Water Services ASSETS Current Assets $ 99,383,693 Capital Assets 448,775,521 Other Assets 11,756,796 Total Assets 559,916,010 DEFERRED OUTFLOWS OF RESOURCES Deferred Amount on Refunding 78,118 Total Deferred Outflows of Resources 78,118 LIABILITIES Current Liabilities 25,670,427 Long-term Liabilities 105,971,711 Total Liabilities 131,642,138 NET POSITION Invested in Capital Assets 343,531,272 Restricted for Debt Service 3,855,673 Unrestricted 80,965,045 Total Net Position $ 428,351,990 61 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 12) SEGMENT INFORMATION - Continued Condensed Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2014 Water Services Operating Revenues Water Sales $ 81,287,164 Connection and Other Fees 1,943,306 Total Operating Revenues 83,230,470 Operating Expenses Cost of Water Sales 56,068,147 Administrative and General 18,608,603 Depreciation 15,014,281 Total Operating Expenses 89,691,031 Operating Income (Loss) (6,460,561) Non-operating Revenues (Expenses) Investment Earnings 459,098 Taxes and Assessments 3,536,200 Availability Charges 685,444 Gain (Loss) on Sale of Capital Assets (426,140) Rents and Leases 1,317,736 Miscellaneous Revenues 2,034,182 Donations (119,687) Interest Expense (4,872,060) Miscellaneous Expenses (3,054,447) Total Non-operating Revenues (Expenses) (439,674) Income (Loss) Before Capital Contributions (6,900,235) Capital Contributions 2,725,666 Change in Net Position (4,174,569) Total Net Position, Beginning 432,526,559 Total Net Position, Ending $ 428,351,990 62 Notes to Financial Statements See Independent Auditors’ report Years Ended June 30, 2014 and 2013 12) SEGMENT INFORMATION - Continued Condensed Statement of Cash Flows For the Year Ended June 30, 2014 Water Services Net Cash Provided By (Used For): Operating Activities $ 6,536,602 Non-capital and Related Financing Activities 4,836,386 Capital and Related Financing Activities (10,115,070) Investing Activities (8,693,128) Net Increase (Decrease) in Cash and Cash Equivalents (7,435,210) Cash and Cash Equivalents, Beginning 38,045,323 Cash and Cash Equivalents, Ending $ 30,610,113 63 Required Supplementary Information See Independent Auditors’ report Years Ended June 30, 2014 and 2013 Schedule of Funding Progress for PERS Actuarial Accrued UAAL as a Actuarial Actuarial Liability Unfunded Percentage of Valuation Value of (AAL) Entry AAL Funded Covered Covered Date Assets Age (UAAL) Ratio Payroll Payroll (A) (B) (B - A) (A/B) (C) [(B-A)/C] 6/30/12 Miscellaneous $ 66,578,121 $ 95,927,777 $ 29,349,656 69.4% $ 11,474,462 255.8% 6/30/11 Miscellaneous $ 62,435,349 $ 88,411,019 $ 25,975,670 70.6% $ 12,289,529 211.4% 6/30/10 Miscellaneous $ 57,613,987 $ 81,306,934 $ 23,692,947 70.9% $ 12,140,989 195.1% Schedule of Funding Progress for DPHP Actuarial Accrued UAAL as a Actuarial Actuarial Liability Unfunded Percentage of Valuation Value of (AAL) Entry AAL Funded Covered Covered Date Assets Age (UAAL) Ratio Payroll Payroll (A) (B) (B - A) (A/B) (C) [(B-A)/C] 6/30/13 Miscellaneous $ 11,831,000 $ 22,891,000 $ 11,060,000 51.68% $ 11,969,000 92.41% 6/30/11 Miscellaneous $ 7,893,000 $ 18,289,000 $ 10,396,000 43.16% $ 12,429,000 83.64% 6/30/09 Miscellaneous $ 6,273,000 $ 10,070,000 $ 3,797,000 62.29% $ 11,878,000 31.97% 64 Statistical Schedules The Statistical Schedule is part of understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health. Contents Page Financial Trends 6666 These schedules contain trend information to help the reader understand how the District’s financial performance and well-being have changed over time. Revenue Capacity 7722 These schedules contain information to help the reader assess the factors affecting the District’s ability to generate its potable and recycled water, and sewer sales as well as property and sales taxes. Debt 8811 These schedules present information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt. Demographic and Economic Information 8855 These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place and to help make comparisons over time and with other governments. Operating Information 8877 These schedules contain information about the District’s operation and resources to help the reader understand how the District’s financial information relates to the services the District provides and the activities it performs. Sources Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports of the relevant year. The District implemented GASB Statement 34 in 