HomeMy WebLinkAbout05.BY- Water DOC ID: 2521
CITY OF SAN BERNARDINO—REQUEST FOR COUNCIL ACTION
Report/Information
From: Stacey R. Aldstadt M/CC Meeting Date: 06/17/2013
Prepared by: Kathie Bennett, (909) 384-5141
Dept: Water Ward(s): All
Subject:
Receive and File Audited Annual Financial Report of the Water Department's Water and Sewer
Utilities for Fiscal Year Ending June 30, 2012 (#2521)
Current Business Registration Certificate: Not Applicable
Financial Impact:
None.
Motion: Receive and file the audited Annual Financial Report of the Water Department's
Water and Sewer Utilities for fiscal year ending June 30, 2012.
Synopsis of Previous Council Action:
Similar action taken each year following completion of the annual financial report.
Background:
The firm of Mayer Hoffinan McCann has completed the annual audit of the Water Department's
water and sewer utilities for fiscal year ending June 30, 2012. The audited Annual Financial
Report was presented to and accepted by the Board of Water Commissioners at their regular
meeting of May 7, 2013.
Supporting Documents:
AUDITED ANNUAL FINANCIAL REPORT FY 2012 (PDF)
Updated: 6/6/2013 by Linda Sutherland ' '
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"Trusted, Quality Service Since 1905"
CITY OF SAN BERNARDINO "
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MUNICIPAL WATER DEPARTMENT "
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Annual Financial Report w
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Fiscai Year Ended June A 2012
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Mayor of the City of$an Brnardin
Morris Q
Patrick J. orris Z
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Board of Water Commissioners w
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B. Toni rallicott, President
B. Warren Locke, Vice President a
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Dr. Louis A. Fernandez, Commissioner y
Wayne Hendrix, Commissioner t
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Judith Valles, Commissioner Q
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City of San Bernardino Municipal Water Department
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Administration Q
Stacey R. Aldstadt, General Manager
Robin L. Ohama, Deputy General Manager a
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Matthew H. Litchfield, P.E., Director of Water Utilities a
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John A. Claus, Director of Water Reclamation U.
William M, Kolbow, C.P.A., Director of Finance =
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Jennifer L. Shepardson, Director of Environmental & Regulatory Compliance >
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Mission Statement
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To meet our customers needs by providing high-quality service in water supply, water N
reclamation and geothermal heating in the most professional and cost-effective manner CNI
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possible,
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Organization 0
Bernardino a
The City of San Bernardino Municipal Water Department was formed in 1904 under the
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Charter of the City of San Bernardino. The Department is governed by the Board of a
Water Commissioners who are appointed by the Mayor of the City of San Bernardino. Z
The Charter gives the Board of Water Commissioners semiautonomous authority to Z
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govern the Department independent of the City Council. The Department operates two Q
enterprise funds, the Water Utility Enterprise Fund and the Sewer Utility Enterprise Z
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Fund. Water service encompasses the City, with the exception of the east end, which is a
served by the East Valley Water District. Sewer service encompasses all of the City of w
San Bernardino, the City of Loma Linda, the former Norton Air Force Base, Patton State O
Hospital and portions of the areas serviced by East Valley Water District. a
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City of San Bernardino Municipal Water Department
Annual Financial Report
Fiscal Year Enaing Jun.30,2012
Table of Contents Q-
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Pane No. R
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Independent Auditor's Report 1-2
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Management's Discussion and Analysis 3-12 LL
Basic Financial Statements:
Statement of Net Assets Changes a
Statement of Revenues, Expenses and Changes in Net Assets 15
Statement of Cash Flows 16-17 r°'_+
Notes to the Basic Financial Statements 18-38 Q
Supplemental Information:
Table SI-1: Water Production and Utilization 40 LL
Table SI-2: Cost of Water Production 40 C
Table SI-3: Water Production by Plant 41 m
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Table SI-4: Water Connections and Revenue by User Type 'd
Table SI-5: Sewer Treatment Connections and Revenue by User Type 42
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HM Mayer Hoffman 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
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Board of Water Commissioners X,
Municipal Water Department of the City of
San Bernardino, California
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INDEPENDENT AUDITORS' REPORT
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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, 2012, which collectively comprise the Department's financial statements, as listed in
the table of contents. These financial statements are the responsibility of the management of a
the Department. Our responsibility is to express opinions on these financial statements based
on our audit. The prior year partial comparative information has been derived from the financial
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statements of the Department for the year ended June 30, 2011 and, in our report dated
January 10, 2012, we expressed an unqualified opinion on those financial statements.
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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
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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 r
also includes assessing the accounting principles used and significant estimates made by N
management, as well as evaluating the overall financial statement presentation. We believe LL
that our audit provides a reasonable basis for our opinion.
As discussed in note one to the financial statements, the financial statements are intended to a
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present the financial position, and the changes in financial position and cash flows of only that
portion of the governmental activities, the business-type activities, each major fund, and the J
aggregate remaining fund information of the City of San Bernardino, California that are
attributable to the transactions of the Department. They do not purport to, and do not, present z
fairly the financial position of the City of San Bernardino as of June 30, 2012, the changes in its z
financial position, or, where applicable, its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
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On August 1, 2012, the City of San Bernardino filed a petition under Chapter 9 of the United z
States Bankruptcy Code seeking to adjust the timing and amount of the payments associated o
with the City's obligations. As discussed in note two to the financial statements, there is
considerable uncertainty associated with this process and the effects of this process upon the
Department are not known at this time. Q
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, 2012, 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. Q
Member of Nreston International-a global network of independent accounting firms
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Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page Two 0
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Accounting principles generally accepted in the United States of America require that the X
management's discussion and analysis identified in the accompanying table of contents be
presented to supplement the Department financial statements. Such information, although not a
part of the Department financial statements, is required by the Governmental Accounting c
Standards Board who considers it to be an essential part of financial reporting for placing the LL
Department financial statements in an appropriate operational, economic, or historical context.
We have applied certain limited procedures to the required supplementary information in Q
accordance with auditing standards generally accepted in the United States of America, which
consisted of inquiries of management regarding the methods of preparing the information and
comparing the information for consistency with management's responses to our inquiries, the
Department financial statements, and other knowledge we obtained during our audit of the Q
Department financial statements. We do not express an opinion or provide any assurance on
the information because the limited procedures do not provide us with sufficient evidence to =
express an opinion or provide any assurance. co
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Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Department's financial statements. The schedules listed in the table of
contents as supplemental information are presented for purposes of additional analysis and are
not a required part of the Department financial statements. These schedules have not been
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and, accordingly, we express no opinion or provide any assurance on them. r
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In accordance with Government Auditing Standards, we have also issued a report dated April >-
12, 2013 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 o
agreements, and other matters. The purpose of that report is to describe the scope of our n.
testing of internal control over financial reporting and compliance and the results of that testing, of
and not to provide an opinion on the internal control over financial reporting or on compliance. Q
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. z
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Irvine, California Q
April 12, 2013 °w
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT "Ry
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Managements Discussion and Analysis
For the Year Ended June 30, 2012
The City of San Bernardino s Municipal Water Department (Department) is a 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 0
financial report presents managements analysis of the Departments financial performance during the fiscal year y
that ended on June 30, 2012. Please read it in conjunction with the basic financial statements, which follow this
section. /111 amounts in the Managements Discussion and Analysis within text areas are in thousands unless (�
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otherwise noted.
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Financial Highlights
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• The Department's net assets increased by$6.8 million. C
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• Operating revenues increased by$6.5 million. -�
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• Net income loss before capital contributions improved by $4.4 million. 3
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• The Department's current ratio (the ability to pay short-term obligations) was 3.6. d
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• Cash available (the ability to cover current expenses with cash) was 360 days.
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Overview of the Financial Statements
The discussion and analysis are intended to serve as an introduction to the Department's basic financial
statements. The Department's basic financial statements are comprised of two components. the Financial
Statements and the Notes to the Basic Financial Statements. This report also contains other supplementary r
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information in addition to the basic financial statements themselves. Information providing citywide financial
results is available in the City's Comprehensive Annual Financial Report, N
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Required Financial Statements N
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The financial statements of the Department report information about the Department using accounting
methods similar to those used by private sector companies. These statements offer short-term and long-term O
financial information about its activities. The Statement of Net Assets (pages 13 and 14) includes all of the W
Department's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the
basis for evaluating the capital structure of the Department and assessing the liquidity and financial flexibility of Q
the Department. All of the current year's revenues and expenses are accounted for in the Statement of Z
Revenues, Expenses and Changes in Net Assets (page 15). This statement measures the success of the Q
Department's operations over the past year and can be used to determine whether the Department has ly
successfully recovered all its costs through its user fees and other charges, profitability, and credit worthiness.
The final required financial statement is the Statement of Cash Flows (pages 16 and 17). The primary purpose of Z
this statement is to provide information about the Department's cash receipts and cash payments during the z
reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from Q
operations, investing, and financing activities and provides answers to such questions as where did cash come LU
from, what was cash used for, and what was the change in cash balance during the reporting period.
Financial Analysis of the Department Q
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Our analysis of the Department begins on page 13 of the financial statements. One of the most important
questions to ask about the Departments finances is "Whether the Department, as a whole, is better off or V
worse off as a result of the year s activities?" The Statement of Net Assets, and the Statement of Revenues,
Expenses and Changes in Net Assets report information about the Department's activities in a way that will help Q
answer this question. These two statements report the net assets of the Department and changes in them.
Measuring the change in the Department's net assets -the difference between assets and liabilities - is one way
to measure financial health or financial position. Over time, increases or decreases in the Department's net
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT '=,p
Management's Discussion and Analysis, continued w
For the Year Ended June 30, 2012
jassets are indications of whether its financial health is improving or deteriorating. However, one will need to
consider other non-financial factors such as changes in economic conditions, population growth, zoning and new
or changed government legislation. 0
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Water Utility Fund
To begin our analysis, a summary of the Water Utility Fund's Statements of Net Assets is presented in Table A-1. V
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TABLE A-1
Condensed Statement of Nat Assets-Water Utility
' (amounts expressed in thousands of dollars) _
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FYE 2012 FYE 2011 $Change %Change
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Current and noncurrent assets $ 91,313 $ 86,691 $ 4,622 5.33%
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Capital assets 162,590 156,400 6,190 3.96% Q
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Total assets $ 253,903 $ 243,091 $ 10,812 4.45% U.
Long-term liabilities $ 84,392 $ 79,311 $ 5,081 6.41%
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Other liabilities 7,750 8,929 (1,179) -13.20%
Total liabilities
$ 92,142 $ 88,240 $ 3,902 4.42%
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Invested in capital assets,
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net of related debt $ 148,063 $ 140,913 $ 7,150 5.07% C4
Restricted 41 - 41 N/A
Unrestricted 13,658 13,938 (280) -2.01% c
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Total net assets $ 161,762 $ 154,851 $ 6,911 4.46% >-
As can be seen from the table above, water utility net assets increased $6,911 to $161,762 in fiscal year 2012, 0
up from $154,851 in fiscal year 2011. Looking more carefully at the table you can see that there was a shift in W
net assets between invested in capital assets, which increased $7,150, and unrestricted net assets. The decrease
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in invested in capital assets is related primarily to depreciation expense. Q
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Afurther review of net assets shows that unrestricted net assets (those that can be used to finance day-to-day Q
operations) decreased $280 primarily due to increases in revenue (which are further discussed in the next table) z U.
and a prior period adjustment which is described in further detail in note 15 of the notes to the basic financial J
statements. Q
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
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Management's Discussion and Analysis,continued
For the Year Ended June 30, 2012
TABLE A-2
Condensed Statement of Revenues,Expanses and Changes in Net Assets-Water Utility
amounts expressed in thousands of dollars) 0
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HE 2012 HE 2011 $Change %Change
Operating revenue $ 37,106 $ 33,028 $ 4,078 12.35% c
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Capital contributions 2,385 2,782 (397) -14.27% 5
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Other non-operating revenue 3,232 2,558 674 26.33% R
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Total revenues 42,723 38,368 4,355 11.35% Q
Operating expenses $ 39,156 $ 35,812 3,344 9.34% d
Non-operating expenses 796 533 263 49.34%
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Total expenses 39,952 36,345 3,607 9.92% as
Change in net assets 2,771 2,023 748 36.95%
Net assets, beginning balance 154,851 152,828 2,023 1.32%
Prior period adjustment 4,140 - 4,140 N/A •a'-,
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Total net assets $ 161,762 $ 154,851 $ 6,911 4.46%
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Operating revenue increased by $4,078 due to a slight increase in customer consumption and a 10% rate N
increase implemented in January 2012 (the last of a series of three approved increases). This year marked the v
first year in the past five years that there was an increase in customer consumption. r
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Operating expenses increased by $3,344 due to an increase in purchases of supplemental recharge water and
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increases in electricity costs.
