HomeMy WebLinkAbout18-Water Department
cln IF SII BERNARDINI- RE'IEST FIR CIINCllACTllN
From: Stacey R. Aldstadt, General Manager
Water
Subject: Receive and File - Annual Audit of the Water
Department's Water and Sewer Utilities for the Fiscal
Year ending June 30,2010.
Date: 1/18/2011
M&CC Meeting Date: 217/2011
Synopsis of Previous Council Action:
Similar action taken each year following completion of the Annual Audit Report
Recommended motion:
the Mayor and Council receive and file the Annual Audit of the Water Department's Water and Sewer Utilities for
llld Fiscal Year ending June 30, 2010.
s(g~ tU~,4-
Contact person: Stacev R. Aldstadt. General Manaaer
Phone:
384-5091
Supporting data attached:
Yes Ward:
FUNDING REQUIREMENTS:
Amount: N/A
Source:(Acct. No.) Water Department
(Acct. Description)
Finance:
Council Notes:
75-0262
Agenda Item No. / R'
tJ,;L-(J7- dcJ//
CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
5T AFF REPORT
Subject:
Annual Audit of the Water Department's Water and Sewer Utilities for the Fiscal Year ending
June 30, 2010.
Background:
The firm of Mayer Hoffman McCann PC, has completed the Annual Audit of the Water
Department's Water and Sewer Utilities for the Fiscal Year ending June 30,2010. This report
was presented to and accepted by the Board of Water Commissioners at their meeting of
January 4,2011.
Financial Impact:
None.
Recommendation:
That the Mayor and Common council receive and file the completed Annual Audit of the Water
Department's Water and Sewer Utilities for the Fiscal Year ending June 30, 2010.
MUNICIPAL WATER DEPARTMENT OF THE
CITY OF SAN BERNARDINO, CALIFORNIA
FINANCIAL STATEMENTS
Year ended June 30, 2010
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
FINANCIAL STATEMENTS
Year ended June 30, 2010
TABLE OF CONTENTS
Paqe
FINANCIAL SECTION
Independent Auditors' Report
Management's Discussion and Analysis
Basic Financial Statements:
Statement of Net Assets
Statement of Revenues, Expenses, and Changes in Net Assets
Statement of Cash Flows
Notes to Basic Financial Statements
1
5
12
15
16
18
SUPPLEMENTARY INFORMATION
Other Information:
Board of Water Commissioners and Organization
Schedule of Water Production and Utilization
Schedule of Cost of Water Production
Schedule of Water and Sewer Rates
Schedule of Service Area and Customers
Schedule of Water System Demographics
32
32
33
34
36
36
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I Mayer Hoffman McCann Re.
An Independent CPA Firm
2301 Dupont Drive, Suite 200
Irvine, California 92612
949-474-2020 ph
949-263-5520 fx
I www.mhm-pc.com
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying financial statements of each major fund of the
Municipal Water Department of the City of San Bernardino (Department), as of and for
the year ended June 30, 2010, which collectively comprise the Department's basic
financial statements, as listed in the table of contents. These financial statements are
the responsibility of the management of the Department. Our responsibility is to express
opinions on these financial statements based on our audit. The prior year summarized
partial comparative information has been derived from the financial statements of the
Department for the year ended June 3D, 2009 and, in our report dated January 13,
2010, we expressed an unqualified opinion on those financial statements.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United
States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements present only the financial activities of
the Department and are not intended to present fairly, in all material respects, the
financial position of the City of San Bernardino, California, and the results of its
operations and cash flows of its proprietary fund types, in conformity with accounting
principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Department, as of June 30, 2010, and the
respective changes in financial position and cash flows of the Department for the year
then ended in conformity with accounting principles generally accepted in the United
States of America.
1
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page Two
The information identified in the accompanying table of contents as management's
discussion and analysis is not a required part of the basic financial statements, but is
supplementary information required by accounting principles generally accepted in the
United States of America. We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and
presentation of the required supplementary information. However, we did not audit the
information and express no opinion on it.
Our audit was conducted for the purpose of forming an opInion on the financial
statements that collectively comprise the Department's basic financial statements. The
schedules listed in the table of contents as supplementary information are presented for
purposes of additional analysis and are not a required part of the basic financial
statements. These schedules have not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we express no
opinion on them.
In accordance with Government Auditing Standards, we have also issued a report dated
December 15, 2010 on our consideration of the Department's internal control over
financial reporting and our tests of its compliance with certain provisions of laws,
regulations, contracts, grant agreements, and other matters. The purpose of that report
is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on the internal
control over financial reporting or on compliance. That report is an integral part of an
audit performed in accordance with Government Auditing Standards and should be
considered in assessing the results of our audit.
;?!*?__ I7n"t'S:;...",.~ ,/1'7,~/.c.
Irvine, California
December 15, 2010
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
3
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4
City of San Bernardino Municipal Water Deparlment
Management's Discussion and Analysis
For the fiscal year ending June 3D, 2010
The City of San Bernardino's Municipal Water Department (Department) is a not-far-profit water
and sewer treatment utility, responsible for delivering high quality, economically priced water and
sewer treatment service to a quarter of a million customers, in and around, the City of San
Bernardino, California. This section of the Department's annual financial report presents
managements analysis of the Department's financial performance during the fiscal year that
ended on June 30, 2010. Please read it in conjunction with the basic financial statements, which
follow this section. All amounts in the Management Discussion and Analysis are in thousands
unless otherwise noted.
Financial highlights
.:. Net assets increased by $2.1 million.
.:. Operating revenues increased by $667.
.:. Operating expenses increased by $79.
.:. Current ratio (ability to pay short term obligations) of 3.3x.
.:. Cash ratio (availability of cash to meet operations) 275 days.
Overview of the financial statements
The discussion and analysis are intended to provide an introduction to the Department's basic
financial statements. The basic financial statements are comprised of two components; (1) the
Financial Statements and (2) the Notes to the Financial Statements. This report provides other
supplementary information in addition to the basic financial statements. Information providing
citywide financial results is available in the City's Comprehensive Annual Financial Report.
These financial statements offer short-term and long-term financial information about the activities
of the Department. The Statement of Net Assets (pages 12-13) includes all the Department's
resources and obligations. It is a basis for assessing the capital structure, liquidity and financial
flexibility of the Department. The Statement of Revenue, Expense and Change in Net Assets
(page 15) measures the success of the Department's operations over the past year. It may be
used to determine whether the Department has successfully recovered its costs through user
fees and rates, assess profitability and credit worthiness. The Statement of Cash Flows (pages
16-17) provides information regarding cash receipts, payments and changes in cash resulting
from operations during the reporting period. Finally, the Notes to the Financial Statements
provide additional information essential to the full understanding of the data provided in the
financial statements.
Department structure
The Department is comprised of two separate operating funds for the purpose of financial
reporting. The Water Utility provides production, treatment and distribution of potable water for
the residents and businesses located in the City of San Bernardino. The Sewer Treatment Utility
operates two facflities to treat sewer discharge for the Cities of San Bernardino, Lama Linda,
Highland (through the East Valley Water District) and Colton. The City of San Bernardino
(through its Public Services Division) operates the sewer conveyance system and the results of
that system are not included in the financial statements herein.
5
City of San Bernardino Municipal Water Department
Management's Discussion and Analysis
For the fiscal year ending June 30, 2010
Water Utility statement of net assets ($000)
Fiscal year ended June 30, 2010 2009 2008
Assets
Current, restricted & other 84,640 91,562 97,560
Net utility plant 156,146 148.126 143,254
Total assets 240,786 239,688 240,814
Liabilities
Current liabilities 7,092 8,409 9,078
Long-term liabilities 80 ,866 82,118 83.672
Total liabilities 87,958 90,527 92,750
Net assets
Investment in capital 139,689 133,834 130,610
Restricted 1,528 6,328 8,407
Unrestricted 11,611 8,999 9.047
Total net assets _152..8...28 149161 -1.48~
The water utility's net assets are $152,828, an increase of $3,667 during fiscal 2010. Most of the
increase was in investment in capital assets which includes additions to the Utility's infrastructure
purchased with capital acquisition cash, internally generated funds from operations, and the
remainder of the 2007 CIEDB bond funds. Unrestricted net assets, or those funds that may be
used to finance day to day operations, increased $2,612.
Water Utility statement of revenue, expense and changes in net assets ($000)
Fiscal year ended June 30 2010 2009 2008
Revenue
Water sales 25,613 25,309 25,295
Other operating rev 2,075 1,950 2,042
Investment income 579 1,009 1,613
Non-operating rev 2,178 2,447 2,459
Capital contributions 5,830 3,919 11,398
Total revenue 36,275 34,634 42,807
Expenses
Operating & Maintenance 14,991 15,808 15,470
Administration 11,552 11,902 12,494
Depreciation 5,410 5,225 4,490
Interest expense 655 602 592
Total expense 32,608 33,537 33,046
Net assets
Change in net assets 3,667 1,097 9,761
Beginning balance 149,161 148,064 138,303
Net assets year end 152 828 149161 -.M8....D.64
In January 2010, the Water Utility implemented an approximate 10% increase in water rates.
Although there was a reduction in consumer water consumption of 8.5% from the preceding fiscal
year, the Water Utility increased water sales revenue by $304. Water recharge and water
conservation components were added to rates and collections of $596 and $185, respectively,
added to other operating revenues. Investment income was lower by $430 due to a reduction in
interest rates.
Overall operating expenses were 3% lower as the Water Utility maintained a hiring freeze, utilized
beneficial time of use electric rates by pumping water to higher elevation storage during off-peak
hours, and made reductions in other costs where available.
6
City of San Bernardino Municipal Water Department
Management's Discussion and Analysis
For the fiscal year ending June 30, 2010
Water capital assets ($000)
Fiscal year ended June 30
Assets
2010
2009
2008
Land & easements 2,945 2,945 2,945
Wells & pumping 70,713 69,684 61,989
Distribution 105,916 103,973 100,339
Plant & facilities 2,642 2,520 2,317
Other capital 13,672 12,971 13,189
CWIP 21,973 12.661 15.445
Total capital assets 217,861 204,754 196,224
Accumulated Depreciation (61.715) (56.628) (52.970)
Net capital assets 156 146 -.-.H.8...12fi 143 254
Total capital assets increased $13,107 in fiscal 2010. The water utility added $9,312 to
construction work in process. The major ongoing construction projects include assets
surrounding the local highway infrastructure improvements, largely funded by Caltrans ($3.6
million); investment in higher elevation zones, pipelines and pump stations ($3.0 million); and the
new Palm 3 Reservoir ($2.7 million),
Many of these projects were nearing completion at June 30, 2010 and will be added to plant and
facilities in the near future. In addition, the water utility added $1,029 in well retrofit projects,
$1,942 in distribution main upsizing projects and $701 in safety, efficiency and technology refated
projects to fixed assets.
Water debt coverage ($000)
Fiscal year ended June 30 2010 2009 2008
Net profit (2,163) (2,823) (1,636)
Add back: Depreciation 5,410 5,225 4,490
Amortization
Interest expense 655 602 592
Other fees
(Gain) 1 loss on assets ~ -.illQl 532
Cash available (a) 3,893 2,694 3,978
Senior debt CIEDB P&I 1,518 1.073 932
Total senior debt (b) 1,518 1.073 932
Subordinate debt Other debt P&I ---.f.Q --...N --...N
Aggregate P & I (c) 1,538 1,152 1,011
Coverage Senior debt coverage (alb) 2.6 x 2.5 x 4.3 x
Aggregate coverage (a/c) 2.5 X 2.3 X 3.9 x
Water utility bond debt coverage improved slightly during the past year. This is largely a result of
higher revenues generated by the rate increase implemented in February 2010 offset by a full
year's debt service payment on CIEDB II.
7
City of San Bernardino Municipal Water Department
Management's Discussion and Analysis
For the fiscal year ending June 30, 2010
Sewer Utility statement of net assets ($000)
Fiscal year ended June 30 2010 2009 2008
Assets
Current & other 42,669 42,725 42,362
Net utility plant 91.409 97,100 101.763
Total assets 134,078 139,825 144,125
Liabilities
Current liabilities 7,835 8,071 8,643
Long-term liabilities 27,881 31,819 35.493
Total liabilities 35,716 39,890 44,136
Net assets
Investment in capital 64,378 65,794 66,282
Restricted 10,464 13,503 15,798
Unrestricted 23,520 20,638 17,909
Total net assets _llit362 _9.9..9-3.5 99,989
The sewer treatment utility's net assets are $98,362, a decrease of $1,573 during fiscal 2010.