2001; schedules presenting government-wide information include information beginning in that year. 65 Fiscal Net Investment Total Year in Capital Assets Restricted Unrestricted Net Position 2014 357,912,154$ 3,855,673$ 83,039,993$ 444,807,820$ 2013 376,549,168 4,612,890 67,071,849 448,233,907 2012 381,725,015 4,715,904 67,701,068 454,141,987 2011 377,656,762 4,915,555 74,627,563 457,199,880 2010 375,953,042 5,192,111 80,204,428 461,349,581 2009 382,410,491 1,797,512 76,136,868 460,344,871 2008 372,696,591 9,411,114 74,719,712 456,827,417 2007 374,667,591 2,071,307 70,282,627 447,021,525 2006 361,590,845 2,408,473 58,066,009 422,065,327 2005 325,676,089 16,188,364 69,224,020 411,088,473 Source: Otay Water District Net Position by Component - Last Ten Fiscal Years $360,000 $380,000 $400,000 $420,000 $440,000 $460,000 $480,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total Net Positon, in Thousands ($) 66 Total Operating Non-Operating Income (Loss) Changes Fiscal Operating Operating Income/ Revenues/ Before Capital Capital in Net Year Revenues Expenses (Loss) (Expenses)Contributions Contributions Position 2014 86,025,573$ 92,567,023$ (6,541,450)$ (277,057)$ (6,818,507)$ 3,392,420$ (3,426,087)$ 2013 76,881,388 87,335,338 (10,453,950) 1,770,738 (8,683,212) 2,775,132 (5,908,080) 2012 68,400,349 81,795,466 (13,395,117) 3,511,327 (9,883,790) 6,825,897 (3,057,893) 2011 63,204,216 77,266,228 (14,062,012) 4,452,825 (9,609,187) 7,866,190 (1,742,997) 2010 60,686,681 73,126,342 (12,439,661) 5,937,575 (6,502,086) 8,839,892 2,337,806 2009 57,103,311 71,507,161 (14,403,850) 10,932,096 (3,471,754) 6,989,208 3,517,454 2008 55,714,845 71,474,372 (15,759,527) 10,623,457 (5,136,070) 14,941,962 9,805,892 2007 53,250,481 64,651,050 (11,400,569) 9,793,692 (1,606,877) 26,563,075 24,956,198 2006 47,861,088 59,528,094 (11,667,006) 7,242,280 (4,424,726) 15,401,580 10,976,854 2005 43,335,915 56,449,475 (13,113,560) 6,271,482 (6,842,078) 34,969,305 28,127,227 Source: Otay Water District Changes in Net Position - Last Ten Fiscal Years -$6,000 -$2,000 $2,000 $6,000 $10,000 $14,000 $18,000 $22,000 $26,000 $30,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Changes in Net Position, in Thousands ($) 67 Fiscal Connection and Percent Year Water Sales Wastewater Other Fees Total Change 2014 81,287,164$ 2,791,523$ 1,946,886$ 86,025,573$ 11.9% 2013 72,187,081 2,625,087 2,069,220 76,881,388 12.4% 2012 63,830,272 2,400,313 2,169,764 68,400,349 8.2% 2011 58,293,184 2,396,385 2,514,647 63,204,216 4.1% 2010 56,249,816 2,299,585 2,137,280 60,686,681 6.3% 2009 52,428,648 2,182,429 2,492,234 57,103,311 2.5% 2008 50,808,825 2,386,285 2,519,735 55,714,845 4.6% 2007 48,605,606 2,604,431 2,040,444 53,250,481 11.3% 2006 43,755,610 2,331,094 1,774,384 47,861,088 10.4% 2005 39,348,056 2,018,596 1,969,263 43,335,915 4.3% Source: Otay Water District Operating Revenues by Source - Last Ten Fiscal Years $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Operating Revenues, in Thousands ($) 68 Fiscal Cost of Administrative Percent Year Water Sales Wastewater and General Depreciation Total Change 2014 56,068,147$ 1,834,465$ 18,608,603$ 16,055,808$ 92,567,023$ 6.0% 2013 50,600,551 1,638,354 18,550,811 16,545,622 87,335,338 6.8% 2012 46,106,403 2,547,929 17,926,430 15,214,704 81,795,466 5.9% 2011 42,029,819 2,592,823 18,763,380 13,880,206 77,266,228 5.7% 2010 39,338,495 2,169,988 18,320,362 13,297,497 73,126,342 2.3% 2009 37,252,482 1,890,804 19,888,161 12,475,714 71,507,161 0.05% 2008 35,296,002 2,009,876 21,127,922 13,040,572 71,474,372 10.6% 2007 33,994,841 1,508,672 18,418,441 10,729,096 64,651,050 8.6% 2006 32,043,395 1,899,957 15,477,287 10,107,455 59,528,094 5.5% 2005 30,127,087 2,050,643 13,747,611 10,524,134 56,449,475 9.6% CHART SOURCE DATA 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Otay Water District Operating Expenses by Function - Last Ten Fiscal Years $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Operating Expenses, in Thousands ($) Cost of Water Sales Wastewater Administrative and General Depreciation 69 Fiscal Investment Taxes and Availability Rents and Percent Year Earnings Assessments Charges Leases Miscellaneous Total Change 2014 522,286$ 3,537,162$ 729,961$ 1,317,736$ 1,661,992$ 7,769,137$ -0.2% 2013 22,155 3,545,595 707,881 1,276,914 2,233,804 7,786,349 -14.9% 2012 436,596 3,502,155 696,863 1,222,060 3,288,111 9,145,785 4.4% 2011 854,440 3,895,938 653,012 1,185,573 2,174,690 8,763,653 0.2% 2010 1,323,844 