TABLE A-3 a
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Capital Assets-Water Utility
(amounts expressed in thousands of dollars) Q
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HE 2012 HE 2011 $Change %Change Q
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Land and easements $ 2,989 $ 2,989 $ - 0.00% U.
Construction in progress 6,058 5,623 435 7.74% J
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Wells and pumping 82,942 80,033 2,909 3.63% z
Distribution 120,646 117,058 3,588 3.07% a
Plant and facilities 2,726 2,714 12 0.44% W
14,422 14,043 379 2.70%
Other capital assets 0
Total capital assets 229,783 222,460 7,323 3.29% Q
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Less. accumulated depreciation (67,193) (66,060) (1,133) 1.72%
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Total capital assets, net $ 162,590 $ 156,400 $ 6,190 3.96% .�
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Total capital assets increased $6,190 in fiscal year 2012. Approximately $7,130 in construction in progress was
closed to plant in service. Major project completions include pipeline replacements in the upper and mountain
pressure zones and system-wide security upgrades, Additional information on capital assets is presented in
Note 4 of the Notes to the Basic Financial Statements.
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENTp
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f Management's Discussion and Analysis, continued
For the Year Ended June 30, 2012 x
TABLE A-4
Long-term Debt-Water Utility
(amounts expressed in thousands of dollars) Q.
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HE 2012 HE 2011 $Change %Change
Notes payable $ 24,554 $ 15,518 $ 9,036 58.23%
Bonds payable 15 25 (10) -40.00% _
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Compensated absences 1,242 1,336 (94) -7.04% 3
Total long-term debt $ 25,811 $ 16,879 $ 8,932 52.92% Q
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During the year, the Water Utility's long-term debt increased $8,932 and can be attributed to normal debt Y
payments and the execution of a new note payable for$10 million. Q
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TABLE A-5 LL
Debt Service Coverage-Water Utility
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(amounts expressed in thousands of dollars)
HE 2012 HE 2011 $Change %Change V
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Gross revenue $ 42,723 $ 38,368 $ 4,355 11.35%
Operating expenses 39,156 35,812 3,344 9.34% N
Less. depreciation expense (5,771) (5,396) (375) 6.95% 04 N
Net operating expenses 33,385 30,416 2,969 9.76% N
Net revenues $ 9,338 $ 7,952 $ 1,386 17.42%
Annual debt service $ 1,501 $ 1,874 $ (373) -19.90% a
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jActual coverage ratio 6.22 4.24 _J
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The Water Utility Fund is required to maintain net revenues adequate to cover 110% of annual debt service. As z
can be seen above, the fund maintained a coverage ratio of 6.22 in the fiscal year 2012. This indicates the fund's Z
ability to borrow additional amounts in the future for infrastructure projects. Additional information on long LL
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term debt is presented in Note 6 of the Notes to Basic Financial Statements. a
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis,continued�/
For the Year Ended June 30, 2012 ]
TABLE A-6
Rata Nitery-Water Utility
Rate Effective Date 0
1/1/2012 1/1/2011 2/1/2010
Minimum Monthly Charge($fixed):
Meter Sire:
112"or 5/8" 12.90 12.20 10.55 c
3/4" 16.15 15.15 13.00 LL
1" 22.60 21.00 17.90
1-1/2" 38.80 35.75 30.15 Q
2" 58.20 53.45 44.85
3" 103.50 94.75 79.15
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4" 168.20 153.70 128.15 Q
6" 330.00 301.15 250.70 m
8" 524.15 478.10 397.75 u-
10" 750.65 684.55 569.30
Volumetric Charges($per HCF): >_
Commodity 1.15 1.10 1.05
Replenishment 0.09 0.09 0.09
Elevation: r
Zone 1 0.11 0.10 0.09 N
Zone 2 0.19 0.18 0.17
Zone 3 0.17 0.16 0.15
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Zone 4 0.14 0.13 0.12 N
Zone 5 0.23 0.22 0.21 LL
Zone 6 0.23 0.22 0.21 ~
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Conservation Charges: W
Rate per HCF $ 0.35 $ 0.30 $ 0.25
Tiers Tiers(rate applicable above monthly usage of): a
Residential 32 34 36 V
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Multi-Dwelling(2 units) 42 44 46 Z
M.Iti-Dwelling(3+units, per unit) 17 18 19
Non-residential, 5/8" meter 24 25 27 -�
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Non-residential, 3/4" meter 36 38 40 D
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Non-residential, 1" meter 65 70 75 ze
Non-residential, 1-112" meter 150 160 170 0
Non-residential, 2" meter 250 260 270 w
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Non-residential,3" meter 740 770 800 0
Commercial, 5/8" meter 42 44 46
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Commercial, 3/4' meter 55 60 65
Commercial, 1" meter 130 140 150 °'
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Commercial, 1-1/2' meter 275 290 305
Commercial,2" meter 445 465 485 1°
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Commercial, 3" meter 875 920 965 a
g Commercial,4' meter 2,400 2,530 2,660
Commercial,6' meter 9,000 9,475 9,950
HCF=Hundred Cubic Feet(748 gallons)
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis,continued .
For the Year Ended June 30, 2012 �.
The water utility keeps up with increasing costs with minor annual adjustments to the billing rates. The last of a
three-year rate increase went into effect in January 2012. Despite the adjustments, the water utility maintains
some of the lowest water rates in Southern California. Below are the ten largest water customers based on 0
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billed revenue. The ten largest make up 1006/0 of the Department's billed water sales. �
TABLE A-7 �o
Top Tan Customers Water Utility
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Custc,mor Nana Sales LL
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City of San Bernardino $ 897,479
San Bernardino City Unified School District 763,294 Q
County of San Bernardino 325,578
Baseline Mutual Water Company 270,116
San Bernardino Housing Authority 259,938 a
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California State University San Bernardino 237,410 �-
Cott Beverages 220,404
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City of San Bernardino Economic Development Agency 211,000 d
Ca l tra n s 164,449
Pama Management Company 118,218
Top Ten Customers Total $ 3,475,886
Total Water Sales Revenue $ 34,562,985
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Top Ten Customers% of Total 10.06% N
Sewer Utility Fund
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TABLE B-1 w
Condensed Statement of Not Assets'Sewer Utility
(amounts expressed in thousands of dollars V
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HE 2012 HE 2011 $Change %Changes Z
Current and noncurrent assets $ 43,694 $ 43,967 $ (273) -0.62% a
Capital assets 82,568 88,166 (5,598) -6.35%
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Total assets $ 126,262 $ 132,133 $ (5,871) -4.44% a
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Long-term liabilities $ 17,164 $ 24,164 $ (7,000) -28.97% W_
Other liabilities 7,435 7,880 (445) -5.65% °
Total liabilities $ 24,599 $ 32,044 $ (7,445) -23.23%
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Invested in capital assets, E
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net of related debt $ 64,427 $ 65,608 $ (1,181) -1.80%
Restricted 7,348 8,276 (928) -11.21% a
Unrestricted 29,887 26,205 3,682 14.05%
Total net assets $ 101,662 $ 100,089 $ 1,573 1.57%
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Managements Discussion and Analysis, continued a
For the Year Ended June 30, 2012 ��aq
As can be seen from the table above, sewer utility net assets increased $1,573 to $101,662 in fiscal year 2012,
up from $100,089 in fiscal year 2011. .Looking more carefully at the table you can see that there was a shift in
net assets between invested in capital assets, which decreased $1,181, and unrestricted net assets. The 0
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decrease in investment in capital assets is related primarily to depreciation expense.
A further review of net assets shows that unrestricted net assets (those that can be used to finance day to day (Sf
operations) decreased $3,682 primarily due to increases in revenue (which are further discussed in the next •_
table).
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TABLE B-2 ra
Condensed Statement of Revenues,Expenses and Changes in Nat Assets-Sewer Utility =
(amounts expressed in thousands of dollars) Q
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HE 2012 HE 2011 $Change %Change
Operating revenue $ 25,889 $ 23,434 $ 2,455 10.48% Q
(
671 1,608 937) -58.27%
Capital contributions LL
Other non-operating revenue 745 717 28 3.91%
Total revenues 27,305 25,759 1,546 6.00%
Operating expenses 22,054 22,697 (643) -2.83%
Non-operating expenses 1,207 1,335 (128) -9.59%
Total expenses 23,261 24,032 (771) -3.21%
Change in net assets 4,044 1,727 2,317 134.16%
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Net assets, beginning balance 100,090 98,362 1,728 1.76% p
Prior period adjustment (2,471) - (2,471) N/A N
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Total net assets $ 101,663 $ 100,089 $ 1,574 1.57% �-
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Operating revenue increased by $2,455 primarily due to a 10% rate increase implemented in January 2012 (the W
last of a series of three approved increases).
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Operating expenses decreased by $643 due to higher plant maintenance costs in the fiscal year 2011. Other V
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expenses remain consistent between the fiscal years. Q
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TABLE B-3 LL
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Capital Assets-Sewer Utility Q
(amounts expressed in thousands of dollars) Z
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HE 2012 HE 2011 $Change %Change o
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Land and easements $ 12,471 $ 12,471 $ - 0.00%
Construction in progress 3,559 6,875 (3,316) -48.23% D
Pumping 3,192 3,192 - 0.000/0 a
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Buildings, plants and stores 159,429 154,593 4,836 3.13% _
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Field and office equipment 5,768 5,860 (92) -1.57% E
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Total capital assets 184,419 182,991 1,428 0.78%
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Less. accumulated depreciation (101,852) (94,825) (7,027) 7.41%
Total net assets $ 82,567 $ 88,166 $ (5,599) -6.35%
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis, continued
For the Year Ended June 30, 2012
Total capital assets decreased by$5,599 in fiscal year 2012. Approximately $4,803 in construction in progress
was closed to plant in service, The major capital asset put in to service was the $4,366 cogeneration facility. _
TABLE B-4 Q-
Long-term D@bt-Se,, e,r Utility
(amounts expressed in thousands of dollars) '
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HE 2012 HE 2011 $Change %ChangB c
Notes payable $ 6,994 $ 8,922 $ (1,928) -21.61%
Certificates of participation 14,707 17,196 (2,489) -14.47%
Compensated absences 543 522 21 4.02%
N
Total long-term debt $ 22,244 $ 26,640 $ (4,396) -16.50% 6
a
During the year, the Sewer Utility's long-term debt increased $4,396 and can be attributed to normal debt 41
W
payments. -8
C
TABLE B-5
Debt Sar-ica Cove,raga-Sewer Utility m
amounts expressed in thousands of dollars
HE 2012 HE 2011 $Change %Change N
Ic,
Gross revenue $ 27,305 $ 25,759 $ 1,546 6.00%
cm
Operating expenses 22,054 22,697 (643) -2.83% c
Less. depreciation expense
(4,645) (4,972) 327 -6.58% `V
LL
Net operating expenses 17,409 17,725 (316) -1.78%
Net revenues $ 9,896 $ 8,034 $ 1,862 23.18% w
W_
Senior Lien -annual debt service 3,365 3,339 26 0.78%
Subordinate Lien - annual debt service 2,215 2,494 (279) -11.19% a
U
Z
Total annual debt service $ 5,580 $ 5,833 $ (253) Z
Senior lien debt coverage ratio 2.94 2.41 U_
J
Aggregate debt coverage ratio 1.77 1.38 a
M
z
Z
The Sewer Utility Fund is required to maintain net revenues adequate to cover 110%of annual debt service. The a
Department's Certificates of Participation hold a senior lien on net revenues of the Sewer Utility Fund and the W
coverage ratio was 2.94 for the fiscal year 2012. The aggregate debt service coverage ratio was 1.77 for the Q
fiscal year 2012. This demonstrates the fund's ability to borrow additional funds for projects in the future. Q
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Packet Rg:646
5.BY.a
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
f
Managements Discussion and Analysis, continued -
For the Year Ended June 30, 2012 a
y
k^¢y1
TABLE B-6
Sewage Treatment Rate History-Sevvar Utility
0
Rata Effecti_, Date C
1/1/2012 2/1/2011 1/1/2010
Residential (monthly per EDU) $ 18.50 $ 17.00 $ 16.00
Commercial.