Unrestricted net assets, or those funds that may be used to finance day to day operations,
increased $2,882. Net utility plant decreased $5,691 due to depreciation and the write-off of
planning and feasibility studies, not utilized over the past five years.
Sewer Utility statement of revenue, expense and changes in net assets ($000)
Fiscal year ended June 30 2010 2009 2008
Revenue
Sewer treatment sales 20,772 20,124 20,010
Other operating rev 1,653 1,084 838
Investment income 1,604 1,653 2,320
Non-operating rev (exp) (94) (87) (93)
Capital contributions 496 1,278 1,865
Total revenue 24,431 24,052 24,940
Expenses
Administration 5,807 3,305 4,319
Operations & maintenance 13,230 13,212 13,465
Depreciation 5,437 5,888 5,364
Interest expense 1.530 1.701 1,868
Total expense 26,004 24,106 25,016
Net assets
Change in net assets (1,573) (54) (76)
Beginning balance 99,935 99,989 100,065
Net assets year end ~ _99,935 99.~89
Sewer treatment revenue increased by $648 as a result of two 5% rate increases over the past
two years. Administration costs increased $2,502 due to former planning and feasibility studies
relating to the expansion of WRP and RIX being written off to expense. Given existing
technology, the plans were deemed to be outdated.
8
City of San Bernardino Municipal Water Department
Management's Discussion and Analysis
For the fiscal year ending June 3D, 2010
Sewer capital assets ($000)
Fiscal year ended June 30
2010
2009
2008
Assets
Land & easements 12.471 12,471 12.471
Wells & pumping 3,192 3,192 3,192
Plant & facilities 154,075 152,859 152,736
Other capital 5,786 5,857 6.469
C W I P 5.876 7,290 6,176
Total capital assets 181,400 181,669 181,044
Accumulated Depreciation (89,991) (84,569) (79.281)
Net capital assets 91 409 97100 ..J01 763
CWIP was reduced by $1,414 for the Sewer Treatment Utility. The Aqua Disc project, amounting
to $1,095 was capitalized to plant and facilities. Additionally, $1,528 in design costs were written
from CWIP to expense, as those plans for the expansion of WRP were outdated. In total, net
capital assets decreased $5,691 to $91,409, largely due to depreciation.
Sewer debt coverage ($000)
Fiscal year ended June 30
Add back:
Depreciation
Amortization
Interest expense
Other fees
(Gain) 1 loss on assets
2010 2009 2008
(2,069) (1.333) (1,940)
5,437 5,888 5,364
36 36 38
1,530 1,701 1,868
496 1,279 1,865
~ 1: 1:
5,432 7,575 7,199
3.319 3,300 3.285
3,319 3,300 3,285
2.494 2,494 2.494
5,813 5,794 5,779
1.6 x 2.3 x 2.2 x
0.9 x 1.3 x 1.2 x
Net profit
Cash available (a)
Senior debt
COP S - P&l
Total senior debt (b)
Other debt P&I
Aggregate P & J (e)
Subordinate debt
Coverage
Senior debt coverage (a/b)
Aggregate coverage (a/c)
Sewer utility bond debt coverage continues to decline. Despite rate increases implemented in
January 2009 and 2010, net profits continue to decline. The utility has been dependent on
economically driven capital acquisition fees to achieve coverage ratios in the past. Over the past
two years, rates have been increased in an attempt to become less dependent. Unfortunately,
development has come to a standstill in San Bernardino. Subsequently, the utility has filed a rate
increase request before City Council to implement an approximate 10% increase in rates in an
attempt to improve the financial condition and meet required coverage ratios in 2011.
9
City of San Bernardino Municipal Water Department
Management's Discussion and Analysis
For the fiscal year ending June 30, 2010
Management challenges:
Local economy: The decline in the economy has had a negative effect on the region.
Development in San Bernardino has diminished, the assessed valuation of homes have
decreased, unemployment is near 15%, retail sales are declining, and over 38% of the City's
population receives some form of government assistance. These factors has led to a decrease of
almost 20% in water consumption, which impacts both water and sewer revenue.
Water supply: At the same time, California's water supply continues to be a concern due to
dwindling supplies from traditional resources. Recent decisions involving endangered species
continue to exacerbate this condition. Management continues to pursue strategies to augment
water supply, including increased interest in recycled water for recharge, irrigation, industrial use
and other applications. The Department has received $1.5 million in grant funding to study the
potential to locate a recycled water facility in San Bernardino. Despite decreasing sales, the
Department implemented a conservation charge to fund an aggressive conservation program.
Reductions in expense: The Department has worked to reduce budgeted expenditures where
possible. Though no layoffs have occurred, the Department implemented 27 hours of furlough
time for all employees during fiscal 2011. Additionally, the Department has reduced staffing
levels through attrition.
Sustainable capital program: The water utility has adjusted its capital concentration toward retrofit
and upgrading existing facilities rather than expansion. The sewer treatment facilities face an
extensive list of compliance-related construction requirements over the next several years;
however, debt coverage makes it difficult to finance this program.
Rates: The Department implemented the first of a two-phase water rate increase in February
2010. In an effort to bolster sewer treatment revenues, a two-phase sewer treatment rate
increase is proposed for public hearing in January 2011.
Management has completed several steps to address potential financial issues in an attempt to
be a responsible steward for our water resources and meet the current and future needs of the
water and sewer treatment customers of San Bernardino. Substantial challenges are still on the
horizon and the Department continues to measure its options to maintain financial strength and
flexibility.
Requests for information:
This financial report is designed to provide a general overview of the Department's finances.
Questions concerning any information provided in the report or requests for additional financial
information should be addressed to the Director of Finance, San Bernardino Municipal Water
Department, PO Box 710, San Bernardino, CA 92402.
10
BASIS FINANCIAL STATEMENTS
11
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Net Assets
June 30,2010
(Wrth comparative totals for 2009)
Water Sewer Interfund Totals
Utility Utility Eliminations 2010 2009
Assets
Current assets:
Cash and investments (note 2) $ 9,036,275 23,618,927 32,655,202 31,744.591
Accounts receivable, net 7,093,086 2,618,213 9,711,299 6.804,893
Due from other entities 2,388,988 363,748 2,752,736 1.409,824
Interfund receivable 112,095 (112,095)
Related parties receivable (note 8) 182.670 465.858 648,528 704.645
Inventory 1.622,670 1,622,670 1,604,597
Prepaid expenses 191,164 1.065,028 1,256.192 1.079,858
Total current assets 20.626,948 28,131,774 {112,095} 48,646.627 43,348.408
Noncurrent assets:
Restricted assets:
Cash and investments (note 2):
Restricted for debt service 50,059 3,560,993 3,611,052 3,593,833
Restricted for capital-related fees 1,528,434 10.463,625 11,992,059 19,831,726
Restricted for consumer deposits 2,837,190 2,837,190 2,592,741
Restricted for consent decree (note 12) 21,641,702 21,641,702 21.059,979
Interest receivable 45.090 80,765 125,855 230,150
Prepaid insurance - consent decree (note 12) 37,519,398 37,519.398 39,414,022
Note proceeds held by state 387,501 387,501 3,506.098
Total restricted assets 64.009,374 14,105,383 78,114,757 90,228.549
Notes receivable 3,445 3,445 6,295
Capital assets (note 3):
Land and easements 2,944.972 12.470.740 15,415,712 15,415,712
Construction in progress 21,972,526 5,876,387 27,848,913 19,950,282
Water rights, wells and pumping plants 70,712,801 3,192,218 73,905,019 72,876,505
Distribution systems 105.915,851 105,915,851 103.972,604
Building. plants and store yards 2,642,328 154,074,825 156,717,153 155,379,246
Tools and equipment 3,041,864 2.811.280 5,853,144 5,903,232
Fleet and rolling stock 3,722,257 1,110,776 4,833,033 4,631,516
Office leasehold improvements 2,354,557 2,354,557 2,190,680
Office, computer, engineering
equipment 2,976.161 943.008 3,919,169 3,615.829
Radio communication equipment 307,499 99,138 406,637 395,380
Telemetry systems and equipment 1.036,527 628,699 1,665,226 1,665,226
Miscellaneous 233,534 193,015 426,549 426.549
Less accumulated depreciation and
amortization (61,714,971) (89,990,735) (151,705,706) (141,196,636)
Total capital assets (net of
accumulated depreciation
and amortization) 156,145,906 91,409,351 247,555,257 245,226,125
Other assets:
Debt issue costs, net 153,828 153,828 187,387
Deferred call premium 277.323 277,323 319,448
Total other assets 431,151 431,151 506.835
Total noncurrent assets 220,158,725 105,945,885 326,104,610 335.967,804
Total assets 240,785.673 134.077,659 (112,095) 374,751,237 379,316.212
(Continued)
12
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Net Assets
(Continued)
Water Sewer Interfund Totals
Utility Utility Eliminations 2010 2009
Liabilities and net assets
Liabilities:
Current liabilities:
Accounts payable 2,308,330 1,546,940 3,855,270 5,509,745
Interfund payable 112,095 (112,095)
Related parties payable (note 8) 809,614 199,264 1,008,878 950,475
Accrued expenses 7,225 12,076 19,301 11,818
Accrued compensation 929,640 395,362 1,325,002 1,239,589
Claims payable (note 10) 245,752 68,242 313,994 421,299
Consumer deposits 259,662 259,662 312,123
Deferred revenue 63,188 63,188
Current portion of compensated
absences (note 5) 943,735 482,376 1,426,111 1,439,490
Current portion of leases payable (note 5) 19,642
Current portion of notes payable (note 5) 954,647 2,130,471 3,085,118 2,982,806
Current portion of certificates of
participation (note 5) 2,343,375 2,343,375 2,217,793
Current portion of bonds payable (note 5) 10,000 10,000 10,000
Accrued interest payable 209,533 475,419 684,952 752,083
Total current liabilities 6,741,326 7,765,620 (112,095) 14,394,851 15,866,863
Noncurrent liabilities:
Consumer deposits 2,788,733 2,788,733 2,579,699
Compensated absences (note 5) 374,180 19,608 393,788 504,434
Deferred revenue - consent decree (note 12) 59,084,337 59,084,337 60,473,518
Leases payable (note 5)
Notes payable (note 5) 15,905,129 8,922,366 24,827,495 27,912,613
Certificates of participation (note 5) 17,196,320 17,196,320 19,539,695
Bonds payable (note 5) 25,000 25,000 35,000
OPES obligation (note 7) 3,039,000 1,812,000 4,851,000 3,308,000
Total noncurrent liabilities 81,216,379 27,950,294 109,166,673 114,352,959
Tota! liabilities 87,957,705 35,715,914 (112,095) 123,561,524 130,219,822
Net assets (note 13):
Invested in capital assets, net of related
debt 139,688,690 64,377,812 204,066,502 199,628,149
Restricted for:
Capital-related fees 1,528,434 10,463,625 11,992,059 19,831,726
Unrestricted 11,610,844 23,520,308 35,131,152 29,636,515
Total net assets $ 152,827,968 $ 98,361,745 251,189,713 249,096,390
See accompanying notes to basic financial statements.