3,973,328 670,784 1,083,988 1,693,942 8,745,886 -37.7% 2009 2,252,335 4,586,823 625,065 1,029,506 5,545,344 (2)14,039,073 3.5% 2008 4,538,791 4,591,023 744,722 962,929 2,729,277 13,566,742 22.3% 2007 4,416,342 4,151,956 715,664 914,403 897,216 11,095,581 29.7% 2006 3,188,645 2,779,635 609,099 806,014 1,172,618 8,556,011 4.1% 2005 2,052,292 2,326,526 556,590 766,733 2,518,395 (1)8,220,536 15.5% (1) The District sold capital assets during Fiscal Year 2005 which resulted in a gain of $2,196,655. in Fiscal Year 2009. Source: Otay Water District Non-Operating Revenues by Source - Last Ten Fiscal Years (2) The District received a large, one-time legal settlement as a member of a class action lawsuit $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Non-Operating Revenues, in Thousands ($) 70 Fiscal Interest Percent Year Donations (1)Expense Miscellaneous Total Change 2014 119,687$ 4,872,060$ 3,054,447$ (3)8,046,194$ 33.8% 2013 120,684 3,977,538 1,917,389 6,015,611 6.8% 2012 121,617 3,899,927 1,612,914 (2)5,634,458 35.6% 2011 120,648 3,877,531 158,337 4,156,516 48.0% 2010 100,240 2,404,530 303,541 2,808,311 -9.6% 2009 95,270 1,340,110 1,671,597 3,106,977 5.6% 2008 80,541 2,601,252 261,492 2,943,285 126.1% 2007 80,000 950,479 271,410 1,301,889 -0.9% 2006 75,000 959,225 279,506 1,313,731 -32.6% 2005 61,411 1,327,844 559,799 1,949,054 -46.4% (1) Donations are contributions to the Water Conservation Authority formed in 1999. See Note 8 in the Notes to Financial Statements for more information. (2) Miscellaneous expense includes $1.4 million of non-capitalizable expenses with corresponding miscellaneous revenues. In prior years these expenses and revenues were presented, net of revenue, in miscellaneous revenues. (3) Miscellaneous expense includes $2 million of non-capitalizable expenses which were funded by the 2010 Water Revenue Bonds. Source: Otay Water District Non-Operating Expenses by Function - Last Ten Fiscal Years - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Non-Operating Expenses, in Thousands ($) Miscellaneous Interest Expense Donations 71 Fiscal Total Direct Year Real Personal Total Tax Rate 2014 22,739,584,104$ 564,518,965$ 23,304,103,069$ 1.00% 2013 22,253,255,369 583,080,854 22,836,336,223 1.00% 2012 22,556,489,450 588,978,085 23,145,467,535 1.00% 2011 22,997,752,952 521,424,896 23,519,177,848 1.00% 2010 23,671,616,006 527,200,694 24,198,816,700 1.00% 2009 26,269,630,081 482,465,611 26,752,095,692 1.00% 2008 25,333,821,005 568,975,196 25,902,796,201 1.00% 2007 22,166,251,649 518,441,943 22,684,693,592 1.00% 2006 19,204,029,184 361,636,280 19,565,665,464 1.00% 2005 16,121,465,817 301,937,884 16,423,403,701 1.00% Source: County of San Diego Auditor and Controller Last Ten Fiscal Years Assessed Valuation of Taxable Property within the District - $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Assessed Valuation of Property, In Thousands ($) 72 Fiscal Year Purchases Sales Production Purchases Sales 2014 14,554,049 13,720,119 503,120 1,664,630 2,068,330 2013 13,888,496 13,189,042 486,610 1,415,610 1,878,950 2012 13,304,444 12,510,894 285,190 1,381,300 1,652,833 2011 13,007,365 12,363,608 461,060 1,293,310 1,676,775 2010 13,580,004 12,749,799 449,771 1,250,873 1,774,563 2009 15,233,498 14,923,843 367,461 1,593,621 1,991,737 2008 16,572,271 15,575,662 538,227 1,566,148 2,001,137 2007 18,255,735 16,059,464 550,206 284,499 (2)1,920,287 2006 17,972,146 14,723,988 537,400 - 1,722,057 2005 16,412,711 13,708,001 501,114 - 1,447,020 (1) Rates are not presented on this schedule because the District has multiple water rates for various meter sizes and customer classes and cannot represent rates in a meaningful manner with a weighted average rate. See Water and Sewer rates on pages 77-79 for meter sizes and their corresponding water rates. (2) The District entered into an agreement with the City of San Diego and began purchasing recycled water from their South Bay Water Reclamation Plant in 2007. Source: Otay Water District Per 100 Cubic Feet Water Purchases, Production, and Sales - Last Ten Fiscal Years Recycled Water (1) Per 100 Cubic Feet Potable Water (1) 0 50,000 100,000 150,000 200,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Recycled Purchases Recycled Water Production Potable Water Purchases Water Purchases, Productions, and Sales, in Hundred Cubic Feet (HCF) 73 Fiscal Year Total 2014 195 3 198 2014 2013 305 5 310 2012 457 24 481 2011 283 9 292 2010 288 17 305 2009 113 