LL
Minimum Monthly Charge 2.40 2.20 2.00 �
Commodity Charge (per HCF):
C
C
Multi-Family 1.25 1.10 0.95 a
Retail/Commercial
2.10 2.00 1.90
Auto Repair/Car Wash 1.30 1.30 1.30 a
Offices/hotels 1.50 1.50 1.50
Restaurants 2.70 2.35 2.00 LL
Laundromats 1.50 1.40 1.30
Hospitals(/ 1.35 1.15 0.95
Schools/Churches 1.10 0.90 0.70
Industrial. /+
Minimum Monthly Charge 1.00 1.00 1.00 N
Commodity Charge (per HCF) 0.35 0.35 0.35 in
Discharge Flow (per million gallons) 900.00 900.00 900.00 N
Biological Oxygen Demand (per 1,000lbs.) 360.00 330.00 292.00 o
N
Suspended Solids (per 1,000lbs.) 640.00 640.00 640.00
EDU=Equivalent Dwelling Unit
HCF=Hundred Cubic Feet(748 gallons) O
a
w
W
The sewer utility keeps up with increasing costs with minor annual adjustments to the billing rates. The last of a a
three-year rate increase went into effect in January 2012. Despite the adjustments, the sewer utility maintains V
competitive rates in Southern California. Below are the ten largest sewer treatment customers based on billed Q
Irevenue. The ten largest make up 5.26%of the Department's billed sewer treatment revenue. ly
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Packet Pg. 647
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Managements Discussion and Analysis, continued o
For the Year Ended June 30, 2012
TABLE B-7
Top Ten Custo,T, rs-Se.,,,Br Utility
0
Cus o.T r Nan,e Sales Q•
a)
W
County of San Bernardino $ 372,577
San Bernardino Housing Authority 200,783 c
0
San Bernardino City Unified School District 166,961
LL
St. Bernardine Hospital/CHW 93,697
Evolution Fresh, Inc. 90,938
Pama Management Company 88,405 a
a
City of San Bernardino 73,938
San Bernardino Community Hospital 64,673
243 North Meridian, LLC 62,509
Lido Condominiums 61,068 �-
Top Ten Customers Total $ 1,275,549
c�
m
Total Sewer Sales Revenue $ 24,250,417
d
Top Ten Customers% of Total 5.26%
N
/. If>
Management Challenges and opportunities .N.i
Economics
O
N
The ongoing economic downturn continues to limit the planned capital expansion of the water and sewer >_
treatment facilities. Development in San Bernardino has significantly slowed and delinquencies continue to �--�
increase. Additionally,the fiscal challenges of the City as a whole hinder progress within the Water Department. Q
a
Capital Construction �
J
The Sewer Utility faces an extensive list of compliance-related construction requirements over the next several Q
years. The Water Utility continues to concentrate on retrofitting and upgrading existing facilities. The Z
Department continues to pursue strategies to augment future water supplies, including exploration of recycled Z
water for recharge, irrigation, industrial use and other applications. (.L
J
Rates Q
D
Z
The Department implemented the last of a three-phase water utility rate increase and the last of a two-phase Q
increase to sewer treatment rates in January 2012. Currently there are no future adopted increases to water or Q
sewer treatment rates. The Department continues to review revenue and expense levels to determine when W
rate increases will be necessary. 0
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Contacting the Departments Director of Finance
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This financial report is designed to provide our customers and creditors with a general overview of the �.
Department finances and to demonstrate the Departments accountability for the money it receives. If you have V
questions about this report or need additional financial information, please contact the Department's Director .�
of Finance at (909) 384-5184. For information on the City of Jan Bernardino's financial statements, please Q
contact the City's finance department at (909) 384-5242.
12 _
Pa�ke�� 6;48
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Net Assets
,e 30, 2012
Wet— S___1 lint—f-rid Totei.
Utility Utility Eii—i—tiori. 2012 2011
ASSETS
0
Currant e==ats: 0.
m
Cash and cash equivalent.(note 3) $ 10,294,297 $ 27,100,276 $ $ 37,394,573 $ 45,158,807 X
Accounts receivable, net 6,612,142 3,189,196 9,801,338 8,439,862 25
Due from other entities 1,276,135 356,206 1,632,341 824,595 C
Interfund receivable 112,259 - (112,259) - - _c
Related parties receivable (not-9) 409,218 850,894 1,260,112 364,83C LL
Inventory 1,615,750 - 1,615,750 1,730,91E
Prepaid expanses 1,140,386 920,615 2,061,001 1,202,647
Tote lcurrentassets 21,460,187 32,417,187 (112,259) 53,765,115 57,721,655
m
Noncurrent assets:
Restricted assats:
Cash and cash equivalents(note 3):
Restricted for debt service 41,281 - - 41,281 54,541 LL
Restricted for capital-re late d fees 41,320 7,347,926 7,389,246 8,276,462 v
Restricted forconsumer deposits 3,159,351 - - 3,159,351 3,040,423 f=4
Restricted for Consent Decree (note 13) 20,957,382 - 20,957,382 21,783,87E �
Investments-restricted for debt service (note 3) - 3,560,901 3,560,901 3,560,901
Interest receivable 95,138 80,765 175,903 1041559 d
Prepaid insurance-Consent Decree (note 13) 35,559,115 - 35,559,115 35,590,40C
Note proceeds held by state 10,000,000 - 10,000,000
N
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Total restricted assets 69,853,587 10,989,592 80,843,179 72,411,164
Notes receivable - - - 50E r
o
Capital assets(note 4): N
Non-depreciable assets 9,047,280 16,030,006 25,077,286 27,958,135
Depreciable assets 220,735,682 168,389,054 389,124,736 377,493,312
Less:accumulated depreciation and - O
.—ti—ti— (67,192,538) (101,851,516) (169,044,054) (160,884,597 W
Total capital assets(not of
J
accumulated depreciation Q
and am.rti.ati.n) 162,590,424 82,567,544 245,157,968 244,566,85C U
Z
Other assets: Q
Debt issue costs, net 94,188 94,188 122,71E LL
Deferred call premium 193,073 193,073 235,19E —�
Q
Total other assets - 287,261 287,261 357,914 Z
Total noncurrantassets 232,444,011 93,844,397 326,288,408 317,336,43E Q
Total assets 253,904,198 126,261,584 (112,259) 380,053,523 375,058,095 W
(continued on next page) Q
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13 Packet Tag=649
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Net Assets,continued
,e 30, 2012
W.- $e..,.®r lintaIf-ind -
utility Ut:l:=,. 2012 2011
LIABILITIES AND NET ASSETS
0
0.
Li a bi l itia s:
Current liabilities:
Accounts payable 1,970,485 1,303,540 3,274,025 4,875,205 v
Interfund payable - 112,259 (112,259) - - _
ra
Related parties payable (note 9) 2,042,095 222,894 - 2,264,989 2,157,99C
Accred expenses 3,960 15,295 19,255 10,382 u•
A....ad compensation 609,023 251,314 860,337 1,422,233 3
Claims payable (note 11) 327,988 96,453 424,441 288,683 =
Con.um.r d.posit. 544,868 - 544,868 423,832 Q
Current portion of compensated
.b..nces(note 6) 1,029,021 449,584 - 1,478,605 1,463,862 5
Current portion of notes payable (note 5) 993,436 2,000,399 - 2,993,835 2,893,38 Q
Current portion of certificates of
participation(note 6) - 2,629,640 - 2,629,640 2,488,98E LL
Current portion of bonds payable (note 6) 15,000 15,000 10,OOC
Accrued interest payable 214,150 353,312 567,462 607,177
Total current liabilities 7,750,026 7,434,690 (112,259) 15,072,457 16,641,741 '4)
�d
Noncurrent liabilities: Ii
Consumer deposit. 3,147,601 - - 3,147,601 3,017,934 ••
Compensated absenc.s(note 6) 212,621 93,136 - 305,757 394,80E c,4
Deferred revenue-consent decree (not.13) 57,471,166 - = 57,471,166 57,263,991
Not..payable (note 6) 23,560,165 4,993,225 28,553,390 21,546,60E N
of participation(not.6) - 12,077,692 12,077,692 14,707,332
C 'v-
Certificates
Bonds payable (note 6) - - 15,000 >_
OPEB obligation(not.8) - - - 6,530,OOC LL
H
Total noncurrent liabilities 84,391,553 17,164,053 101,555,606 103,475,665 wO
Total liabilities 92,141,579 24,598,743 (112,259) 116,628,063 120,117,41C W
Net asset.(note 14): J
Invested in capital asset., net of related debt 148,063,104 64,427,489 212,490,593 202,960,07E Q
Restricted for capital-re late d fees 41,320 7,347,926 7,389,246 8,276,462 Z
Unrestricted 13,658,195 29,887,426 43,545,621 43,704,147 Z
Total net asset. $161,762,619 $101,662,841 $ $263,425,460 $254,940,685 J
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` P�ICC4et Pg.650
i
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT ^"°e
Statement of Revenue, Expenses and Changes in Net Assets
r the Year Ended June 30, 2012
Wecar Tocais
Utility Utility Eiinni—ti— 2012 2011 �+
Operating revenues: L
Charges for services $ 34,562,985 $ 24,250,417 $ (17,642) $ 58,795,760 $ 52,730,80E 0
Otheroperatingrevenues 2,543,232 1,638,312 (2,220,607) 1,960,937 1,550,025 �
Total operating revenues 37,106,217 25,888,729 (2,238,249) 60,756,697 54,280,83£ R
v
Operating axpenses (�
Administration and customer Service 8,610,535 - 8,610,535 8,342,492
Utility administration 621,410 1,598,854 (1,129,823) 1,090,441 1,016,95E
Plant operations 8,663,046 9,770,245 (567,410) 17,865,881 16,692,195 =
Maintenance 1,628,764 3,257,127 (526,450) 4,359,441 4,263,122 Q
Environmental control - 557,828 557,828 490,593 .a
Distribution 4,296,461 - 4,296,461 3,925,10£
Engineering and water quality control 2,492,056 - 2,492,056 2,220,95E �
General,administration and ove,head 7,072,885 2,224,773 (14,566) 9,283,092 9,009,195 Q
Depreciation and amortisation 5,770,673 4,645,127 - 10,415,800 10,367,90E R
LL
Total operating expenses 39,155,830 22,053,954 (2,238,249) 58,971,535 56,328,523 -a
c
Operating income (loss) (2,049,613) 3,834,775 - 1,785,162 (2,047,68£
Nonoperating revenues(expenses)
Investment income 219,027 812,885 1,031,912 1,269,667 y
Rental income 133,400 21,907 155,307 140,971
Noncapital grant funds 1,838,223 - 1,838,223 1,928,995
Gain (loss)on asset disposition (268,953) (31,114) (300,067) 40,137 'U')
Interest expense and fiscal charges (526,915) (1,147,810) (1,674,725) (1,875,48£
Amortization of issuance costs - (28,528) (28,528) (31,112 r
Other 1,041,667 (89,523) 952,144 (64,67E N
Total nonoperating revenues(expansas) 2,436,449 (462,183) 1,974,266 1,408,49E LL
Net income (loss) before capital contributions 386,836 3,372,592 3,759,428 (639,19C O
Capital contributions: a
w
Acquisition fees 1,067,580 - - 1,067,580 561,06C W
Capacity fees 1,180,163 196,375 1,376,538 2,524,37£ Q
Contributed capital assets - - - 451,805
V
EPA grants 136,967 - 136,967 193,671 Z
Othercapital rastricted fees - 474,836 474,836 659,24£ Z
Total capital contributions 2,384,710 671,211 3,055,921 4,390,162 J
Change in net asset, 2,771,546 4,043,803 6,815,349 3,750,972
Z
Not assets, beginning ofyear 154,850,957 100,089,728 254,940,685 251,189,712 Z
Prior period adjustment(note 15) 4,140,116 (2,470,690) 1,669,426 - Q G
Net assets, end of year $161,762,619 $101,662,841 $ $263,425,460 $254,940,685 H
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15
Packet Pg.651
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Cash Flows
-the Year Ended June 30, 2012
f
Water Sa,,,,ar Ir,terf�r,d Totah
Utility Utility En—i—ti— 2012 2011 }a
Cash flow from operating activities: L
Cash received from customers $35,327,878 $24,853,267 $(2,238,249) $57,942,896 $58,014,82E Q.