13
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14
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Revenues, Expenses, and Changes in Net Assets
Year ended June 30, 2010
(With comparative totals for the year ended June 30, 2009)
Water Sewer Interfund Totals
Utility Utility Eliminations 2010 2009
Operating revenues:
Charges for services $ 25,613,162 20,771,749 (16,548) 46,368,363 45,401,290
Other operating revenues 2,075,532 1,653,194 (2,288,092) 1,440,634 1,770,508
Total operating revenues 27,688.694 22.424,943 (2,304,640) 47,808,997 47,171,798
Operating expenses:
Administration and customer service 8,211,826 8,211,826 8,275,959
Utility administration 535,243 1,678,822 (1.222.441 ) 991,624 1.195.128
Plant operations 7,443,231 9,599,618 (535,323) 16,507,526 16,526,954
Maintenance 1,577,642 3,059,780 (532,709) 4,104,713 4,754,484
Environmental control 571,029 571,029 592,629
Distribution 3,766.067 3,766,067 3,753,301
Engineering and water quality control 2,204,374 2,204,374 3,063,043
General, administration, and overhead 2,804,993 4,128,870 (14,167) 6,919.696 4,769,863
Depreciation and amortization (note 3) 5,409,704 5,436,628 10,846,332 11,113,247
Total operating expenses 31,953,080 24,474,747 (2,304,640) 54,123,187 54,044,608
Operating income (loss) (4,264,386) (2,049,804) (6,314,190) (6,872,810)
Non-operating revenues (expenses):
Investment income 578,912 1.603.840 2,182,752 2,661,169
Rental income 98,638 26,303 124,941 127,956
Noncapital grant funds 1,894,624 1,894,624 2,043,889
Gain (loss) on asset disposition 8,988 (2,142) 6,846 305,972
Interest expense and fiscal charges (655,404 ) (1,529,650) (2,185,054) (2,303,166)
Amortization of issuance costs (33,559) (33,559) (35,881)
Other 175,782 (84,390) 91,392 (82,232)
Total non-operating revenues (expenses) 2,101,540 (19,598) 2,081,942 2,717,707
Net profit (loss) (2,162.846) (2,069,402) (4,232,248) (4,155,103)
Capital contributions:
Acquisition fees 301,000 301,000 1,239,309
Capacity fees 3,980,720 355,810 4,336,530 2,171,262
Contributed capital assets 732,322 732,322 1,476,924
EPA grant 815,761 815,761
Other capital restricted fees 139,958 139,958 310,359
Total capital contributions 5,829,803 495,768 6,325,571 5,197,854
Net assets:
Balance at beginning of year 149,161,011 99,935,379 249,096,390 248,053,639
Balance at end of year $ 152,827,968 98,361,745 251,189,713 249,096,390
See accompanying notes to basic financial statements.
15
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Cash Flows
Year Ended June 30, 2010
(With comparative totals for 2009)
Totals
Wafer Sewer 2010 2009
Cash flows from operating activities:
Cash received from customers $ 24,909,016 22,202,958 47,111,974 48,890,023
Rental income 98,638 26,303 124,941 127,956
Nonoperating miscellaneous revenue (expenses) 184,770 (86,532) 98,238 223,740
Cash paid to employees for services (7,929,501 ) (3,333,110) (11,262,611) (11,063,808)
Cash paid to suppliers of goods and services (19,648,304) (15,269,048) (34,917,352) (32,399,388)
Net cash provided by operating activities (2,385,381) 3,540,571 1,155,190 5,778,523
Cash flows from noncapital financing activities:
Collection on notes receivable 2,850 2,850 (6,295)
Consent decree insurance drawdowns 1,894,624 1,894,624 2,043,889
Net cash provided by noncapital financing activities 1,897,474 1,897,474 2.037,594
Cash flows from capital and related financing activities:
Capital fees received 4,281,720 495,768 4,777,488 3,720,930
Drawdown on CIEDM loan 3,118,597 3,118,597 2,136,291
Proceeds from sale of fIXed assets 10,514 10,514 156,615
Cash paid to acquire fIXed assets (12,707,435) (12,707,435) (9,616,490)
Principal paid on capital-related debt (956,106) (4,181,342) (5,137.448) (4,756,423)
Interest paid on capital-related debt (667,146) (1,635,707) (2,302,853) (2,295,886)
EPA grant proceeds 815.761 815,761
Net cash provided by (used for) capital and related
financing activities (6,104,095) (5,321,281) (11.425,376) (10,654,963)
Cash flows from investing activities:
Liquidation of GIC 17,545,260
Purchase of investments (10,920,678)
Sale of investments 4,741,625 4,741,625
Interest received 683,207 1.603,840 2,287,047 3,462,407
Net cash provided by investing activities 5,424,832 1,603,840 7,028,672 10,086,989
Net increase in cash (1,167,170) (176,870) (1,344,040) 7,248,143
Cash and cash equivalents at beginning of year 34,823,402 34,259,422 64,341,199 57,093,056
Cash and cash equivalents at end of year $ 33,656,232 34,082,552 62,997,159 64,341,199
-
Continued
16
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO. CALIFORNIA
Statement of Cash Flows
(Continued)
Totals Totals
Water Sewer 2010 2009
Reconciliation of cash and cash equivalents to amounts
reported on the balance sheet:
Reported on the balance sheet:
Cash and investments $ 9.036,275 23.618,927 32,655,202 31.744.591
Restricted assets 64,009,374 14,105,383 78,114,757 90.228,549
Less
Interest receivable (45,090) (80,765) (125,855) (230,150)
Prepaid insurance - consent decree (37,519,398) (37,519.398) (39,414,022)
Note proceeds held by state (387,501) (387,501 ) (3,506,098)
Cash and investments 35,093,660 37,643,545 72,737,205 78,822,870
Less restricted assets not meeting the definition of
cash equivalents:
Federal agency securities (6,179,053) (6,179,053) (10,920,678)
Investment agreements (3,560,993) (3,560,993) (3,560,993)
Cash and cash equivalents at end of year $ 28,914,607 34,082,55~ 62,997,159 64,341,199
Reconciliation of operating income to net cash
provided by (used for) operating activities:
Operating income $ (4,264,386) (2,049,804) (6,314,190) (6,872,810)
Depreciation and amortization 5,409,704 5,436,628 10,846,332 11,113,247
Rental income 98,638 26,303 124,941 127,956
Gain (loss) on asset disposition 8,988 (2,142) 6,846 305,972
Other receipts (expenses) 175,782 (84,390) 91,392 (82,232)
Adjustments:
(Increase) decrease in accounts receivable (2,779,678) (126,728) (2,906,406) 224,170
(Increase) decrease in due from other entities (1,352.702) 9,790 . (1,342,912) 666,286
(Increase) decrease in interfund receivable 85,054 85,054 95,637
(Increase) decrease in related parties receivable 76,110 (19,993) 56,117 371,901
(Increase) decrease in inventory (18,073) (18,073) (130,297)
(Increase) decrease in prepaid expenses (117,963) (58,371 ) (176,334) 66,632
(Increase) decrease in other assets 253,778 253,778 275,343
Increase (decrease) in accounts payable (1.631,742) (345,794) (1,977,536) (1,425,305)
Increase (decrease) in interfund payable (85,054) (85,054) (95,637)
Increase (decrease) in related parties payable 55,619 14,069 69,688 74,117
Increase (decrease) in accrued expenses 5,487 1,996 7.483 (24,671 )
Increase (decrease) in accrued compensation (75,175) 25,278 (49,897) 105,707
Increase (decrease) in claims payable 245,752 (29,995) 215,757 (293,131)
Increase (decrease) in consumer deposits - current (52,461 ) (52.461 ) (542,846)
Increase (decrease) in consumer deposits - noncurrent 209,034 209,034 (2,807)
(Increase) decrease in OPEB obligation 968,000 575,000 1,543,000 1,359.100
(Increase) decrease in prepaid insurance - consent decree 505,443 505,443 462,191
Increase (decrease) in deferred revenue 63,188 63,188
Net cash provided by operating activities $ (2,385,381) 3,540,571 1,155,190 5,778.523
Noncash investing, capital, and financing activities:
Capital assets constructed by developers
732,322
732.322
1,476,924
See accompanying notes to basic financial statements.
17
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 1: Reporting Entity and Summary of Significant Accounting Policies
Oraanization: The San Bernardino Municipal Water Department ("Department") is governed
under the Charter of the City of San Bernardino. A Board of Water Commissioners ("Board"),
appointed by the Mayor and approved by City Council, has Charter defined powers, with full
authority for administration of the water utility and delegated authority for the sewer treatment
utility. The Department has served the community since 1905.
The preparation of these financial statements requires management to make estimates and
assumptions. Those estimates and assumptions affect the reported amounts of assets, liabilities,
revenues, expenses and the disclosure of contingent assets and liabilities. Actual results may
differ from those estimates. Management also determines the accounting principles to be used in
the preparation of the financial statements. A description of the accounting poliCies employed in
the preparation of these financial statements follow:
Fund accountinq (basis of accountino): The Department reports its activities as enterprise funds,
which are used to account for operations that are financed and operated in a manner similar to a
private business enterprise, where the intent of the department is that the cost of providing goods
and services be financed or recovered primarily through user charges. Revenues and expenses
are recognized on an accrual basis, in the accounting period in which they are earned and
expenses are incurred, regardless of when the related cash flow occurs.
The Department operates two enterprise funds:
· The Water Utility Enterprise Fund ("Water Utility") is used to account for the operations of
the Department's water system and related revenues.
· The Sewer Utility Enterprise Fund ("Sewer Utility") is used to account for the operations
of the City's wastewater treatment system and related revenues. The Sewer conveyance
system is under the direction of the City's Public Services Department.
Administrative and engineering are provided by the Water Utility to the Sewer Utility. Electrical
services are provided the Sewer Utility to the Water Utility.
The Department applies all applicable Generally Accepted Accounting Principles (GASB)
pronouncements in accounting and reporting for its proprietary operations and applicable FASB
pronouncements that occurred prior to November 30, 2009.
Cash and investments: Cash is pooled with the City of San Bernardino for investment purposes
to maximize interest earnings. Such earnings are credited to the various funds within the City
based upon average monthly cash balances.
For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid
investments (including restricted assets) with a maturity of three months or less when purchased.
Investments are reported in the accompanying balance sheet at fair value, except for certain
certificates of deposit and investment contracts that are reported at cost as they are not
transferable and have terms that are not affected by changes in market interest rates.
Changes in fair value that occur during a fiscal year are recognized as investment income
reported for that fiscal year. Investment income includes interest earnings, changes in fair value
and any gains or losses realized upon the liquidation of investments.
18
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 1: Reporting Entity and Summary of Significant Accounting Policies (continued):
Receivables: Customer or trade receivables are shown net of an allowance for uncollectible
accounts based on historical and management estimates. Transactions between funds that are
representative of lending or borrowing arrangements outstanding at the end of the fiscal year are
referred to as "interfund receivables / payables" or "advances to/from" other funds. All interfund
transactions are eliminated for financial reporting.
Inventorv: Materials and supplies inventory consists of water meters, pipe and pipefittings for
construction and repair of the water transmission and distribution system and items necessary for
maintenance at the sewer treatment facilities. Inventory is valued at cost using an average
method. Inventory items are charged to expense at the time that individual items are withdrawn
from inventory and consumed.
Restricted assets: Amounts shown as restricted assets have been restricted by bond indenture
or are to be used for specified purposes based on contract provisions. Certain liabilities which
are currently payable have been classified as current liabilities payable from restricted assets.
Deferred bond costs: Deferred bond costs are amortized using the straight-line method based on
the term off the debt issuance.
Capital assets: Capital assets acquired or constructed are capitalized at historic cost.
Department policy has set the capitalization threshold for reporting capital assets at $5,000 or a
life expectancy of at least 3 years. Overhead is capitalized at the rate of 28.9% of labor and
benefits, 10% of material and supplies and 2% of significant contracts. Depreciation is recorded
on a straight-line basis over the estimated useful lives of the assets as follows:
· Source of supply plant 8 to 50 years
· Disposal plant and interceptor lines 35 to 50 years
· Other facilities (shops, leasehold & yards) 5 to 25 years
· Tools, office equipment & communications 4 to 20 years
· Computer equipment 3 to 5 years
· Automotive and fleet equipment 3 to 15 years
Compensated absences: Department policy is to permit employees to accumulate a limited
amount of earned vacation and sick leave. Various negotiation groups have different sell-back
and cash out options. Additionally, cash out options upon retirement or death of the employee
vary based on the negotiation group. Employee's vacation and sick leave benefits are
recognized as a liability of the Department.
Interfund eliminations: The interfund eliminations column represents entries made to eliminate
interfund income and expenditure transactions between the water utility fund and the sewer utility
fund for the purposes of consolidated financial statements.
Comparative data: Prior year data has been included where practical for comparison purposes
only. The prior year data does not represent a complete presentation in accordance with
accounting principals in the United States of America. Certain minor reclassifications of prior year
data have been made in order to enhance comparability with current year figures.
