HomeMy WebLinkAbout05.AB- Water 5.AB
DOC ID: 3397
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CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
Information/Report
From: Stacey R. Aldstadt M/CC Meeting Date: 08/04/2014
Prepared by: Linda Sutherland, (909) 384-
5002
Dept: Water Ward(s): All
Subject:
City of San Bernardino Municipal Water Department Annual Financial Report for Fiscal Year
Ending June 30, 2013 (#3397)
Current Business Registration Certificate: Not Applicable
Financial Impact:
None.
Motion: Receive and file.
Synopsis of Previous Council Action:
None.
Background:
None.
Supporting Documents:
AUDIT 2013 M&CC AUG 4 2014 AGENDA LTR (PDF)
AUDIT REPORT 2013 FINAL (PDF)
Updated: 7/23/2014 by Georgeann"Gigi" Hanna Packet Pg. 364;
CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
MEMORANDUM
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TO: Mayor R. Carey Davis
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FROM: Stacey R. Aldstadt, General Manager
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SUBJECT: AUDITED FINANCIAL REPORT OF THE WATER DEPARTMENT'S `t'
WATER AND SEWER UTILITIES FOR FISCAL YEAR ENDED JUNE 30, M
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DATE: July 7, 2014
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The firm of Mayor Hoffman McCann has completed the annual audit of the Water Department's
water and sewer utilities for fiscal year ended June 30, 2013. The audited report was presented to a;
and accepted by the Board of Water Commissioners at their regular meeting of March 18, 2014.
It is requested that the Mayor and Council receive and file the audited Annual Financial Report of M
the Water Department for fiscal year ended June 30, 2013, y
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Respectfully submitted, Z
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Stacey R. dstadt o
General Manager N
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"Trusted, Quality Service Since 1905" E
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CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
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Annual Financial Report M
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Fiscal Year Ended June 30, 2013 0
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Mayor of the City of San Bernardino 0
Patrick J. Morris a
Board of Water Commissioners E
Toni Callicott, President Y
B. Warren Cocke, Vice President a
Dr. Louis A. Fernandez, Commissioner
Wayne Hendrix, Commissioner
Judith Valles, Commissioner
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City of San Bernardino Municipal Water Department M
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Administration o
Stacey R. Aldstadt, General Manager
Robin L. Ohama, Deputy General Manager a
Matthew H. Litchfield, P.E., Director of Water Utilities
John A. Claus, Director of Water Reclamation a
William M. Kolbow, C.P.A., Director of Finance
Jennifer L. Shepardson, Director of Environmental & Regulatory Compliance
Mission Statement
To meet our customer's needs by providing high-quality service in water supply, water
reclamation and geothermal heating in the most professional and cost-effective manner
possible. M
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Organization Z
The City of San Bernardino Municipal Water Department was formed in 1904 under the
Charter of the City of San Bernardino. The Department is governed by the Board of N
Water Commissioners who are appointed by the Mayor of the City of San Bernardino.
The Charter gives the Board of Water Commissioners semi-autonomous authority to W
govern the Department independent of the City Council. The Department operates two
enterprise funds: the Water Utility Enterprise Fund and the Sewer Utility Enterprise a
Fund. Water service encompasses the City, with the exception of the east end, which is
served by the East Valley Water District. Sewer service encompasses all of the City of E
San Bernardino, the City of Loma Linda, the former Norton Air Force Base, Patton State
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 Ending June 30,2013
Table of Contents
Page No.
Independent Auditor's Report 1-3
Management's Discussion and Analysis 4-9 N
Basic Financial Statements: LL LL
Statement of Net Position 11-12 c
Statement of Revenues, Expenses and Changes in Net Position 13
Statement of Cash Flows 14-15
Notes to the Basic Financial Statements 16-41 ¢
Supplemental Information:
Table SI-1: Water Production and Utilization 43 a
Table SI-2: Cost of Water Production 43
Table SI-3: Water Production by Plant 44
Table SI-4: Water Rate History 45 E
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Table SI-5: Water Connections and Revenue by User Type 46 CO
Table SI-6:Top Ten Water Customers 46 p
Table SI-7: Sewage Treatment Rate History 47 a;
Table SI-8: Sewage Treatment Connections and Revenue by User Type 47
Table SI-9: Top Ten Sewage Treatment Customers 48
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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
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
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Independent Auditor's Report u}.
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Report on the Financial Statements
We have audited the accompanying financial statements of the Municipal Water Department of a
the City of San Bernardino, California ("Department"), as of and for the year ended June 30,
2013, and the related notes to the financial statements, which collectively comprise the Q
Department's basic financial statements as listed in the table of contents.
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Management's Responsibility for the Financial Statements E
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Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
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Auditor's Responsibility M
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Our responsibility is to express opinions on these financial statements based on our audit. We z
conducted our audit in accordance with auditing standards generally accepted in the United U-
States of America and the standards applicable to financial audits contained in Government M
Auditing Standards, issued by the Comptroller General of the United States. Those standards N
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. 0
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An audit involves performing procedures to obtain audit evidence about the amounts and W
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial °
statements, whether due to fraud or error. In making those risk assessments, the auditor considers ¢
internal control relevant to the entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by d
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.
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Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page 2 of 3
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, M
the financial position of the Municipal Water Department of the City of San Bernardino, o
California, as of June 30, 2013, and the changes in its financial position and its cash flows for the y.
year then ended in accordance with accounting principles generally accepted in the United States c-
of America. 0
Emphasis of Matters q
As described further in notes one and fifteen to the financial statements, during the year ended
June 30, 2013, the Department implemented GASB Statements No. 62, 63 and 65. Our opinion is a
not modified with respect to this matter.
As discussed in note one, the financial statements of the Municipal Water Department of the City E
of San Bernardino ("Department") are intended to present the financial position, the changes in
financial position and cash flows of only that portion of the governmental activities, the C
business-type activities, each major fund, and the aggregate remaining fund information of the o
City of San Bernardino, California that are attributable to the transactions of the Department. w
They do not purport to, and do not, present fairly the financial position of the City of San
Bernardino as of June 30, 2013, the changes in its financial position, or its cash flows for the
year then ended in conformity with accounting principles generally accepted in the United States
of America. Our opinion is not modified with respect to this matter. M
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 with
the City's obligations. As discussed in note two to the financial statements, there is considerable M
uncertainty associated with this process and the effects of this process upon the Department are N
not known at this time.
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Other Matters W
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Required Supplementary Information o
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Accounting principles generally accepted in the United States of America require that the Q
management's discussion and analysis be presented to supplement the basic financial statements.
Such information, although not a part of the basic financial statements, is required by the E
Governmental Accounting Standards Board who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational, economic, or Q
historical context. We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of
America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management's responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the
basic financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express
an opinion or provide any assurance.
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Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page 3 of 3
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the Department's basic financial statements. The introductory information c
and the supplemental information are presented for purposes of additional analysis and are not a cm
required part of the basic financial statements. The introductory and the supplemental u.
information have not been subjected to the auditing procedures applied in the audit of the basic o
financial statements, and accordingly, we do not express an opinion or provide any assurance on
it. Q
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated N
February 26, 2014 on our consideration of the Department's internal control over financial
reporting and on our tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements and other matters. The purpose of that report is to describe the
scope of our testing of internal control over financial reporting and compliance and the results of
that testing, and not to provide an opinion on internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government
Auditing Standards in considering the Department's internal control over financial reporting and CU
compliance.
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Irvine, California
February 26, 2014 M
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT SIA Man agement's Discussion and Analysis
For the Year Ended June 30, 2013
r 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
financial report presents managements analysis of the Department's financial performance during the fiscal year
that ended on June 30, 2013. Please read it in conjunction with the basic financial statements, which follow this
section. All amounts in the Management's Discussion and Analysis within text areas are in thousands unless
otherwise noted. M
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Financial Highlights N
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• The Department's net position increased by$10.4 million. o
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• Operating revenues increased by$1.3 million.
• Net income/loss before capital contributions improved by$1.8 million. `C
• The Department's current ratio (the ability to pay short-term obligations)was 3.7.
• Cash available (the ability to cover current expenses with cash)was 165 days. y
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Overview of the Financial Statements
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The discussion and analysis are intended to serve as an introduction to the Department's basic financial a
statements. The Department's basic financial statements are comprised of two components: the Financial 4)
Statements and the Notes to the Basic Financial Statements. This report also contains other supplementary
information in addition to the basic financial statements themselves. Information providing citywide financial
results is available in the City's Comprehensive Annual Financial Report.
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Required Financial Statements M
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 z
financial information about its activities. The Statement of Net Position (pages 11 and 12) includes all of the a:
Department's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the c
basis for evaluating the capital structure of the Department and assessing the liquidity and financial flexibility of N
the Department. All of the current year's revenues and expenses are accounted for in the Statement of o
Revenues, Expenses and Changes in Net Position (page 13). This statement measures the success of the a
Department's operations over the past year and can be used to determine whether the Department has �
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 14 and 15).The primary purpose of Q
this statement is to provide information about the Department's cash receipts and cash payments during the
reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from
operations, investing, and financing activities and provides answers to such questions as where did cash come E
from, what was cash used for, and what was the change in cash balance during the reporting period.
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Financial Analysis of the Department Q
Our analysis of the Department begins on page 11 of the financial statements. One of the most important
questions to ask about the Department's finances is "Whether the Department, as a whole, is better off or
worse off as a result of the year's activities?" The Statement of Net Position, and the Statement of Revenues,
Expenses and Changes in Net Position report information about the Department's activities in a way that will
help answer this question. These two statements report the net position of the Department and changes in
them. Measuring the change in the Department's net position - the difference between assets and liabilities -
isone way to measure financial health or financial position. Over time, increases or decreases in the
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis, continued
For the Year Ended June 30, 2013
Department's net assets 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.
Water Utility Fund
To begin our analysis, a summary of the Water Utility Fund's Statements of Net Position is presented in Table A-
1.
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TABLE A-1
Condensed Statement of Net Position-Water Utility u-
(amounts expressed in thousands of dollars) 0
2013 2012 $Change %Change
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Current and noncurrent assets $ 81,959 $ 91,313 $ (9,354) -10.24%
Capital assets 178,018 162,590 15,428 9.49%
Total assets $ 259,977 $ 253,903 $ 6,074 2.39%
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Current liabilities $ 8,585 $ 7,750 $ 835 10.77% E
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Long-term liabilities 82,501 84,392 (1,891) -2.24% a
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Total liabilities $ 91,086 $ 92,142 $ (1,056) -1.15%
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Net investment in capital assets $ 156,758 $ 148,063 $ 8,695
Restricted 41 (41) -100.00%
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Unrestricted 12,133 13,658 (1,525) -11.17%
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Total net position $ 168,891 $ 161,762 $ 7,129 4.41%
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As can be seen from the table above, water utility net position increased $7,129 to $168,891 in fiscal year 2013, M
up from $161,762 in fiscal year 2012. Looking more carefully at the table, you can see that there was a shift in c,
net position between invested in capital assets, which increased $8,695, and unrestricted net position. The F
increase in invested in capital assets is related to additions in capital assets and a prior period adjustment for
capitalized interest. w
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A further review of net position shows that unrestricted net position (those that can be used to finance day-to-
day operations) decreased $219 primarily due to the increase in the investment in capital assets. o
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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, 2013
TABLE A-2
Condensed Statement of Revenues, Expenses and Changes in Net Position-Water Utility
(amounts expressed in thousands of dollars)
2013 2012 $Change %Change
Operating revenue $ 37,869 $ 37,106 $ 763 2.06%
Capital contributions 3,421 2,385 1,036 43.44%
Other non-operating revenue 3,444 3,232 212 6.56%
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Total revenues 44,734 42,723 2,011 4.71%
Operating expenses $ 37,430 $ 39,156 (1,726) -4.41%
Non-operating expenses 952 796 156 19.60% B
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Total expenses 38,382 39,952 (1,570) -3.93%
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Change in net position 6,352 2,771 3,581 129.23% ,n
Net position, beginning balance 161,762 154,851 6,911 4.46%
Prior period adjustment 777 4,140 (3,363) N/A E
Total net position $ 168,891 $ 161,762 $ 7,129 4.41%
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Operating revenue increased by $763 due to a slight increase in customer consumption and a 10% rate increase
v implemented in January 2012 (the last of a series of three approved increases). This is the second year in a row
that customer consumption increased following four consecutive years of decreased consumption.
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Operating expenses decreased by$1,726 due to a decrease in purchases of supplemental recharge water.