Rental income 133,400 21,907 155,307 140,971
Nonoperating miscellaneous revenue(expense) 1,041,667 (89,523) 952,144 (66,14E
Cash paid to employees for services (10,794,906) (4,431,172) - (15,226,078) (13,533,102 =
Cash paid to suppliers of good and services (28,961,845) (15,864,999) 2,238,249 (42,588,595) (28,389,747 =
Net cash provided by operating activities (3,253,806) 4,489,480 - 1,235,674 16,166,802 u'
R
Cash flows from noncapital financing activities: 7
Collection on notes receivable 508 508 21937 Q
Consent Decree insurance drawdowns 2,076,683 2,076,683 1,974,462 -p
d
Net cash provided by noncapital financing activities 2,077,191 2,077,191 1,977,40C Et
Cash flows from capital and related financing activities: a
Capital fees received - 2,247,743 671,211 - 2,918,954 3,744,68E
Drawdown on CIEDB loan - - - 387,501 �-
Proceeds from/(cost of)disposal of fixed assets (164,911) 54,246 - (110,665) 146,215 c
Cash paid to acquire fixed assets (7,924,063) (1,602,831) - (9,526,894) (7,032,304
Principal paid on capital-replated debt (974,027) (4,417,731) - (5,391,758) (3,482,52E 2
Interest paid on capital-related debt (505,819) (1,166,496) - (1,672,315) (4,254,513 d
Grant proceeds 136,967 - - 136,967 193,671
Net cash provided by(...d for)capital and related (V
financing acti„ites (7,184,110) (6,461,601) (13,645,711) (10,297,26E N
sh flow from investing activities: N
r
Sale of investments - - - 6,179,053 N
Interest received 147,683 812,885 960,568 1,290,963 y,
LL
Net cash provided by investing activities 147,683 812,885 - 960,568 7,470,01E
Net increase (decrease) in cash (8,213,042) (1,159,236) (9,372,278) 15,316,952 00 IL
Cash and cash equivalents at beginning of year 42,706,673 35,607,438 - 78,314,111 62,997,15C LU
Cash and cash equivalents at end fyear $34,493,631 $34,448,202 $ $68,941,833 $78,314,111 Q
Reconciliation ofcash and cash equivalents to amounts z
reported on the statement of net assets, a
Cash and cash equivalents $10,294,297 $27,100,276 $ $37,394,573 $45,158,807 9
LL
Restricted cash and cash equivalents: J
Restricted for debt service 41,281 - - 41,281 54,541
Restricted for capital-re late 0 fees 41,320 7,347,926 7,389,246 8,276,462 Z
Restricted forconsumer deposits 3,159,351 - 3,159,351 3,040,423 a
Restricted for consent decree 20,957,382 20,957,382 21,783,87E W
Cash and cash equivalents at end ofyear $34,493,631 $34,448,202 $ $68,941,833 $78,314,111 G
(continued on next page) if
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Packet Pg.652
CITY OF SAN
l I BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of bash lows, continued
�/
r the Year Ended June 30, 201 Z
wat Sawar Totai.
Utility Utility Eli-ir,.tior,. 2012 2011
Reconciliation of operating income to net cash
Provided by(used for)operating activities. Q
Operating income(lo..) $(2,049,613) $ 3,834,775 $ - $ 1,785,162 $(2,047,68E
Depreciation and amortiration 5,770,673 4,645,127 10,415,800 10,367,90E
Rental income 133,400 21,907 155,307 140,971 'v
Other r ece;pts(a.pen...) 1,041,667 (89,523) - 952,144 (66,14E
c
Adjustments - ji
(Increase)decrease in account.receivable (930,894) (430,582) (1,361,476) 1,271,437 ttf
(Increase) decrease in due from other entities (823,249) 15,503 (807,746) 1,928,141 =
(Increase) decrease in interfund receivable 54,301 - (54,301) (54,465 Q
(Increase) decrease in related parties receivable (274,899) (620,383) (895,282) 283,69E
(Increase)decrease in inventory 115,168 - 115,168 (108,24E
(Increase)decrease in prepaid a.pan.e. (937,467) 79,113 (858,354) 53,545
Increase(decrease) in accounts payable (1,204,977) (396,203) - (1,601,180) 1,308,61E Q
Increase (decrease) in interfund payable - (54,301) 54,301 - 54,465
Increase (decrease)in related parties payable 85,678 21,321 - 106,999 1,149,112 LL
Incr...a (decre...) in accrued expense. 1,507 7,366 8,873 (8,915
Increase(decrease) in accrued compensation (412,140) (149,756) (561,896) 97,231
Increase(decrease) in compensated absences
current portion 56,682 (41,939) 14,743 37,751
Increase (decrease) in compensated absences li
non-current portion (151,318) 62,269 (89,049) 1,01E
N
Increase(decrease) ;n claims payable 117,972 17,786 - 135,758 (313,994 �
Increase (da crease) ;n consumer deposit. - N.
currant portion 121,036 121,036 164,17C N
-
Increase(decrease) in consumer deposits O
non-current portion 129,667 129,667 229,201 }
Increase(decrease) in OPEB obligation (4,097,000) (2,433,000) (6,530,000) 1,679,OOC H
Net cash povided by operating activities $(3,253,806) $ 4,489,480 $ - $ 1,235,674 $16,166,802 0
Noncash investing,capital and financing activities. W
Capital assets constructed by developer. - - 451,805
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17
Packet I�g.653 ;
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements
For the Year Ended June 30, 2012
(1) Reporting Entity and Summary of Significant Accounting Policies
A. Organization and Operations of the Reporting Entity
The San Bernardino Municipal Water Department(Department) is governed under the Charter of the pity of San L7.
Bernardino (City), A Board of Water Commissioners (BOWL) 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.
C
B. Basis of Accounting and Measurement Focus LL
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 a
is that the costs (including depreciation) of providing goods or services to the general public on a continuing
I�
basis be financed or recovered primarily through user charges. Revenues and expenses are recognized on the -a
accrual basis. Revenues are recognized in the accounting period in which they are earned and expenses are a
recognized in the period incurred, regardless of when the related cash flow takes place.
LL
Operating revenues, such as charges for services (water sales, sewer services and water services) result from =
exchange transactions associated with the principal activity of the Department. Exchange transactions are those
d
in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property
taxes and investment income, result from nonexchange transactions or ancillary activities in which the
Department gives (receives) value without directly receiving (giving) equal value in exchange.
P
When both restricted and unrestricted resources are available for use,the Department uses restricted resources
and then unrestricted resources.
v
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The funds of the Department are described below. Q
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Water Utility Fund —The Water Utility Enterprise Fund (Water Utility) is used to account for the operations
LL
1 of the Departments water system and related revenues.
Sewer Utility Fund —The Sewer Utility Enterprise Fund (Sewer Utility) is used to account for the operations a.
of the City's wastewater treatment system and related revenues. The Sewer conveyance system is under
the direction of the City's Public Works Department.
Administrative and engineering services are provided by the Water Utility to the Sewer Utility. Electrical services Z
are provided by the Sewer Utility to the Water Utility. Z
LL
C. Financial Reporting
a
The Department's basic financial statements are presented in conformance with the provisions of Governmental Z
Accounting Standards Board (GASB) Statement No. 34, "Basic Financial Statements — and Management's a
Discussion and Analysis — for State and Local Governments" (GASB No. 34). This statement established revised
financial reporting requirements for state and local governments throughout the United States for the purpose
of enhancing the understandability and usefulness of financial reports. ._
GASB No. 34 and its related GASB pronouncements provide for a revised view of financial information and
restructure the format of financial information provided prior to its adoption. A statement of net assets replaces d
the balance sheet and reports assets, liabilities, and the difference between them as net assets, not equity. A t
V
statement of revenues, expenses and changes in net assets replaces both the income statement and the w
w
statement of changes in retained earnings and contributed capital. GASB No. 34 also requires that the statement a
of cash flows be prepared using the direct method, Under the direct method, cash flows from operating
activities are presented by major categories.
18 Facke Pg.854
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012
(1) Reporting Entity and Summary of Significant Accounting Policies,continued
C. Financial Reporting,continued
O
The Department has elected under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary d
Funds and Other Governmental Activities That Use Proprietary Fund Accounting, to apply all GASB WI
pronouncements as well as any applicable pronouncements of the Financial Accounting Standards Board, the (�
Accounting Principles Board, or any Accounting Research Bulletins issued on or before November 30, 1989, _
unless they contradict or conflict with GASB pronouncements. LL
D. Assets, Liabilities and Net Assets
c
1. Use or Estimates a
V
d
The preparation of the basic financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, d
and the reported changes in net assets during the reporting period. Actual results could differ from those V-
estimates. c
2. Cash and Inuastnnonts >
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.
r
For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments LN
(including restricted assets) with a maturity of three months or less when purchased. v
N
Investments are reported in the accompanying balance sheet at fair value, except for certain certificates of N
deposit and investment contracts that are reported at cost as they are not transferable and have terms that
LL
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 d
fiscal year. Investment income includes interest earnings, changes in fair value and any gains or losses Uj
realized upon the liquidation of investments. Q
3. Accounts Recei„able v
Z
Customer or trade receivables are shown net of an allowance for uncollectible accounts based on historical Z
LL
and management estimates. Transactions between funds that are representative of lending or borrowing J
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. Z
Z
4. 'nventory a
W
Materials and supplies inventory consists primarily of water meters, pipe and pipefittings for construction H
and repair to the Department's water transmission and distribution system and items necessary for M
maintenance at the sewer treatment facilities. Inventory is valued at cost using a weighted average method.
r
Inventory items are charged to expense at the time that individual items are withdrawn from inventory or
consumed. G
t
V
10
r+
r
a
i
19
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT " tlYp
C
Notes to the Basic Financial Statements,tatements, continued
For the Year Ended June 30, 2012
i
1, Reporting Entity and Summary of Significant Accounting Policies, continued
t
D. Assets, Liabilities and Net Assets,continued
0
5. Prepaid Expense and Deposit QCL
j
Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are la
recorded as prepaid items in the basic financial statements.
/� IC
6. Capital Assets
l6
Capital assets acquired or constructed are capitalized at historic cost. Department policy has set the 3
C
capitalization threshold for reporting capital assets at $5,000 and 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 -a
significant contracts. Depreciation is recorded on a straight-line basis over the estimated useful lives of the
assets as follows.
Q
•
Source of supply plant 8 to 50 years
LL
• Disposal plant and interceptor lines 35 to 50 years 'a
p C
• Other facilities shops, leasehold &yards) 5 to 25 years
T
• I ools, office equipment&communications 4 to 20 years
• Computer equipment 3 to 5 years
• Automotive and fleet equipment 3 to 15 years
r
7. Compensated Absences N
L L0
Department policy is to permit employees to accumulate a limited amount of earned vacation and sick N
r
leave. Various negotiation groups have different sell-back and cash out options. Additionally, cash out p
options upon retirement or death of the employee vary based on the negotiation group. Employees }
vacation and sick leave benefits are recognized as a liability of the Department, U.
l� l�
8. Restricted Assets and Amounts Payable from Restricted Assets 0
IL
Amounts shown as restricted assets have been restricted by bond indentures or are to be used for specified W
purposes based on contract provisions, such as bonded debt service. Certain liabilities which are currently Q
payable have been classified as current liabilities payable from restricted assets since assets have been L)
Z
restricted for their payment. Q
Z
9. Deterred Bond Costs
J
Deferred bond costs are amortized using the straight-line method based on the term of the debt.
Z
10. Interf—di Eliminations Z
The interfund eliminations column represents entries made to eliminate interfund income and expenditure W
transactions between the water utility fund and the sewer utility fund for the purposes of consolidated Q
financial statements. Q
11. Connparative Data =
m
Prior year data has been included where practical for comparison purposes only. The prior year data does s
not represent a complete presentation in accordance with accounting principles in the United States of M
America. Certain minor reclassifications of prior year data have been made in order to enhance Q
comparability with current year figures.
20 Packet? 056
S.BY a
CITY OF SANpBERNARDINO MUNICIPAL WATER DEPARTMENT
b" °���
Notes to the Year Financial Statements, continued
For the I ear Ended June 30, 2012 gip,Y '
(1) Reporting Entity and Summary of Significant Accounting Policies, continued
D. Assets,Liabilities and Net Assets,continued
0
12. Nat Assets m
The financial statements utilize a net assets presentation. Net assets are categorized as follows. RS
• Net Investment in Capital Assets — This component of net assets consists of capital assets, net of t0
C
accumulated depreciation and reduced by any debt outstanding against the acquisition,
construction or improvement of those assets.
l�
C
• Restrictad Net Assets — This component of net assets consists of constraints placed on net assets Q
use through external constraints imposed by creditors, grantors, contributors, or laws or regulations
of other governments or constraints imposed by law through constitutional provisions or enabling
7
legislation. Q
• Unrestricted Nat Assets—This component of net assets consists of net assets that do not meet the
LL
definition of restricted or net investment in capital assets. C
l4
13. Capital Contributions ;
Contributions in aid of construction represent cash and utility plant additions contributed to the Department
d
by property owners or developers desiring services that require
p capital expenditures or capacity
commitment. In accordance with Governmental Accounting Standards Board Statement No. 33, the capital
contributions are recorded on the Statement of Revenues, Expenses and Changes in Net Assets.