44 157 2008 224 22 246 2007 563 85 648 2006 788 47 835 2005 1,406 95 1,501 Source: Otay Water District Meter Sales by Type - Last Ten Fiscal Years Potable Recycled 0 500 1,000 1,500 2,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Meter Sales by Type Recycled Potable 74 Fiscal Year Potable Recycled Sewer Total 2014 49,148 702 4,657 54,507 2013 48,962 704 4,655 54,321 2012 48,665 696 4,655 54,016 2011 48,154 685 4,655 53,494 2010 47,845 683 4,646 53,174 2009 47,608 671 4,638 52,917 2008 47,591 626 4,627 52,844 2007 47,461 588 4,567 52,616 2006 46,851 558 4,571 51,980 2005 46,042 483 4,570 51,095 Source: Otay Water District Number of Customers by Service Type - Last Ten Fiscal Years 5,000 15,000 25,000 35,000 45,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Number of Customers by Service Type Sewer Recycled Potable 75 Fiscal Year 1% Property Tax Special Assessments Total Levies Total Collections (1) End of the Year Percent Collected 2014 3,032,618$ 2,096,409$ 5,129,027$ 4,885,718$ 95% 2013 3,014,180 2,139,415 5,153,595 4,790,286 93% 2012 3,115,841 2,108,269 5,224,110 4,809,293 92% 2011 3,156,446 2,497,117 5,653,563 5,199,833 92% 2010 3,622,861 2,179,270 5,802,131 5,272,728 91% 2009 3,661,961 2,455,211 6,117,172 5,591,554 91% 2008 3,437,810 2,561,574 5,999,384 5,612,821 94% 2007 2,689,068 2,403,275 5,092,343 4,735,879 93% 2006 1,420,049 2,489,123 3,909,172 3,713,714 95% 2005 1,173,319 2,406,521 3,579,840 3,324,186 93% (1) Levies and collections include Current Secured, Current Unsecured, and Supplemental Homeowners Exemptions. Source: Otay Water District Property Tax Levies and Collections - Last Ten Fiscal Years $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Levies and Collections, in Thousands ($) Levies Collections 76 Fixed Rates 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 System Fee by Meter Size Residential 3/4"16.19$ 16.74$ 14.58$ 14.58$ 14.58$ 13.83$ 12.30$ 11.30$ 10.25$ 10.25$ 1"22.87 21.26 18.52 18.52 18.52 17.56 19.80 18.15 16.50 16.50 1.5"39.58 32.57 28.37 28.37 28.37 26.90 51.95 35.75 32.50 32.50 Non-Residential & Others 3/4"16.19 16.74 14.58 14.58 14.58 13.83 24.00 22.00 20.00 20.00 1"22.87 21.26 18.52 18.52 18.52 17.56 36.95 33.90 30.80 30.80 1.5"39.58 32.57 28.37 28.37 28.37 26.90 51.95 47.50 43.30 43.30 2"59.62 46.13 40.18 40.18 40.18 38.10 64.95 59.60 54.20 54.20 3"113.08 82.29 71.68 71.68 71.68 67.98 104.55 95.90 87.20 87.20 4"173.22 122.99 107.13 107.13 107.13 101.59 119.70 109.80 99.80 99.80 6"340.29 236.02 205.59 205.59 205.59 194.96 239.20 219.45 199.50 199.50 8"540.76 371.64 323.73 323.73 323.73 307.00 - - - - 10"774.64 529.88 461.57 461.57 461.57 437.71 456.60 418.90 380.50 380.50 CWA and MWD Pass-through charges by Meter Size Residential 3/4"14.45 13.28 14.01 11.82 9.77 4.33 3.85 3.55 2.85 2.50 1"26.79 22.12 23.33 19.69 16.28 6.91 6.15 5.65 4.55 4.00 1.5"60.61 44.31 46.74 39.44 32.61 13.04 11.60 10.65 8.55 7.50 Non-Residential & Others 3/4"14.45 13.28 14.01 11.82 9.77 4.33 3.85 3.55 2.85 2.50 1"26.79 22.12 23.33 19.69 16.28 6.91 6.15 5.65 4.55 4.00 1.5"60.61 44.31 46.74 39.44 32.61 13.04 11.60 10.65 8.55 7.50 2"103.08 70.85 74.74 63.07 52.15 22.54 20.05 18.45 14.80 13.00 3"219.23 141.71 149.48 126.14 104.30 41.53 36.95 34.05 27.35 19.20 4"351.09 221.43 233.58 197.17 162.98 70.98 63.15 58.20 46.75 41.00 6"718.69 442.80 467.09 394.17 325.92 129.82 115.50 106.45 85.50 75.00 8"1,160.59 708.53 747.39 630.71 521.51 374.62 - - - - 10"1,670.55 1,015.06 1,070.74 903.58 749.61 538.52 300.30 276.75 222.30 195.00 Fire Services All Types 30.11 30.11 30.11 28.55 25.40 23.30 21.20 21.20 Lower than 4 inch 21.14 34.57 Higher than 4 inch 28.49 34.57 Source: Otay Water District Water Fixed Rates - Last Ten Fiscal Years 77 Usage Rate (1)2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Tier 1 1.86$ 1.73$ 1.58$ 1.49$ 1.35$ 1.12$ 1.12$ 1.08$ 1.05$ 1.01$ Tier 2 2.90 2.69 2.45 2.31 2.10 1.74 1.85 1.78 1.73 1.67 Tier 3 3.77 3.50 3.19 3.00 2.73 2.26 2.01 1.94 1.88 1.81 Tier 4 5.80 5.39 4.92 4.63 4.21 3.48 2.94 2.83 2.75 2.65 Tier 5 - - - - - - - - - - Tier 1 2.86 2.66 2.43 2.29 2.08 1.72 1.85 1.78 1.73 1.67 Tier 2 3.71 3.45 3.15 2.97 2.70 2.23 2.01 1.94 1.88 1.81 Tier 3 5.73 5.32 4.85 4.57 4.15 3.43 2.94 2.83 2.75 2.65 Publicly-Owned (2)2.06 1.99 1.93 1.86 Commercial & Others (3)1.98 1.91 1.85 1.78 Government Fee (2)0.31 0.29 0.29 0.29 0.29 0.29 0.28 - - - Tier 1 3.06 2.84 2.59 2.44 2.22 1.84 Tier 2 3.14 2.92 2.66 2.50 2.27 1.88 Tier 3 3.19 2.96 2.70 2.54 2.31 1.91 