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TABLE A-3 Q
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Capital Assets-Water Utility U_
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(amounts expressed in thousands of dollars) c
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2013 2012 $Change %Change
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Land and easements $ 5,650 $ 2,989 $ 2,661 89.03% W
Construction in progress 18,536 6,058 12,478 205.98%
Wells and pumping 82,055 82,942 (887) -1.07%
Distribution 126,681 120,646 6,035 5.00% Q
Plant and facilities 3,212 2,726 486 17.83%
Other capital assets 13,664 14,422 (758) -5.26% E
Total capital assets 249,798 229,783 20,015 8.71%
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Less: accumulated depreciation (71,780) (67,193) (4,587) 6.83%
Total capital assets, net $ 178,018 $ 162,590 $ 15,428 9.49%
Total capital assets increased $15,428 in fiscal year 2013. Approximately$4,651 in construction in progress was
completed and placed 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 DEPARTMENT
Management's Discussion and Analysis, continued
For the Year Ended June 30, 2013
TABLE A-4
Long-term Debt-Water Utility
(amounts expressed in thousands of dollars)
2013 2012 $Change %Change
Notes payable $ 24,459 $ 24,554 $ (95) -0.39%
Bonds payable - 15 (15) -100.00% c
Compensated absences 1,263 1,242 21 1.69% }
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Total long-term debt $ 25,722 $ 25,811 $ (89) -0.349/o a
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During the year, the Water Utility's long-term debt decreased $89 and can be attributed to normal debt Q
payments and the execution of a new note payable for $1,118. Additional information on long term debt is
presented in Note 6 of the Notes to Basic Financial Statements. _
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Sewer Utility Fund
TABLE B-1
Condensed Statement of Net Position-Sewer Utility r_
(amounts expressed in thousands of dollars)
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2013 2012 $Change %Change
Current and noncurrent assets $ 68,572 $ 66,773 $ 1,799 2.69% 3:
Capital assets 60,386 59,489 897 1.51%
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Total assets $ 128,958 $ 126,262 $ 2,696 2.14% y
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Total deferred outflow z
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of resources $ 151 $ - $ 151 0.00% E
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Current liabilities $ 7,385 $ 7,435 $ (50) -0.67% N
Long-term liabilities 13,428 17,164 (3,736) -21.77%
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Total liabilities $ 20,813 $ 24,599 $ (3,786) -15.39% w
Net investment in capital assets $ 43,315 $ 37,787 $ 5,528
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Restricted 7,799 7,348 451 6.14% =Q
Unrestricted 57,181 56,527 654 1.16%
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Total net position $ 108,295 $ 101,662 $ 6,633 6.52% E
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As can be seen from the table above, sewer utility net position increased $6,633 to $108,295 in fiscal year 2013, Q
up from $101,662 in fiscal year 2012. Looking more carefully at the table you can see that the increase was
spread across the categories of net position.
A further review of net position shows that unrestricted net position (those that can be used to finance day to
day operations) increased $654 primarily due to increases in revenue (which are further discussed in the next
table).
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis, continued
For the Year Ended June 30, 2013
TABLE B-2
Condensed Statement of Revenues, Expenses and Changes in Net Position-Sewer Utility
(amounts expressed in thousands of dollars)
2013 2012 $Change %Change
Operating revenue $ 26,415 $ 25,889 $ 526 2.03%
Capital contributions 1,475 671 804 119.82% c
Other non-operating revenue 363 745 (382) -51.28%
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Total revenues 28,253 27,305 948 3.47% o
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Operating expenses 22,297 22,054 243 1.10%
Non-operating expenses 994 1,207 (213) -17.65% Q
Total expenses 23,291 23,261 30 0.13%
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Change in net position 4,962 4,044 918 22.70°% N
Net position, beginning balance 101,662 100,089 1,573 1.57% c
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Prior period adjustment 1,671 (2,471) 4,142 167.62°% E
Total net position $ 108,295 $ 101,662 $ 6,633 6.52°% m
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Operating revenue increased by $526 primarily due to a 10% rate increase implemented in January 2012 (the
last of a series of three approved increases) being applicable to the entire fiscal year. y
Operating expenses increased by $243 due to inflationary factors. Other expenses remain consistent between
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the fiscal years.
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TABLE B-3 Q
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Capital Assets-Sewer Utility iz
(amounts expressed in thousands of dollars)
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2013 2012 $Change %Change
Land and easements $ 11,557 $ 12,471 $ (914) -7.33% w
Construction in progress 6,189 3,559 2,630 73.90% o:
Pumping 3,192 3,192 - 0.009/0 o
Buildings, plants and stores 123,237 159,429 (36,192) -22.70% a
Field and office equipment 5,441 5,768 (327) -5.67°%
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Total capital assets 149,616 184,419 (34,803) -18.87% E
Less: accumulated depreciation (89,231) (101,852) 12,621 -12.39% Q
Total net assets $ 60,385 $ 82,567 $ (22,182) -26.87%
Total capital assets decreased by$22,182 in fiscal year 2013. Approximately $407 in construction in progress
was completed and place in service. More information relating to capital assets can be found in note 4 of the
notes to the financial statements.
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis, continued
For the Year Ended June 30, 2013
TABLE B-4
Long-term Debt- Sewer Utility
(amounts expressed in thousands of dollars)
2013 2012 $Change %Change
Notes payable $ 4,993 $ 6,994 $ (2,001) -28.6:
Certificates of participation 12,078 14,707 (2,629) -17.8.
Compensated absences 429 543 (114) -20.91 co14
Total long-term debt $ 17,500 $ 22,244 $ (4,744) -21.3; _
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During the year, the Sewer Utility's long-term debt decreased $4,744 and can be attributed to normal debt Q
payments. Additional information on long term debt is presented in Note 6 of the Notes to Basic Financial
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Statements. c
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Management Challenges and Opportunities
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Economics E
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The ongoing economic downturn continues to limit the planned capital expansion of the water and sewer a
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.
Capital Construction
The Sewer Utility faces an extensive list of compliance-related construction requirements over the next several M
years. The Water Utility continues to concentrate on retrofitting and upgrading existing facilities. The
Department continues to pursue strategies to augment future water supplies, including exploration of recycled Q
water for recharge, irrigation, industrial use and other applications. Z
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Rates
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The Department implemented the last of a three-phase water utility rate increase and the last of a two-phase
increase to sewer treatment rates in January 2012. Currently there are no future adopted increases to water or
sewer treatment rates. The Department continues to review revenue and expense levels to determine when w
rate increases will be necessary.
Contacting the Department's Director of Finance D
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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 Department's accountability for the money it receives. If you have a)
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 San Bernardino's financial statements, please r
contact the City's finance department at (909) 384-5242. Q
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT "Statement of Net Position
lone 30, 2013
Water Sewer Interfund
Utility Utility Eliminations Total
ASSETS
Current assets:
Cash and cash equivalents(note 3) $ 3,907,967 $ 8,450,693 $ - $ 12,358,66
Investments(note 3) 8,115,075 21;575,650 - 29,690,72
Accounts receivable, net 7,041,416 3,319,831 - 10,361,24
0
Interest receivable 28,632 81,979 - 110,61 N
Due from other entities 3,083,943 570,720 - 3,654,66 u-
Inventory 1,572,462 - - 1,572,46 o
Current portion of prepaid expenses 111,030 122,911 - 233,94
Total current assets 23,860,525 34,121,784 - 57,982,30 Q
Noncurrent assets:
c
Prepaid expenses - 724,481 - 724,48 Q
Investment in joint venture-RIX(note 10) - 22,367,024 - 22,367,02 N
Investment in joint venture-PSA(note 10) - 3,559,112 - 3,559,11
Restricted assets:
Cash and cash equivalents(note 3): a
Restricted for capital-related fees - 7,799,773 - 7,799,77
Restricted for Consent Decree(notes 3&13) 1,465,423 - - 1,465,42
Investments(note 3):
Restricted for Consent Decree (notes 3&13) 19,540,918 19,540,91
Interest receivable 67,693 - - 67,69 M
Prepaid insurance-Consent Decree(note 13) 33,826,734 - - 33,826,73 a
Note proceeds held by state 3,199,445 - - 3,199,44 Q
Capital assets(note 4): Z
Non-depreciable assets 24,185,954 17,746,483 - 41,932,43 M
Depreciable assets 225,611,340 131,870,066 - 357,481,40 c
Less:accumulated depreciation and amortization (71,780,002) (89,230,817) - (161,010,81 h
W
Total noncurrent assets 236,117,505 94,836,122 - 330,953,62 O
Total assets 259,978,030 128,957,906 - 388,935,93
H
DEFERRED OUTFLOW OF RESOURCES Ei
Deferred charge on refunding 150,948 - 150,94 Q
r
Total deferred outflow of resources - 150,948 - 150,94 5
(continued on next page)
w
Q
11 Packet Pg.382
5.AB.b
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT -
Statement of Net Position, continued
hine 30, 2013
Water Sewer Interfund
Utility Utility Eliminations Total
LIABILITIES
Current liabilities:
Accounts payable 2,086,385 1,577,386 3,663,77
Related parties payable (note 9) 2,208,547 268,858 - 2,477,40
Accrued compensation 717,096 281,277 - 998,37
0
Claims payable (note 11) 568,849 268,225 - 837,07 N
Consumer deposits 478,512 - - 478,51 LL
Current portion of compensated absences(note 6) 590,873 296,450 - 887,32 o
Current portion of notes payable(note 6) 1,658,268 1,619,090 - 3,277,35
Current portion of certificates of participation(note 6) - 2,785,324 - 2,785,32 Q
Accrued interest payable 276,918 288,118 - 565,03
3
Total current liabilities 8,585,448 7,384,728 15,970,17
Q
Noncurrent liabilities: 42
Consumer deposits 2,968,763 - - 2,968,76 y
Compensated absences(note 6) 672,562 132,505 - 805,06 E
Unearned revenue-consent decree (note 13) 54,900,768 - - 54,900,76 R
Q
Notes payable (note 6) 22,800,342 3,374,135 - 26,174,47 O
Certificates of participation(note 6) - 9,292,368 - 9,292,36
OPEB obligation(note 8) 1,158,116 629,263 - 1,787,37
Total noncurrent liabilities 82,500,551 13,428,271 95,928,82
rn
Total liabilities 91,085,999 20,812,999 - 111,898,99
NET POSITION
Q
Z
Net investment in capital assets(note 14) 156,758,127 43,314,815 200,072,94 a:
Restricted for capital-related fees(note 14) - 7,799,773 7,799,77
Unrestricted (note 14) 12,133,904 57,181,267 - 69,315,17 co14
h
Total net position $ 168,892,031 $ 108,295,855 $ $ 277,187,88 0
M
w
o:
0
Q
a�
E
i�
Q
See accompanying independent auditors' report and notes to the basic financial statements
12
Packet Pg.383
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Revenue, Expenses and Changes in Net Position
G,)r the Year Ended June 30, 2013
Water Sewer Interfund
Utility Utility Eliminations Total
Operating revenues:
Charges for services $ 35,427,095 $ 25,261,792 $ (15,110) $ 60,673,77
Other operating revenues 2,441,751 1,152,861 (2,384,774) 1,209,83
Total operating revenues 37,868,846 26,414,653 (2,399,884) 61,883,61
M
Operating expenses N
Administration and customer service 8,982,227 - 8,982,22 �-
Utilityadministration 586,381 1,653,263 (1,200,178) 1,039,46 t_
Plant operations 7,089,520 9,448,306 (577,308) 15,960,51 4-
Maintenance 1,888,236 3,392,868 (606,517) 4,674,58 a
Environmental control - 592,589 - 592,58 Q
Distribution 3,983,818 - 3,983,81
Engineering and water quality control 2,813,459 - - 2,813,45
General,administration and overhead 6,581,180 2,801,450 (15,881) 9,366,74 N
Depreciation and amortization 5,505,403 4,408,721 - 9,914,12
Total operating expenses 37,430,224 22,297,197 (2,399,884) 57,327,53 E
L
FZ
Operating income (loss) 438,622 4,117,456 - 4,556,07
Nonoperating revenues(expenses)
Investment income (loss) (79,281) 340,689 = 261,40 M
Rental income 122,826 22,574 145,40 �
Noncapital grant funds 3,110,201 - - 3,110,20
Gain(loss)on asset disposition (261,946) (11,644) - (273,59
Interest expense and fiscal charges (610,384) (828,129) - (1,438,51 J
Amortization of issuance costs - (94,188) - (94,18 Z
Other 211,032 (59,992) - 151,04 u-
M
r
Total nonoperating revenues(expenses) 2,492,448 (630,690) - 1,861,75 N
Net income (loss) before capital contributions 2,931,070 3,486,766 - 6,417,83 W
O
Capital contributions: W
Acquisition fees 1,228,400 - - 1,228,40 W
H
Capacity fees 1,531,623 1,065,443 - 2,597,06
EPA grants 661,498 - - 661,49 Q
Other capital restricted fees - 409,957 - 409,95
a�
Total capital contributions 3,421,521 1,475,400 - 4,896,92 E
Change in net position 6,352,591 4,962,166 - 11,314,75 CU
Net position, beginning of year 161,762,619 101,662,841 263,425,46 Q
Prior period adjustment(note 15) 776,821 1,670,848 - 2,447,66
Net position,end of year $ 168,892,031 $ 108,295,855 $ - $ 277,187,88
r
See accompanying independent auditors' report and notes to the basic financial statements
13
Packet Pg. 384
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Cash Flows
Gnr the Year Ended June 30, 2013 k�
Water Sewer Interfund
Utility Utility Eliminations Total
Cash flow from operating activities:
Cash received from customers $ 35,386,571 $ 26,069,504 $ (2,399,884) $ 59,056,19
Rental income 122,826 22,574 - 145,40
Nonoperating miscellaneous revenue (expenses) 211,032 (59,992) - 151,04
Cash paid to employees for services (10,540,313) (4,268,951) - (14,809,26 cr,
r
Cash paid to suppliers of good and services (18,392,370) (12,636,813) 2,399,884 (28,629,29 N
Net cash provided by operating activities 6,787,746 9,126,322 - 15,914,06 u-
L
0
Cash flows from noncapital financing activities:
Cash paid to RIX joint venture - (9,483) (9,48
Consent Decree insurance drawdowns 2,272,184 - - 2,272,18 Q
Net cash provided by noncapital financing activities 2,272,184 (9,483) 2,262,70
C
Cash flows from capital and related financing activities: <
U)
Capital fees received 2,760,023 1,475,400 4,235,42
Drawdown on CIEDB loan 6,800,555 - - 6,800,55 m
E
Proceeds from/(cost of) disposal of fixed assets (77,283) (1,982) - (79,26 t
Cash paid to acquire fixed assets (19,222,613) (2,923,265) - (22,145,87
Principal paid on capital-re plated debt (1,227,491) (4,724,227) - (5,951,71
L
Interest paid on capital-related debt (547,616) (757,010) - (1,304,62
Srant proceeds 661,498 - - 661,49 3:
Net cash provided by(used for)capital and related r°
w
financing activites (10,852,927) (6,931,084) (17,784,01 M
Cash flow from investing activities: Q
Purchase of investments (20,866,636) (23,994,336) - (44,860,97 `?