19
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 2: Cash and Investments
Cash and investments are reported as of June 30, 2010 in the accompanying statement of net
assets as follows:
Cash and investments
Debt service
Capital related fees
Consumer deposits
Consent decree
Total cash and investments
Water fund
$ 9,036,275
50,059
1,528,434
2,837,190
21,641.702
$ 35093.QQQ
Sewer fund
$ 23,618,927
3,560,993
10,463,625
Cash and investments as of June 30, 2010 consist of the following:
$. 37,643,545
Total
$ 32,655,202
3,611,052
11,992,059
2,837,190
21,641,702
L12...l.3L2.Q.5
Water fund Sewer fund Total
Cash on hand $ 7,440 $ 200 $ 7,640
Deposits-financial institutions 29,118 29,118
Investments 35.057.102 37,643,345 72.700.447
Total cash and investments $ 35 093 660 L37.64354.5 $ 72 737 205
The table below identifies the investment types that are authorized for the Department by the
California Government Code (or the Department's investment policy, where more restrictive).
The table also identifies interest rate risk, credit risk and concentration of credit risk. The table
does not address debt proceeds held by bond trustee that are governed by the provisions of the
debt agreement. Investment's authorized for funds held by bond trustee include US Treasury
obligations, US Agency securities, banker's acceptance, commercial paper, money market
mutual funds, repurchase agreements and investment contracts.
Investment type
Local agency bonds
US treasury
US agency
Bankers acceptances
Commercial paper
Negotiable CDs
Repurchase agreements
Reverse repurchase
Medium-term notes
Mutual funds
Money market mutual funds
Mortgage pass through
County pooled investment
Local agency investment
JPA pools
Guaranteed investment
Authorized by policy
No
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
Yes
Yes
No
Yes
No
Yes
Max maturity
5 years
5 years
5 years
180 days
270 days
5 years
1 year
92 days
5 years
N/A
N/A
5 years
N/A
N/A
NfA
NfA
Max % of portfolio
None
None
None
40%
25%
30%
None
20% of base
30%
20%
20%
20%
None
None
None
None
Max in one issuer
None
None
None
30%
10%
None
None
None
None
10%
10%
None
None
None
None
None
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.
20
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 2: Cash and Investments (continued)
The Department manages its exposure by purchasing a combination of shorter term and longer
term investment and by timing cash flows from maturities so that a portion of the portfolio matures
evenly over time as necessary to provide requirements for cash flow and liquidity needed for
operations.
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.
The Department's investments by maturity date and credit worthiness are provided by the
following table.
Investment type Rating <12 month 13-24months 25-60 months > 60 months Total
City investment pool N/R $47,498,720 $ $ $ _ $47,498,720
Consent decree:
- State investment pool N/R 15,548,924 15,548,924
- Federal agency securities AM 6,091,810 6,091,810
Held by bond trustee
- Federal agency securities AM 87,243 87,243
- Investment agreement N/R 3.473.750 3.473.750
Total .$63041..M4 __ 1li6,179 053 $ 3,473 750 $72 70..QAlZ
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
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 requires
that a financial institution secure deposits made by a state or local governmental units by
pledging securities in an undivided collateral pool held by a depository regulated under state law.
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 the Department's deposits by pledging first trust deed mortgage notes having a value of
150% of the secured public deposits.
For investment identified herein as held by bond trustee, the bond trustee selects the investment
under the terms of the applicable trust agreement. acquires the investment, and holds the
investment on behalf of the reporting government.
Investment in the State Investment Pool: The Department is a voluntary participant in the local
Agency Investment Fund (LAIF) that is regulated under the California Government Code with
oversight of the Treasurer of the State of California. The fair value of the Department's
investment in this pool is reported in the accompanying financial statements at amounts based
upon the Department's pro-rata share of the fair value provided by LAIF for the entire LAIF
portfolio. The balance available for withdrawal is based on the accounting records maintained by
LAIF, which are recorded on an amortized cost basis.
21
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 3: Capital Assets
Capital asset activity for the water utility at fiscal year ended June 30, 2010:
Description July 1, 2009 Additions Deletions
Land & easements $ 2,944,972 $ $
Construction in progress 12.660.529 12.049.248
Total, no depreciation 15,605,501 12,049,248
Water rights, wells & pumping 69,684,287 1,028,514
Distribution system 103,972.604 1,943,247
Buildings, plants & stores 2,520,636 125,882
Other assets (including tools,
fleet, computers, equipment,
communications and telemetry)
Total capital assets
Less accumulated depreciation:
Water rights, wells & pumping
Distribution system
Buildings, plants & stores
Other assets
Total accumulated depreciation
Net property plant & equipment
12.971.212 1.052.438
204.754,240 16.199,329
(23,613,392) (2,062,975)
(24.897,203) (2,247,767)
(1,089,212) (101,533)
(7,028.065) (975.108)
(56.627.872) (5.387.383)
$ 148,126368 $ 1 Oa.11...9~.Q
(2.737,251)
(2,737,251)
(4,190)
(351.251)
(3.092.692)
3,770
296.514
300.284
June 30, 2010
$ 2,944,972
21.972.526
24,917,498
70,712,801
105,915,851
2,642,328
13.672,399
217.860.877
(25,676,367)
(27,144,970)
(1,186,975)
(7.706,659)
(61,714,971)
$ (2..7924QID $ 156145906
Capital asset activity for the sewer treatment utility at fiscal year ended June 30, 2010:
Description July 1, 2009 Additions Deletions June 30,2010
Land & easements $ 12,470.740 $ $ $ 12,470,740
Construction in progress 7.289.753 1,366.917 (2,780.283) 5.876.387
Total, no depreciation 19,760,493 1,366,917 (2,780,283) 18,347,127
Water rights, wells & pumping 3,192.218 3,192,218
Buildings, plants & stores 152,858,610 1,216.215 154,074,825
Other assets (including tools,
fleet, computers, equipment,
communications and telemetry) 5.857.200 33.183 (104.467) 5.785.916
Total capital assets 181.668.521 2.616.315 (2.884.750) 181.400.086
Less accumulated depreciation:
Water rights. wells & pumping (2,282,435) (50.702) (2,333,137)
Buildings, plants & stores (77,896,245) (5,152,224) (83,048,469)
Other assets (4.390.084) (262,414) 43.369 (4.609.129)
Total accumulated depreciation (84.568.764) (5.465,340) 43.369 (89,990,735)
Net property plant & equipment -S..--9LOOJLill .$ ~ 849 025) $ (2 841 381) $. _9..1~5.1
Significant project commitments as of June 30, 2010 include:
Project Authorized Expenditures Remaining Other funding
Palm reservoir #3 $ 4,256,920 $ 2,828,276 $ 1,428.644 $ 785,754
Mountain pressure zone 960.000 960,000
Caltrans relocation projects .1.613.477 899,818 713,659 713.659
Water fund $ 6.830,397 $ 3.728,094 L3.102.303 $ 1.499.413
Cogeneration project $ 5,537,303 $ 3,944,414 $ 1 ,592,889 $
Unit 1 primary clarifier 1,105,000 45,620 969,380
Parallel bypass line 1.330,303 914,132 415.868
Sewer fund $ 7.8~ $ 4.904.166 $ 2,978, 13~ $
22
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 4: Operating leases
The Department leases office space from the City of San Bernardino under a non-cancelable
operating lease that is expected to be renewed on April 1 , 2012. Effective December 15, 2008,
the Department took possession of leased space from Superior Homes LLC for administrative
office and warehouse space for a term of ten years. The following is a schedule of minimum
lease payments as of June 30, 2010.
Fiscal year ended June 30
2011
2012
2013
2014
2015
Five year total
Water
$ 384,737
384,737
384,737
384,737
384.737
.$. 1 923...6.8.5
$
Sewer
52,631
52,631
52,631
52,631
52,631
263,155
Total
$ 437,368
437,368
437,368
437,368
437.368
$ 2 186,84Q
$
Note 5: Long-term debt:
Notes pavable:
The water utility's Notes Payable consists of two revenue bonds payable to the California
Infrastructure and Economic Development Bank (CIEDB). The first $10,000,000 issue was sold
in March 2004, with an interest rate of 3.34%, annual debt service payments of $750,000 _
$777,000, and a maturity of 2022. This issue was used to provide funding for transmission
mains, booster stations and a reservoir identified in the Water System Reliability Schedule of
Improvements. The second issue of $10,000,000 was sold in July 2007, with an interest rate of
2.71%, annual debt service payments of $702,000 -734,000, and a maturity of 2026. This issue
was used to provide funding for booster stations and transmission mains in the Verdemont area.
The chart below reflects the annual debt service requirements for both issues.
Fiscal year ended June 30 Principal Interest Total
2011 $ 954,647 $ 547,356 $ 1,502,003
2012 983,695 515.278 1,498,973
2013 1,013,637 482,216 1,495,853
2014 1,044,501 448,137 1,492,638
2015 1,076,312 413,013 1,489,325
2016-2020 5,894,116 1,510,106 7,404,222
2021-2025 4,529,769 526,675 5,056,444
Beyond 2025 1.363.098 43.348 1.406.446
Total $ 16,ati9_.ZZ5 ~j 486129 $ 21 345,9Q4
The sewer treatment utility's Notes Payable consists of three debt instruments. The first is an
agreement with the San Bernardino Valley Municipal Water District to purchase the Santa Ana
Regional Interceptor pipeline discharge rights of 2.5 million gallons per day. This note was
originally for $5,084,723, with an interest rate of 7.25%, annual debt service payments of
$456,250, and a maturity of 2013.
The second and third notes were originally State Revolving Fund debt between the State Water
Resources Control Board and the Santa Ana Watershed Authority providing funding for the San
Bernardino/Colton Rapid Infiltration Extraction (RIX) project. The loan agreements were
amended in April 2001 to transfer the loan obligations to the successors in interest being the City
of San Bernardino Board of Water Commissioners, and the City of Colton. The Department will
use revenues from the sewer treatment utility fund towards repayment of the loans.
The second note was originally for $4,015,216, with an interest rate of 3.3%, annual debt service
payments of $279,293, and a maturity of 2011. The final payment will be made in fiscal year
2011. The third note was originally for $25,978,599, with and interest rate of 2.8%, annual debt
service of $1,758,901, and a maturity of 2016. The chart below reflects the annual debt service
requirements for all three notes.
23
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 5: Long-term debt (continued)
Fiscal year ending June 30
2011
2012
2013
2014
2015
2016-2020
Total
Principal
$ 2,130,471
1,929,363
2,000,416
1,619,108
1,664,443
1.709.037
~ 11 052838
Interest
$ 363,871
285,788
214,735
139,793
94,458
47.722
$ 1.146367
Total
$ 2,494,342
2,215,151
2,215,151
1,758,901
1,758,901
1.756.759
$ 12199 20G
Certificates of particioation:
In 1998, the sewer treatment utility issued $36,230,000 in Certificates of Participation to advance
refund the 1992 Sewer Certificates of Participation. The 1992 Certificates originally provided for
the construction of certain capital improvements. The proceeds of the 1998 Certificates were
invested and used to pay interest on the 1998 issue until February 1, 2001, when the 1992
Certificates were called at a prepayment premium of two percent. The Department now pays the
installment payments on the 1998 Certificates from the net revenues of the sewer treatment
system. The issue has interest rates between 3.95% - 5.25%, annual debt service payments of
$1,697,000-$3,474,000, and a maturity date of 2017. The chart below reflects the annual debt
service requirements of the 1998 Certificates.
Fiscal year ending June 30 Principal Interest Total
2011 $ 2,365,000 $ 973,650 $ 3.338,650
2012 2,510,000 855,400 3,365,400
2013 2,650,000 736,175 3,386,175
2014 2,805,000 607,650 3,412,650
2015 2,965,000 474,412 3,439,412
2016-2020 6.375,000 479,750 6.854,750
Total .$.... 19....6l..Q~QQQ L.4J2L.Q3l $ 23,79I...tgz
The 1998 Certificates of Participation has an unamortized discount remaining of $130,305. Of
that amount, $21,625 will be utilized in fiscal year 2011 to reduce the current portion of debt. The
remaining $108,680 will offset the long-term debt balance.
Other debt:
Waterworks Bonds Series C, issued for $150,000 in 1998, with an interest rate of 7.75%, annual
debt service payments of $5,000-16,200, and a maturity date of 2013.
Fiscal year ending June 30 Principal Interest Total
2011 $ 10,000 $ 2,713 $ 12,713
2012 10,000 1,938 11,938
2013 15.000 1.163 16.163
Total $ 35 000 S 5811 $. 4D...81.4
During fiscal 2010, the Department made the final payment on a master equipment
lease/purchase with California First Leasing Corporation for furniture and equipment used in a
remodeling project for the administrative offices. The original lease was $363,000.