Tier 1 4.17 3.87 3.53 3.32 3.02 2.50 Tier 2 4.25 3.95 3.60 3.39 3.08 2.55 Tier 3 4.32 4.01 3.66 3.45 3.14 2.60 Recycled (Commercial)1.67 1.65 1.57 1.51 Recycled (Publicly-Owned) (2)1.75 1.73 1.65 1.59 Tier 1 3.56 3.31 3.02 2.84 2.58 2.13 Tier 2 3.61 3.35 3.06 2.88 2.62 2.17 Tier 3 3.68 3.42 3.12 2.94 2.67 2.21 Energy Pumping Fee Per 100 cubic feet (4)0.048 0.042 0.045 0.044 0.038 0.034 0.034 0.032 0.032 0.032 (1) Effective 2009, all non-residential customers are charged based on a tiered rate system in which the water rates are based on meter size and amount of water units consumed each month. (2) An additional $.31 per unit was charged to governmental customers this is in lieu of tax revenues. In the past, an additional $.08 is added to the publicly-owned companies water rate. (3) Others include agricultural and temporary meters. (4) Water customers are charged an energy pumping charge based on the quantity of water used and the elevation to which the water has been lifted to provide service. The energy pumping charge is the rate of $.048 per 100 cubic feet of water for each 100 feet of lift above the base elevation of 450 feet. All water customers are in one of twenty-nine zones based on elevation. Source: Otay Water District Water Variable Rates - Last Ten Fiscal Years Recycled Public Agency & Commercial Landscape, Agricultural & Construction Master Meter Residential 78 Description 2014 2013** 2012 2011 2010 2009 2008* 2007 2006 2005 1 Unit 2.46$ 2.35$ 1.77$ 1.67$ 1.56$ 1.47$ 1.41$ - - - Low Strength 2.46 2.35 Medium Strength 3.53 3.37 High Strength 5.63 5.37 Sewer Rate Per ASU 41.75 39.39 36.88 34.79 33.26 32.70$ 30.90$ 26.90$ 3/4"15.89 14.38 12.26 11.57 10.80 10.20 9.75 1"15.89 14.38 17.88 16.87 15.75 14.90 14.25 3/4"27.07 25.83 1"39.86 38.03 1.5"71.82 68.53 2"110.17 105.12 3"199.66 190.52 4"327.51 312.51 6"647.12 617.48 8"1,030.67 983.46 10"1,478.12 1,410.42 Calculation of Monthly Residential Sewer Billing: *Bill calculation prior to calendar year 2008: Sewer Rate per ASU (10) Bill calculation beginning calendar year 2008: (Winter Average (9) x .85 (2) x Usage Fee) + Fixed Fee (8) Calculation of Monthly Non-Residential Sewer Billing: Footnotes: (1) Flow in gallons per day (Flow) is calculated using monthly readings from account's water meter. (2) Flow is reduced by 15 percent to reflect that not all water purchased is disposed of into the public sewer system. (3) Flow is divided by 250 gallons per day to convert it in terms of residential equivalence. (4) Strength factors for business cutomers are categorized as low, medium or high strength. (5) The average annual usage is defined as the units of water billed from January through December of previous year. (6) The usage fee is based on the commercial account's strength factor as shown on the usage fee table as being either Low, Medium, or High. (7) The fixed rate is based on the size of the water meter. (8) The winter average for a residential customer is defined as the units of water billed from January-April of the previous calendar year divided by the number of months of service. (9) The ASU (assigned service unit) is then multiplied by the district-wide sewer rate. Source: Otay Water District Sewer Variable and Fixed Rates - Last Ten Fiscal Years Non-Residential Fixed Rates Usage Fee **Bill calculation prior to calendar year 2012: ((Flow in gallons per day (1) x .85 (2)/250 (3))) x Strength Factor (4) Bill calculation beginning calendar year 2013: ((Average Annual Usage (5) x .85 (2) )/250 (3) x Usage Fee (7))) + Fixed Fee (8) Residential Non-Residential Residential 79 Annual % of Business Type Revenues Water 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 (10 Largest)9,253,517$ 11.4% Other Customers 72,033,647 88.6% Total Water Sales 81,287,164$ 100.0% Annual % of Business Type Revenues Water Sales 1. City of Chula Vista Publicly Owned 1,011,094$ 2.6% 2. State of California Publicly Owned 841,516 2.1% 3. County of San Diego Publicly Owned 689,928 1.8% 4. Eastlake III Business/Irrigation (Recycled)494,954 1.3% 5. Steele Canyon Irrigation (Potable Permanent)435,783 1.1% 6. McMillin Construction (Potable)379,118 1.0% 7. Signs & Pinnick, Inc.Irrigation (Potable Temporary)374,752 1.0% 8. Eastlake Country Club Irrigation (Recycled)333,671 0.8% 9. California Bank & Trust Irrrigation (Recycled)303,053 0.8% 10. Singing Hills Residential/Irrigation (Potable)281,216 0.7% Total (10 Largest)5,145,085$ 13.2% Other Customers 34,202,971 