N
14. Budgetary Policies N
0
The Department adopts an annual non-appropriated budget for planning, control, and evaluation purposes. N
Budgetary control and evaluation are affected by comparisons of actual revenues and expenses with LL
planned revenues and expenses for the period. Encumbrance accounting is not used to account for
Q
commitments related to outstanding contracts for construction and services. a
/�
W
(2) City of San Bernardino Bankruptcy
J
Without reserves and facing a $45.8 million budget deficit, in July of 2012, the City determined that it was no ()
longer able to meet its contractual obligations and declared(+a fiscal Riverside On August 1, 2012, the City filed Q
a petition under Chapter 9 of the United States Bankruptcy bode in seeking to adjust its debts. Z
LL
Based on the California Constitution, precedents established in prior municipal bankruptcies in California, and Q
p
various legal opinions provided to the Department by special legal counsel and the Attorney's office, the z
Department believes that its revenues, derived from ratepayer fees, will be protected from attachment by the Q
City's creditors. Although unlikely, it is possible that the bankruptcy court will make different determination. 0
UJ
The Department's arguments for the protection of its assets from the claims of the City's creditors are set forth
in further detail below. (+ j
The bankruptcy case seeks the adjustment of the obligations of the City and does not extend to City funds with Q
Federal, State or other restrictions. The Department has continued to operate and use its restricted resources d
for only the expenses incurred to operate the water system and sewer treatment plants. Debt obligations
0
secured by Department revenues are treated as secured obligations and are not expected to be affected so long r
as the revenues of the Department are sufficient to meet debt service, Q
21 Pac et Pg 657-�
CITY OF SANpBERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued
For the Year Ended June 30, 2012
(2) City of San Bernardino Bankruptcy, continued p
State and federal laws place protections on the revenues of the Department. Section 902(2) of the Bankruptcy
Code defines special revenues as, among other things, „receipts derived from the ownership, operation, or M
4)
disposition of projects or systems of the debtor that are primarily used or intended to be used primarily to
provide transportation, utility, or other services, including the proceeds of borrowings to finance the projects or (6
systems.,, Further, section 928 of the Bankruptcy ,.ode states. "(a) Notwithstanding section 552 (a) of this title .C�
and subject to subsection (b) of this section, special revenues acquired by the debtor after the commencement
LL
of the case shall remain subject to any lien resulting from any security agreement entered into by the debtor
before the commencement of the casell and "(b) Any such lien on special revenues, other than municipal =
C
betterment assessments, derived from a project or system shall be subject to the necessary operating expenses a
of such project or system, as the case may be."
d
Chapter 9 of the Bankruptcy Code does not have a provision for liquidation of assets of the City and distribution �
of the proceeds to creditors. Additionally, Chapter 9 does not prevent a debtor from borrowing additional funds Q
while under bankruptcy protection. The Tenth Amendment of the United States Constitution and Supreme
Court decisions in upholding municipal bankruptcy legislation place severe limitations upon the power of the
bankruptcy court in chapter 9 cases.
41
In addition, at least two aspects of California law place restrictions on the use of revenue of the Department. d
First, under Articles XIIIC X
and IIID of the California Constitution (enacted pursuant to the voter approved
Proposition 210), money raised from municipal utility rates must only be used to fund such utility operations,
r
and not to fund general municipal operations. Thus, when the Department charges a water delivery or lC14
consumption fee, or rates for wastewater services, and places those monies into its specially segregated Water .N...
Fund and Sewer Fund accounts, those charges are considered property-related fees and are subject to the r
constitutional constraints enacted pursuant to Proposition 218. This has very specific consequences for the N
amount of money that can be collected, as well as the use to which those funds can be put. Specifically, Cal, LL
Const. Article X111 D section 6(b) states that.
Afee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following d
LLB
requirements.
I� J
(1) Revenues derived from the fee or charge shall not exceed the funds required to provide the Q
V
property related service. Z
Q
(2) Revenues derived from the fee or charge shall not be used for any purpose other than that for z LL
which the fee or charge was imposed. J
a
(3) The amount of a fee or charge imposed upon any parcel or person as an incident of property Z
ownership shall not exceed the proportional cost of the service attributable to the parcel. Q
• • • LU
(5) No fee or charge may be imposed for general governmental services including, but not limited
to, police, fire, ambulance or library services, where the service is available to the public at large in Q
(Cal +�
substantially the same manner as it is to property owners. (l.al Const,Art. /�111 D§6.) C
d
E
t
V
f0
a
22 .Packet . 6fl ,_
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued
.f
For the Year Ended June 30, 2012 "
(2) City of San Bernardino Bankruptcyr continued
Put differently, use of fees for general governmental services is prohibited, fees can only be for the service
O
provided, fees cannot exceed the cost of that service, and fees cannot exceed the proportional cost of the Q
service attributable the payer.' /+
The second relevant aspect of state law is the City's status as a Charter City. Under California law a city charter V
c
is „the supreme law of the City," but is still subject to ."conflicting provisions in the li federal and state
R =
Constitutions and to preemptive state law." (Howard Jarvis Taxpayers Assn. v. City of Roseville (2003) 106 LL
Cal.AppAth 1178, 1186, citing Domar Electric, Inc. v. City of Los Angeles (1994) 9 CaiAth 161, 170.) The
Department was created by and currently operates pursuant to Article IX of the City's Charter, and provides =
both retail water and sewer service pursuant to the City Charter provisions. Specifically, Article IX, Section 164 Q
of the City Charter provides that the Water Department Board of Commissioners, and not the City Council, „
shall have power to control and order the expenditure of all money received from sale or use of water, for the
defraying of expenses or maintenance and repairs and operation of the water system, and for any expenses for a
d
additions to the same, and for supplying the City with water for any and all purposes, provided that all such LL
money shall be deposited in the treasury of the City to the credit of a fund to be known as the Water Fund, and
shall be kept separate and apart from other moneys of the City . . ." (emphasis added). Consistent with the
p d
discussion above, the constitutional requirements under Proposition 210 apply to "counties, cities, cities and
counties, including charter cities or counties, any special district, or other local or regional governmental entity.
(Cal. Const„ art. XIIIC, § 1(b), emphasis added.) Courts have routinely held that ,[t]here is no question that
Proposition 218, as a constitutional initiative, is binding upon charter cities." (Howard Jarvis Taxpayers Assn. v. r
l�
N
City of Roseville (2003) 106 Cal.App.4th 1178, 1185.) In order to provide for the safety of the Department's N
liquid assets, the Department established its own bank account and investment portfolio within the City treasury N
l� r
as required by the City Charter. Representatives of the City Treasurer's office and the Water Department are O
signatories to these accounts. As previously noted, the City Charter specifically grants to the Water Department >.
Board of Commissioners the power to control and order the expenditure of these funds and limits the LL
withdrawal of these funds for the payment of demands authenticated by the Board of Commissioners. O
Accordingly, both the City Charter and the California Constitution require that the Department's special W
revenues collected for water-related services may only be used for expenditures related to those services. Due J
to these additional state law restrictions, the Department believes that the revenues of the Department (and V
accumulated assets since those assets were accumulated as a result of collection of revenue) can only be used Q
for Department expenses and obligations, z
LL
J
a
z
z
a
0
W
r`
0
D
Q
c
a�
E
s
Q
i
See Leeg,.e of Cehf,r,i,cit...,Prepes,t,en 218 Implementation G,.ide(2007 Ed.)et pp.49-50; ee also He„,.erd Jer,,s Te=payers Ass n v.City
1 of Roseville(2002)97 Cal.App.4th 637,647-648[interpreting Art.XIIID,§6(b)and emphasizing,"[t]he key is that the revenues derived from the fee or
charge are required to provide the serv�c , nd may be used only for the service. ]
23 Parke#'Pg.659
i
J
a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
A
Notes to the Basic Financial Statements,continued K
For the Year Ended June 30, 2012 `'`
(3) CasF+and Investments
9 bash and investments are reported in the accompanying statement of net assets as follows.
0
Water Sawar m
sUtility Utility Total
Cash and cash equivalents $ 10,294,297 $ 27,100,276 $ 37,394,573
j Restricted cash and cash equivalents.
Restricted for debt service 41,281 - 41,281 LL
Restricted for capital-related fees 41,320 7,347,926 7,389,246
Restricted for consumer deposits 3,159,351 - 3,159,351 =
c
Restricted for consent decree 20,957,382 - 20,957,382 Q
Investments-restricted for debt service - 3,560,901 3,560,901 d
Total Cash and Investments $ 34,493,631 $ 38,009,103 $ 72,502,734 3
a
d
Cash and investments at June 30, 2012 consisted of the following. u,
Water Sewer
Utility Utility Total
Cash on hand $ 5,500 $ 200 $ 5,700
d
Deposits with Financial Institutions 83,857 - 83,857
Investments 34,404,274 38,008,903 72,413,177
N
L0
Total Cash and Investments $ 34,493,631 $ 38,009,103 $ 72,502,734
' N
r
Investments Authorized by the California Government Boe and the Department s Investment Policy N
The table below identifies the investment types that are authorized by the Department in accordance with the �
California Government bode (or the City's investment policy, where more restrictive). The table also identifies O
certain provisions of the California Government Code (or the City's investment policy, where more restrictive) W
that address interest rate risk, credit risk, and concentration of credit risk.
J
Authori—cl by Maximum, Maximum% Maximum% Q
U
In..astmamt TyPa* Policy Maturity of Portfolio in One,Issuer Z
Q
Local agency bonds No 5 years None None Z
LL
UStreasury Yes 5years None None
USagency Yes 5years None None a
Bankers acceptances Yes 180 days 40% 30% Z
Commercial paper Yes 270 days 25% 10% Q
Negotiable CDs Yes 5 years 30% None w
t
h
Repurcase agreements No 1 year None None ~
� p
Reverse repurchase No 92 days 20%of base None �
Medium-term notes Yes 5years 30% None Q
r
Mutual funds No N/A 20% 10%
d
Money market mutual funds Yes N/A 20% 10% E
Mortgage pass through Yes 5 years 20% None
County pooled investment No N/A None None Q
Local Agency Investment Fund Yes N/A $40,000,000 None
JPApools No N/A None None
Guaranteed investment Yes N/A None None
* C
3 -Excluding amounts held by bond trustee that are not su bj ect to California Government Code restrictions.
i
24 Packed Pg 6Gb
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Basic ..
Notes to the Basic Financial Statements,continued
+'fie
For the Year Ended June 30, 2012
(3) Cash ancl Investments/ ccontinued
Investrnamts Authorized by Debt Agreements
O
CL
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather
than the general provisions of the California Government Lode or the Departments investment policy.
T
Investments authorized for funds held by bond trustee include, U.S. Treasury Obligations, U.S. Government V
Sponsored Enterprise Securities, the California Local Agency Investment Fu/Ind, Guaranteed Investment =
Contracts, Commercial Paper, Local Agency Bonds, Bankers Acceptance and Money Market Mutual Funds. U.
There are no limitations on the maximum amount that can be invested in one issuer, maximum percentage
allowed or the maximum maturity of an investment, except for the maturity of Bankers Acceptance which are
C
Q
limited to one year.
/. d
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a Q
d
government will not be able to recover its deposits or will not be able to recover collateral securities that are in LL
the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the 'a
C
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 7
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.
r
The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount `N
deposited by the public agencies. California Taw also allows financial institutions to secure the Departments Z.1.
deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits. N
O
For investment identified herein as held by bond trustee, the bond trustee selects the investment under the 04
terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the ILL
reporting government. ly
0
CL
Investment in State Investment Pool W
W
The Department is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the Q
California Government Code under the oversight of the Treasurer of the State of California. The fair value of the V
Departments investment in this pool is reported in the accompanying financial statements at amounts based Q
upon the Departments pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation Z U.
to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records J
maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated by a nationally recognized
statistical rating organization, but, as stated previously, it is regulated by the California Government Code, and is Z
therefore exempt from rating requirements. Q Uj
Interest Rate and Credit Risk U-
13
Interest rate risk is the possibility that fluctuations in market interest rates will adversely affect the fair value of Q
an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value
will be to changes in market interest rates. One method that the Department uses to manage its exposure to d
E
interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash
V
flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as +�+
necessary to provide requirements for cash flow and liquidity needed for operations. Q
Generally, credit risk is the possibility that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization.
Presented below is the minimum rating required by (where applicable) the California Government Code, the
Departments investment policy, or debt agreements, and the actual rating as of year-end for each investment type.
25 °Faucet Pg.661i r
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Basic Y�
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012 +
(3) flash and Investments, continued
Interast Rate and Credit Risk,continued
0
Maturities
L...than 13-24 25-60 Mor.than
In—st—int Ty, Rating 12 m nth. nth. -nth. 60 month. Total 2
c
City investment pool N/R $47,894,895 $ $ $ $47,894,895 c
Consent decree. U.
State investment pool N/R 20,957,381 20,957,381
Held by bond trustee. _
Mutual fund AAA 87,151 87,151 Q
Investment agreement N/R - - - 3,473,750 3,473,750 d
Total investments $68,939,427 $ $ $ 3,473,750 $72,413,177 Q
a�
(4) Capitai Assets LL
Capital asset activity for the water utility at fiscal year ended June 30, 2012: t0
d
Bai.— Addition./ D.i.tion./ Bala.,. Z
July 1,2011 Adju.tm.nt. Transf.r. Tran.f.r. J, 30,2012 0
Non-depreciable assets.
Land and easements $ 2,989,179 $ $ - $ - $ 2,989,179 N
Construction in progress 5,622,721 7,565,759 (7,130,379) 6,058,101 N
Total non-depreciable assets 8,611,900 7,565,759 (7,130,379) 9,047,280 N
T
Depreciable assets. N
Water rights,,,,,ells and pumping 80,033,380 - 2,919,221 (11,062) 82,941,539 LL
Distribution system 117,057,763 3,989,983 (401,611) 120,646,135
Buildings,plants and stores 2,714,349 11,943 2,726,292 0
Field and office equipment 14,043,132 567,536 (188,952) 14,421,716 W
Total depreciable assets 213,848,624 7,488,683 (601,625) 220,735,682 Q
Less.accumulated depreciation V
Water rights,,,,,ells and pumping (27,624,770) 2,055,180 (2,314,583) 10,621 (27,873,552) Z
Q
Distribution syste m (28,812,112) 2,024,342 (2,429,340) 323,057 (28,894,053) Z
Buildings,plants and stores (1,297,966) 12,342 (113,890) - (1,399,514) J
Field and office equipment (8,324,716) 48,252 (912,860) 163,905 (9,025,419)
Total accumulated depreciation (66,059,564) 4,140,116 (5,770,673) 497,583 (67,192,538) Z
Q
Total depreciable assets, net 147,789,060 4,140,116 1,718,010 (104,042) 153,543,144 0
w
Total capital assets,net $156,400,960 $ 4,140,116 $ 9,283,769 $ (7,234,421) $162,590,424
0
Q D
There was an adjustment totaling $4,140,116 made to beginning accumulated depreciation to account for errors a
found in the calculation of depreciation subsequent to the issuing of the June 30, 2011 financial statements.
E
V
a
26
packet Pg.662+
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
p
Notes to the Basic Financial Statements,continued
'*s
For the Year Ended June 30, 2012
(4) Capital Assets, continued
Capital asset activity for the sewer utility at fiscal year ended June 30, 2012:
O
Balance Addition./ Deletions/ Balance y
July 1,2011 Adj,..tmant. Tran.fer. Tran.fer. J..—30,2012 �
Non-depreciable assets: V
Land and easements $ 12,470,740 $ $ - $ $ 12,470,740 =
ca
Construction in progress 6,875,495 1,486,436 (4,802,665) 3,559,266 =
ii
Total --depreciable assets 19,346,235 1,486,436 (4,802,665) 16,030,006
c
Depreciable assets: _
Pumping 3,192,218 - - - 3,192,218 Q
Buildings, plants and stores 154,592,721 4,835,919 159,428,640 °r
Field and office equipment 5,859,749 - 83,141 (174,694) 5,768,196
Q
Total depreciable assets 163,644,688 - 4,919,060 (174,694) 168,389,054 m
ii
Less:accumulated depreciation 'a
Pumping (2,369,888) 101,358 (37,404) (2,305,934)
Buildings,plants and stores (87,828,273) (2,598,678) (4,442,170) - (94,869,121)
Field and office equipment (4,626,872) 26,630 (165,553) 89,334 (4,676,461)
Total accumulated depreciation (94,825,033) (2,470,690) (4,645,127) 89,334 (101,851,516) W
Total depreciable assets, net 68,819,655 (2,470,690) 273,933 (85,360) 66,537,538 N
Total capital assets,net $ 88,165,890 $ (2,470,690) $ 1,760,369 $ (4,888,025) $ 82,567,544
N
T
There was an adjustment totaling ($2,470,690) made to beginning accumulated depreciation to account for N
errors found in the calculation of depreciation subsequent to the issuing of the June 30, 2011 financial
U.
statements. ~
Significant project commitments as oflune 30, 2012 include: a
W
p Outside W
Project Authori.ad Expenditures Remaining Funding Q
U
Water Utility. z
Q
Perchlorate Treatment System $ 2,250,000 $ 82,400 $ 2,167,600 $ z
ILL
Lower Pressure Zone 2,143,000 4,400 2,138,600 -
Highland Main Replacements 682,000 12,300 669,700 382,000
Ogden Reservoir 8,600,000 124,800 8,475,200 8,600,000 z
z
Groundwater Flow Model 1,422,756 - 1,422,756 1,422,756 Q
0
Pipeline Replacement 2,760,000 1,700 2,758,300 1,400,000 W
Total Water Utility $ 17,857,756 $ 225,600 $ 17,632,156 $ 11,804,756
Q
Sewer Utility: .V
Unit 1 Primary Clarifier $ 2,030,000 $ 163,000 $ 1,867,000 $
Unit 2 Activated Sludge System 970,000 90,700 879,300 -
Recycled Water Plant 1,575,000 829,900 745,100 302,000 r
Tertiary Treatment System 1,085,000 2,500 1,082,500 300,000 Q
Advanced Purification Pilot 695,000 2,500 692,500 300,000
Sludge Dewatering Centrifuge 1,070,000 - 1,070,000 -
Total Sewer Utility $ 7,425,000 $ 1,088,600 $ 6,336,400 $ 902,000
27 Packet Pg.663
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Wit,
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012
(5) Operating Leases p �I
Effective December 15, 2000, the Department took possession of leased space from Superior domes LLC for
administrative office and warehouse space for a term of ten years. The following is a schedule of minimum 0,
d
lease payments as of June 30, 2012.
f0
Water $ewer V
Year Utility Utility Total
C
2013 $ 384,737 $ 52,631 $ 437,368
2014 384,737 52,631 437,368
2015 384,737 52,631 437,368 Q
2016 384,737 52,631 437,368
2017 384,737 52,631 437,368
$ 1,923,685 $ 263,155 $ 2,186,840 Q
U_
(6) Long-term Liabilities
113
Water Utility Fund
Changes in long-term liabilities in the water utility fund for the year ended June 30, 2012, are as follows.
Balance Baia . Current Long-term
J-1y 1,2011 Additions Red-tion. J..ne 30,2012 Por e:on eion N Por N
It7
Notes payable.
2002 CIEDB $ 6,793,764 $ $ (521,236) $ 6,272,528 $ 538,645 $ 5,733,883 N
2007 CIEDB 8,723,864 (442,791) 8,281,073 454,791 7,826,282 N
2012 C I EDB - 10,000,000 10,000,000 - 10,000,000 �
Total notes payable 15,517,628 10,000,000 (964,027) 24,553,601 993,436 23,560,165
W
Bond payable 25,000 - (10,000) 15,000 15,000 - O
Compensated absences 1,336,278 934,385 (1,029,021) 1,241,642 1,029,021 212,621 (a
Total long-term debt,water fund $16,878,906 $10,934,385 $(2,003,048) $25,810,243 $ 2,037,457 $23,772,786 JQ
V
2002 California Infrastructure and Economic Development Bank (CIEDB) Note Payable Q
In April CIEDB issued a $10,000,000 note to the Department to de funding for transmission mains, Z
pri par I� provi g LL
booster stations and a reservoir identified in the Water System Reliability Schedule of Improvements. The note a
was issued with an interest rate of 3.34% with interest payable semiannually on February 1 and August 1.
Principal payments are due annually on February 1. Z
a
Debt service requirements on the 2004 CIEDB Note Payable are as follows.
W
F
Year Principal Interest Total 0
2013 $ 538,645 $ 209,503 $ 748,148 a
2014 556,636 191,512 748,148
2015 575,227 172,921 748,148 E
2016 594,440 153,708 748,148 0
Y
2017 614,294 133,854 748,148 Q
2018-2022 3,393,286 347,454 3,740,740
$ 6,272,528 $ 1,208,952 $ 7,481,480
28 Packet4Pg.664
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT '"r#��
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012 n
(6) Longterm Liabilities, continued
2007 CIEDB Note Payable t'
0
CL
In July 2007, CIEDB issued a $10,000,000 note to the Department to provide funding for booster stations and
o �
' transmission mains in the Verdemont area. The he note was issued with an interest rate of 2.71% with interest
payable semiannually on February 1 and August 1. Principal payments are due annually on August 1. V
C
R
Debt service requirements on the 2007 CIEDB Note Payable are as follows.
LL
Year Principal Interest Total @
2013 $ 454,791 $ 218,255 $ 673,046 Q
2014 467,117 205,763 672,880
2015 479,775 192,932 672,707
2016 492,777 179,754 672,531 a
2017 506,131 166,219 672,350 2
2018-2022 2,743,983 614,876 3,358,859 U-
2023-2027 3,136,499 217,042 3,353,541
ro
$ 8,281,073 $ 1,794,841 $ 10,075,914
0
0
m
2012 CIEDB Note Payable
In May 2012, CIEDB issued a $10,000,000 note to the Department to provide funding for the construction of the �
12 million gallon Ogden Reservoir and certain pipeline improvements. The note was issued with an interest rate 21�
of 2.61% with interest payable semiannually on February 1 and August 1 Principal payments are due annually
on August 1. N
Debt service requirements on the 2012 CIEDB Note Payable are as follows. LL
Year Principal Interest Total a
2013 $ - $ 185,600 $ 185,600
2014 413,260 255,607 668,867 a
2015 424,046 244,680 668,726 z
2016 435,114 233,468 668,582 z
2017 446,470 221,963 668,433 U-
2018-2022 2,413,346 926,458 3,339,804 Q
2023-2027 2,745,163 590,313 3,335,476
z
2028-2032 3,122,601 207,947 3,330,548 z
a
$ 10,000,000 $ 2,866,036 $ 12,866,036 W
W
0
Bonds Payable
a
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. d
t
U
Debt service requirements on the Bonds Payable are as follows. �
Year Principal Interest Total a
2013 $ 15,000 $ 1,163 $ 16,163
$ 15,000 $ 1,163 $ 16,163
29 Packet Pg:663
5.BY.a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012
(6) Longterm Liiabilitiasr continued
Sewer Utility Fund O
Changes in long-term liabilities in the sewer utility fund for the year ended June 30, 2012, are as follows. d
B.i— Baia— Current Long-term Fa
July 1,2011 Additions Redm,tions Jul—30,2012 Portion Portion �
c
Note=payable: _
SBVMWD SARI Rights $ 822,059 $ $ (396,651) $ 425,408 $ 425,408 $ jy
State Revolving Fund 8,100,308 (1,532,092) 6,568,216 1,574,991 4,993,225 Ry
Total notes payable 8,922,367 (1,928,743) 6,993,624 2,000,399 4,993,225
c
Q
Certificates of participation. 'u
1998CertificatesofParticipation 17,305,000 (2,510,000) 14,795,000 2,650,000 12,145,000 a;
Less.unamortized discounts (108,680) 21,012 (87,668) (20,360) (67,308) 'a
Total certificates of Participation 17,196,320 - (2,488,988) 14,707,332 2,629,640 12,077,692 Q
Compensated absences 522,390 469,914 (449,584) 542,720 449,584 93,136 LL
Total long-term debt,s—erfund $26,641,077 $ 469,914 $(4,867,315) $22,243,676 $ 5,079,623 $17,164,053 c
San Bernardino Valley Municipal Water District(SBVMWD) SARI Line Rights Note Payable d
T V
i I he Department entered into an agreement with the San Bernardino Valley Municipal Water District(SBVMWD)
for the purchase of 2.5 million gallons per day of discharge rights in the Santa Ana Regional Interceptor pipeline
(now called the Inland Empire Brine Line). SBVMWD issued a note to the Department in the amount of N
$5,084,723 with an interest rate of 7.25%, annual debt service payments of$456,250 and a maturity of 2013.
3 r
Debt service requirements on the SBVMWD SARI Line Rights Note Payable are as follows. G
N
Year Principal Interest Total
2013 $ 425,408 $ 30,842 $ 456,250 0
3 Q.
$ 425,408 $ 30,842 $ 456,250 W
State Revolving Fund Note Payable V
z
The State Water Resources Control Board issued a note to Santa Ana Watershed Authority to provide funding Z
for the Santa Ana Watershed Authority providing funding for the San Bernardino/Colton Rapid Infiltration
Extraction (RIX) project in the amount of $25,970,599. In April 2001, the agreement was amended to transfer J
the note obligation to the successors in interest being the City of San Bernardino Board of Water
z
Commissioners, and the City of Colton. The Department will use revenues from the sewer treatment utility fund Q
towards repayment of the note.
LLJ
Debt service requirements on the State Revolving Fund Note Payable are as follows. (-
0
Year Principal Interest Total
Q
2013 $ 1,574,991 $ 183,909 $ 1,758,900
2014 1,619,090 139,810 1,758,900 E
t
2015 1,664,425 94,475 1,758,900 0
2016 1,709,710 47,872 1,757,582 Q
$ 6,568,216 $ 466,066 $ 7,034,282
30 Packet Pg,666
5.BY.a
CITY OF SANpBERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
r
For the Year Ended June 30, 2012 rf
(6) Long-term Liabilitiesr continued
1998 Certificates of Participation
0
In 1998, the sewer treatment utility issued $36,230,000 in Certificates of Participation to advance refund the
1992 Sewer Certificates of Participation and fund additional capital improvements. The he 1992 Certificates
T
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 (L
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.
Q
The advance refunding resulted in an economic gain of$1,277,994 (difference between the present value of the
annual debt service payments between old and new debt). -a
Debt service requirements on the 1998 Certificates of Participation are as follows. Q
d
Year Principal Interest Total LL
2013 $ 2,650,000 $ 736,175 $ 3,386,175 R
2014 2,805,000 607,650 3,412,650 >
2015 2,965,000 474,412 3,439,412
2016 3,155,000 318,750 3,473,750
2017 3,220,000 161,000 3,381,000 N
in
$ 14,795,000 $ 2,297,987 $ 17,092,987
N
T
0
(7) Defined Benefit Pension Plan N
Qualified employees are covered under a multiple-employer contributory retirement plan maintained by an U.
agency of the State of California Public Employee's Retirement System (PERS). O
IL
The Department is considered to be part of the City of San Bernardino PERS pension plan. All employees who W
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 Q
established by state statutes, as legislatively amended within the Public Employees, Retirement Law. PERS Z
a
issues a separate comprehensive annual financial report that includes financial statements and required Z
supplementary information. Copies of the PERS annual financial report may be obtained from the PERS LL
J
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 Z
regarding the City's participation in PERS can be found in the City's financial statements. Q
(Qp
0
(8) Ot"er Post-Employment Benefits
Plan Description
The Department provides health benefits to all qualifying retirees and their spouses in accordance with +'
C
Memorandums of Understanding under various labor agreements.
V
lC
a
31 Packetr P j.667
5.BY.a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012
($) Other Post-Employment Benefitsr continued
Eligibility o
CL
Employees are eligible for retiree health benefits if they retire from the Department on or after age 50 with at
least 10, 12 or 15 years of service, depending on bargaining unit, and are eligible for a PERS pension. The latest
10
actuarial valuation of the plan occurred June 30, 2012. Membership consists of the following. (
C
Retirees and beneficiaries receiving benefits 88 S
Active plan members
240 U.
3
Total plan members 328 C
Q
Funding Policy _
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 d
additional amount to prefund benefits as may be determined annually by the Board. The Department has
established an irrevocable truest to which pre-funding contributions are made. For fiscal year 2012, the C
Department has funded $1,728,000 for the current year, plus $6,530,000 for previous years to the trust. Plan 41
members receiving benefits contributed $141,400 (approximately 5.9% of total premiums) through their d
V
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.
r
N
Annual OPEB Cost and Net OPEB Obligation
The Departments annual other post-employment benefit (OPEB) cost (expense) is calculated based on the N
annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the N
_ parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is LL
projected to cover normal cost 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 Departments annual Q
OPEBcost for the year, the amount actually contributed to the plan, and changes in the Departments net OPEB W
obligation.
J
Q
Actual required contribution (ARC) $ 2,729,000 Z
Interest on new OPEB obligation 327,000 Z
Amortization of net OPEB obligation (546,000) W
Annual OPEB cost(expense) 2,510,000 Q
Contributions made 9,040,000
Z
Decrease in net OPEB obligation (6,530,000) Q
NetOPEB obligation beginning of year 6,530,000
W
Net OPEB obligation -end of year Q
Q
The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net
C
OPEBobligation for 2012 and the two preceding years were as follows. d
E
Year Ann"ai Paid OPEB
w
Ended OPEB Cost Contribution Obligation Q
6/30/2010 $ 2,213,000 $ 670,000 $ 4,851,000
6/30/2011 2,355,000 676,000 6,530,000
6/30/2012 2,510,000 (9,040,000) -
32 Packet Pg.600
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Basic Notes to the Basic I inancial Statements,continued
9y
For the Year ear Ended June 30, 2012
(8) Ott ar Post-Employment Benefits) continued
Funded Status and Funding Progress
O
CL As of June 30, 2010, the most recent actuarial valuation date, the plan was 0.0% funded. The actuarial accrued
liability for benefits was $28,676,000, the actuarial value of assets was $0 and the unfunded actuarial accrued
liability (UAAL) was $28,676,000. The covered payroll (annual payroll of active employees covered by the plan)
was$12,619,000 and the ratio of the UAAL to the covered payroll was 227.2%.
C
LL
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions
tC
about the probability of occurrence of events far into the future. Examples include assumptions about future =
employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the
plan and the annual required contributions of the employer are subject to continual revision as actual results are
compared with past expectations and new estimates are made about the future. The schedule of funding
13
progress presents multiyear trend information about whether the actuarial value of plan assets is increasing or Q
decreasing over time relative to the actuarial accrued liabilities for benefits. d
/I /� LL
Actuarial MetFtods and Assumptions
C
tC
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as
understood by the employer and the plan members) and include the types of benefits provided at the time of d
V
each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to
that point. The actuarial methods and assumptions used include techniques that are designed to reduce the ••
r
effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets,consistent with the 04
long-term perspective ofthe calculations. `N_
�n the June 30, 2010, actuarial valuation, the entry age actuarial cost method was used. The actuarial
5°� 10.9%initially, reduced by N
assumptions included a rate of return of O and annual healthcare cost trend rates of }
increments to an ultimate rate of 4.5% after ten years. Both rates included a 3% inflation assumption. The u'
actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the
market value of investments over a five-year period. The UAAL is being amortized as a level percentage of n•
LU
projected payroll on an open basis.The remaining amortization period at June 30, 2012, was 28 years.
J
SClledule c.f Funding Progress Q
U
A.t,.eriel UAAL... Z
Q
Actuarial Actuarial Aarusd Unfunded %of Covered Z
Vewetio.. Vel..e or Liability AAL Fund d Retie C—.1 Payroll J
Date A..et.(a) (AAL)(b) (UAAL)
6/30/2008 $ $ 26,190,000 $ 26,190,000 0.0% $ 12,755,000 205.3% Z
6/30/2010 28,676,000 28,676,000 0.0% 12,619,000 227.2% Q
0
W
E-
0
Q
m
E
lop
t
ca
a
33 P +c1e#pg.669
5.BY.a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Y*
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012
(9) 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 year ended June 30, 2012. d
Water Sewer W
Fa
Receipts Utility Utility Total 'V
c
�s
City of San Bernardino.
LL
pQ
Revenue from Water Charges $ 892,702 $ - $ 892,702 (0
Revenue from Sewer Charges - 73,690 73,690 �_
Revenue from Geothermal Charges 25,291 - 25,291
Q
Billing&Collection Charges-Refuse 360,000 - 360,000
d
Billing&Collection Charges-Storm Drain 5,010 - 5,010 7
Billing&Collection Charges Sewer Collection - 63,000 63,000 Q
Cost Reimbursement 73,100 - 73,100 d
U_
Interest income 323,709 704,702 1,028,411
Economic Development Agency. @
978 978 8, iv
Revenue from Geothermal Charges 8, a)
Co=t Reimbursement 71,366 - 71,366 �
d
Total receipts from related parties $ 1,760,156 $ 841,392 $ 2,601,548
N
p Lf!
Water Sewer 54-
Payments Utility Utility Total r
O
N
City of San Bernardino.
Sewer Collection System Maintenance $ - $ 3,203,848 $ 3,203,848
Workers Compensation (Admin.Charges) 136,244 59,857 196,101
Printing Services 646 1,051 1,697 W
Postage 19,729 - 19,729
J
City Hall Rent 156,329 21,497 177,826 Q
Phone Charges 81,741 27,142 108,883 Z
Refuse Disposal Service 19,371 71,907 91,278 Z
Consulting Services 3,268,175 5,624 3,273,799
J
Legal Services 149,705 - 149,705
Data Processing Services 438,704 109,676 548,380 Z
Police &Fire Protection - 500,000 500,000 Q
Permits 146,935 918 147,853 w
Phone switch equipment 131,008 - 131,008 E-
0
Back-up system 172,725 - 172,725 a
Cost Reimbursement 46,157 22,108 68,265
Total payments to related parties $ 4,767,469 $ 4,023,628 $ 8,791,097 E
E
la
a
34 _Packet Pg.670
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2012
(9) Related Party Transactions continued
Water Sewer
Receivables Utility Utility Total d
City of San Bernardino.
Related party receivable $ 409,218 $ 850,894 $ 1,260,112
Accounts receivable, net 27,965 1,303 29,268 C
Due from other entities 76,708 1,195 77,903 W
ea
Total receivable from related parties $ 513,891 $ 853,392 $ 1,367,283 =
c
Q
Water Sewer
rt+
Payables Utility Utility Total
Q
City of San Bernardino.
Related party payable $ 2,042,095 $ 222,894 $ 2,264,989 u.
Accounts payable 92,580 285,675 378,255 c
Claims payable 327,988 96,453 424,441
Total payable to related parties $ 2,462,663 $ 605,022 $ 3,067,685
ai
�
(1 q U) Joint Ventures
N
111
Colton/San Bernardino Regional Tertiary Treatment and Water Reciamation Authority
N
On August 2, 1994, the City of San Bernardino,through the Department formed a joint powers authority with r
O
the City of Colton to construct, operate, use and maintain tertiary wastewater treatment, disposal and water N
reclamations systems, including the Regional Rapid Infiltration and Extraction Facility (RIX). This authority is LL
governed by a separate board consisting of four members, two appointed by the City of San Bernardino through
the Department's BOWL and two appointed by the City Council of the City of Colton. Construction of RIX was d
administered by the Santa Ana Watershed Project Authority and was substantially completed during 1996.
Administration and operation was turned over at that time. The cities of San Bernardino and Colton each has an Q
undivided interest in the real property and any related debt of the RIX projects based on an 80%/20%split, (,)
respectively. The Department's investment in the joint venture is included as property, plant and equipment. Q
The joint venture is not experiencing financial stress. z
p L,L
San Bernardino Public Safety Authority Q
M
On April 1, 1968, the City of San Bernardino and the County of San Bernardino formed the San Bernardino Public z
Safety Authority (PSA), a joint powers authority, as a financing vehicle to construct public safety buildings and Q
improvements to the wastewater treatment plant. Effective with the transfer of the sewer treatment utility to W
the Department by resolution in October 1973, all the assets were transferred to the Department and are Q
included in the property, plant and equipment of the Sewer Utility. The Department utilized the PSA to issue the Q
1998 Certificates of Participation debt. The joint venture is not experiencing financial stress.
c
West End Water D,sweloprnant,Treatnnont and Conservation Joint Powers Authority E
On August 15, 1990, the City of San Bernardino joined the West End Water Development, Treatment and M
Conservation Joint Powers Authority (WEJPA) as a financing vehicle for construction of water facilities. A three- Q
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.