Sales and maturities of investments 12,732,392 2,288,725 15,021,11 m
Interest received 442,818 1,322,120 - 1,764,93 N
Net cash provided by investing activities (7,691,426) (20,383,491) (28,074,91 W
O
Net increase(decrease) in cash (9,484,423) (18,197,736) - (27,682,15 W
W
Cash and cash equivalents at beginning of year 14,857,813 34,448,202 - 49,306,01 �-
0
Cash and cash equivalents at end of year $ 5,373,390 $ 16,250,466 $ - $ 21,623,85 Q
Reconciliation of cash and cash equivalents to amounts
reported on the statement of net position: E
Cash and cash equivalents $ 3,907,967 $ 8,450,693 $ - $ 12,358,66
Restricted cash and cash equivalents: .Y�.
Restricted for capital-related fees - 7,799,773 - 7,799,77 Q
Restricted for consent decree 1,465,423 - - 1,465,42
Cash and cash equivalents at end of year $ 5,373,390 $ 16,250,466 $ - $ 21,623,85
(continued on next page)
14
Packet Pg.385
5.AB.b
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT""°`
Statement of Cash Flows, continued
Gor the Year Ended June 30, 2013 `� `�
Water Sewer Interfund
Utility Utility Eliminations Total
Reconciliation of operating income to net cash
provided by(used for)operating activities:
Operating income (loss) $ 438,622 $ 4,117,456 $ - $ 4,556,07
Depreciation and amortization 5,505,403 4,408,721 - 9,914,12
Rental income 122,826 22,574 - 145,40 c�
Other receipts(expenses) 211,032 (59,992) - 151,04 N
Adjustments U_
L
(Increase)decrease in accounts receivable (429,273) (130,635) - (559,90 0
(Increase)decrease in due from other entities (1,807,808) (214,514) - (2,022,32
(Increase) decrease in interfund receivable 112,259 - (112,259) Q
(Increase)decrease in inventory 43,288 - - 43,28 Ft
(Increase) decrease in prepaid expenses 1,029,356 73,223 - 1,102,57 c
c
Increase (decrease) in accounts payable 115,900 273,846 - 389,74 Q
Increase(decrease) in interfund payable - (112,259) 112,259 N
c
Increase (decrease) in related parties payable 166,452 45,964 - 212,41 E
Increase(decrease) in accrued expenses (3,960) (15,295) (19,25
Increase (decrease) in accrued compensation 108,073 29,963 - 138,03 c
Increase (decrease) in compensated absences
L
current portion (438,148) (153,134) - (591,28
Increase (decrease) in compensated absences
non-current portion 459,941 39,369 499,31
Increase (decrease) in claims payable 240,861 171,772 - 412,63 M
Increase(decrease) in consumer deposits
current portion (66,356) - - (66,35 Q
Increase(decrease) in consumer deposits Z
LL
non-current portion (178,838) - - (178,83 m
Increase (decrease) in OPEB obligation 1,158,116 629,263 - 1,787,37 N
Net cash povided by operating activities $ 6,787,746 $ 9,126,322 $ $ 15,914,06 O
Noncash investing,capital and financing activities: w
Note issued for capital asset acquisition $ 1,117,500 $ - $ - $ 1,117,50
Changes in fair market value of investments (114,068) (131,751)
Net noncash investing,capital and Q
financing activities $ 1,003,432 $ (131,751) $ - $ 871,68 m
E
r
V a
See accompanying independent auditors' report and notes to the basic financial statements
4 15
Packet Pg. 386
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013 ��
(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 City of San
Bernardino (City). A Board of Water Commissioners (BOWC) 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. M
It-
B. Basis of Accounting and Measurement Focus c°�i
The Department reports its activities as enterprise funds, which are used to account for operations that are a_
L
financed and operated in a manner similar to a private business enterprise, where the intent of the Department ,0
is that the costs (including depreciation) of providing goods or services to the general public on a continuing 0
basis be financed or recovered primarily through user charges. Revenues and expenses are recognized on the q
accrual basis. Revenues are recognized in the accounting period in which they are earned and expenses are Ri
recognized in the period incurred, regardless of when the related cash flow takes place.
Q
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
in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property E
taxes and investment income, result from nonexchange transactions or ancillary activities in which the a
Department gives (receives) value without directly receiving (giving) equal value in exchange.
0
L
When both restricted and unrestricted resources are available for use, the Department uses restricted resources a;
and then unrestricted resources.
The funds of the Department are described below:
M
Water Utility Fund—The Water Utility Enterprise Fund (Water Utility) is used to account for the operations
of the Department's water system and related revenues. a
Z
Sewer Utility Fund —The Sewer Utility Enterprise Fund (Sewer Utility) is used to account for the operations M
of the City's wastewater treatment system and related revenues. The Sewer conveyance system is under
0
the direction of the City's Public Works Department. N
Administrative and engineering services are provided by the Water Utility to the Sewer Utility. Electrical services 0
are provided by the Sewer Utility to the Water Utility. W
C. Financial Reporting
0
The Department's basic financial statements are presented in conformance with the provisions of Governmental a
Accounting Standards Board (GASB) Statement No. 34, "Basic Financial Statements — and Management's
Discussion and Analysis —for State and Local Governments" (GASB No. 34). This statement established revised 0
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 Q
restructure the format of financial information provided prior to its adoption. A statement of net position
L replaces the balance sheet and reports assets, liabilities, and the difference between them as net position, not
equity. A statement of revenues, expenses and changes in net position replaces both the income statement and
4: the statement of changes in retained earnings and contributed capital. GASB No. 34 also requires that the
statement of cash flows be prepared using the direct method. Under the direct method, cash flows from
�6 operating activities are presented by major categories.
,I
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16 Packet Pg. 387
I
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued Q
For the Year Ended June 30, 2013
(1) Reporting Entity and Summary of Significant Accounting Policies, continued
D. Assets, Liabilities and Net Position
1. Use of Estimates
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, o
and the reported changes in net position during the reporting period. Actual results could differ from those n+
estimates. UL
L
2. Cash and Investments
For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments Q
(including restricted assets)with a maturity of three months or less when purchased.
Investments are reported in the accompanying balance sheet at fair value, except for certain certificates of
deposit and investment contracts that are reported at cost as they are not transferable and have terms that
are not affected by changes in market interest rates.
a�
Changes in fair value that occur during a fiscal year are recognized as investment income reported for that E
fiscal year. Investment income includes interest earnings, changes in fair value and any gains or losses a
realized upon the liquidation of investments. p
3. Accounts Receivable
Customer or trade receivables are shown net of an allowance for uncollectible accounts based on historical
and management estimates. Transactions between funds that are representative of lending or borrowing
arrangements outstanding at the end of the fiscal year are referred to as "interfund receivables / payables" M
or"advances to/from" other funds. All interfund transactions are eliminated for financial reporting. Q
4. Inventory LL
Materials and supplies inventory consists primarily of water meters, pipe and pipefittings for construction c
and repair to the Department's water transmission and distribution system and items necessary for N
maintenance at the sewer treatment facilities. Inventory is valued at cost using a weighted average method.
Inventory items are charged to expense at the time that individual items are withdrawn from inventory or W
consumed.
S. Prepaid Expense and Deposit
Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are Q
r
recorded as prepaid items in the basic financial statements.
;_
Ar
U
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17 Packet Pg.388
r
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued `{
For the Year Ended June 30, 2013
(1) Reporting Entity and Summary of Significant Accounting Policies, continued
D. Assets, Liabilities and Net Position, continued
6. Capital Assets
Capital assets acquired or constructed are capitalized at historic cost. Department policy has set the
capitalization threshold for reporting capital assets at $5,000 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
significant contracts. Depreciation is recorded on a straight-line basis over the estimated useful lives of the N
assets as follows: u-
0
• Source of supply plant 8 to 50 years
• Disposal plant and interceptor lines 35 to 50 years
• Other facilities (shops, leasehold &yards) 5 to 25 years Q
• Tools, office equipment&communications 4 to 20 years
• Computer equipment 3 to 5 years
Q
• Automotive and fleet equipment 3 to 15 years N
c
7. Compensated Absences
E
Department policy is to permit employees to accumulate a limited amount of earned vacation and sick Q
leave. Various negotiation groups have different sell-back and cash out options. Additionally, cash out o
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.
8. Restricted Assets and Amounts Payable from Restricted Assets
ti
Amounts shown as restricted assets have been restricted by bond indentures or are to be used for specified
purposes based on contract provisions, such as bonded debt service. Certain liabilities which are currently
payable have been classified as current liabilities payable from restricted assets since assets have been z
restricted for their payment. u_
M
r
9. Deferred Charge on Refunding c
N
Deferred charges on refunding are amortized using the straight-line method based on the term of the debt.
O
10. Interfund Eliminations n'
w
The interfund eliminations column represents entries made to eliminate interfund income and expenditure t—
transactions between the water utility fund and the sewer utility fund for the purposes of consolidated j
financial statements. a
C
a>
E
4 �
kk �_
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18 Packet Pg.389
i
5.A1B.6
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued _
For the Year Ended June 30, 2013
1) Reporting Entity and Summary of Significant Accounting Policies, continued
D. Assets, Liabilities and Net Position,continued
11. Net Position
The financial statements utilize a net position presentation. Net position is categorized as follows:
• Net Investment in Capital Assets—This component of net position consists of capital assets, net of
accumulated depreciation and reduced by any debt outstanding against the acquisition, N
construction or improvement of those assets. >_
• Restricted Net Position — This component of net position consists of constraints placed on net o
position 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 Q
enabling legislation.
• Unrestricted Net Position — This component of net position consists of net position that does not a
meet the definition of restricted or net investment in capital assets.
w.
12. Capital Contributions
Contributions in aid of construction represent cash and utility plant additions contributed to the Department
by property owners or developers desiring services that require 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 position.
..
13. Budgetary Policies
ti
The Department adopts an annual non-appropriated budget for planning, control, and evaluation purposes. M
Budgetary control and evaluation are affected by comparisons of actual revenues and expenses with
planned revenues and expenses for the period. Encumbrance accounting is not used to account for z
commitments related to outstanding contracts for construction and services.