86.8% Total Water Sales 39,348,056$ 100.0% Source: Otay Water District Ten Largest Customers - Current Year and Nine Years Ago Customer Name Customer Name FISCAL YEAR 2014 FISCAL YEAR 2005 80 As a Share Fiscal Population GO Revenue Capital Per of Personal Year Estimate Bond COPS Bonds Notes Leases Total Capita Income(1) 2014 213,000 5,833,563$ 46,475,314$ 56,508,490$ -$ - 108,817,367$ 510.88$ 0.99% 2013 211,000 6,384,918 47,920,525 (2)58,158,987 - - 112,464,430 533.01 1.06% 2012 208,500 6,921,271 58,023,740 50,321,421 - - 115,266,432 552.84 1.14% 2011 206,500 6,803,577 59,715,531 51,180,822 6,010 - 117,705,940 570.00 1.19% 2010 206,000 7,283,127 61,489,612 51,255,224 359,744 - 120,387,707 584.41 1.28% 2009 195,000 7,726,575 63,213,693 - 701,516 - 71,641,784 367.39 0.83% 2008 191,500 8,093,302 64,892,774 - 1,031,730 - 74,017,806 386.52 0.85% 2007 190,000 8,445,029 65,851,790 - 1,350,778 - 75,647,597 398.15 0.89% 2006 189,000 8,776,755 24,909,352 - 1,659,037 51,589 35,396,733 187.28 0.44% 2005 186,000 9,093,482 25,653,607 - 1,956,871 100,666 36,804,626 197.87 0.49% (1) See the Demographics and Economic Statistics schedule on page 86 for personal income data. (2) 2004 COPS were refunded with the issuance of 2013 Water Revenue Refunding Bonds in June 2013. Source: Otay Water District Ratios of Outstanding Debt by Type - Last Ten Fiscal Years $0 $100 $200 $300 $400 $500 $600 $700 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Outstanding Debt, Per Capita 81 Adjusted Net Revenues Fiscal Adjusted Operating Available for Debt Service Requirements (4)Coverage Year Revenues (1)Expenses (2)Debt Service Principal Interest Total Factor (3) 2014 90,948,021$ 75,575,679$ $15,372,342 $2,935,000 $4,895,622 $7,830,622 196% 2013 81,778,447 70,228,987 11,549,460 2,800,000 4,988,640 7,788,640 148% 2012 74,484,691 64,028,686 10,456,005 1,850,000 6,050,746 7,900,746 132% 2011 69,653,627 60,117,245 9,536,382 1,795,000 5,084,450 6,879,450 139% 2010 65,573,058 57,084,904 8,488,154 1,745,000 2,720,258 4,465,258 190% 2009 63,739,773 57,076,567 6,663,207 1,700,000 2,342,048 4,042,048 165% 2008 63,732,275 56,420,286 7,311,989 800,000 2,567,884 3,367,884 217% 2007 69,442,301 52,413,282 17,029,019 790,000 1,513,834 2,303,834 739% 2006 58,572,428 47,520,682 11,051,746 745,000 917,790 1,662,790 665% 2005 56,597,040 43,936,109 12,660,931 650,000 869,715 1,519,715 833% (1) Adjusted revenues exclude sewer revenues and taxes collected for Improvement District 27 and are inclusive of capacity fees. (2) Adjusted operating expenses exclude sewer expenses and depreciation expense. (3) The District's bond covenants require a minimum coverage factor of 125%. (4) Pledge debts are Certificates of Participation (COPS) and Revenue Bonds. Source : Otay Water District Pledged Revenue Coverage - Last Ten Fiscal Years 00% 200% 400% 600% 800% 1,000% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Coverage Factor, in Percentage (%) Actual Ratio Minimum ratio 82 Net Bonded Net Debt to Net Bonded Fiscal Population Assessed Bonded Assessed Debt Per Year Estimate Valuation Debt Valuation Capita 2014 213,000 23,304,103,069$ 5,833,563$ 0.03%27.39 2013 211,000 22,836,336,223 6,384,918 0.03%30.26 2012 208,500 23,145,467,535 6,921,271 0.03%33.20 2011 206,500 23,519,177,848 6,803,577 0.03%32.95 2010 206,000 24,198,816,700 7,283,127 0.03%35.35 2009 195,000 26,752,095,692 7,726,575 0.03%39.62 2008 191,500 25,902,796,201 8,093,302 0.03%42.26 2007 190,000 22,684,693,592 8,449,025 0.04%44.47 2006 189,000 19,565,665,464 8,776,755 0.04%46.44 2005 186,000 16,423,403,701 9,093,482 0.06%48.89 Source: Otay Water District Last Ten Fiscal Years Ratios of General Bonded Debt Outstanding - 0.00% 0.01% 0.02% 0.03% 0.04% 0.05% 0.06% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Bonded Debt Ratios, in Percentage (%) 83 Computation of Direct and Overlapping Bonded Debt June 30, 2014 2013-14 Assessed Valuation: $23,304,103,069 Redevelopment Incremental Valuation: 268,264,662 Total Overlapping Tax Increment Debt 1.35% Total Debt District’s Share of DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: 6/30/14 % Applicable (1) Debt 6/30/14 Metropolitan Water District $ 132,275,000 1.064% $ 1,407,406 Otay Water District Improvement District No. 27 5,700,000 100.000 5,700,000 Grossmont-Cuyamaca Community College District 256,139,481 15.553 39,837,373 Southwestern Community College District 230,589,345 40.251 92,814,517 Grossmont Union High School District 440,000,095 15.974 70,285,615 Sweetwater Union High School District 354,404,415 48.065 170,344,482 Chula Vista City School District 91,585,000 60.115 & 23.413 43,678,703 San Ysidro School District 123,382,611 51.542 63,593,865 Other School Districts 38,791,763,631 Various 51,316,520 Grossmont Healthcare District 220,567,076 14.202 31,324,936 City of Chula Vista Community Facilities District 186,220,000 100.000 186,220,000 Chula Vista City School District Community Facilities Districts 4,440,000 100.000 4,440,000 Sweetwater Union High School District Community Facilities Districts 139,688,004 10.894-100. 