24
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 5: Long-term debt (continued)
The Department's policies related to compensated absences are described in Note 1. This
liability, amounting to $1,819,899 and $1,943,924 at June 30,2010 and 2009, respectively, will be
paid in future years from resources of the water and sewer funds
As part of the 1998 Certificates of Participation Revenue Covenant Requirement, the Department
is required to set rates and charges for sewer service that is at least sufficient to yield during each
fiscal year, Net Revenues equal to at least 110% of Debt Service. For the fiscal year ended June
30, 2010 Net Revenues represented 130% of Debt Service for the 1998 COPS issue.
Summary of chanGes in lonG-term debt (Department):
7/1/2009 Additions
$ 17,786,230 $
13.109.189
30,895.419
21,910,000
Notes-Water
Notes-Sewer
Notes-Total
COPS-Sewer
- Unamortized
discounts
COPS (net)
Bonds
Leases
Absences
Total
Reductions 6/30/201 0 Current Long-term
$ (926,455) $16,859,775 $ 954,647 $15,905,128
(2,056,351 ) 11 ,052.838 2,130.471 8.922.367
(2,982,806) 27.912,613 3.085,118 24,827.495
(2,240,000) 19,670,000 2,365,000 17,305,000
22,207 (130.305) (21.625) (108,680)
(2.217,793) 19.539.695 2,343,375 17.196.320
(10,000) 35,000 10,000 25,000
(19,642)
(124,025) 1,819,899 1 .426. 111 393.788
$(5354,266) $49,307 20'Z L6 864 604 $42,442..6_0.3
(152,512)
21,757.488
45,000
19.642
1.943.924
$...54661 473 $
Note 6: Defined benefit pension plan
Qualified employees are covered under a multiple-employer contributory retirement plan
maintained by an agency of the State of California Public Employee's Retirement System
(PERS),
The Department is considered to be part of the City of San Bernardino PERS pension plan. All
employees who work 1,000 hours or more are eligible to participate. The plan provides
retirement, disability benefits, annual cost-of-living adjustments, and death benefits to plan
members and beneficiaries. Benefit provisions are established by state statutes, as legislatively
amended within the Public Employees' Retirement Law. PERS issues a separate comprehensive
annual financial report that includes financial statements and required supplementary information.
Copies of the PERS annual financial report may be obtained from the PERS Executive Office,
400 "P" Street, Sacramento, CA 95814. PERS also issues a separate report on the actual
valuation of the plan of the City of San Bernardino, which is available at the Department.
Additional information regarding the City's partiCipation in PERS can be found in the City's
financial statements.
25
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 7: Post-employment benefits other than pensions
Plan Description: The Department provides heath benefits to all qualifying retirees and their
spouses in accordance with Memorandums of Understanding under various labor agreements.
Eligibility: Employees are eligible for retiree health benefits if they retire from the Department on
or after age 50 with at least 5 years of service, and are eligible for a PERS pension. The latest
actuarial valuation of the plan occurred June 30, 2010. Membership consists of the following:
Retirees and beneficiaries receiving benefits
Terminated plan members entitled but not yet receiving benefits
Active plan members
Total
80
233
~
Fundina: The contribution requirements of plan members and the Department are established
and may be amended by the Board. The required contribution is based on projected pay-as-you-
go financing requirements, with an additional amount to prefund benefits as may be determined
annually be the Board. The Department has not established an irrevocable trust to which pre-
funding contributions may be made. For fiscal year 2010, the Department contributed $670,000
to the plan (100% of current premiums). Plan members receiving benefits contributed $136,000
(approximately 6.5%) of the total premiums through their required contribution. The Department
pays up to the entire cost of health benefits for eligible retirees and their spouses subject to the
City's vesting schedule.
Annual OPEB Cost and Net OPEB obliaation: The Department's annual other post employment
benefit (OPES) cost is calculated based on the annual required contribution of the employer
(ARC), an amount actuarial/y 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
normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a
period not to exceed thirty years. The following table shows the components of the Department's
annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the
Department's net OPEB obligation.
Annual required contribution (ARC) $ 2,307,000
Interest on net OPEB obligation 166,000
Amortization of net OPEB obligation (260,000)
Annual OPEB cost (expense) 2,213,000
Contributions made (670,OOOl
Increase in net OPEB obligation 1,543,000
Beginning OPEB obligation (7I1/09) 3.308.000
Ending OPEB obligation (6/30/10) $ 4851 000
The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the
plan, and the net OPES obligation for fiscal 2010 and the preceding two years are as follows:
Year ended Annual OPE8 cost Paid contribution OPES obligation
6/30/2008 $ 2,264,000 $ 632,000 $ 1,632,000
6/30/2009 2,419,000 1,375,000 3,308,000
6/30/2010 2.213,000 2,045,000 4,851,000
As of June 30, 2010, the most recent actuarial valuation date, the plan was 100% unfunded. The
actual accrued liability for benefits was $26 million. Therefore, the unfunded actuarial accrued
liability (UML) was $26 million. The covered payroll (annual payroll of active employees covered
by the plan) was $13.6 million. The ratio of the UML to the covered payroll was 192%.
26
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 7: Post-employment benefits other than pensions (continued)
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and
assumptions about the probability of occurrence of events far into the future. Examples include
assumptions about future employment, mortality and health care cost trends. Amounts
determined regarding the funded status of the plan and the annual required contributions of the
employer are subject to the continual revision as actual results are compared with past
expectations and new estimates are made about the future. The schedule of funding progress,
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 the benefits.
Actuarial methods and assumptions: Projects of benefits for financial reporting purposes are
based on the substantive plan 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 paint. The actuarial methods and assumptions used include techniques that are
designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the
actuarial value of assets, consistent with the long-term perspective of the calculations.
In the June 30, 2010 actuarial valuation, the entry age actuarial cost method was used. The
actuarial assumptions included a rate of return of 5% and annual heath care cost trend rates of
10.9%, reduced by increments between 0.65% per year to an ultimate rate if 4.5% after the 10th
year. Both rates include a 3% inflation assumption. The UML is amortized as a level
percentage of projected payroll over 30 years.
Note 8: Related party transactions
The following is a summary of transactions and balances with the City of San Bernardino and its
various Departments as of and for the years ended June 30.
Receipts:
City of San Bernardino
- Revenue from water
- Revenue from sewer
- Revenue from geothermal
- Billing & collection - refuse
- Billing& collection - storm drain
- Cost reimbursement
- Reimbursement (land sale)
- Interest income
Economic Development Agency
- Revenue from geothermal
Total receipts from related parties
2010
2009
$
197,897
69,922
23,301
223,408
4,564
1,000
$
204,487
55,760
13,321
208,648
4,973
2,000
474,591
2,258,883
1,436,558
$
776
1 ,957.426
$
755
3.223...4..lll
Payments:
City of San Bernardino
- Sewer collections maintenance
- 10% water revenue transfer
- Data processing service
- Police and fire protection
- City attomey services
- Workers compensation administration
- Human resources I civil service
- City hall rent
- Cost reimbursements (street cut fees)
- Phone system
- Permits
- Refuse
- Postage, printing, &other services
Total payments to related parties
2010
2009
$ 3,086,175
2,324,011
539,600
500,000
190,800
189,229
179,822
177,826
125,896
111,417
95,179
92,022
18,984
$ .~~~1
$ 3,055,617
2,353,148
710,700
500,000
181,800
170,659
177,800
177,826
108,552
119,369
73,119
90,949
18.833
$ 7 73lD1.2.
27
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 8: Related party transactions (continued)
The following is a summary of transactions and balances with the City of San Bernardino and its
various Departments as of and for the years ended June 30.
Receivables: 2010 2009
Related party receivable $ 648,528 $ 704,645
Accounts receivable, net 30,044 27,028
Due from other entities 45.159 64.565
Total receivable from related parties $ 723731 $ 796 23~
Payables: 2010 2009
Related party payable $ 1,008,878 $ 950,475
Accounts payable 533,921 674,707
Claims payable 386.191 421.299
Total payable to related parties $ 1 928990 L2 04E! 481
The Department collects and transmits to the City of San Bernardino ten percent of the
collections on gross water revenue and one hundred percent of collections on the sewer
conveyance system. These remittances are included in the related party payments above.
Note 9: Joint ventures
Colton / San Bernardino Reoional Tertiary Treatment and Water Reclamation Authoritv
On August 2, 1994, the City of San Bernardino, through the Department formed a joint powers
authority with the City of Colton to construct, operate, use and maintain tertiary wastewater
treatment, disposal and water reclamations systems, including the Regional Rapid Infiltration and
Extraction Facility (RIX). This authority is governed by a separate Board consisting of four
members; two appointed by the City of San Bernardino through the Department's Board of Water
Commissioners and two appointed by the City Council of the City of Colton. Construction of RIX
was administered by the Santa Ana Watershed Project Authority and was substantially completed
during 1996. Administration and operation was turned over at that time. San Bernardino and
Colton each has an undivided interest in the real property and any related debt of the RIX
projects based on an 80% I 20% split, respectively. The Department's investment in the joint
venture is included as property, plant and equipment. The joint venture is not experiencing
financial stress.
San Bernardino Public Safety Authoritv
On April 1, 1968, the City of San Bernardino and the County of San Bernardino formed the San
Bernardino Public Safety Authority (PSA), a joint powers authority, as a financing vehicle to
construct (1) public safety buildings and (2) improvements to the wastewater treatment plant.
Effective with the transfer of the sewer treatment utility to the Department by resolution in October
1973, all the assets were transferred to the Department and are included in the property, plant
and equipment of the Sewer Utility. The Department utilized the PSA to issue the 1998
Certificates of Participation debt. The joint venture is not experiencing financial stress.
West End Water Development. Treatment and Conservation Joint Powers Authoritv
On August 15, 1990, the City of San Bernardino joined the West End Water Development,
Treatment and Conservation Joint Powers Authority (WEJPA) as a financing vehicle for
construction of water facilities. A three-member Board consisting of one representative from each
agency's governing body governs the WEJPA. The Department's investment in the joint venture
is included in property, plant and equipment. The joint venture is not experiencing financial
stress.
28
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 10: Commitments and Contingencies
Commitments in the form of signed contracts for costs to complete construction projects or other
improvements amount to $2,585,238 and $4,340,533 at June 30,2010 and 2009, respectively.
Risk management activities are recorded in both utility funds. Significant losses are covered by
insurance for all major events except workers' compensation, for which the Department retains
risk of loss in conjunction with the City of San Bernardino's risk management program for workers
compensation. Settlement amounts have not exceeded insurance coverage for the current year
or the prior three years. Insurance coverage has been increased over the past several years.
The Department records an estimated liability for workers' compensation. Claims liabilities are
based on estimates of the ultimate cost of reported claims and an estimate for claims incurred but
not reported based upon historical experience. Workers' compensation claims liability is not
discounted.
The following is the changes in approximate aggregate liabilities for the year ended June 30th.
Claim liabilities: 2010 2009
Liability balance (July 1) $ 421,299 $ 391,368
Claims and changes in estimates (34,781) 147,683
Claims payments (72.524) (117.752)
Claims payable (June 30) $ 313994 $ 421299
Note 11: Federal and State Grants
Amounts received or receivable from grant agencies are subject to audit and adjustment by
grantor agencies, principally the federal and state governments. Any disallowed claims, including
amounts already collected, may constitute a liability of the Department. That amount, if any, of
the expenditures which may be disallowed by the grantor cannot be determined at this time,
although the Department expects such amounts, if any to be immaterial.
The Department has been awarded the following grants. At the end of the fiscal year, only funds
associated with the grant for the water distribution system had expenditures. The Department
produces a Single Audit that details the use of grant and Consent Decree funds.
Environmental Protection Agency $1,870,700 Water distribution system
Department of Water Reclamation $1,000,000 Sewer recycling study
Environmental Protection Agency $ 500,000 Sewer recycling study
Note 12: Consent Decree
In 1996, the City of San Bernardino filed a complaint against the United States of America,
Department of the Army to recover damages, response costs and other available remedies
relating to contamination alleged to have originated at a World War II army installation known as
Camp Ono. In March 2005, the United States District Court, Central Division entered judgment,
in the form of a consent decree, in the matter of City of San Bernardino v. United States of
America. The Consent Decree settles the City's and the State's claims arising from the
groundwater contamination allegedly cause by the Army. The Consent Decree contains a
number of provisions obligating the City (through the Department) to operate and maintain the
Newmark Groundwater Superfund site (Site). The Site consists of two operable units, the
Newmark Operable Unit and the Muscoy Operable Unit. The Newmark Operable Unit was
declared operational and functional in 1998. The Muscoy Operable unit was declared operational
and functional in 2007.