35 Packet Pg.°671'-
i
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued
For the Year Ended June 30, 2012
(11) Commitments and Contingencies
Contractual Obligations
0
Commitments in the form of signed contracts for costs to complete construction projects or other y
improvements at June 30, 2012, amount to $10,958,722 and $1,588,560 in the water utility fund and sewer
utility fund, respectively. C1
C
IQ
Risk Management =
LL
Risk management activities are recorded in both utility funds. Significant losses are covered by insurance for all tc
3
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 Q
not exceeded insurance coverage for the current year or the prior three years. Insurance coverage has been d
increased over the past several years.
The Department records an estimated liability for workers' compensation. Claims liabilities are based on d
estimates of the ultimate cost of reported claims and an estimate for claims incurred but not reported based LL
upon historical experience. Workers'compensation claims liability is not discounted.
The following are the changes in approximate aggregate liabilities for the year ended June 30, 2012.
Water Sewer
Claim Liabilities Utility Utility Total
r
p N
Claims payable - beginning of year $ 2110,016 $ 78,667 $ 288,683 N
Claims and changes in estimates 102,022 51,416 233,438 N
Claim payments (64,050) (33,630) (97,680) c
N
$ 327,988 $ 96,453 $ 424,441 }
Claims payable, end of year
Litigation a
w
In the ordinary course of operations, the Department is subject to claims and litigation from outside parties.
After consultation with legal counsel, the Department believes the ultimate outcome of such matters, if any, will Q
U
not materially affect its financial condition. z
Q
(12) Federal a—c State G—ts z
LL
Grant funds received by the Department are subject to audit by the grantor agencies. Such audit could lead to Q
M
requests for reimbursements to the grantor agencies for expenditures disallowed under terms of the grant. Z
Management of the Department believes that such disallowances, if any, would not be significant. Q
The Department has been awarded the following grants, At the end of the fiscal year, only funds associated W
with the grant for the water distribution system had expenditures. The Department produces a Single Audit that Q
details the use of grant and Consent Decree funds (see note 13 for information on the Consent Decree). Q
Environmental Protection A gency $ 1,870,700 Water distribution system �
Department of Water Reclamation 975,000 Sewer recycling study E
Environmental Protection Agency 485,000 Sewer recycling study m
w+
Environmental Protection Agency 1,422,756 Groundwater modeling Q
(4MW
36 Packiif Pg.672 °!
S.BY.a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued
4�r
For the Year ear Ended June 30, 2012
(13) Consent D..,.. p
In 1996, the City of San Bernardino filed a complaint against the United States of America, Department of the
O
Army to recover damages, response costs and other available remedies relating to contamination alleged to Q
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 States 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 L
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 Q
Operable unit was declared operational and functional in 2007.
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 Q
all facilities constructed by the United States Environmental Protection Agency (EPA) of the Site and agreed to LL
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
d
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)
r
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 .N..
of the Muscoy Operable Unit extraction system. These capital facility funds may not be used for costs incurred C4
O
to operate, maintain, repair or retrofit components of the site extraction of treatment systems constructed by N
EPA. LL
In March 2006, the Department entered into a Guaranteed Investment Contract with AIG Match Funding O
Corporation. The Department invested $16,482,039 of excess Consent Decree funds into an interest bearing a
W
0
Escrow Fund investment with an interest rate of 4.95/o per annum. These funds were invested to pay costs W
associated with the water facilities defined in the Consent Decree for years 2035-2056. An additional $50 Q
million was used to purchase a blended insurance policy to provide a financial vehicle that provides cost gap V
Z
coverage for the first 30 years of expenses. Q
z
The terms of the Guaranteed Investment Contract only provided the Department with the position of a secured IJ'
creditor with respect to an AIG bankruptcy. As concerns arose regarding AIG's financial credibility, in October Q
2009, the Department negotiated and accepted a "payout" in the amount of$18,661,876 which represented the z
principal and accrued interest as of that date. These funds are currently invested in a diversified portfolio Q
managed by PFM Asset Management.
W
Q
d
E
V
tC
a+
Q
37ack: g 'GT3
d
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued
For the Year Ended June 30, 2012
(14) Net assts
Net assets at June 30, 2012, consisted of the following. 0
Water $ewer
Utility Utility Total
L)
Invested in capital assets, net of related debt.
Total Capital assets, net of depreciation $162,590,424 $ 82,567,544 $245,157,968
LL
Cash and cash equivalents,restricted for debt service 41,281 - 41,281
(Q
Investments,restricted for debt service - 3,560,901 3,560,901 =
Note proceeds held by state 10,ow,000 - 10,000,000
a
Less. related debt.
Notes payable,current portion (993,436) (2,000,399) (2,993,835)
Certificates of participation,current portion - (2,629,640) (2,629,640) a
Bonds payable,current portion (15,000) (15,000) d
Notes payable, noncurrent portion (23,560,165) (4,993,225) (28,553,390) U.
Certificates of participation, noncurrent portion - (12,077,692) (12,077,692)
d
Total invested in capital assets, net of related debt 148,063,104 64,427,489 212,490,593
Restricted for capital-related fees. d
Cash and cash equivalents,restricted for capital-related fees 41,320 7,347,926 7,389,246
Unrestricted net assets 13,658,195 29,887,426 43,545,621 N
Ln
Total net assets $161,762,619 $101,662,841 $263,425,460
Q
(15) Prior Period Adjustments N
LL
Certain errors were discovered in the beginning balance of accumulated depreciation subsequent to the issuing
of the June 30, 2011, financial statements totaling $4,140,116 and ($2,470,690) in the water utility and sewer
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utility funds, respectively. Those errors were a result of the system used for tracking capital assets calculating W
depreciation incorrectly. The problems were resolved with the software vendor and the Department does not
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anticipate having this issue in the future. a
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(16) Subsequent Events z
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In July 2012, the Department closed escrow on the purchase of real property from the San Bernardino Valley K
Municipal Water District, which included a down payment of$1,000,000 and a promissory note of$1,117,500 to Q
be paid in sixty (60) monthly installments.
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On August 1, 2012, as described in note 2,the City filed a petition for Chapter 9 bankruptcy protection. Q
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT `"`"f°4
Supplementary Information
For the year ended June 30, 2012 and prior fiscal years for comparison
TABLE SI-1
Water Production and Utilization
amounts expressed in cubic feet, Q
Fiscai Year Ended June 30 2012 2011 2010
R
Water sold to directcustomers 1,670,788,800 1,627,398,300 1,686,471,800
Water sold to other agencies 265,492,811 325,158,232 241,022,425 =
Water sold to or used by City 81,654,202 71,974,109 84,284,718 tl.
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Total water utilization 2,017,935,813 2,024,530,641 2,011,778,943 =
Total water production 2,207,153,290 2,175,146,990 2,141,816,510 Q
Percentage of water loss 8.6% 6.9% 6.1%
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TABLE SI-2
Cost of Water Production m
Fiscal Year Ended June 30 2012 2011 2010
Total water production
(HCF) 22,071,533 21,751,470 21,418,165
Production and pumping expenses N
Salaries and benefits $ 1,481,694 $ 1,492,191 $ 1,473,474 N
Employee related expenses 11,526 7,359 5,676 04
Office related expenses 21,860 21,089 21,674 N
Contract services - 12,965 24,500 11
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Permits and fees 131,594 94,543 74,389
Utilities 3,585,918 4,055,258 4,175,135 0
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Materials and supplies 18,434 27,480 23,151 W
Equipment 61,117 46,483 57,014 a
Chemical and carbon 728,801 611,345 664,595 v
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Subtotal 6,040,944 6,368,713 6,519,608 Q
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Water stock assessments 65,604 19,031 60,544 M
Supplemental water purchases 2,550,000 745,025 850,000 Q
Water extraction fees 6,499 12,243 13,080 Z
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Total expense before depreciation 8,663,047 7,145,012 7,443,232 Q
Depreciation 4,394,060 4,071,413 3,741,479 w
Total expense $ 13,057,107 $ 11,216,425 $ 11,184,711
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Acre feet of water 50,669.27 49,934.50 49,169.34
Direct operating cost $ 119.22 $ 127.54 $ 132.59 E
3 Assessments, purchases and extraction 51.75 15.55 18.78
Depreciation 86.72 81.54 76.09 Q
Total cost per acre foot $ 257.69 $ 224.63 $ 227.46
HCF=Hundred Cubic Feet
1 acre foot=435.6 HCF
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Supplementary Information, continued
For the year ended June 30, 2012 and prior fiscal years for comparison
TABLE SI-3
Water Production by Plant
(amounts expressed in cubic feet) a
Pumping Plant 2012 2011 2010 W
R
Antil Plant 1,332,300 403,700 0
Baseline &California 2,213,300 9,040,100 10,291,500
Cajon Boulevard 222,904,600 144,916,700 126,503,900 LL.
Cajon Pass&Vincent 40,100,600 52,653,500 32,509,400
Devil Canyon 97,514,090 131,125,390 131,267,210 a
EPA Wells Newmark 553,566,700 521,511,600 584,506,900 a
EPA Wells Muscoy 443,220,600 414,868,100 481,589,000
40th Street 8,427,000 10,229,000 2,004,100 a
Gilbert Street 11,120,400 3,501,800 1,984,500 c,
IVDA Well#11 2,910,600 2,625,800 3,113,800 U-
K e n w o o d 138,253,400 130,632,700 114,394,300
LeRoy Street 23,482,600 21,793,900 39,573,700
Lynwood - 26,441,500 48,117,200
Lytle Creek 30,990,500 28,139,400 22,334,700
Mallory 32,531,900 28,885,300 18,003,300
Mill &"D"Streets 17,500,000 20,574,700 15,222,700 N
Newmark 177,144,100 120,848,800 87,820,300 �-
19th Street 57,845,600 54,559,200 87,841,600
0
Olive&Garner 55,988,700 84,923,600 30,917,600 N
Perris Hill - - 15,400
I 7th Street 9,617,500 3,936,200 6,837,900 0
Sierra Way&16th Street 99,652,000 105,459,300 98,138,200 a
10th &"J"Street 88,559,800 117,628,300 64,699,400 w
30th&Mountain View 11,814,700 62,226,600 77,000,800 Q
27th Street 13,334,000 7,560,500 7,247,000 z
Waterman Avenue 68,460,600 69,732,700 49,478,400 z
Total water produced 2,207,153,290 2,175,146,990 2,141,816,510 "-
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Purchased water - -
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Total water production 2,207,153,290 2,175,146,990 2,141,816,510 Z
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Supplementary Information, continued
For the year ended June 30, 2012 and prior fiscal years for comparison
TABLE SI-4
W.-C-...t:o.,...,a R.,.......by U.-Typ.
U.-Typ. 2012 2011 2010 �
O
R. O.
O
$i.,gie fe.,,iiy ^^ 34,716 $ 18,094,052 34,695 $ 15,665,580 34,542 $ 13,899,599
M.1t,p;e fe..,iiy 2,801 4,510,962 2,806 4,025,079 2,799 3,442,271
Co er�iei 3,117 5,790,427 3,117 4,678,003 3,127 3,826,613 v
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Leod...pe 1,151 3,321,846 1,149 2,745,990 1,158 2,367,514 to
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Oth.r 1,626 1,597,791 1,571 701,296 1,553 900,840 ii
Tote,ei:...r. 43,411 $ 33,315,078 43,338 $ 27,815,948 43,179 $ 24,436,837
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TABLE SI-5
S.-.r T-tr,....t Co...,.oti-..,d R..,......by U..r Ty,. 7
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U..rTyp. 2012 2011 2010 y
R.,,...... i-
City of Jan Be-rd-..
Reside.,tiei 32,571 $ 7,650,142 32,447 $ 7,053,263 32,307 $ 6,670,859
Non--ide.,tiei 5,412 7,877,416 5,416 7,131,988 5,196 6,699,228 >
E-t Vei:ey Weter Di.tri.t: V
R-ide.,tiei 18,813 4,019,127 18,700 3,645,721 18,157 3,348,238
No.,--ide.,tiei 1,128 2,492,375 1,138 2,070,233 1,132 2,185,072
City of Loo,a Linde: N
Residentie, 4,443 933,648 4,648 870,734 4,688 839,451 N
No.,-re.ide.,tiei 589 1,258,747 584 1,048,402 588 1,016,088
N
Tote:eii users 62,956 $ 24,231,455 62,933 $ 21,820,341 62,068 $ 20,758,936 G
N
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