130,675,505 City 1915 Act Bonds 30,676,388 7.3132-100. 27,400,250 California Statewide Communities Development Authority San Diego County / Venture Community Center Assessment District 1,039,261 100.000 1,039,261 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $ 920,078,433 Ratios to 2013-14 Assessed Valuation: Direct Debt ($5,700,000) .......................................................................................... 0.02% Total Overlapping Tax and Assessment Debt .........................................................3.95% DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations $ 379,835,000 5.899% $ 22,406,467 San Diego County Pension Obligations 720,855,256 5.899 42,523,252 San Diego Superintendent of Schools Certificates of Participation 16,125,000 5.899 951,214 Otay Water District Certificates of Participation & Revenue Bonds 101,555,000 100.000 101,555,000 Grossmont and Southwestern Community College District General Fund Obligations 2,430,000 15.553 & 40.251 664,435 Grossmont Union High School District Certificates of Participation 800,000 15.974 127,792 Sweetwater Union High School District Certificates of Participation 42,475,000 48.065 20,415,609 Chula Vista City School District Certificates of Participation 141,895,000 60.115 85,300,179 San Ysidro School District Certificates of Participation 42,013,755 51.542 21,654,730 Other School District Certificates of Participation 7,960,000 Various 1,976,388 City of Chula Vista Certificates of Participation 121,650,000 68.129 82,878,929 City of San Diego General Fund Obligations 546,930,000 0.891 4,873,146 San Miguel Consolidated Fire Protection District Certificates of Participation 4,575,000 52.463 2,400,182 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $ 387,727,323 Less: Otay Water District Certificates of Participation & Revenue Bonds (100% self-supporting) 101,555,000 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $ 286,172,323 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $ 21,625,000 16.781% $ 3,628,891 TOTAL GROSS DIRECT DEBT $ 107,255,000 TOTAL NET DIRECT DEBT $ 5,700,000 TOTAL OVERLAPPING DEBT $1,204,179,647 GROSS COMBINED TOTAL DEBT $1,311,434,647 (2) NET COMBINED TOTAL DEBT $1,209,879,647 (1) The percentage of overlapping debt applicable to the District is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district’s assessed value that is within the boundaries of the water district divided by the overlapping district’s total taxable assessed value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. Ratios to Adjusted Assessed Valuation: Gross Total Direct Debt ($107,255,000) ............................................................. 0.46% Net Total Direct Debt ($5,700,000) ...................................................................... 0.02% Gross Combined Total Debt.............................................................................................5.63% Net Combined Total Debt .................................................................................................5.19% Source: California Municipal Statistics, Inc. and Otay Water District 84 2005 % of Total % of Total County County Employer Employees Rank Employment Employees Rank Employment State of California 43,300 1 2.90% 38,700 2 2.71% UC San Diego 28,672 2 1.92% 26,654 3 1.87% Federal Government (1)24,200 3 1.62% 38,900 1 2.73% U.S. Department of Defense (1)21,500 4 1.44% County of San Diego 20,100 5 1.35% 16,803 5 1.18% City of San Diego 18,000 6 1.21% 12,384 7 0.87% Sharp HealthCare 15,865 7 1.06% 13,175 6 0.92% Scripps Health 13,750 8 0.92% 10,617 8 0.74% San Diego Unified School District 13,559 9 0.91% 21,073 4 1.48% Kaiser San Diego Medical Center 8,900 10 0.60%7,121 9 0.50% US Postal Service, San Diego District -6,464 10 0.44% Total 207,846 13.93% 191,891 13.44% were based on each individual respective units