29
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 12: Consent Decree (Continued)
The Consent Decree provided for a payment of $69 million from the Army to the City for
performance of the work outlined in the Consent Decree. Upon acceptance of the Consent
Decree, the Department received title to all facilities constructed by the United States
Environmental Protection Agency (EPA) of the Site and agreed to operate and maintain the
groundwater extraction and treatment system for a period of 50 years. The $69 million payment
consisted of $59 million for operations and maintenance and $10 million for the construction of
certain capital facilities that would be required in the future; the funds are subject to strict
limitations, contained in the Consent Decree, as to how the money may be spent.
Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside to be
used only for (i) funding construction of treatment and directly related transmission systems that
expand the Department's capacity to deliver potable water and (ii) funding work performed by the
Department to complete construction of the Muscoy Operable Unit extraction system. These
capital facility funds may not be used for costs incurred to operate, maintain, repair or retrofit
components of the site extraction of treatment systems constructed by EPA.
In March 2006, the Department entered into a Guaranteed Investment Contract with AIG Match
Funding Corporation. The Department invested $16,482,039 of excess Consent Decree funds
into an interest bearing Escrow Fund investment with an interest rate of 4.95% per annum.
These funds were invested to pay costs associated with the water facilities defined in the Consent
Decree for years 2035-2056. An additional $50 million was used to purchase a blended
insurance policy to provide a financial vehicle that prOVides cost cap coverage for the first 30
years of expenses.
The terms of the Guaranteed Investment Contract only provided the Department with the position
of a secured creditor with respect to an AIG bankruptcy. As concerns rose regarding AIG's
financial credibility, in October 2009, the Department negotiated and accepted a "payout" in the
amount of $18,661,876 which represented the principal and accrued interest as of that date.
These funds are currently invested in LAIF and Federal Agencies investments. The Department
continues to review alternate investment options for these funds.
Note 13: Net assets
Restricted for debt service:
Cash & investments with fiscal agent
Less: portion offsetting unexpended debt
proceeds held in debt service amounts
Water Sewer
$ 156,145,906 $ 91,409,351
(16,859,775) (11,052,837)
(35,000)
(19.539,695)
50,059 3,560,993
387.500
139,688,690 64,377,812
1,528,434 10,463,625
11.610,844 23.520.380
$ 152 827 968 $ ~8361 745
$ 50,059 $ 3,560,993
(50,059) (3,560,993)
$- L
Total capital assets (net)
Less related debt:
- Notes payable
- Bonds payable
- Certificates of participation
Add back:
- Debt offsetting debt service reserves
- Note proceeds held by state
Total invested in capital assets, net of debt
Restricted net assets - (Capital fees)
Unrestricted net assets
Total net assets
30
City of San Bernardino Municipal Water Department
Notes to Basic Financial Statements
For the fiscal year ending June 30, 2010
Note 14: Subsequent Event
On December 13, 2010, the U.S. Fish and Wildlife Service published a rule to protect a
threatened fish (the Santa Ana Sucker) along parts of the Santa Ana River. The rule prohibits
any action that destroys or harms the habitat and augments other protections already provided for
the fish. Opponents of the designation contend that the plan should not include areas of the
upper Santa Ana River because the fish is not known to live there, and the new restrictions may
stop the Department from using a crucial water source. Water lost downstream may not be
stored in local basins and the population loses much of its use. Importing water from other areas
would present higher costs to the Department and its local consumers.
31
Municipal Water Department
Of the City of San Bernardino, California
Mayor of the City of San Bernardino
Patrick J. Morris
Board of Water Commissioners
Toni Callicott, President
B. Warren Cocke, Commissioner
Louis A. Fernandez, Commissioner
Norine 1. Miller, Commissioner
Wayne Hendrix, Commissioner
Administration
Stacey R. Aldstadt, General Manager
Robin L. Ohama, Deputy General Manager
MatthewH. Litchfield, P.E, Director of Water Utilities
John Claus, Director of Water Reclamation
Valerie K. Housel, Director of Environmental and Regulatory Compliance
Don Shackelford, Director of Accounting and Finance
Organization
The City of San Bernardino Municipal Water Department was formed in 1904 under the Charter of the City
of San Bernardino. The Department is governed by the Board of Water Commissioners, who are appointed
by the Mayor of the City of San Bernardino. The Charter gives the Board of Water Commissioners semi-
autonomous authority to govern the Department independent of the City Council. TIle Department operates
two enterprise funds: the Water Utility Enterprise Fund and the Sewer Treatment Utility Enterprise Fund.
Water service encompasses the City, with the exception of the east end, which is served by the East Valley
Water District. Sewer treatment service encompasses all of the City of San Bernardino, the City of Loma
Linda, the fonner Norton Air Force Base, Patton State Hospital and portions of the areas serviced by East
Valley Water District.
Water production and utilization (in cubic feet)
Total water production
Percentage of water lost
2,141,816,510
6.1%
2,422,017,020
7.7%
2008
1,914,684,000
362,858,972
74,856,597
2,352,399,569
2,572,568,800
8.6%
Fiscal year ended June 30
Water sold to customers
Water sold to agencies
Water used by City
Total water utilization
2010
1,686,471,800
241,022,425
84.284,718
2,0] 1,778,943
2009
] ,833,498,000
319,104,303
83,505.608
2,236,107,911
32
Cost of Water Production
Fiscal Year ended June 30 2010 2009 2008
Tota] water production (hc/) 21,418,]65 24,220,170 25,725,688
Production and pump expense
Salaries & benefits $ 1,473,474 $ 1,367,844 $ 1,359,697
Employee related 5,676 9,019 10,] 81
Office related 21,674 26,9]7 29,599
Contract services 24,500
Pennits & fees 74,389 70,478 51,686
Utilities 4,175,]35 3,980,007 4,273,914
Materials & supplies 23,] 51 24,570 31,137
Equipment 57,014 29,755 139,928
Chemical & carbon 664.595 758.495 732,931
Subtotal 6,519,608 6,267,087 6,629,073
Water stock assessmenl~ 60,544 200,228 105,990
Supplemental water purchase 850,000 350,000 670,000
Water extraction fees 13.080 21,476 27.161
Total expense before depreciation 7,443,232 6,838,788 7,432,224
Depreciation 3.741,479 4.166.816 3.396,226
Total expense .$.11,J 84.JU W&Oj.QQ4 $JJLS28,45Q
Cost per Acre Foot 2010 2009 2008
Acre feet of water 49,169.34 55,601.86 59,058.06
Direct operating costs $ 132.59 $ 112.71 $ 112.25
Assessments, purchases & extraction ] 8.78 10.28 ]3.60
Depreciation 76.09 74.94 57.51
Total cost per acre foot .L ?27.4~ $ J97.93- $ _ lKt.36
33
Water Rate schedules (adopted January 5, 2010)
Effective date
Meter size: ($/month)
5/8"
%"
1"
January 1,2012
January 1, 2011
1-1/2"
2"
3"
4"
6"
8"
10"
$ 12.90
$ 16.15
$ 22.60
$ 38.80
$ 58.20
$ 103.50
$ 168.20
$ 330.00
$ 524.15
$ 750.65
$ 12.20
$ 15.15
$ 21.00
$ 35.75
$ 53.45
$ 94.75
$ 153.70
$ 301.15
$ 478.10
$ 684.55
Elevation zone: ($/hct)
Zone 1
Zone 2
Zone 3
Zone 4
Zone 5
Zone 6
$ 0.11 $ 0.10
$ 0.19 $ 0.18
$ 0.17 $ 0.16
$ 0.14 $ 0.13
$ 0.23 $ 0.22
$ 0.23 $ 0.22
$ 1.15 $ 1.10
$ 0.35 $ 0.30
$ 0.09 $ 0.09
Commodity rates
Water ($/hcf)
Conservation ($/hcf)
Replenishment ($/hcf)
Sewer treatment rates (proposed January 10, 20 II)
Effective (proposed) date January 1, 2012 February 1, 2011
Residential (per month) $ 18.50 $ 17.00
Multi family (per month) $ 2.40 $ 2.20
Multi family (per het) $ 1.25 $ 1.10
Commercial (per month) $ 2.40 $ 2.20
- Retail (per het) $ 2.10 $ 2.00
- Auto repair (per bet) $ 1.30 $ 1.30
- Office/motel (per het) $ 1.50 $ 1.50
- Restaurants (per bet) $ 2.70 $ 2.35
- Laundromats (per hd) $ 1.50 $ 1.40
- Health care (per het) $ 1.35 $ 1.15
- Schools (per hct) $ 1.10 $ 0.90
- Churchs (per het) $ 1.10 $ 0.90
Domestic liquid waste $ 0.04 $ 0.04
Industrial (monthly/unit) $ 1.00 $ 1.00
- Water usage (per het) $ 0.35 $ 0.35
- Discharge (per mmg) $ 900.00 $ 900.00
- Biochemical (1000 Ibs) $ 330.00 $ 330.00
- Suspended solids (1000Ibs) $ 640.00 $ 640.00
34
February 1,2010
$ 10.55
$ 13.00
$ 17.90
$ 30.15
$ 44.85
$ 79.15
$ 128.15
$ 250.70
$ 397.75
$ 569.30
$ 0.09
$ 0.17
$ 0.15
$ 0.12
$ 0.21
$ 0.21
$ 1.05
$ 0.25
$ 0.09
.January 1,2010
$ 16.00
$ 2.00
$ 0.95
$ 2.00
$ 1.90
$ 1.30
$ 1.50
$ 2.00
$ 1.30
$ 095
$ 0.70
$ 0.70
$ 0.04
$ 1.00
$ 0.34
$ 860.00
$ 280.00
$ 610.00
Schedule of Water Production (by plant)
Pumping plant 2010 2009 2008
Anti! 403,700 3,187,500 7,230,500
Baseline & California 10,291,500 17,030,300 13,181,800
Cajon Blvd 126,503,900 154,296,100 180,770,100
Cajon & Vincent 32,509,400 36,383,100 27,090,300
Devil Canyon 131,267,210 119,543,520 97,533,700
EPA-Newmark 584,506,900 658,427,200 658,427,200
EP A - Muscoy 481,589,000 510,480,900 544,411,900
40th Street 2,004,100 2,775,500 1,030,100
Gilbert Street 1,984,500 18,356,700 61,852,400
IVDA #11 3,113,800 4,261,200 2,909,300
Kenwood 114,394,300 116,867,000 146,497,800
LeRoy Street 39,573,700 26,660,100 34,819,700
Lynwood 48,117,200 59,487,600 49,079,300
Lytle Creek 22,334,700 31,738,000 14,934,300
Mallory 18,003,300 28,712,000 11,402,900
Mill & "D" 15,222,700 18,942,400 18,743,500
Newmark 87,820,300 170,516,700 183,678,000
19th Street 87,841,600 78,886,800 84,608,100
Olive & Garner 30,917,600 67,065,900 56,468,700
Perris Hill 15,400 42,900 130,900
7tl. street 6,837,900 9,706,100 2,217,500
Sierra Way & 16th 98,138,200 90,576,200 86,170,100
loth & "J" 64,699,400 98,529,200 70,158,900
30th & Mountain View 77,000,800 67,436,800 92,911,700
27th street 7,247,000 21,888,300 20,881,000
Waterman 49,478,400 35,403.100 79.205.900
Total water produced 2,141,816,510 2,422,017,020 2,546,345,600
Purchased water 26.223200
Total water production 2.141.816.51Q 6dm.17.02-.Q b5Jk5_6.a..8..QQ
Water connections by user type
User type 20]0 2009 2008
Single family 34,644 34,450 34,316
Multiple family 2,808 2,810 2,834
Commercial 3,902 3,985 4,003
Other ~ ~ L755
Total all users _43,l12 A3.Jl61 ._:!l.~1
Water revenue by user type
User type 2010 2009 2008
Single family $ 13,914,457 $ 13,943,439 $ 13,419,093
Multiple family 3,442,271 3,547,8II 3,419,696
Commercial 5,864,254 5,990,149 5,765,993
Other 1.215,855 1.426.183 1,518.693
Total all users $-2.AA3~837 L 24..2Q1.2_82 L~4..l..7.1, 4 7 ~
35
Sewer connections by district served
User type 2010
San Bernardino residential
Non residential
East Valley residential
Non residential
Lorna Linda residential
Non residential
Total all users
Sewer revenue by district served
User type
San Bernardino residential
Non residential
East Valley residential
Non residential
Lorna Linda residential
Non residential
Total all users
32,307
5,196
]8,157
1,132
4,688
-ill
6~.068
2010
$ 6,670,859
6,699,228
3,348,238
2,185,072
839,45]
1.016,088
~_;2.9i 7 5E.9J~
36
2009
2008
32,050
5,434
17,986
1,146
4,692
--ill
6 1 ,.8~
32,058
5,491
17,956
1,159
4,407
-2lQ
-<iLMl
2009
$ 6,197,816
6,570,125
3,22],455
2,213,946
767,075
1,011.795
.$.J.9--282~212
2008
$ 6,288,804
6,625,012
3,285,452
2,139,543
781,159
984.117
S.2Jll Q4.08~
City of San Bernardino Municipal Water Department
Single Audit Report on
Federal A wards
Year ended June 30, 2010
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Single Audit Report on Federal Awards
Year ended June 30, 2010
TABLE OF CONTENTS
Report on Compliance and Other Matters and on Internal Control over Financial
Reporting Based on an Audit of Financial Statements Performed
in Accordance with Government Auditing Standards
Report on Compliance with Requirements that Could Have a Direct
and Material Effect on Each Major Progranl, Internal Control
over Compliance and on the Schedule of Expenditures of Federal
Schedule of Expenditures of Federal Awards
In Accordance with OMB Circular A-I33
Schedule of Expenditures of Federal Awards
Notes to the Schedule of Expenditures of Federal Awards
Schedule of Findings and Questioned Costs
Summary Schedule of Prior Audit Findings
Page
1
3
5
6
8
10
Mayer Hoffman McCann RC.