M
E. Implementation of Government Accounting Standards Board (GASB)Statements c
N
GASB Statement No. 62
The objective of this Statement is to incorporate into the GASB's authoritative literature certain accounting and w
financial reporting guidance that is included in the following pronouncements issued on or before November 30, W
1989,which does not conflict with or contradict GASB pronouncements:
0
1) Financial Accounting Standards Board (FASB) Statements and Interpretations Q
2) Accounting Principles Board Opinions
E
3) Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) u
Committee on Accounting Procedure. .Y�.
Q
Hereinafter,these pronouncements collectively are referred to as the "FASB and AICPA pronouncements."
This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and
Other Governmental Entities That Use Proprietary Fund Accounting,thereby eliminating the election provided in
paragraph 7 of that Statement for enterprise funds and business-type activities to apply post-November 30,
1989 FASB Statements and Interpretations that do not conflict with or contradict GASB pronouncements.
However, those entities can continue to apply, as other accounting literature, post-November 30, 1989 FASB
pronouncements that do not conflict with or contradict GASB pronouncements, including this Statement.
i
19
Packet Pg.390
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
a
Notes to the Basic Financial Statements, continued
•q
For the Year Ended June 30, 2013
(1) Reporting Entity and Summary of Significant Accounting Policies, continued
E. Implementation of Government Accounting Standards Board (GASB)Statements,continued
This statement is applicable to the Department beginning with the fiscal year ended June 30, 2013. The
Department has updated its financial statement presentation in accordance with this GASB statement. The
implementation also resulted in a prior period adjustment as discussed further in note 15.
M
GASB Statement No. 63
0
N
This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of
resources. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements t
as a consumption of net assets by the government that is applicable to a future reporting period, and an °°
acquisition of net assets by the government that is applicable to a future reporting period, respectively. Previous V
financial reporting standards do not include guidance for reporting those financial statement elements, which Q
are distinct from assets and liabilities.
c
Concepts Statement 4 also identifies net position as the residual of all other elements presented in a statement Q
of financial position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic y
Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, and other a)
pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the E
definitions of the required components of the residual measure and by renaming that measure as net position, Q
rather than net assets. o
L
This statement is applicable to the Department beginning with the year ended June 30, 2013. The Department
has updated its financial statement presentation in accordance with this GASB statement. There was no fiscal 'S
impact related to the implementation of this pronouncement.
GASB Statement No. 65 .'
This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of z
resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities Z
and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as M
assets and liabilities. co*4
F
Concepts Statement No. 4, Elements of Financial Statements, introduced and defined the elements included in 0
financial statements, including deferred outflows of resources and deferred inflows of resources. In addition, w
Concepts Statement 4 provides that reporting a deferred outflow of resources or a deferred inflow of resources
should be limited to those instances identified by the Board in authoritative pronouncements that are ~
0
established after applicable due process. Prior to the issuance of this Statement, only two such pronouncements Q
have been issued. Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, requires the
reporting of a deferred outflow of resources or a deferred inflow of resources for the changes in fair value of
hedging derivative instruments, and Statement No. 60, Accounting and Financial Reporting for Service
Concession Arrangements, requires a deferred inflow of resources to be reported by a transferor government in
a qualifying service concession arrangement. This Statement amends the financial statement element a
classification of certain items previously reported as assets and liabilities to be consistent with the definitions in
Concepts Statement 4.
fThis Statement also provides other financial reporting guidance related to the impact of the financial statement
elements deferred outflows of resources and deferred inflows of resources, such as changes in the
determination of the major fund calculations and limiting the use of the term deferred in financial statement
presentations.
20 Packet Pg.391
1
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued `
For the Year Ended June 30, 2013 �� '
(1) Reporting Entity and Summary of Significant Accounting Policies, continued
E. Implementation of Government Accounting Standards Board(GASB)Statements,continued
Although this statement is not required to be applied to the Department's financial statements until the fiscal
year ending June 30, 2014, the Department has elected to implement this standard for the fiscal year ended
June 30, 2013. The fiscal impact to the Department was immaterial.
(2) City of San Bernardino Bankruptcy
0
N
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 emergency. On August 1, 2012,the City filed o
a petition under Chapter 9 of the United States Bankruptcy Code in Riverside seeking to adjust its debts. On
August 28, 2013,the Bankruptcy Court ruled that the City is eligible for bankruptcy protection.
d
Based on the California Constitution, precedents established in prior municipal bankruptcies in California, and
various legal opinions provided to the Department by special legal counsel and the City Attorney's office, the =
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 a different determination.
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. L
The bankruptcy case seeks the adjustment of the obligations of the City and does not extend to City funds with o
Federal, State or other restrictions. The Department has continued to operate and use its restricted resources
for only the expenses incurred to operate the water system and sewer treatment plants. Debt obligations
secured by Department revenues are treated as secured obligations and are not expected to be affected so long
as the revenues of the Department are sufficient to meet debt service. m
M
State and federal laws place protections on the revenues of the Department. Section 902(2) of the Bankruptcy C
Code defines special revenues as, among other things, "receipts derived from the ownership, operation, or Q
disposition of projects or systems of the debtor that are primarily used or intended to be used primarily to Z
provide transportation, utility, or other services, including the proceeds of borrowings to finance the projects or r",
systems." Further, section 928 of the Bankruptcy Code states: "(a) Notwithstanding section 5S2 (a) of this title N
and subject to subsection (b) of this section, special revenues acquired by the debtor after the commencement
of the case shall remain subject to any lien resulting from any security agreement entered into by the debtor 0
before the commencement of the case"; and "(b) Any such lien on special revenues, other than municipal w
betterment assessments, derived from a project or system shall be subject to the necessary operating expenses
of such project or system, as the case may be." p
Chapter 9 of the Bankruptcy Code does not have a provision for liquidation of assets of the City and distribution Q
of the proceeds to creditors. Additionally, Chapter 9 does not prevent a debtor from borrowing additional funds
while under bankruptcy protection. The Tenth Amendment of the United States Constitution and Supreme s
Court decisions in upholding municipal bankruptcy legislation place severe limitations upon the power of the
bankruptcy court in chapter 9 cases. Q
In addition, at least two aspects of California law place restrictions on the use of revenue of the Department.
First, under Articles XIIIC and XIIID of the California Constitution (enacted pursuant to the voter approved
Proposition 218), money raised from municipal utility rates must only be used to fund such utility operations,
and not to fund general municipal operations. Thus, when the Department charges a water delivery or
consumption fee, or rates for wastewater services, and places those monies into its specially segregated Water
Fund and Sewer Fund accounts, those charges are considered property-related fees and are subject to the
constitutional constraints enacted pursuant to Proposition 218. This has very specific consequences for the
amount of money that can be collected, as well as the use to which those funds can be put. Specifically, Cal.
Const.Article XIII D section 6(b) states that:
21 Packet Pg. 392
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
E
(2) City of San Bernardino Bankruptcy, continued
A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following
requirements:
(1) Revenues derived from the fee or charge shall not exceed the funds required to provide the
property related service.
(2) Revenues derived from the fee or charge shall not be used for any purpose other than that for
0
which the fee or charge was imposed.
(3) The amount of a fee or charge imposed upon any parcel or person as an incident of property 'L
ownership shall not exceed the proportional cost of the service attributable to the parcel. '°
(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
substantially the same manner as it is to property owners. (Cal Const,Art. XIII D § 6.)
Put differently, use of fees for general governmental services is prohibited, fees can only be for the service
provided, fees cannot exceed the cost of that service, and fees cannot exceed the proportional cost of the E
service attributable the payer.' a
The second relevant aspect of state law is the City's status as a Charter City. Under California law a city charter
is "the supreme law of the City," but is still subject to "conflicting provisions in the federal and state
Constitutions and to preemptive state law." (Howard Jarvis Taxpayers Assn. v. City of Roseville (2003) 106 3:
Cal.AppAth 1178, 1186, citing Domar Electric, Inc. v. City of Los Angeles (1994) 9 CalAth 161, 170.) The
Department was created by and currently operates pursuant to Article IX of the City's Charter, and provides M
both retail water and sewer service pursuant to the City Charter provisions. Specifically, Article IX, Section 164
J
of the City Charter provides that the Water Department Board of Commissioners, and not the City Council, " . . Q
shall have power to control and order the expenditure of all money received from sale or use of water, for the FZ
defraying of expenses or maintenance and repairs and operation of the water system, and for any expenses for
additions to the same; and for supplying the City with water for any and all purposes; provided that all such C4
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 a
discussion above, the constitutional requirements under Proposition 218 apply to "counties, cities, cities and W
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. Q
City of Roseville (2003) 106 Cal.AppAth 1178, 1185.) In order to provide for the safety of the Department's c
v
liquid assets, the Department established its own bank account and investment portfolio within the City treasury E
as required by the City Charter. Representatives of the City Treasurer's office and the Water Department are U
signatories to these accounts. As previously noted, the City Charter specifically grants to the Water Department Q
Board of Commissioners the power to control and order the expenditure of these funds and limits the
withdrawal of these funds for the payment of demands authenticated by the Board of Commissioners.
{' See League of California Cities,Proposition 218 Implementation Guide(2007 Ed.)at pp.49-50;see also Howard Jarvis Taxpayers Ass'n v.City
of Roseville(2002)97 Cal.AppAth 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 service,and may be used only for the service."]
22 Packet Pg. 393
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Y¢
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
2 City of San Bernardino Bankruptcy, continued
( ) Y p Y,
Accordingly, both the City Charter and the California Constitution require that the Department's special
revenues collected for water-related services may only be used for expenditures related to those services. Due
to these additional state law restrictions, the Department believes that the revenues of the Department (and
accumulated assets since those assets were accumulated as a result of collection of revenue) can only be used
for Department expenses and obligations.
M
On October 16, 2013, Bankruptcy Judge Meredith Jury issued an opinion on the City's eligibility for bankruptcy. N
"...CalPERS submits that the uncontroverted fact that the City's Water Fund had a large cash balance before and
after the petition date which the City did not tap to attempt to balance its books is evidence of lack of desire to c
effect a plan. This argument has no legal legs. It is a matter of California constitutional law that the City may not
use funds belonging to the Water Department for general fund purposes. Amendments to the Constitution
enacted by Proposition 218 in 1996, which added Articles XIIIC and XIIID, expanded restrictions on local Q
government revenue-raising and imposed limitations on local government use of special fees, including water
and sewer fees. C.A. Const. art. XIIIC and XIIID. Article XIIID covers water fees and prohibits the use of such fees Q
for general governmental services, including police,fire and other services. Bighorn Desert View Water Agency v.
Verjil, 39 Cal. 4th 205, 216-17 (2006); Richmond v. Shasta Cmty. Servs. Dist., 32 Cal. 4th 409 (2004). Thus, the c
4)
City was legally prohibited by the California Constitution from using Water Department funds for general fund E
purposes. co
CL
"Similarly, the City could not have borrowed funds from the Water Department without incurring debt that it o
could not repay within one year. Article XVI, Section 18 of the Constitution prohibits the City from incurring a a;
debt in any year that exceeds the available revenues of the City for that year without the approval of a two-
thirds vote of qualified voters. C.A. Const. art. XVI, § 18. Looking at its dire financial status in July 2012, the City
could not reasonably conclude that it would be able to repay to the Water Fund any loans it made within that
fiscal year. The Water Fund cash was thereby out of reach to address the City's insolvency and this issue is an M
outlier to the Court's analysis." (Case No.: RS 6: 12-bk-28006 MJ). a
z
(3) Cash and Investments
M
Cash and investments are reported in the accompanying statement of net position as follows: N
Water Sewer
Utility Utility Total a
W
Cash and cash equivalents $ 3,907,967 $ 8,450,693 $ 12,358,660 �_
Investments 8,115,075 21,575,650 29,690,725
Restricted cash and cash equivalents: a
Restricted for capital-related fees - 7,799,773 7,799,773
Restricted for Consent Decree 1,465,423 - 1,465,423
Restricted investments: y
Restricted for Consent Decree 19,540,918 - 19,540,918 Q
Total Cash and Investments $ 33,029,383 $ 37,826,116 $ 70,855,499
23 Packet Pg.394
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
(3) Cash and Investments, continued
Cash and investments at June 30, 2013 consisted of the following:
Water Sewe r
Utility Utility Total
Cash on hand $ 5,500 $ 200 $ 5,700 M
Deposits with Financial Institutions 4,653,324 14,055,294 18,708,618 0
Investments 28,370,559 23,770,622 52,141,181 >_
Total Cash and Investments $ 33,029,383 $ 37,826,116 $ 70,855,499 0
:a
Investments Authorized by the California Government Code and the Department's Investment Policy Q
The table below identifies the investment types that are authorized by the Department and Consent Decree
(see note 13) in accordance with the California Government Code (or the City's investment policy, where more
restrictive). The table also identifies certain provisions of the California Government Code (or the City's v,
investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of
credit risk. Due to its long-term nature, the Consent Decree has been explicitly exempted from maximum E
maturity requirements of the California Government Code, which limits maturity of most investments to five a
years. All other aspects of the Consent Decree investment policy are consistent with the City's investment Q
policy.
Maximum Maturity Maximum% Maximum%
Investment Type* Department Consent Decree of Portfolio in One Issuer r.
w
ch
US treasury 5 years None None None
US agency 5 years None None None —�
Q
Bankers acceptances 180 days 180 days 40% 30% Z
7L
Commercial paper 270 days 270 days 25% 10% M
T
Negotiable CDs 5 years None 30% None c°14
Medium-term notes 5years None 30% None
Money market mutual funds N/A N/A 20% 10% a
Mortgage pass through 5 years None 20% None �
Local Agency Investment Fund N/A N/A $40,000,000 None ~
0
Guaranteed investment N/A N/A None None D
Q
*- Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.
E
Investments Authorized by Debt Agreements
..r
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather Q
than the general provisions of the California Government Code or the City's investment policy. Investments
authorized for funds held by bond trustee include, U.S. Treasury Obligations, U.S. Government Sponsored
Enterprise Securities, the California Local Agency Investment Fund, Guaranteed Investment Contracts,
Commercial Paper, Local Agency Bonds, Banker's Acceptance and Money Market Mutual Funds. 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 Banker's Acceptance which are limited to one
year.
24 Packet Pg. 395
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued `" x
For the Year Ended June 30, 2013
3 Cash and Investments, continued
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a
government will not be able to recover its deposits or will not be able to recover collateral securities that are in
the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the
failure of the counterparty to a transaction, a government will not be able to recover the value of its investment
or collateral securities that are in the possession of another party. The California Government Code requires N
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. `o
12
The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount
deposited by the public agencies. California law also allows financial institutions to secure the Department's Q
deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits.
For investment identified herein as held by bond trustee, the bond trustee selects the investment under the
terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the <
reporting government. c
a�
Investment in State Investment Pool E
CZ
The Department is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the
California Government Code under the oversight of the Treasurer of the State of California. The fair value of the
Department's investment in this pool is reported in the accompanying financial statements at amounts based
cc
upon the Department's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation
to the amortized cost of that portfolio).The balance available for withdrawal is based on the accounting records
maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated by a nationally recognized M
statistical rating organization, but, as stated previously, it is regulated by the California Government Code, and is
therefore exempt from rating requirements. z
Interest Rate Risk U"
M
r
Interest rate risk is the possibility that fluctuations in market interest rates will adversely affect the fair value of N
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 a
interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash W
flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as F—
necessary to provide requirements for cash flow and liquidity needed for operations. Information about the
sensitivity of the fair values of the Department's investments to market interest rate fluctuations is provided by Q
the following table that shows the distribution of the Department's investments by maturity date: c
4)
E
U
r
w
Q
25 Packet Pg.396
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013 '
(3) Cash and Investments, continued
Maturities
Lessthan 13-24 25-60 More than
Investment Type 12 months months months 60 months Total
U.S.Agency Securities $ 3,296,993 $ 2,550,210 $ 7,802,196 $ $13,649,399
U.S.Treasuries 450,299 249,590 5,053,542 5,753,431
Medium Term Corporate Notes 1,849,609 270,434 1,824,528 3,944,571
0
Asset Backed Securities - - 747,240 747,240 N
Commercial Paper 489,612 - 489,612 >_
LL
Money Market Funds 223,756 223,756
Local Agency Investment Fund 2,526,746 2,526,746
City investment pool 5,106,471 - - 5,106,471
Consent decree: Q
U.S.Treasuries - 1,401,073 1,222,991 2,624,064
U.S.Agency Mortgage Backed Securities - - - 1,804,416 1,804,416 =
c
U.S.Agency Securities 705,274 2,552,707 5,586,532 - 8,844,513 Q
N
Corporate Notes - 523,891 4,271,032 4,794,923
Certificates of Deposit - 1,473,002 - 1,473,002 d
Money Market Funds 159,037 - 159,037
ca
Total investments $14,807,797 $ 9,020,907 $26,508,061 $ 1,804,416 $52,141,181
d
L
Credit Risk
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 M
organization. Presented below is the minimum rating required by (where applicable) the California Government
Code, the Department's investment policy, or debt agreements, and the actual rating as of year-end for each Q
investment type. z
M
r
O
N
f-
EY
0
a
w
o:
0
Q
Y
E
U
Q
26 Packet Pg.397
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
3 Cash and Investments continued
Minimum
Legal
Investment Type Rating Rating Total
U.S. Agency Securities No Limit AA+ $13,649,399 _
U.S.Treasuries No Limit AA+ 5,753,431
0
Medium Term Corporate Notes AA- AAA 845,109 N
AA+ 805,594 i
AA 1,616,893 0
AA- 676,975
Asset Backed Securities AA AAA 747,240 Q
Commercial Paper A-1 A-1 489,612
Money Market Funds AA+ AA+ 223,756 c
Local Agency Investment Fund N/R N/R 2,526,746
City investment pool N/R N/R 5,106,471
E
Consent decree: '=
U.S.Treasuries No Limit AA+ 2,624,064 Q
U.S. Agency Mortgage Backed Securities No Limit AA+ 1,804,416
U.S.Agency Securities No Limit AA+ 8,844,513
Corporate Notes A AAA 237,438
AA+ 735,157 M
AA 1,473,841 ==
AA- 1,461,201 Q
A+ 887,286 Z FL
Certificates of Deposit A A-1+ 500,439
0
AA- 497,584 N
A+ 474,979
Money Market Funds AA+ AA+ 159,037 CL
W
Total investments $52,141,181 F-
0
Concentration of Credit Risk Q
Y
Investments in any one issuer (other than for U.S. Treasury securities, mutual funds, and external investment
pools)that represent 5%or more of total Department investments are as follows:
Reported Percentage of Q
Issuer Investment Type Amount Investments
Federal National Mortgage Association U.S.Agency Securities $ 10,818,936 19.42%
Federal Home Loan Mortgage Corporation U.S.Agency Securities 7,020,801 12.60%
Federal Farm Credit Bank U.S.Agency Securities 3,173,245 5.70%
27 Packet Pg. 398'
4
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
w
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
( ) Capital ital Assets
Capital asset activity for the water utility for the fiscal year ended June 30, 2013:
Balance Additions/ Deletions/ Balance
July 1,2012 Adjustments Transfers Transfers June 30,2013
Non-depreciable assets:
Land and easements $ 2,989,179 $ 1,242,064 $ 1,419,100 $ 5,650,343 c7
Construction in progress 6,058,101 - 17,128,729 (4,651,219) 18,535,611 0
N
Total non-depreciable assets 9,047,280 1,242,064 18,547,829 (4,651,219) 24,185,954 >_
L
Depreciable assets: w
Water rights,wells and pumping 82,941,539 (1,074,414) 369,690 (182,127) 82,054,688
Distribution system 120,646,135 859,177 5,175,373 - 126,680,685 Q3
Buildings,plants and stores 2,726,292 (167,650) 725,520 (71,849) 3,212,313
cu
Field and office equipment 14,421,716 172,920 (930,982) 13,663,654 =
E
Total depreciable assets 220,735,682 (382,887) 6,443,503 (1,184,958) 225,611,340 Q
n
Less:accumulated depreciation
Water rights,wells and pumping (27,873,552) (2,150,570) 176,677 (29,847,445)
Distribution system (28,894,053) (82,356) (2,392,217) - (31,368,626)
Buildings,plants and stores (1,399,514) (110,906) 69,231 (1,441,189)
Field and office equipment (9,025,419) - (851,710) 754,387 (9,122,742)
m
Total accumulated depreciation (67,192,538) (82,356) (5,505,403) 1,000,295 (71,780,002) y
Total depreciable assets,net 153,543,144 (465,243) 938,100 (184,663) 153,831,338
ti
Total capital assets,net $162,590,424 $ 776,821 $ 19,485,929 $ (4,835,882) $178,017,292
M
There were adjustments of$859,177 made to the beginning balance of the distribution system and ($82,356) to —�
Q
accumulated depreciation due to the calculation of prior interest capitalization. This adjustment was recorded Z
as a prior period adjustment. For more information on this adjustment, refer to note 15. u_
There were adjustments of$1,242,064 to land and easements, ($1,074,414) in water rights, wells and pumping N
and ($167,650) in building, plants and stores to transfer beginning balances in the latter two categories to the W
land category. The assets in question were never depreciated but were nonetheless presented in the incorrect a
LU
category in prior years.
F-
0
Q
c
a�
E
U
R
r..
Q
28 Packet Pg.399
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
( ) Capital ital Assets, continued
Capital asset activity for the sewer utility for the fiscal year ended June 30, 2013:
Balance Additions/ Deletions/ Balance
July 1,2012 Adjustments Transfers Transfers June 30,2013
Non-depreciable assets:
Land and easements $ 12,470,740 $ (913,429) $ - $ $ 11,557,311 M
Construction in progress 3,559,266 - 3,036,959 (407,053) 6,189,172 0
Total non-depreciable assets 16,030,006 (913,429) 3,036,959 (407,053) 17,746,483
L
Depreciable assets: 0
Pumping 3,192,218 - - 3,192,218
Buildings,plants and stores 159,428,640 (36,330,003) 138,390 123,237,027
Field and office equipment 5,768,196 (343,803) 154,969 (138,541) 5,440,821
Total depreciable assets 168,389,054 (36,673,806) 293,359 (138,541) 131,870,066
s
Less:accumulated depreciation Q
Pumping (2,305,934) (37,345) (2,343,279)
Buildings,plants and stores (94,869,121) 15,891,669 (3,237,471) - (82,214,923)
Field and office equipment (4,676,461) - (125,033) 128,879 (4,672,615)
cv
Total accumulated depreciation (101,851,516) 15,891,669 (3,399,849) 128,879 (89,230,817) v
Total depreciable assets,net 66,537,538 (20,782,137) (3,106,490) (9,662) 42,639,249
Total capital assets,net $ 82,567,544 $ (21,695,566) $ (69,531) $ (416,715) $ 60,385,732 cc
r�
There were adjustments of $1,569,146 made to the beginning balance of the building, plants and stores and M
($185,422) to accumulated depreciation due to the calculation of prior interest capitalization. This adjustment
was recorded as a prior period adjustment. For more information on this adjustment, refer to note 15. —�
a
Z
There were adjustments of $1,616,228 to land and easements, ($1,616,228) in building, plants and stores to LL
transfer beginning balances in the latter category to the land category. The assets in question were never
depreciated but were nonetheless presented in the incorrect category in prior years.
There were adjustments of ($2,529,657) to land and easements, ($36,282,921) to buildings, plants and stores,
O
($343,803) to field and office equipment and $16,077,091 to accumulated depreciation in order to reflect the w
Department's beginning balance in investment in joint venture in a separate asset category. For more
information on the Department's joint ventures, refer to note 10. p
Significant project commitments as of June 30, 2013 include: Q
Outside a=i
Project Authorized Expenditures Remaining Funding t
L)
Water Utility: cc
Perchlorate Treatment System $ 2,100,000 $ 515,582 $ 1,584,418 $ a
Reservoir Seismic Upgrade 1,653,200 426,612 1,226,588 -
Ogden Reservoir 8,600,000 7,530,500 1,069,500 8,600,000
Groundwater Flow Model 1,422,756 243,809 1,178,947 1,422,756
Systemwide Pipeline Replacement 2,735,000 59,678 2,675,322 1,800,000
1-215/Devore Interchange Transmission Main 1,000,000 - 1,000,000 -
Department Administration Facility 2,000,000 2,000,000
Total Water Utility $ 19,510,956 $ 8,776,181 $ 10,734,775 $ 11,822,756
29 Packet Pg.400
I'
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT _
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
..
(4) Capital Assets, continued
Outside
Project Authorized Expenditures Remaining Funding
Sewer Utility:
Unit 1 Primary Clarifier $ 10,372,000 $ 598,833 $ 9,773,167 $ -
Unit 2 Activated Sludge System 1,170,000 96,910 1,073,090
M
Recycled Water Plant 1,575,000 1,169,022 405,978 302,000 c
Tertiary Treatment System 1,260,000 3,066 1,256,934 300,000 04
Advanced Purification Pilot 695,000 2,806 692,194 300,000 LL
Sludge Dewatering Centrifuge 1,570,000 299,564 1,270,436 - 0
Total Sewer Utility $ 16,642,000 $ 2,170,201 $ 14,471,799 $ 902,000
d
(5) Operating Leases
c
Effective December 15, 2008, the Department took possession of leased space from Superior Homes LLC for Q
administrative office and warehouse space for a term of ten years. The following is a schedule of minimum 0
lease payments as of June 30, 2013.
E
Water Sewer L
s�
Year Utility Utility Total
2014 $ 228,408 $ 31,152 $ 259,560 w
2015 228,408 31,152 259,560
2016 228,408 31,152 259,560 r
2017 228,408 31,152 259,560 M
2018 228,408 31,152 259,560
Q
$ 1,142,040 $ 155,760 $ 1,297,800 z
u_
_ cYa
(6) Long-term Liabilities N
Water Utility Fund
O
Changes in long-term liabilities in the water utility fund for the year ended June 30, 2013, are as follows: w
Balance Balance Current Long-term E-
July 1,2012 Additions Reductions June 30,2013 Portion Portion
D
Notes payable: d
2002 CIEDB $ 6,272,528 $ $ (538,645) $ 5,733,883 $ 556,636 $ 5,177,247 =
2007 CIEDB 8,281,073 (454,791) 7,826,282 467,117 7,359,165 d
E
2012 CIEDB 10,000,000 10,000,000 413,260 9,586,740 v
SBVMWD Note - 1,117,500 (219,055) 898,445 221,255 677,190 2
w
Total notes payable 24,553,601 1,117,500 (1,212,491) 24,458,610 1,658,268 22,800,342 Q
Bond payable 15,000 - (15,000) - - -
Compensated absences 1,241,642 1,203,538 (1,181,745) 1,263,435 590,873 672,562
Total long-term debt,water fund $25,810,243 $ 2,321,038 $(2,409,236) $25,722,045 $ 2,249,141 $23,472,904
30 Packet Pg.401
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
(6) Long-term Liabilities, continued
2002 California Infrastructure and Economic Development Bank(CIEDB) Note Payable
In April 2002, CIEDB issued a $10,000,000 note to the Department to provide funding for transmission mains,
booster stations and a reservoir identified in the Water System Reliability Schedule of Improvements. The note
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.
P
Debt service requirements on the 2004 CIEDB Note Payable are as follows: N
U_
Year Principal Interest Total
0
2014 $ 556,636 $ 191,512 $ 748,148
2015 575,227 172,921 748,148 Q
2016 594,440 153,708 748,148
2017 614,294 133,854 748,148
2018 634,812 113,336 748,148 Q
2019-2022 2,758,474 234,118 2,992,592
$ 5,733,883 $ 999,449 $ 6,733,332 t
CU
CL
a�
2007 CIEDB Note Payable
L
In July 2007, CIEDB issued a $10,000,000 note to the Department to provide funding for booster stations and
transmission mains in the Verdemont area. The 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.
r9
r:
Debt service requirements on the 2007 CIEDB Note Payable are as follows:
J
Year Principal Interest Total z
U_
2014 $ 467,117 $ 205,763 $ 672,880 M
2015 479,775 192,932 672,707 04
2016 492,777 179,754 672,531
2017 506,131 166,219 672,350 a.
W
2018 519,847 152,317 672,164 W
2019-2023 2,818,345 539,507 3,357,852 ~
0
2024-2027 2,542,290 140,094 2,682,384 D
Q
$ 7,826,282 $ 1,576,586 $ 9,402,868
E
s
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 Q
12 million gallon Ogden Reservoir and certain pipeline improvements. The note was issued with an interest rate
of 2.61% with interest payable semiannually on February 1 and August 1. Principal payments are due annually
on August 1.
31 Packet Pg.402
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT np
Notes to the Basic Financial Statements, continued .
For the Year Ended June 30, 2013
(6) Long-term Liabilities, continued
Debt service requirements on the 2012 CIEDB Note Payable are as follows:
Year Principal Interest Total
2014 $ 413,260 $ 255,607 $ 668,867
2015 424,046 244,680 668,726 M
2016 435,114 233,468 668,582 N
2017 446,470 221,963 668,433 >_
2018 458,123 210,158 668,281
0
2019-2023 2,476,334 862,648 3,338,982
2024-2028 2,816,812 517,729 3,334,541 Q
2029-2032 2,529,841 134,183 2,664,024
$ 10,000,000 $ 2,680,436 $ 12,680,436
N
SBVMWD Note Payable
In July 2012, the Department closed escrow on the purchase of real property from the San Bernardino Valley
Municipal Water District (SBVMWD), which included a down payment of $1,000,000 and a promissory note of C
$1,117,500 to be paid in sixty (60) monthly installments due on or before the 1St of each month. ❑
L
Debt service requirements on the SBVMWD Note Payable are as follows:
Year Principal Interest Total
a)
2014 $ 221,255 $ 7,972 $ 229,227 M
2015 223,478 5,749 229,227
2016 225,723 3,504 229,227 z
2017 227,989 1,238 229,227 M
f
$ 898,445 $ 18,463 $ 916,908 N
Debt Service Coverage w
The Water Utility Fund is required to maintain net revenues adequate to cover 110% of annual debt service.
H
Debt service coverage for the Water Utility Fund for the year ended June 30, 2013 was as follows: o
Gross revenue $ 43,864,370
r
C
Operating expenses 37,430,224 E
Less: depreciation expense (5,505,403)
Net operating expenses 31,924,821 Q
Net revenues $ 11,939,549
Annual debt service $ 1,837,875
Actual coverage ratio 6.50
32 Packet Pg.403
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
(6) Long-term Liabilities, continued
Sewer Utility Fund
Changes in long-term liabilities in the sewer utility fund for the year ended June 30, 2013, are as follows:
Balance Balance Current Long-term
July 1,2012 Additions Reductions June 30,2013 Portion Portion
Notes payable: M
SBVMWD SARI Rights $ 425,408 $ $ (425,408) $ - $ - $ N
State Revolving Fund 6,568,216 (1,574,991) 4,993,225 1,619,090 3,374,135 �
u.
Total notes payable 6,993,624 (2,000,399) 4,993,225 1,619,090 3,374,135
O
4-
Certificates of participation:
1998 Certificates of Participation 14,795,000 (2,650,000) 12,145,000 2,805,000 9,340,000
Less:unamortized discounts (87,668) 20,360 (67,308) (19,676) (47,632) Q
Total certificates of Participation 14,707,332 (2,629,640) 12,077,692 2,785,324 9,292,368
C
Compensated absences 542,720 479,135 (592,900) 428,955 296,450 132,505
Q
Total long-term debt,sewer fund $22,243,676 $ 479,135 $(5,222,939) $17,499,872 $ 4,700,864 $12,799,008
C
State Revolving Fund Note Payable E
ca
The State Water Resources Control Board issued a note to Santa Ana Watershed Authority to provide funding m
for the Santa Ana Watershed Authority providing funding for the San Bernardino/Colton Rapid Infiltration
L
Extraction (RIX) project in the amount of $25,978,599. In April 2001, the agreement was amended to transfer
CU
the note obligation to the successors in interest being the City of San Bernardino Board of Water 3:
Commissioners, and the City of Colton. The Department will use revenues from the sewer treatment utility fund r
towards repayment of the note. M
Debt service requirements on the State Revolving Fund Note Payable are as follows: J
Q
Year Principal Interest Total FZ
M
2014 $ 1,619,090 $ 139,810 $ 1,758,900 Q
N
2015 1,664,425 94,475 1,758,900 H
2016 1,709,710 47,872 1,757,582 p
IL
$ 4,993,225 $ 282,157 $ 5,275,382
h
O
1998 Certificates of Participation Q
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 1992 Certificates a)
originally provided for the construction of certain capital improvements. The proceeds of the 1998 Certificates cz
were invested and used to pay interest on the 1998 issue until February 1, 2001, when the 1992 Certificates r
were called at a prepayment premium of two percent. The Department now pays the installment payments on Q
the 1998 Certificates from the net revenues of the sewer treatment system. The issue has interest rates
between 3.95%-5.25%, annual debt service payments of$1,697,000-$3,474,000, and a maturity date of 2017.
The 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).
33 Packet Pg.404
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued °
For the Year Ended June 30, 2013
(6) Long-term Liabilities, continued
Debt service requirements on the 1998 Certificates of Participation are as follows:
Year Principal Interest Total
2014 $ 2,805,000 $ 607,650 $ 3,412,650
2015 2,965,000 474,412 3,439,412 M
2016 3,155,000 318,750 3,473,750
2017 3,220,000 161,000 3,381,000 >_
L
$ 12,145,000 $ 1,561,812 $ 13,706,812 ,0
Debt Service Coverage Q
The Sewer Utility Fund is required to maintain net revenues adequate to cover 110% of annual debt service. The c
Department's Certificates of Participation hold a senior lien on net revenues of the Sewer Utility Fund. Debt
service coverage for the Sewer Utility Fund for the fiscal year ended June 30, 2013 was as follows: cn
c
Gross revenue $ 27,771,723
E
Operating expenses 22,297,197 c°
o.
Less: depreciation expense (4,408,721)
L
e�
Net operating expenses 17,888,476
Net revenues $ 9,883,247
rn
Senior Lien-annual debt service 3,386,175 c"h'
Subordinate Lien-annual debt service 2,215,151 Q
z
Total annual debt service $ 5,601,326
M
Senior lien debt coverage ratio 2.92 N
Aggregate debt coverage ratio 1.76
O
(7) Defined Benefit Pension Plan W
Qualified employees are covered under a multiple-employer contributory retirement plan maintained by an
agency of the State of California Public Employee's Retirement System (PERS). Q
The Department is considered to be part of the City of San Bernardino PERS pension plan. All employees who
work 1,000 hours or more are eligible to participate. The plan provides retirement, disability benefits, annual 4)
cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are
established by state statutes, as legislatively amended within the Public Employees' Retirement Law. PERS
issues a separate comprehensive annual financial report that includes financial statements and required
supplementary information. Copies of the PERS annual financial report may be obtained from the PERS
Executive Office, 400 "P" Street, Sacramento, CA 95814. PERS also issues a separate report on the actual
valuation of the plan of the City of San Bernardino, which is available at the Department. Additional information
regarding the City's participation in PERS can be found in the City's financial statements.
34 Packet Pg.405
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT eIF
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
(8) Other Post-Employment Benefits
Plan Description
The Department provides health benefits to all qualifying retirees and their spouses in accordance with
Memorandums of Understanding under various labor agreements.
Eligibility
M
Employees are eligible for retiree health benefits if they retire from the Department on or after age 50 with at N
least 10, 12 or 15 years of service, depending on bargaining unit, and are eligible for a PERS pension. The latest y_
actuarial valuation of the plan occurred June 30, 2012. Membership consists of the following: �
0
Retirees and beneficiaries receiving benefits 100
Active plan members 243 Q
Total plan members 343
Q
Funding Policy .)
c
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 t
additional amount to prefund benefits as may be determined annually by the Board. The Department has m
established an irrevocable trust to which pre-funding contributions are made. For fiscal year 2013, the o
L
Department has funded $573,621 for the current year. Plan members receiving benefits contributed $138,538
(approximately 19.4% of total premiums) through their required contribution. The Department pays up to the
entire cost of health benefits for eligible retirees and their spouses, subject to the City's vesting schedule. r,
a)
Annual OPEB Cost and Net OPEB Obligation
The Department's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the Q
annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the Z
parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is
projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over N
a period not to exceed thirty years. The following table shows the components of the Department's annual
OPEB cost for the year, the amount actually contributed to the plan, and changes in the Department's net OPEB p
a
obligation: wW
Actual required contribution (ARC) $ 2,361,000 ~
0
Interest on new OPEB obligation -
Q
Amortization of net OPEB obligation -
Annual OPEB cost(expense) 2,361,000
E
Contributions made 573,621
Increase in net OPEB obligation 1,787,379
Q
Net OPEB obligation- beginning of year -
Net OPEB obligation-end of year $ 1,787,379
35 Packet Pg.406
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
(8) Other Post-Employment Benefits continued
The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net
OPEB obligation for 2013 and the two preceding years were as follows:
Year Annual Paid OPEB
Ended OPEB Cost Contribution Obligation
M
6/30/2011 $ 2,355,000 $ 676,000 $ 6,530,000 0
N
6/30/2012 2,510,000 9,040,000 - y.
6/30/2013 2,361,000 573,621 1,787,379 L
0
Funded Status and Funding Progress
As of June 30, 2012, the most recent actuarial valuation date, the plan was 29.7%funded. The actuarial accrued Q
liability for benefits was $28,831,000, the actuarial value of assets was $8,556,000 and the unfunded actuarial
accrued liability (UAAL) was $20,275,000. The covered payroll (annual payroll of active employees covered by 4
the plan)was $14,765,000 and the ratio of the UAAL to the covered payroll was 137.3%. v,
r
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions
about the probability of occurrence of events far into the future. Examples include assumptions about future E
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 p
compared with past expectations and new estimates are made about the future. The schedule of funding a;
progress presents multi-year trend information about whether the actuarial value of plan assets is increasing or
decreasing over time relative to the actuarial accrued liabilities for benefits.
r
Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as a
understood by the employer and the plan members) and include the types of benefits provided at the time of z_
each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to "-
M
that point. The actuarial methods and assumptions used include techniques that are designed to reduce the c
effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the
long-term perspective of the calculations. p
a
In the June 30, 2012, actuarial valuation, the entry age actuarial cost method was used. The actuarial
assumptions included a rate of return of 6.25% and annual healthcare cost trend rates of 8.5% initially, reduced
by increments to an ultimate rate of 5% after ten years. Both rates included a 3% inflation assumption. The
actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the Q
market value of investments over a five-year period. The UAAL is being amortized as a level percentage of m
projected payroll on an open basis.The remaining amortization period at June 30, 2013, was 21 years. E
s
Schedule of Funding Progress a
Actuarial UAAL as a
Q
Actuarial Actuarial Accrued Unfunded %of Covered
Valuation Value of Liability AAL Funded Ratio Covered Payroll
Date Assets(a) (AAL)(b) (UAAL)(b-a) (a/b) Payroll(c) (b-a)/c
6/30/2008 $ - $ 26,190,000 $ 26,190,000 0.0% $ 12,755,000 205.3%
6/30/2010 - 28,676,000 28,676,000 0.09/0 12,619,000 227.2%
6/30/2012 8,556,000 28,831,000 20,275,000 29.7% 14,765,000 137.3%
36 Packet Pg.407
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
e
(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, 2013.
Water Sewer
Receipts Utility Utility Total
City of San Bernardino:
CD
Revenue from Water Charges $ 1,531,439 $ - $ 1,531,439 N
Revenue from Sewer Charges - 75,241 75,241 U_
Revenue from Geothermal Charges 30,818 - 30,818
Billing&Collection Charges-Refuse 360,000 - 360,000
Billing&Collection Charges-Storm Drain 4,681 - 4,681
Q
Billing&Collection Charges-Sewer Collection - 63,000 63,000 M
Cost Reimbursement 7,940 - 7,940 c
c
Interest income 84,028 241,042 325,070 Q
Economic Development Agency:
Revenue from Geothermal Charges 8,829 - 8,829 E
Cost Reimbursement 11,784 - 11,784
Total receipts from related parties $ 2,039,519 $ 379,283 $ 2,418,802
a�
Water Sewer
Payments Utility Utility Total
City of San Bernardino:
M
Sewer Collection System Maintenance $ - $ 3,226,434 $ 3,226,434
Worker's Compensation(Admin.Charges) 280,902 131,098 412,000 Q
Printing Services 87 2,662 2,749 Z
Postage 18,988 - 18,988 M
City Hall Rent 156,329 21,497 177,826 N
Phone Charges 101,625 33,854 135,479 E.
Refuse Disposal Service 21,160 79,385 100,545 00
Consulting Services 3,366,445 5,624 3,372,069 w
Legal Services 149,705 - 149,705
H
Data Processing Services 234,062 52,400 286,462 p
Police &Fire Protection - 500,000 500,000
Q
Permits 106,079 - 106,079
Phone switch equipment - - -
E
Back-up system - - -
U
Cost Reimbursement 81,078 34,178 115,256 r
Q
Total payments to related parties $ 4,516,460 $ 4,087,132 $ 8,603,592
Water Sewer
Receivables Utility Utility Total
City of San Bernardino:
Accounts receivable,net $ 51,687 $ 4,958 $ 56,645
Due from other entities 464,366 2,493 466,859
Total receivable from related parties $ 516,053 $ 7,451 $ 523,504
37 Packet Pg.408
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the year Ended June 30, 2013
(9) Related Party Transactions, continued
Water Sewer
Payables Utility Utility Total
City of San Bernardino:
Related party payable $ 2,208,547 $ 268,858 $ 2,477,405
Accounts payable 94,194 32,460 126,654
Claims payable 568,849 268,225 837,074
Total payable to related parties $ 2,871,590 $ 569,543 $ 3,441,133
L
o
4-
(10) Joint Ventures 41
Colton/San Bernardino Regional Tertiary Treatment and Water Reclamation Authority Q
On August 2, 1994, the City of San Bernardino, through the Department formed a joint powers authority with
the City of Colton to construct, operate, use and maintain tertiary wastewater treatment, disposal and water q
reclamations systems, including the Regional Rapid Infiltration and Extraction Facility (RIX). This authority is )
governed by a separate board consisting of four members; two appointed by the City of San Bernardino through
the Department's BOWC and two appointed by the City Council of the City of Colton. Construction of RIX was
administered by the Santa Ana Watershed Project Authority and was substantially completed during 1996. a
Administration and operation was turned over at that time. The cities of San Bernardino and Colton each have a
an undivided interest in the real property and any related debt of the RIX projects based on an 80%/20% split, a;
A respectively. Substantially all of the assets of RIX are in the form of capital assets. RIX has no liabilities. Annual
revenues (in the form of contributions from the two member cities) are equal to annual expenses. The
r.
Department's equity interest in this joint venture has been reported as an investment in joint venture in the
accompanying statement of net position. ==
J
San Bernardino Public Safety Authority a
Z
On April 1, 1968,the City of San Bernardino and the County of San Bernardino formed the San Bernardino Public M
Safety Authority (PSA), a joint powers authority, as a financing vehicle to construct public safety buildings and o
improvements to the wastewater treatment plant. In accordance with the terms of an installment purchase
agreement, title to the capital assets financed through the PSA were recognized as capital assets of the City at 0
the inception of the installment purchase agreement between the City and the PSA. The City's remaining w
interest in the joint venture is in the form of cash and investments held by the PSA for debt service related
activity.The Department's equity interest in these assets has been recognized in the accompanying statement of p
net position as an investment in joint venture.
Q
West End Water Development, Treatment and Conservation Joint Powers Authority
On August 15, 1990, the City of San Bernardino joined the West End Water Development, Treatment and
Conservation Joint Powers Authority (WEJPA) as a financing vehicle for construction of water facilities. A three- a
member board consisting of one representative from each agency's governing body governs the WEJPA. This Q
joint venture was formed to provide a financing vehicle for the three member agencies. This joint venture is
currently inactive.
(11) Commitments and Contingencies
Contractual Obligations
Commitments in the form of signed contracts for costs to complete construction projects or other
improvements at June 30, 2013, amount to $1,969,479 and $2,195,963 in the water utility fund and sewer utility
fund, respectively.
38 Packet Pg.409
5.AB.b
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013 4'
11 Commitments and Contingencies, continued
( ) I; ,
Risk Management
Risk management activities are recorded in both utility funds. Significant losses are covered by insurance for all
major events except workers' compensation, for which the Department retains risk of loss in conjunction with
the City of San Bernardino's risk management program for workers compensation. Settlement amounts have
not exceeded insurance coverage for the current year or the prior three years. Insurance coverage has been
increased over the past several years.
N
The Department records an estimated liability for workers' compensation. Claims liabilities are based on U-
L-
estimates of the ultimate cost of reported claims and an estimate for claims incurred but not reported based
upon historical experience. Workers' compensation claims liability is not discounted.
The following are the changes in approximate aggregate liabilities for the year ended June 30, 2013. 4
Water Sewer c
c
Claim Liabilities Utility Utility Total 4
Claims payable - beginning of year $ 327,988 $ 96,453 $ 424,441
Claims and changes in estimates 384,315 238,722 623,037 E
L
Claim payments (143,454) (66,950) (210,404) Q
d
Claims payable, end of year $ 568,849 $ 268,225 $ 837,074
v
CwLitigation
ti
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 `=
not materially affect its financial condition.
z
(12) Federal and State Grants LL
M
Grant funds received by the Department are subject to audit by the grantor agencies. Such audit could lead to N
requests for reimbursements to the grantor agencies for expenditures disallowed under terms of the grant.
Management of the Department believes that such disallowances, if any,would not be significant. p
CL
LU
The Department has been awarded the following grants. The Department produces a Single Audit that details
the use of grant and Consent Decree funds (see note 13 for information on the Consent Decree). E—
Environmental Protection Agency $ 1,870,700 Water distribution system Q
Department of Water Reclamation 975,000 Sewer recycling study
Environmental Protection Agency 485,000 Sewer recycling study E
Environmental Protection Agency 1,422,756 Groundwater modeling
ca
a
39 Packet Pg.410
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013 4;
(13) Consent Decree
In 1996, the City of San Bernardino filed a complaint against the United States of America, Department of the
Army to recover damages, response costs and other available remedies relating to contamination alleged to
have originated at a World War II army installation known as Camp Ono. In March 2005, the United States
District Court, Central Division entered judgment, in the form of a consent decree, in the matter of City of San
Bernardino v. United States of America. The Consent Decree settles the City's and the State's claims arising from
the groundwater contamination allegedly cause by the Army. The Consent Decree contains a number of
provisions obligating the City (through the Department) to operate and maintain the Newmark Groundwater N
Superfund site (Site). The Site consists of two operable units, the Newmark Operable Unit and the Muscoy LL
Operable Unit. The Newmark Operable Unit was declared operational and functional in 1998. The Muscoy o
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 Q
work outlined in the Consent Decree. Upon acceptance of the Consent Decree,the Department received title to 3
all facilities constructed by the United States Environmental Protection Agency (EPA) of the Site and agreed to c
operate and maintain the groundwater extraction and treatment system for a period of 50 years. The $69
million payment consisted of$59 million for operations and maintenance and $10 million for the construction of
certain capital facilities that would be required in the future; the funds are subject to strict limitations, contained E
in the Consent Decree, as to how the money may be spent. CU
Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside to be used only for (i)
funding construction of treatment and directly related transmission systems that expand the Department's +;
capacity to deliver potable water and (ii) funding work performed by the Department to complete construction
of the Muscoy Operable Unit extraction system. These capital facility funds may not be used for costs incurred
to operate, maintain, repair or retrofit components of the site extraction of treatment systems constructed by M
EPA.
J
In March 2006, the Department entered into a Guaranteed Investment Contract with AIG Match Funding z
Corporation. The Department invested $16,482,039 of excess Consent Decree funds into an interest bearing u.
Escrow Fund investment with an interest rate of 4.95% per annum. These funds were invested to pay costs
associated with the water facilities defined in the Consent Decree for years 2035-2056. An additional $50 N
million was used to purchase a blended insurance policy to provide a financial vehicle that provides cost gap W
coverage for the first 30 years of expenses. 0
n.
W
The terms of the Guaranteed Investment Contract only provided the Department with the position of a secured
creditor with respect to an AIG bankruptcy. As concerns arose regarding AIG's financial credibility, in October o
2009,the Department negotiated and accepted a "payout" in the amount of$18,661,876 which represented the D
Q
principal and accrued interest as of that date. These funds are currently invested in a diversified portfolio c
managed by PFM Asset Management and present in more detail in note 3.
t
Y
.I.d
Q
40 Packet Pg. 411
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2013
1
( 4) Net Position
Net position at June 30, 2013, consisted of the following:
Water Sewer
Utility Utility Total
Net investment in capital assets:
Non-depreciable assets $ 24,185,954 $ 17,746,483 $ 41,932,437
0
Depreciable assets 225,611,340 131,870,066 357,481,406 N
Accumulated depreciation and amortization (71,780,002) (89,230,817) (161,010,819) tai.
Note proceeds held by state 3,199,445 - 3,199,445 ,a
Less:related debt:
Notes payable,current portion (1,658,268) (1,619,090) (3,277,358)
Q
Certificates of participation,current portion - (2,785,324) (2,785,324) F0
Notes payable, noncurrent portion (22,800,342) (3,374,135) (26,174,477)
Certificates of participation, noncurrent portion - (9,292,368) (9,292,368) Q
Y)
Total net investment in capital assets 156,758,127 43,314,815 200,072,942 c
Restricted for capital-related fees:
Cash and cash equivalents, restricted for capital-related fees - 7,799,773 7,799,773 CL
m
A
Unrestricted:
ar
Reserved for investment in RIX - 22,367,024 22,367,024
Reserved for debt service - 3,559,112 3,559,112
Designated for operating reserve 3,935,937 2,205,429 6,141,366
w
Designated for rate stabilization reserve 1,417,084 2,526,179 3,943,263
Designated for emergency replacement reserve 499,595 4,488,496 4,988,091 J
Designated for capital replacement reserve 6,281,288 22,035,027 28,316,315 Z
Z
LL
Total unrestricted 12,133,904 57,181,267 69,315,171 c7
r
Total net position $168,892,031 $108,295,855 $277,187,886 N
H
o!
(15) Prior Period Adjustment 0
a
W
During the year ended June 30, 2013, the Department implemented GASB Statement No. 62. One of the
consequences of such implementation was to record a h
q p prior period adjustment to reflect the retroactive p
application of this pronouncement's explicit requirement to capitalize interest costs during the period of an Q
asset's construction. As a result, the Department has made adjustments in the Water Utility Fund and Sewer
Utility Fund of$776,821 and $1,670,848, respectively.
;_
(16) Subsequent Events
Y
On August 28, 2013,the City of San Bernardino was granted eligibility for Chapter 9 bankruptcy protection. a
41 Packet Pg.412
5.AB.b
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Packet Pg. 415
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information
For the year ended June 30, 2013 and prior fiscal years for comparison
TABLE SI-1
Water Production and Utilization
(amounts expressed in cubic feet)
Fiscal Year Ended June 30 2013 2012 2011
+ Water sold to direct customers 1,712,727,600 1,670,788,800 1,627,398,300
Water sold to other agencies 80,260,800 265,492,811 325,158,232 M
Water sold to or used by City 71,238,400 81,654,202 71,974,109 04
Total water utilization 1,864,226,800 2,017,935,813 2,024,530,641 �
0
Total water production 2,036,611,730 2,207,153,290 2,141,816,510
Percentage of water loss 8.5% 8.6% 5.5% Q
4
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TABLE SI-2 *�
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i Cost of Water Production E
E
Y
L
Fiscal Year Ended June 30 2013 2012 2011
CL
Total water production (HCF) 20,366,117 22,071,533 21,751,470
Production and pumping expenses
sF .+
Salaries and benefits $ 1,559,658 $ 1,481,694 $ 1,492,191 S
Employee related expenses 8,098 11,526 7,359
Office related expenses 28,700 21,860 21,089 M
Contract services - - 12,965
Permits and fees 93,625 131,594 94,543 Q
Z
Utilities 3,732,710 3,585,918 4,055,258 u-
M
Materials and supplies 14,884 18,434 27,480 o
Equipment 32,702 61,117 46,483
Chemical and carbon 814,646 728,801 611,345 0
O
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Sub-total 6,285,023 6,040,944 6,368,713 W
Water stock assessments 43,298 65,604 19,031
Supplemental water purchases 750,000 21550,000 745,025 D
Water extraction fees 11,198 6,499 12,243 Q
c
Total expense before depreciation 7,089,519 8,663,047 7,145,012
E
Depreciation 4,145,413 4,394,060 4,071,413
ca
Total expense $ 11,234,932 $ 13,057,107 $ 11,216,425 Q
Acre feet of water 46,754.17 50,669.27 49,934.50
Direct operating cost $ 134.43 $ 119.22 $ 127.54
Assessments, purchases and extraction 17.21 51.75 15.55
Depreciation 88.66 86.72 81.54
Total cost per acre foot $ 240.30 $ 257.69 $ 224.63
HCF=Hundred Cubic Feet
1 acre foot=435.6 HCF
43 Packet Pg.416
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information, continued
For the year ended June 30, 2013 and prior fiscal years for comparison
TABLE SI-3
Water Production by Plant
(amounts expressed in cubic feet)
Pumping Plant 2013 2012 2011
Antil Plant - - 1,332,300 _
Baseline &California 9,627,200 2,213,300 9,040,100
0
Cajon Boulevard 173,230,800 222,904,600 144,916,700
Cajon Pass&Vincent 40,017,600 40,100,600 52,653,500 L
Devil Canyon 112,525,030 97,514,090 131,125,390
m
EPA Wells- Newmark 538,236,100 553,566,700 521,511,600
EPA Wells- Muscoy 375,313,700 443,220,600 414,868,100 Q
ro
40th Street 3,746,500 8,427,000 10,229,000 =
Gil bertStreet 200 11,120,400 3,501,800 c
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IVDA Well #11 2,469,100 2,910,600 2,625,800
Kenwood 111,651,000 138,253,400 130,632,700
E
LeRoy Street 17,366,200 23,482,600 21,793,900
Lynwood 30,542,800 - 26,441,500 v
Lytle Creek 31,757,700 30,990,500 28,139,400
Mallory 33,432,000 32,531,900 28,885,300 CU
Mill &"D"Streets 22,293,300 17,500,000 20,574,700
Newmark 180,278,200 177,144,100 120,848,800 0)
19th Street 59,991,900 57,845,600 54,559,200
Olive &Garner 39,078,000 55,988,700 84,923,600 J
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Perris Hill 3,100 - - z
7th Street 6,236,400 9,617,500 3,936,200
Sierra Way& 16th Street 91,804,600 99,652,000 105,459,300 N
10th &"J"Street 63,475,600 88,559,800 117,628,300
30th &Mountain View 19,446,800 11,814,700 62,226,600 w
27th Street 20,878,900 13,334,000 7,560,500
Waterman Avenue 53,209,000 68,460,600 69,732,700 p
Total water produced 2,036,611,730 2,207,153,290 2,175,146,990
r
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Purchased water
Total water production 2,036,611,730 2,207,153,290 2,175,146,990 r
Q
44 Packet Pg.417
S.AB.b '.-
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information, continued
For the year ended June 30, 2013 and prior fiscal years for comparison
II
TABLE SI-4
Water Rate History
Rate Effective Date
1/1/2012 1/1/2011 2/1/2010
Minimum Monthly Charge($fixed):
Meter Size:
1/2"or 5/8" 12.90 12.20 10.55 r
3/4" 16.15 15.15 13.00 N
1" 22.60 21.00 17.90 U_
1-1/2" 38.80 35.75 30.15 0
2" 58.20 53.45 44.85
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3" 103.50 94.75 79.15
Q
4" 168.20 153.70 128.15
6" 330.00 301.15 250.70
81' 524.15 478.10 397.75 q
10" 750.65 684.55 569.30 N
:W
Volumetric Charges($per HCF):
E
Commodity 1.15 1.10 1.05
Replenishment 0.09 0.09 0.09 °
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Elevation: L
Zone 1 0.11 0.10 0.09 �
Zone 2 0.19 0.18 0.17
Zone 3 0.17 0.16 0.15 r<
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Zone 4 0.14 0.13 0.12 Cl)
Zone 5 0.23 0.22 0.21
Zone 6 0.23 0.22 0.21 Z
Conservation Charges: u-
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Rate per HCF $ 0.35 $ 0.30 $ 0.25
0
Conservation Tiers(rate applicable above monthly usage of): N�
Residential 32 34 36
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Multi-Dwelling(2 units) 42 44 46 0-
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Multi-Dwelling(3+units,per unit) 17 18 19
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Non-residential,5/8"meter 24 25 27 �
Non-residential,3/4" meter 36 38 40
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Non-residential, 1"meter 65 70 75
Non-residential, 1-1/2" meter 150 160 170
Non-residential,2" meter 250 260 270 t
Non-residential,3"meter 740 770 800
Commercial,5/8"meter 42 44 46 Q
Commercial,3/4"meter 55 60 65
Commercial, 1"meter 130 140 150
Commercial, 1-1/2"meter 275 290 305
Commercial, 2"meter 445 465 485
Commercial,3" meter 875 920 965
Commercial,4" meter 2,400 2,530 2,660
Commercial,6"meter 9,000 9,475 9,950
HCF=Hundred Cubic Feet(748 gallons)
45 Lp-acket Pg.418
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information, continued x
For the year ended June 30, 2013 and prior fiscal years for comparison
TABLE SI-5
Water Connections and Revenue by User Type
User Type 2013 2012 2011
Connections Revenue Connections Revenue Connections Revenue
Single family 34,913 $ 18,741,773 34,716 $ 18,094,052 34,695 $ 15,665,580
Multiple family 2,820 4,704,384 2,801 4,510,962 2,806 4,025,079 _
Commercial 3,082 6,800,310 3,117 5,790,427 3,117 4,678,003 M
Landscape 1,104 3,591,678 1,151 3,321,846 1,149 2,745,990 N
Other 1,663 599,210 1,626 1,597,791 1,571 701,296
Total all users 43,582 $ 34,437,355 43,411 $ 33,315,078 43,338 $ 27,815,948 p
Q
TABLE SI-6
Top Ten Water Customers Q
Customer Name Sales
c
City of San Bernardino $ 1,527,833 E
San Bernardino City Unified School District 797,849
County of San Bernardino 326,397
San Bernardino Housing Authority 300,182 r
Baseline Mutual Water Company 283,619
California State University San Bernardino 245,902
Caltrans 220,152 M
City of San Bernardino Economic Development Agency 202,626 J
Cott Beverages 192,533 z
Rialto School District 133,972 u-
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Top Ten Customers Total $ 4,231,065 t°
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Total Water Sales Revenue $ 35,427,095
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Top Ten Customers%of Total 11.94%
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46 Packet Pg.419
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information, continued
For the year ended June 30, 2013 and prior fiscal years for comparison
TABLE SI-7
Sewage Treatment Rate History
Rate Effective Date
1/1/2012 2/1/2011 1/1/2010
Residential (monthly per EDU) $ 18.50 $ 17.00 $ 16.00
M
Commercial:
0
Minimum Monthly Charge 2.40 2.20 2.00 N
Commodity Charge (per HCF):
Multi-Family 1.25 1.10 0.95 '0
Retail/Commercial 2.10 2.00 1.90
Auto Repair/Car Wash 1.30 1.30 1.30
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Offices/hotels 1.50 1.50 1.50
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Restaurants 2.70 2.35 2.00 =
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Laundromats 1.50 1.40 1.30
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Hospitals 1.35 1.15 0.95
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Schools/Churches 1.10 0.90 0.70
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Industrial: o
Minimum Monthly Charge 1.00 1.00 1.00
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Commodity Charge (per HCF) 0.35 0.35 0.35
Discharge Flow(per million gallons) 900.00 900.00 900.00
Biological Oxygen Demand (per 1,0001bs.) 360.00 330.00 292.00 M
Suspended Solids(per 1,0001bs.) 640.00 640.00 640.00
EDU=Equivalent Dwelling Unit z
HCF=Hundred Cubic Feet(748 gallons) M
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TABLE SI-8 N
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Sewer Treatment Connections and Revenue by User Type
O
User Type 2013 2012 2011 W
Connections Revenue Connections Revenue Connections Revenue Ix
H
City of San Bernardino: p
Residential 32,563 $ 7,922,936 32,571 $ 7,650,142 32,447 $ 7,053,263 Q
Non-residential 5,447 8,332,214 5,412 7,877,416 5,416 7,131,988
East Valley Water District: a
4)
Residential 18,925 4,188,434 18,813 4,019,127 18,700 3,645,721 £
Non-residential 1,126 2,434,118 1,128 2,492,375 1,138 2,070,233
U
City of Loma Linda:
r
Residential 4,663 1,063,124 4,443 933,648 4,648 870,734 a
Non-residential 585 1,549,643 589 1,258,747 584 1,048,402
Total all users 63,309 $ 25,490,469 62,956 $ 24,231,455 62,933 $ 21,820,341
47 Packet Pg.420
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information, continued
For the year ended June 30, 2013 and prior fiscal years for comparison
TABLE SI-9
Top Ten Sewage Treatment Customers
Customer Name Sales
Farmdale Creamery, Inc. $ 606,345
County of San Bernardino 400,243
M
Cott Beverages 324,609 c
Evolution Fresh, Inc. 319,952
San Bernardino Housing Authority 224,890 L
San Bernardino City Unified School District 189,643 0
Patton State Hospital 189,251
St. Bernardine Hospital/CHW 107,357
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California State University San Bernardino 107,292 =
Pama Management Company 88,647 Q
Top Ten Customers Total $ 2,558,229 c
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Total Sewer Sales Revenue $ 25,261,792
Top Ten Customers%of Total 10.13%
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48 Packet Pg.421