employees. In prior Fiscal Years, the Federal Government and U.S. Department of Defense figures were summarized combined totals of the underlying units. Source: California Labor Marker Info, San Diego Sourcebook, and San Diego Business Journal. Principal Employers - Current Year and Nine Years Ago 2014 (1) For Fiscal Years ending June 30, 2014 and later, the Federal Government and U.S. Department of Defense figures 85 Personal Per Capita Fiscal Income Personal Unemployment Year Population (in 000'S)Income Rate 2014 (1) 3,220,300 168,400,000$ 51,821$ 6.10% 2013 3,182,100 161,100,000 50,288 7.40% 2012 3,143,429 154,200,000 48,674 9.30% 2011 3,140,069 149,600,000 47,776 10.40% 2010 3,095,313 137,525,000 45,627 10.50% 2009 3,173,407 134,696,000 44,412 10.20% 2008 3,001,072 143,783,000 45,728 6.00% 2007 2,959,734 131,499,657 44,830 4.60% 2006 2,948,362 126,193,721 42,801 4.20% 2005 2,941,658 118,792,540 40,383 4.50% (1) Forecast Source: SANDAG; Census 2010, California Department of Finance; LAEDC-Los Angeles Economic Development Corp., The Kyser Center for Economic Research Employment Development Department; Labor Market Info. Demographic and Economic Statistics - Last Ten Fiscal Years 3.00% 5.00% 7.00% 9.00% 11.00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Unemployment Rate, in Percentage (%) 86 Number of Employees by Function - Last Ten Fiscal Years Department 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 General Manager 5 5 5 6 6 6 6 6 6 6 Finance 29 30 32 35 38 37 36 35 34 34 Operations/Maintenance 61 65 66 66 68 70 71 71 72 71 Engineering 20 19 21 21 21 23 27 31 15 13 Administrative Services 16 17 18 19 20 20 20 19 19 20 IT and Strategic Planning 12 12 13 12 13 13 13 13 12 11 Development Services (1) - - - - - - - - 17 17 Total 143 148 155 159 166 169 173 175 175 172 (1) Development Services was broken out from the Engineering and Planning Department in FY-2005 and then re-combined in FY-2007. Source : Otay Water District 125 130 135 140 145 150 155 160 165 170 175 180 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total Employees 87 Meter Size 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 3/4" & 5/8"44,375 44,354 44,376 44,065 43,815 43,641 43,551 43,544 43,070 42,420 1"2,557 2,412 2,099 1,881 1,815 1,804 1,747 1,618 1,514 1,364 1-1/2"1,332 1,333 1,326 1,317 1,317 1,309 1,275 1,242 1,199 1,147 2"1,293 1,295 1,277 1,278 1,292 1,299 1,283 1,262 1,242 1,199 3"77 76 75 75 75 75 76 76 69 67 4"189 169 180 193 184 202 258 275 277 289 6"18 18 19 21 22 21 19 24 27 27 Others 9 9 9 9 8 9 10 7 11 12 Total 49,850 49,666 49,361 48,839 48,528 48,360 48,219 48,048 47,409 46,525 % Change 0.4%0.6%1.1%0.6%0.3%0.3%0.4%1.3%1.9%3.5% Increase 184 305 522 311 168 141 171 639 884 1,594 Source : Otay Water District Active Meters by Size - Last Ten Fiscal Years 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Active Meters by Size 88 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Water System Service Area (Square Miles)125.5 125.5 125.5 125.5 125.5 125.5 125.5 125.5 125.5 125.5 Miles of Potable Water Main 726 725 724 723 723 722 722 680 663 623 40 40 40 40 40 38 36 37 37 36 Water Storage Capacity (in Acre-Feet) 668.03 667.79 670.83 673.84 663.8 655.5 605.5 601.7 601.7 582.4 Total Water Connections (No. of Meters in Service)49,260 49,150 49,493 49,094 48,662 48,522 48,376 47,615 47,409 46,525 Number of Pump Stations 21 21 21 21 21 21 21 21 22 21 Number of Potable Water Valves 20,460 20,317 20,317 19,522 19,522 19,192 19,131 18,721 18,042 17,696 Sewer System Miles of Sewer Lines 88.0 88.0 88.0 88.0 88.0 88.0 88.0 86.2 86.2 85.9 Number of Treatment Plants 1 1 1 1 1 1 1 1 1 1 Treatment Plant Capacity (Million Gallons per Day)1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 Total Flows for Fiscal Year (in Million Gallons)405 422 423 481 474 483 503 514 528 506 Recycled System Miles of Recycled Water Mains 102.0 99.0 99.0 98.0 98.0 97.0 93.0 83.0 77.6 76.4 Number of Pumping Facilities 3 3 3 3 3 3 3 3 2 2 Number of Operational Storage Reservoirs in Service 4 4 4 4 4 4 4 4 4 4 Number of Acre-Feet Storage 134.2 134.1 134.1 134.1 134.1 133.2 135.0 134.1 97.3 97.3 Number of Recycled Water Valves 1,473 1,430 1,430 1,380 1,380 1,338 1,314 1,245 1,189 1,155 Source: Otay Water District Operating and Capital Indicators - Last Ten Fiscal Years Number of Operational Storage Reservoirs in Service 550 600 650 700 750 2005 2006 2007 2008 2010 2011 2012 2013 2014 Potable Water Mains, in Miles 89