An Independent CPA Firm
2301 Dupont Drive, Suite 200
Irvine, California 92612
949-474-2020 ph
949-263-5520 fx
www.mhm-pc.com
City of San Bernardino Municipal Water Department
REPORT ON COMPLIANCE AND OTHER MATTERS AND ON INTERNAL
CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING
STANDARDS
We have audited the governmental activities, each major fund, and the aggregate remaining fund
information of the City of San Bernardino Municipal Water Department (Department), as of and
for the year ended June 30, 2010, which collectively comprise the Department's basic financial
statements and have issued our report thereon dated December 15, 2010. 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.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Department's financial statements
are free of material misstatement, we performed tests of its compliance with certain provisions of
laws, regulations, contracts and grant agreements, noncompliance with which could have a direct
and material effect on the determination of financial statement amounts. However, providing an
opinion on compliance with those provisions was not an objective of our audit and, accordingly,
we do not express such an opinion. The results of our tests disclosed no instances of
noncompliance or other matters that are required to be reported under Government Auditing
Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Department's internal control over
fmancial reporting as a basis for designing our auditing procedures for the purpose of expressing
our opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Department's internal control over financial reporting. Accordingly, we do
not express an opinion on the effectiveness of the Department's internal control over financial
reporting.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or combination of deficiencies, in internal control, such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be prevented,
or detected and corrected on a timely basis.
City of San Bernardino Municipal Water Department
Page Two
Our consideration of the internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily disclose all deficiencies
in internal control that might be significant deficiencies or material weaknesses. We did not
identifY any deficiencies in internal control over financial reporting that we consider to be
material weaknesses, as defined above.
This report is intended solely for the information and use of the Board of Water Commissioners
and management of the Department, federal awarding agencies and pass-through entities and is
not intended to be and should not be used by anyone other than these specified parties.
4/..,.",.. ~~..- m4'C"~ I'.c:
Irvine, California
December 15, 2010
2
I Mayer Hof'fman McCann P.C.
An Independent CPA Firm
2301 Dupont Drive, Suite 200
Irvine, California 92612
949-474-2020 ph
949-263-5520 fx
www.mhm-pc.com
City of San Bemardino Municipal Water Department
REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A
DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM, INTERNAL
CONTROL OVER COMPLIANCE
AND ON THE SCHEDULE OF EXPENDITURES OF FEDERAL A WARDS
IN ACCORDANCE WITH OMB CIRCULAR A-B3
Compliance
We have audited the compliance of the City of San Bemardino Municipal Water Department
(Department), 'with the types of compliance requirements described in the OMB Circular A-133
Compliance Supplement that could have a direct and material effect on each of its major federal
programs for the year ended June 30, 2010. The Department's major federal programs are
identified in the summary of auditors' results section of the accompanying schedule of findings
and questioned costs. Compliance with the requirements of laws, regulations, contracts and
grants applicable to its major federal programs is the responsibility of the Department's
management. OUf responsibility is to express an opinion on the Department's compliance based
on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted
in the United States of America; the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States and
OMB Circular A~133. Those standards and OMB Circular A-I33 require that we plan and
perform the audit to obtain reasonable assurance about whether noncompliance with the types of
compliance requirements referred to above that could have a direct and material effect on a major
federal program occurred. An audit includes examining, on a test basis, evidence about
Department's compliance with those requirements and perfonning such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. Our audit does not provide a legal determination of Department's compliance
with those requirements.
In our opinion, the Department complied, in all material respects, with the requirements referred
to above that could have a direct and material effect on each of its major federal progranls for the
year ended June 30, 2010. However, an immaterial instance on noncompliance was noted and is
described at Section D of the accompanying Schedule of Findings and Questioned Costs.
~
.J
City of San Bernardino Municipal Water Department
Page Two
Internal Control Over Compliance
The management of the Department is responsible for establishing and maintaining effective
internal control over compliance with the requirements of laws, regulations, contracts and grants
applicable to federal programs. In planning and performing our audit, we considered the
Department's internal control over compliance with requirements that could have a direct and
material effect on a major federal program in order to determine our auditing procedures for the
purpose of expressing our opinion on compliance, but not for the purpose of expressing an
opinion on the effectiveness of internal control over compliance. Accordingly, we do not express
an opinion on the effectiveness of the Department's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control
over compliance does not allow management or employees, in the normal course of performing
their assigned functions, to prevent, or detect and correct noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal
control over compliance is a deficiency, or combination of deficiencies, in internal control over
compliance, such that there is a reasonable a possibility that material noncompliance with a type
of compliance requirement of a federal program will not be prevented, or detected and corrected,
on a timely basis.
Our consideration of the internal control over compliance was for the limited purpose described
in the first paragraph of this section and would not necessarily identify all deficiencies in internal
control that might be significant deficiencies or material weaknesses. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses, as
defined above.
Schedule of Expenditures of Federal A wards
We have audited the financial statements and the accompanying schedule of expenditures of
federal awards of the Department as of and for the year ended June 30, 2010, and have issued our
report thereon dated November 29, 2010. Our audit was performed for the purpose of forming
our opinion on the financial statements that collectively comprise the Department's basic
financial statements. The accompanying schedule of expenditures of federal awards is presented
for purposes of additional analysis as required by OMB Circular A-133 and is not a required part
of the basic financial statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the basic financial statements taken as a whole.
This report is intended for the information a..lld use of the Board of Water Commissioners,
management of the Department, federal awarding agencies and pass-through entities and is not
intended to be and should not be used by anyone other than these specified parties.
~ M~- /71'.4.~~.
Irvine, California
December 15, 2010
4
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of EX'Penclitures of Federal Awards
Year ended June 30, 2010
66.202 XP-979891O 1-5 $ 1,294,822 *
1,294,822
^ #
537,039
859,520
114,652
276,987
107,262
1,895,460 *
$ 3,190,282
Federal Grantor!
Federal
Domestic
Assistance
Number
Program Title
United States Environmental Protection Agency (EPA)
Water Infrastructure
Congressionally mandated projects
U.S. Department of Armv
Operations and maintenance:
Nev.'lllark
Muscoy
Site wide monitoring
Project management
Institutional controls program
Total Expenditures of Federal Awards
^ A CFDA number has not been assigned
# A PIN number has not been assigned
* Major program
Program
Identification
Number
See accompanying notes to the schedule of expenditures offederal awards.
5
Program
Expenditures
CITY OF SAN BERi\TARDINO MIJNICIP AL WATER DEPARTMENT
Notes to the Schedule of Expenditures of Federal Awards
Year ended June 30, 2010
(1) Summary of Significant Accounting Policies A?plicable to the Schedule of Expenditures of
Federal A wards
(a) Scope of Presentation
The accompanying schedule presents only the expenditures incurred by the
Department that are reimbursable by agencies providing federal assistance. For the
purposes of this schedule, federal financial assistance includes both federal financial
assistance received directly from a federal agency, as well as federal funds received
indirectly from a non-federal agency or other organization. Only the portion of
program expenditures reimbursable with such federal funds are reported in the
accompanying schedule. Program expenditures in excess of the maximum federal
reimbursement authorized or the portion of the program expenditures that were
funded with state, local or other non-federal funds are excluded from the
accompanying schedule.
(b) Basis of Accounting
The expenditures included in the accompanying schedule were reported on the
accrual basis of accounting. Under the accrual basis of accounting, expenditures are
recognized when incurred. Expenditures reported include any property or equipment
acquisitions incurred under the federal program.
(c) Subrecipients
During the fiscal year ended June 30, 2010, there were no disbursements made to
subrecipients.
(2) Background of Consent Decree
In 1996, the City of San Bernardino (City) filed a complaint against the United States of
America, Department of the Army (Army) to recover damages, response costs and other
available remedies relating to contamination alleged to have originated at a W orId War II
Army installation known as Camp Ono. In March 2005, the United States District Court,
Central District, entered judgment, in the form of a consent decree (Consent Decree), in
the matter of City of San Bernardino v. United States of America. The consent decree
settles the City's and the State's claims arising from the groundwater contamination
allegedly caused by the Army. The Consent Decree contains a number of provisions
obligating the City (through the Municipal Water Department) to operate and maintain
the Newmark Groundwater Superfund site (Site). The Site consists of two operable units,
the Newmark Operable Unit and the Muscoy Operable Unit. The Newmark Operable
Unit was declared operational and functional in 1998.
6
CITY OF SAN BERNARDINO MUNICIP AL WATER DEPARTMENT
Notes to the Schedule of Expenditures of Federal Awards
Year ended June 30, 2010
(2) Background of Consent Decree (Continued)
The Consent Decree provided for a payment of $69 million from the Army to the City for
performance of the work outlined in the consent decree. Upon entry of the Consent
Decree, the City, through the Department, received title to all facilities constructed by the
United States Environmental Protection Agency (EP A) for the Site and agreed to operate
and maintain the groundwater extraction and treatment system for a period of 50 years.
The $69 million dollar payment consisted of $59 million for operation and maintenance
and $10 million for the construction of certain capital facilities that would be required in
the future. The funds are subject to strict limitations, contained in the Consent Decree, as
to how they may be spent.
Pursuant to the Consent Decree, $10 million, including interest eamed, has been set aside
to be used only for (i) funding construction of treatment and directly related transmission
systems that expanded the Department's capacity to deliver potable water, and (ii)
funding work performed by the Department to complete construction of the Muscoy
Operable Unit extraction system. These "capital facility" funds may not be used for costs
incurred to operate, maintain, repair or retrofit components of the Site extraction or
treatment systems constructed by EPA. In September 2007, the Muscoy Operable Unit
was declared operational and functional.
(3) Background of EP A grant
The City of San Bemardino applied for a grant through the US Environmental Protection
Agency in May 2004, to provide assistance in support of the City of San Bernardino's
Lakes and Streams Project. In total, $1,870,700 of earmarks were obtained for that
purpose. The project scope changed and a Congressional Technical Correction was
granted in April 2008 authorizing the utilization of funds for water infrastructure needs,
specifically the construction of the San Bernardino Municipal Water Department's Palm
No. 3 reservoir. This project resolves critical water delivery deficiencies by installing
storage supporting accessibility to adequate domestic water supplies to meet consumer
demands within a certain pressure zone. The project is ongoing and expected to be
compLete during fiscal year 2011.
7
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
Year ended June 30, 2010
(A) Summary of Auditors' Results
1. An unqualified report was issued by the auditors on the financial statements of the
auditee.
2. There were no material weaknesses in internal control over financial reporting based
upon our audit of the financial statements of the auditee.
3. The audit disclosed no noncompliance which is material to the financial statements
of the auditee.
4. There were no material weaknesses in internal control over the major programs of
the auditee.
5. An unqualified report was issued by the auditors on compliance for its major
progran1s.
6. The audit disclosed no audit finding required by the auditors to be reported under
paragraph .510(a) ofOMB Circular A-133.
7. The major programs of the auditee were the U.S. Environmental Protection Agency
- Water Infrastructure - Congressionally Mandated Projects CFDA No 66.202 and
the U.S. Department of Army - Consent Decree.
8. The dollar threshold used to distinguish Type A and Type B programs was $300,000.
9. The auditee was considered a high risk auditee, as defined by OMB Circular A-133,
paragraph .530, for the year ended June 30, 2010 for the purpose of determining
major programs.
(B) Findings Related to the Financial Statements which are Required to be Reported 111
Accordance with GAGAS
There are no auditors' findings to be reported in accordance with GAGAS.
(C) Findings and Questioned Costs for Federal Awards as Defined in Paragraph .510(a) ofOMB
Circular A-l33
There are no auditors' findings required to be reported in accordance with paragraph .510(a)
ofOMB Circular A-I33.
8
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
Year ended June 30, 2010
CD) Other Items
During our testing of allowable costs we noted unbudgeted personnel costs in the amount of
$8,102 were submitted for reimbursement. Subsequent to the audit, a correction was made
to refund the personnel costs.
9
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Summary Schedule of Prior Audit Findings
Year ended June 30, 2010
There were no prior audit iindings requiring follow up from the year ended June 30, 2009.
10
CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
BOARD OF WATER COMMISSIONERS
TONI CALLICOTT
President
Commissioners
B. WARREN COCKE
NORINE I. MILLER
LOUIS A. FERNANDEZ
WAYNE HENDRIX
"Trusted, Quality Service since 1905"
December 20, 2010
Mayer Hoffman McCann P.C.
2301 Dupont Drive, Suite 200
Irvine, California 92612
Gentlemen:
STACEY R. ALDST ADT
General Manager
ROBIN L. OHAMA
Deputy General Manager
MATTHEW H. LITCHFIELD, P.E.
Director of Water Utility
JOHN A. CLAUS
Director of Water Reclamation
DON SHACKELFORD
Director of Finance
VALERIE HOUSEL
Director of Environmental &
Regulatory Compliance
We are providing this letter in connection with your audit(s) of the financial statements of San Bernardino
Municipal Water Department as of June 30th, 2010, and for the fiscal year then ended for the purpose of
expressing opinions as to whether the financial statements present fairly, in all material respects, the respective
financial position of the financial statements of the San Bernardino Municipal Water Department and the
respective changes in financial position and, where applicable, cash flows thereof in conformity with U.S.
generally accepted accounting principles. We confirm that we are responsible for the fair presentation of the
previously mentioned financial statements in conformity with U.S. generally accepted accounting principles. We
are also responsible for adopting sound accounting policies, establishing and maintaining effective internal
control over financial reporting, and preventing and detecting fraud.
We confirm, to the best of our knowledge and belief, as of December 20th, 2010, the following representations
made to you during your audit(s):
1. The financial statements referred to above are fairly presented in conformity with U.S. generally accepted
accounting principles and include all properly classified funds and other financial information of the primary
government and all component units required by generally accepted accounting principles to be included in
the financial reporting entity.
2. We have made available to you all
A. financial records and related data, and
B. minutes of the meetings of Board of Water Commissioners or summaries of actions of recent meetings
for which minutes have not yet been prepared.
3. There have been no communications from regulatory agencies concerning noncompliance with, or
deficiencies in, financial reporting practices.
4. There are no material transactions that have not been properly recorded in the accounting records
underlying the financial statements or the schedule of expenditures of federal awards.
300 North "D" Street, San Bernardino, California 92418 P.O. Box 710, 92402 Phone: (909) 384-5141
FACSIMILE NUMBERS: Administration: (909) 384-5215 Engineering: (909) 384-5532 Customer Service: (909) 384-7211
Corporate Yards: (909) 384-5260 Water Reclamation Plant: (909) 384-5258
Mayor Hoffman McCann, P.C.
December 20, 2010
Page 2 of 5
5. We believe the effects of the uncorrected financial statement misstatements summarized in the attached
schedule are immaterial, both individually and in the aggregate, to the financial statements for each opinion
unit.
6. We acknowledge our responsibility for the design and implementation of programs and controls to prevent
and detect fraud.
7. We have no knowledge of any fraud or suspected fraud affecting the entity involving:
A. management,
B. employees who have significant roles in internal control, or
C. others where the fraud could have a material effect on the financial statements.
8. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in
communications from employees, former employees, analysts, regulators, or others.
9. We have taken timely and appropriate steps to remedy fraud, illegal acts, violations of provisions of
contracts or grant agreements, or abuse that you have reported to us.
10. We have a process to track the status of audit findings and recommendations.
11. We have identified to you any previous financial audits, attestation engagements, performance audits, or
other studies related to the objectives of the audit being undertaken and the corrective actions taken to
address significant findings and recommendations.
12. We have provided our views on reported findings, conclusions, and recommendations, as well as our
planned corrective actions for the report.
13. The San Bernardino Municipal Water Department has no plans or intentions that may materially affect the
carrying value or classification of assets, liabilities, or equity.
14. The following, if any, have been properly recorded or disclosed in the financial statements:
A. Related party transactions, including revenues, expenditures/expenses, loans, transfers, leasing
arrangements, and guarantees, and amounts receivable from or payable to related parties.
B. Guarantees, whether written or oral, under which the San Bernardino Municipal Water Department is
contingently liable.
C. All accounting estimates that could be material to the financial statements, including the key factors
and significant assumptions underlying those estimates and measurements. We believe the estimates
and measurements are reasonable in the circumstances, consistently applied, and adequately
disclosed.
15. We are responsible for compliance with the laws, regulations, and provisions of contracts and grant
agreements applicable to us, including tax or debt limits and debt contracts; and we have identified and
disclosed to you all laws, regulations and provisions of contracts and grant agreements that we believe
have a direct and material effect on the determination of financial statement amounts or other financial data
significant to the audit objectives, including legal and contractual provisions for reporting specific activities
in separate funds.
Mayor Hoffman McCann, P.C.
December 20,2010
Page 3 of 5
16. There are no
A. violations or possible violations of budget ordinances, laws and regulations (including those pertaining
to adopting, approving, and amending budgets), provisions of contracts and grant agreements, tax or
debt limits, and any related debt covenants whose effects should be considered for disclosure in the
financial statements, or as a basis for recording a loss contingency, or for reporting on noncompliance;
B. unasserted claims or assessments that our lawyer has advised us are probable of assertion and must
be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No.5,
Accounting for Contingencies;
C. other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB
Statement No.5; or
D. reservations or designations of fund equity that were not properly authorized and approved.
17. As part of your audit, you assisted with preparation of the financial statements and related notes and
schedule of expenditures of federal awards. We have designated an individual with suitable skill,
knowledge, or experience to oversee your services and have made all management decisions and
performed all management functions. We have reviewed, approved, and accepted responsibility for those
financial statements and related notes and schedule of expenditures of federal awards.
18. The San Bernardino Municipal Water Department has satisfactory title to all owned assets, and there are
no liens or encumbrances on such assets, nor has any asset been pledged as collateral.
19. The San Bernardino Municipal Water Department has complied with all aspects of contractual agreements
that would have a material effect on the financial statements in the event of noncompliance.
20. We have followed all applicable laws and regulations in adopting, approving, and amending budgets.
21. The financial statements, as applicable, include all component units as well as joint ventures with an equity
interest, and properly disclose all other joint ventures and other related organizations.
22. The financial statements properly classify all funds and activities.
23. Provisions for uncollectible receivables have been properly identified and recorded.
24. Expenses have been appropriately classified in or allocated to functions and programs in the statement of
activities, and allocations have been made on a reasonable basis.
25. Revenues are appropriately classified in the statement of activities within program revenues, general
revenues, contributions to term or permanent endowments, or contributions to permanent fund principal.
26. Interfund, internal, and intra-entity activity and balances have been appropriately classified and reported.
27. Special and extraordinary items are appropriately classified and reported.
28. Deposits and investment securities are properly classified as to risk, and investments are properly valued.
29. Capital assets, including infrastructure assets, are properly capitalized, reported, and (if applicable)
depreciated.
30. Required supplementary information (RSI) is measured and presented within prescribed guidelines.
Mayor Hoffman McCann, P.C.
December 20,2010
Page 4 of 5
31. With respect to federal award programs:
A. We are responsible for complying and have complied with the requirements of OMS Circular A-133,
Audits of States, Local Governments, and Non-Profit Organizations.
S. We have, in accordance with OMS Circular A-133, prepared the schedule of expenditures of federal
awards, and have included in the schedule expenditures made during the audit period for all awards
provided by federal agencies in the form of grants, federal cost-reimbursement contracts, loans, loan
guarantees, property (including donated surplus property), cooperative agreements, interest subsidies,
insurance, food commodities, direct appropriations, and other assistance.
C. We are responsible for complying with, and have complied with in all material respects, the
requirements of laws, regulations, and the provisions of contracts and grant agreements related to
each of our federal programs and have identified and disclosed to you the requirements of laws,
regulations, and the provisions of contracts and grant agreements that are considered to have a direct
and material effect on each major federal program.
D. We are responsible for establishing and maintaining, and have established and maintained, effective
internal control over compliance requirements applicable to federal programs that provides reasonable
assurance that we are managing our federal awards in compliance with laws, regulations, and the
provisions of contracts and grant agreements that could have a material effect on our federal
programs. We believe the internal control system is adequate and is functioning as intended. Also, no
changes have been made in internal control over compliance or other factors to the date of this letter
that might significantly affect internal control, including any corrective action taken with regard to
control deficiencies reported in the schedule of findings and questioned costs.
E. We have made available to you all contracts and grant agreements (including amendments, if any) and
any other correspondence with federal agencies or pass-through entities relating to major federal
programs.
F. We have received no requests from a federal agency to audit one or more specific programs as a
major program.
G. We have complied, in all material respects, with the compliance requirements, including when
applicable, those set forth in the OMS Circular A-133, Compliance Supplement, relating to federal
awards and have identified and disclosed to you all amounts questioned and any known
noncompliance with the requirements of federal awards, including those resulting from other audits or
program reviews.
H. Amounts claimed or used for matching were determined in accordance with relevant guidelines in OMS
Circular A-8l, Cost Principles for State, Local, and Tribal Governments, and OMS's Uniform
Administrative Requirements for Grants and Cooperative Agreements to State and Local
Governments.
I. We have disclosed to you our interpretation of compliance requirements that may have varying
interpretations.
J. We have made available to you all documentation related to the compliance requirements, including
information related to federal program financial reports and claims for advances and reimbursements.
K. Federal program financial reports and claims for advances and reimbursements are supported by the
books and records from which the financial statements have been prepared.
L. We have charged costs to federal awards in accordance with applicable cost principles.
Mayor Hoffman McCann, P.C.
December 20,2010
Page 5 of 5
M. The copies of federal program financial reports provided you are true copies of the reports submitted,
or electronically transmitted, to the respective federal agency or pass-through entity, as applicable.
N. We are responsible for and have accurately prepared the summary schedule of prior audit findings to
include all findings required to be included by OMS Circular A-133 and we have provided you with all
information on the status of the follow-up on prior audit findings by federal awarding agencies and
pass-through entities, including all management decisions.
O. We are responsible for and have accurately prepared the auditee section of the Data Collection Form
as required by OMS Circular A-133, and we are responsible for preparing and implementing a
corrective action plan for each audit finding.
P. We have disclosed to you all contracts or other agreements with service organizations, and we have
disclosed to you all communications from the service organizations relating to noncompliance at the
service organizations.
32. No events, including instances of noncompliance, have occurred subsequent to the balance sheet date
and through the date of this letter that would require adjustment to or disclosure in the aforementioned
financial statements.
Signed:
,~~
General Manager
Signed:
o
December 20, 2010
Date:
December 20,2010
Date: