HomeMy WebLinkAbout05.P- Water 5.P
DOC ID: 3812
CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
Information/Report
From: Stacey R. Aldstadt M/CC Meeting Date: 05/04/2015
Prepared by: Linda Sutherland, (909)
384-5002
Dept: Water Ward(s): All
Subject:
Audited Annual Financial Reports of the Water Department's Water and Sewer Utilities
for Fiscal Year Ended June 30, 2014 (#3812)
Current Business Registration Certificate: Not Applicable
Financial Impact:
None.
Motion: Receive and file the audited Annual Financial Report of the Water
Department's water and sewer utilities, and the audited Single Audit
Report on Federal Awards for fiscal year ended June 30, 2014.
Synopsis of Previous Council Action:
Similar action taken each year following completion of the annual audit report.
Background:
None.
Supporting Documents:
AUDIT 2014 FINANCIAL STATEMENTS (PDF)
M&CC RCC AUDIT REPORT REC AND FILE JUNE 2014 (PDF)
AUDIT 2014 FINAL REPORT SINGLE AUDIT (PDF)
Updated: 4/29/2015 by Georgeann "Gigi" Hanna Packet Pg. 457
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"Trusted, Quality Service Since 1905"
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CITY OF SAN BERNARDINO °'
MUNICIPAL WATER DEPARTMENT N
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Annual Financial Report Z
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Fiscal Year Ended June 30, 2014
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Mayor of the City of San Bernardino z
R. Carey Davis z
Board of Water Commissioners o
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Toni Ca€€€cott, President
David E. Mlynars€ i, Commissioner a
Dr. Louis A. Fernandez, Commissioner
Wayne Hendrix, Commissioner
Dr. Judith Valles, Commissioner
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City of San Bernardino Municipal Water Department 0
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Administration
Stacey R. A€dstadt, General Manager
Robin L. Ohama, Deputy General Manager
Matthew H. Litchfield, P.E., Director of Water Utilities
John A. Claus, Director of Water Reclamation a
Terri Willoughby, C.P.A., Director of Finance
Jennifer L. Shepardson, Director of Environmental & Regulatory Compliance E
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Mission Statement °
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To meet our customer's needs by providing high-quality service in water supply, water
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reclamation and geothermal heating in the most professional and cost-effective manner
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possible. 0T0
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Organization Z
The City of San Bernardino Municipal Water Department was formed in 1905 under the W
Charter of the City of San Bernardino. The Department is governed by the Board of a
Water Commissioners who are appointed by the Mayor of the City of San Bernardino. N
The Charter gives the Board of Water Commissioners semi-autonomous authority to a
govern the Department independent of the City Council. The Department operates two Z
enterprise funds: the Water Utility Enterprise Fund and the Sewer Utility Enterprise Z
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 N
San Bernardino, the City of Loma Linda, the former Norton Air Force Base, Patton State o
Hospital and portions of the areas serviced by East Valley Water District.
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City of San Bernardino Municipal Water Department
Annum Financial Report
Fiscal Year Ending June 30,2014
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Table of Contents
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Page No. `~
Letter of Transmittal i
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Independent Auditor's Report 1
Management's Discussion and Analysis 4-9
Basic Financial Statements:
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Statement of Net Position 11-12 c
Statement of Revenues, Expenses and Changes in Net Position 13 LL
Statement of Cash Flows 14-15 3
Notes to the Basic Financial Statements 16-40 c
Supplemental Information: y
Table SI-1:Water Production and Utilization 44 c
Table SI-2:Cost of Water Production 44 m
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Table 5I-3:Water.Production by Plant 45
Table Sl-4:Water Rate History 46 m
Table SI-5:Water Connections and Revenue by User Type 47
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Table SI-6:Top Ten Water Customers 47
Table SI-7:Sewage Treatment Rate History 48 ?�
:0 Table SI-8:Sewage Treatment Connections and Revenue by User Type 48 N
Table SI-9: Top Ten Sewage Treatment Customers 49 w
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CITY Off' SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
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BOARD OF WATER COMMISSIONERS ,C, gL STACEY R.ALDSTADT N
at +1 General Manager >-
TONICALLICOTT ROBIN L.OHAMA LL
Pres+dent Deputy General Manager ,p
Co �ssioncrs — z MATTHEW H.LITCHFIELD,P.E.
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U b D;rcclor of Wales Ul;lily N
LOUIS A.FERNANDEZ e JOHN A.CLAUS O
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WAYNE HENDRIX D;rwinr ofWaler Reclamalion
JUDITH VALLL•S IG JENNIFER SHEPARDSONI p!
DAVID E.MLYNARSKI �T'R ~�? Director of Envimnmenlal&
Regulalory Complimice v
TERRI WILLOUGIIBY
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"Trusted, Quality Serilce since 1905" �
' March 5, 2015
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Members of the Board of Water Commissioners
San Bernardino Municipal Water Department
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Introduction d
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State law requires that every general-purpose government publish within six months of the dose of each fiscal aW
lop year a complete set of audited financial statements. This report is published to fulfill that requirement for the f°
Department for the fiscal year ended June 30,2014.
Management assumes full responsibility for the completeness and reliability of the information contained in this M
report, based upon a comprehensive framework of internal control that it has established for this purpose.
Because the cost of internal control should not exceed anticipated benefits, the objective is to provide Z
reasonable, rather than absolute, assurance that the financial statements are free of any material w
misstatements.
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Mayer Hoffman McCann P.C.has issued an unqualified("clean")opinion on the Departments financial statements
for the year ended June 30,2014. The independent auditors report is located at the front of the financial section
of this report. a
Management's discussion and analysis (MD&A) immediately follows the independent auditor's report and z
! provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements
this letter of transmittal and should be read in conjunction with it. v
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Profile of the Department N
The San Bernardino Municipal Water Department ("Department") and the Board of Water Commissioners o
("Board") were established on May 8, 1905, by the Mayor and Common Council of San Bernardino in
accordance with the provisions specified in the City charter. The Board assembled for the first time on May
16, 1905, to meet the water supply needs of the community by providing trusted, quality service to our
customers. This service has grown through the years to include: water supply, water reclamation,
geothermal heating supply, and administrative support for our growing community,
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North D Street, San Bernardino, California 924]8 P.O. Box 710, 92402 Phone: (909) 3845141
FACSIM ILE NUMBERS: Admin;strnhon:(909)384-5215 Engineering:(909)384.5532 Cnslomn-Service:(909)384-7211
Corpnrale Yords:(909)384-5260 Woler Rmlamnl;on Plant:(909)384-5258
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The first water distribution system of San Bernardino included water supply for approximately six r
thousand citizens within a one square mile service area. In contrast, the water supply distribution network N
now encompasses over 40,000 service connections including 550 miles of water mains. Although the
number of connections has increased during the past one hundred years, our commitment to providing o
trusted, quality service remains the same. 0
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The San Bernardino service area receives the majority of its water supply from an underground aquifer a 0
called Bunker Hill Basin which is concentrated at the Northwestern end of the city. The water contained in _
the Bunker Hill Basin Is replenished with rain and snowmelt that filters through our local San Bemardino E5
Mountains. This local water supply ensures that the customers of the Department receive high quality, c
! inexpensive water as compared to other communities. Many other communities in Southern Califomia U.
must import their water supplies from remote locations via the Colorado River and Northern Callfomia
pipelines. Many water supplies Imported from distant locations can be Impacted by certain man-made and =
natural contaminants as the water Is transported to the customer. _
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The Department is committed to providing trusted, service to our customers as we provide water
supply, water reclamation, geothermal heating, and administrative services to our community. E
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Water Utilization-2014 L
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Local Economy
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The Department's offices are located in the City of San Bernardino in San Bernardino County. According
to the California Department of Finance, San Bernardino's population as of January 1, 2014 was 212,761. LL
San Bernardino's local economy has been affected by the recent recession, both to a greater extent and °
for a longer period than surrounding cities. This has affected the Department as increased residential and w
commercial vacancies have led to a declining customer base. However, as the local real estate and 0-
employment markets improve, this customer base should begin to recover. Local economists recently �
reported that the City of San Bernardino led the Inland Empire in median home price growth, reporting an
increase of 28.3% when comparing the second quarter of 2014 to the same time period in the prior year. .3
Economists also project continued improvement in the labor market and are forecasting that the region's
unemployment rate will drop to 6.1% by the end of 2020, LL
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California's water supply continues to be a concern due to projected population increases and dwindling 2-
supplies from traditional sources. The Department has expanded and will continue to expand its Q
conservation efforts in order to respond to the state-wide drought emergency. Department staff members
continue to seek various methods to decrease its dependence on imported water and to increase water
source reliability, including increasing production of recycled water. E
During the past three years, the Department's expenses related to the cost of water production have o
reduced by 12%, despite an increase in customers of 1% over the same time frame. Production
increased from 2011 to 2012, but decreased each year from 2012 to 2014 as displayed in the graph
below. In 2012, production per customer was 50,843 cubic feet but fell to 46,107 per cubic feet in 2014.
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Water Production
In Cubic Feet
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2,250000,000 - --- --- -- --- --- —_ w
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2,200,000,000
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2,150,000,000
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2,100,000,000
-Water Production U.
2,050,000,000 --"—"62b730.. .... d
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1,017,9]6,070 p
2,000,000000 - _ _.....___.......-...._........._.. N
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1,950,000,000 - - - - ---- a
1,900,000,000 _..___�, ,.........
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2011 2012 2013 2014
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Long Term Financial Planning
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The Department's financial plan includes the establishment of reserve funds in accordance with the r
Department's adopted Reserve Policy. Reserve funds are established to ensure the Department's
financial stability and to have sufficient funding available to meet its operating, capital and debt service �°
cost obligations. The Department has committed to the following funds in its Reserve Policy, adopted by
the Board in February 2013. °L
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Y Operating Reserve: This reserve is established to ensure adequate cash flow is available to meet ia
day-today expenses. The target balance is 45 days of the operating expenses budgeted for each
respective fund.
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i ➢ Rate Stabilization Reserve: This reserve is established to offset revenue risk associated with low
service demands years. The minimum target balance for the Water Fund is twenty percent(20%)
of budgeted water sales. The minimum target balance for the Sewer Fund is ten percent (10%) of ¢
budgeted sewer sales.
Emergency Replacement Reserve: The purpose of this reserve was to minimize the impact of E
unforeseen capital asset-and operating expenses. The target balance-for the Water Puna is two a
percent (2%) of the total recorded value of capital assets as of the previous fiscal year. The target o
balance for the Sewer Fund is three percent (3%) of the total recorded value of capital assets as of r
the previous fiscal year.
A Capital Replacement Reserve: The Capital Replacement Reserve was set up in order to provide r
funding in support of the Department's capital program. The basis for calculating the target <°0
balance for this reserve is a rolling rive-year average of the Department's Capital Improvement N
Program projects, excluding those with external funding. The target balance will be assessed on an z
annual basis as part of the budgeting process. UJ
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Debt Administration
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The Department's outstanding debt as of June 30, 2014 consists of four Notes Payable in the Water Q
Fund, and debt obligations consisting of a Note Payable and Certificates of Participation in the Sewer
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Fund, as shown in the table below: a
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Water Fund Lon -Term Debt Activity
Year of Issuance/Descri Lion Use of Proceeds o
2002 - California Infrastructure & Transmission mains, booster stations and
Economic Development Bank Note reservoir. o
2007-California Infrastructure& Booster stations and transmission mains in
Economic Development Bank Note the Verdemont area.
2012- California Infrastructure & Construction of the 12 mg Ogden Reservoir
Economic Development Bank Note and pipeline improvements.
2012- San Bernardino Valley r
Municipal Water District Note Funding for the purchase of real property. d
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Sewer Fund Lon -Term Debt Activity
Year of Issuance/Description Use of Proceeds
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2001 State Revolving Fund Note Payable Funding for the San Bernardino/Colton Rapid }
Infiltration Extraction project U-
1998 Certificates of Participation Advance refunding of the 1992 Certificates of ; w
Participation and funding for capital improvements.
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Relevant Financial Policies
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Internal Control Structure =
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Department management is responsible for the establishment and maintenance of the internal control li
structure that ensures that the assets of the Department are protected from loss, theft or misuse. The
internal control structure also ensures that adequate accounting data are compiled to allow for the a
preparation of financial statements in conformity with generally accepted accounting principles. The
Department's internal control structure is designed to provide reasonable assurance that these objectives v
are met. The concept of reasonable assurance recognizes that(1)the cost of a control should not exceed E
the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and
judgments by management. o
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Major Initiatives and Key Values
The activities of the Board and.Department staff are driven by key value statements outlined below. N
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1. Provide the highest level of customer service to our community.
2. Establish fair and equitable rates. z
3. Provide the highest quality of water and wastewater services. w
4. Provide responsible stewardship of our resources and our environment. w
5. Require ethical business practices.
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6. Promote staff development.
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Acknowledgements a
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Preparation of this report was accomplished by the combined efforts of Department staff. We appreciate Z
the dedicated efforts and professionalism that these staff members contribute to the service of the FL
Department's customers. The contributions made by Neil Thomsen, Principal Accountant, and Susan o
Justice, Principal Accountant, deserve special recognition. We would also like to thank and recognize the N
members of the Board for their continued support in planning and implementation of the Department's o
fiscal policies. D
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Respectfully submitted,
Stace R. Aidstadt Terri A.Willoughby
General Manager Director of Finance
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MHM Mayer Hoffman McCann P.
An Independent CPA Fir
2301 Dupont Drive,Suite 200 ° Irvine,Califomia 9261
® Main:949.474.2020 Fax:949.263.5520 ° www.mhmcpa.co
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Board of Water Commissioners
Municipal Water Department of the City of San Bernardino 0
San Bernardino, California c
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Independent Auditor's Report
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Report on the Financial Statements
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We have audited the accompanying financial statements of the Municipal Water Department Of the City 3
of San Bernardino, California ("Department"), as of and for the year ended June 30, 2014, and the a
related notes to the financial statements, which collectively comprise the Department's basic financial Y,
statements as listed in the table of contents.
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Management's Responsibility for the Financial Statements
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Management is responsible for the preparation and fair presentation of these financial statements in o
accordance with accounting principles generally accepted in the United States of America; this includes a;
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. N
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Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We Lu
conducted our audit in accordance with auditing standards generally accepted in the United States of w
America and the standards applicable to financial audits contained in Government Auditing Standards, a
issued by the Comptroller General of the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from Cn Cn
material misstatement. d
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An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in z
the financial statements. The procedures selected depend on the auditor's judgment, including the U-
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 N
preparation and fair presentation of the financial statements in order to design audit procedures that are k=
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 Q
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
KRESTON Member of Kreston international, a global network of indepenaeof aro wring firms
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Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page 2 of 3
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Opinion N
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In our opinion, the financial statements referred to above present fairly, in all material respects, the ,o
financial position of the Municipal Water Department of the City of San Bernardino, California, as of u)
June 30, 2014, and the changes in its financial position and its cash flows for the year then ended in Q
accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matters
As discussed in note one, the financial statements of the Municipal Water Department of the City 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 business-type activities and each major fund of the =
City of San Bernardino, California that are attributable to the transactions of the Department. They do Q
not purport to, and do not, present fairly the financial position of the City of San Bernardino as of June v,
30, 2014, 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.
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On August 1, 2012, the City of San Bernardino filed a petition under Chapter 9 of the United States o
Bankruptcy Code seeking to adjust the timing and amount of the payments associated with the City's r
obligations. As discussed in note two to the financial statements, there is considerable uncertainty
associated with this process and the effects of this process upon the Department are not known at this
time. N
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The financial statements for the year ended June 30, 2014 reflect certain prior period adjustments as M
descried further in note 15 to the financial statements. Our opinion is not modified with respect to this Z
matter.
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Other Matters Q
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Required Supplementary Information
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Accounting principles generally accepted in the United States of America require that the management's Q
`= discussion and analysis be presented to supplement the basic financial statements. Such information, Z
although not a part of the basic financial statements, is required by the Governmental Accounting
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Standards Board who considers it to be an essential part of financial reporting for placing the basic
financial statements in an appropriate operational, economic, or historical context. We have applied N
certain limited procedures to the required supplementary information in accordance with auditing t=
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 Q
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. r
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Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page 3 of 3
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Other,Information LL
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Our audit was conducted for the purpose of forming opinions on the financial statements that N
collectively comprise the Department's basic financial statements. The introductory information and the
supplemental information are presented for purposes of additional analysis and are not a required part of c
the basic financial statements. The introductory and the supplemental information have not been
subjected to the auditing procedures applied in the audit of the basic financial statements, and 's
accordingly, we do not express an opinion or provide any assurance on it.
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Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated March 5 2015 q
on our consideration of the Department's internal control over financial reporting and on our tests of its N
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 E
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 d
performed in accordance with Government Auditing Standards in considering the Department's internal °
control over financial reporting and compliance.
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March 5, 2015 N
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Monagement's Discussion and Analysis, continued i
For the Year Ended June 30,2014 "�•,r�`
The City of San Bernardino's Municipal Water Department(Department) is a water and sewer treatment utility c
responsible for delivering high quality,economically priced water and sewer treatment service to a quarter of a N
million customers in and around the City of San Bernardino,California. This section of the Department's annual LL
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financial report presents managements analysis of the Department's financial performance during the fiscal year ,Q
that ended on June 30,2014. 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 Q
otherwise noted.
Financial Highlights 1°
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e The Department's overall net position increased by$13.2 million,
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• Operating revenues increased by slightly less than 1%,or$408,000.
• Operating expenses increased $638,000,slightly greater than 1%. _
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e Net income/loss before capital contributions decreased by$700,000, primarily due to a loss attributed N
to the investment in the RIX Joint Venture.
• The Department's current ratio(the ability to pay short-term obligations)was 3.12. t
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• Cash available(the ability to cover current expenses with cash)was 155 days. o
Overview of the Financial Statements m
The discussion and analysis are intended to serve as an introduction to the Department's basic financial 'S
statements. The Department's basic financial statements are comprised of two components. the Financial c•�
Statements and the Notes to the Basic Financial Statements. This report also contains other supplementary M
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 W
The financial statements of the Department report information about the Department using accounting Q
methods similar to those used by private sector companies. These statements offer short-term and long-term
financial information about its activities. The Statement of Net Position (pages 11 through 12)includes all of the
Department's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the Q
{ basis for evaluating the capital structure of the Department and assessing the liquidity and financial flexibility of z
3 the Department. All of the current year's revenues and expenses are accounted for in the Statement of z
Revenues, Expenses and Changes in Net Position(page 13)statement measures the success of the Department's �+-
operations over the past year and can be used to determine whether the Department has successfully recovered r
all its costs through its user fees and other charges, profitability, and credit worthiness. The final required N
financial statement is the Statement of Cash Flows (pages 14-15). The primary purpose of this statement is to ~
provide information about the Department's cash receipts and cash payments during the reporting period. The =Q
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 from, what was cash
used for,and what was the change in cash balance during the reporting period. E
Financial Analysis of the Department
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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
II worse off as a result of the year's activitiesT' 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
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis, continued
For the Year Ended June 30, 2014
help answer this question. These two statements report the net position of the Department and changes in N
them. Measuring the change in the Department's net position-the difference between assets and liabilities- is �
one way to measure financial health or financial position. Over time, increases or decreases in the Department's L
net assets are indications of whether its financial health is improving or deteriorating. However,one will need to 4°
consider other non-financial factors such as changes in economic conditions, population growth,zoning and new
or changed government legislation. O
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Water Utility Fund
To begin our analysis, a summary of the Water Utility Fund's Statements of Net Position is presented in Table A- c
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TABLE A-1
Condensed Statement of Net Position-Water Utility
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(amounts expressed in thousands of dollars) Q
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2014 2013 $Change %Change
Current and noncurrent assets $ 77,056 $ 81,959 $ (4,903) -6.0%
Capita I assets 185,851 178,018 7,833 4.49v aai
Total assets $ 262,908 $ 259,977 a
_$ 2,931 11%
Current liabilities
$ 9,208 $ 8,585 $ 623 7.33'0 �
Long-term liabilities 78,174 82,501
(4,327) -5.291.
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Total liabilities 87,382 $ 91,086 -4.1% M
Net Investment in capital assets $ 163,797 $ 156,758 $ 7,039 4.5%
Restricted _ Z
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Unrestricted 11,728 12,133 (405) -3.3% 2
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Total net osition F'
p _$ 175,525 $ 168,891 $ 6,634 3.936
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As can be seen from the table above, the Water Utility net position increased $6,634 to$175,525 in fiscal year v
2014. Looking more carefully at the table, you can see that this was primarily due to an increase in the z
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investment in capital assets, which increased 7 million. This increase can be attributed to the Water Utility's Z
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continued emphasis on improving and expanding its infrastructure. A further review of net position shows that
unrestricted net position (those that can be used to finance day-to-day operations) decreased less than N
$500,000.
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT "`,"`<•,
Manogement's Discussion and Anolysis, continued
For the Year Ended June 30,2014 "...,.
TABLE A-2 0
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Condensed Statement of Revenues,Expenses and Changes In Net Position-Water Utility >_
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(amounts expressed In thousands of dollars) o
2014 2013 $Change %Change
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Operating revenue $ 36,672 $ 37,869 $ (1,197) -3,16% CL
4)
Capital contributions 6,522 3,421 3,101 90.63%
Ta
Other non-operating revenue 2,767 3,444 _ (677) -19.67%
c
Total revenues 45,960 44,734 1,226 2.74% c
Operating expenses $ 36,042 $ 37,430 (1,388) -3.71%
Non-operating expenses 262 952 (690) -72.50% c
c
Q
Total expenses 36,303 38,382 (2,079) -5.42% N
Change in net position 9,657 6,352 3,305 52.02% 4)
Net position,beginning balance, E
t
restated 165,869 - 162,539, 3,330 2.05% a
• m
Total net position 175,525 $ 168,891 $ 6,634 3.93%
d
Total revenues increased by almost 3%, or $1.2 million, primarily due to increased capital contributions.
Operating expenses decreased 3.7%, or $1.4 million, due to prudent cost control measures adopted by the N
Water Utility. r
00
M
TABLE A-3 N
Capital Assets- Water Utility ~
z
(amounts expressed in thousands of dollars) w
w
2014 2013-Restated $Change %Change Q
Land and easements $ 5,654 $ 5,650 $ 4 0,07% U)
J
Construction in progress 6,224 18,536 (12,311) -66.42% Q
Wells and pumping 96,612 82,055 14,557 17.74% z
Z
Distribution 136,982 124,990 11,992 9.59% Q
z
Plant and facilities 3,097 3,088 9 0.30% �-
v
Other capital assets 13,902 12,456 1,446 11.61% c
N
Total capital assets 262,472 246,774 15,698 6.36% f-
0
Less:accumulated depreciation (76,620) (71,780) (4,840) 6.74%
- Q
Total capital assets,net $ 185,852 $ 174,994 $ 10,858 6.20% c
m
E
Total capital assets increased $10.9 million in fiscal year 2014. Approximately $12.3 million in construction in
progress was completed and placed in service. Major project completions include pipeline replacements and
the Ogden Reservoir project. Additional information on capital assets is presented in Note 4 of the Notes to the Q
Basic Financial Statements.
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Packet Pg.472
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
4t Management's Discussion andAnalysis, continued
For the Year Ended June 30,2014
TABLE A-4 0
N
Long-term Debt-Water Utility >-
u_
(amounts expressed in thousands of dollars) c
2014 2013 $Change %Change
0
Notes payable $ 22,800 $ 24,459 $ (1,659) -6.78% Q.
m
Compensated absences 1,077 1,263 (186) -14.76%
Total long-term debt $ 23,877 $ 25,722 $ (1,845) -7.171* _
ca
c
During the year,the Water Utility's long-term debt decreased by$1.8 million which can be attributed to normal LL
debt payments. Additional information on longterm debt is presented in Note 6 of the Notes to Basic Financial 3
Statements.
c
Sewer Utility Fund N
c
TABLE B-1
Condensed Statement of Net Position-Sewer Utility
(amounts expressed in thousands of dollars) C-
d
0
2014 2013 $Change %Change (D
Current and noncurrent assets $ 66,722 $ 68,572 $ (1,850) -2.701* �
Capital assets 55,533 60,386 (4,853) -8.04% N
T
Total assets 122,255 $ 128,958 (6,703) -5.20% M
Total deferred outflow Cn
N
of resources $ 109 151 $ JLL -27.9396 w
Current liabilities $ 8,906 $ 7,385 $ 1,521 20.59% W
H
Long-term liabilities 8,279 13,428 (5,149) -38.341* H
Total liabilities $ 17,185 $ 20,813 $ (3,628) -17.433'* Q
Net investment in capital assets $ 42,866 $ 43,315 $ (449)
z
Restricted 7,516 7,799 (283) -3.63% z
Unrestricted 54,797 57,181 (2.384) -4.21* u_
Total net position $ 105,178 $ 108295 $ (3,117) -2.88% o
N
H
As can be seen from the table above,the Sewer Utility net position decreased $3.1 million to $105,178 in fiscal o
year 2014. This is primarily due to the separation of the RIX facility assets and liabilities from the Sewer Fund in Q
2014.
c
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Packet Pg.473
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{
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Anolysis, continued ?I
For the Year Ended June 30, 2014 `
�r
TABLE B-2 r
0
I Condensed Statement of Revenues,Expenses and Changes in Net Position-Sewer Utility N
(amounts expressed In thousands of dollars)
L
O
2014 2013 $Change %Change n
.r
L
Operating revenue $ 25,671 $ 26,415 $ (744) -2.82% CL
am
Capital contributions 989 1,475 (486) -32.94% w
Other non-operating revenue 667 363 304 83.63% t°
c
Total revenues 27,327 28.253 (926) -3.28% m
c
Operating expenses 21,974 22,297 {323) -1.45% U.
�
Non-operating expenses 1796 994 802 80.66%
c
Total expenses 23,770 23,291 479 2.06% Q
N
Change in net position 3,557 4,962 (1,405) -28.32%
Net position,beginning balance, E
restated 101,.622 103,333 (1,711) -1.669'a c'v
CL
Total net position $ 105,178 108,295 $ _(3,117) -2.889/a 0
L
During Fiscal Year 2014, total revenues for the Sewer Utility decreased by 3% from the prior year, while total
expenses increased 2%during the same time period.
N
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00
M_
TABLE B-3 N
Capital Assets- Sewer Utility z
Lu
(amounts expressed in thousands of dollars)
W
2014 2013-Restated $Change Change Q
F-
Land and easements $ 11,482 $ 11,557 $ (75) -0.65%
J
Construction in progress 9,408 6,189 3,218 52.00% Q
U
Pumping 1,360 1,360 - 0,00% Z
i
Buildings,plants and stores 120,109 119,486 623 0.52% Z_
Feld and office equipment 5,601 5,441 161 2.95% u'
Total capital assets 147,959 144,033 3,927 2.73% c°v
H
Less:accumulated depreciation _ (92,427) (89,231) (3,196) 3.58%
D
Total net assets $ 55.533 $ S4,802 $ 731 1.33% `_
c
Total capital assets increased by $3.9 in fiscal year 2014, with approximately $3.2 million in construction in E
progress completed and place in service. More information relating to capital assets can be found in note 4 of U
the notes to the financial statements. ;a
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Packet Pg.474
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Management's Discussion and Analysis, continued -
'�4
For the Year Ended June 30, 2014
V_
TABLE B-4 0
N
Long-term Debt-Sewer Utility }
(amounts expressed in thousands of dollars) o
0
2014 2013 $Change %Change
0
CL
Notes payable $ 3,374 $ 4,993 $ (1,619) -32.42%
Certificates of participation 9,292 12,078 (2,786) -23.06%
Compensated absences 367 429 (62) -14.53%
c
Total long-term debt $ 13,033 $ 17,500 -25.S2Ya c
— LL
I �
During the year, the Sewer Utility's long-term debt decreased $4.5 million which can be attributed to normal Q
debt payments. Additional information on long term debt is presented in Note 6 of the Notes to Basic Financial N
Y
Statements.
m
E
Management Challenges and Opportunities
CL
Economics
D
The ongoing economic downturn continues to limit the planned capital expansion of the water and sewer ar
treatment facilities. Development in San Bernardino has significantly slowed and delinquencies continue. f°
Additionally, the fiscal challenges of the City as a whole hinder progress within the Water Department.
However, as the local economy begins to improve, the Department's customer base should improve and the
oo
delinquency rate should return to pre-recession levels.
Cn
Capital Construction
z
The Sewer Utility faces an extensive list of compliance-related construction requirements over the next several
years, and is also rehabilitating facilities and designing/constructing Primary Influent Flow Equalization. The H
Water Utility continues to concentrate on retrofitting and upgrading existing facilities to current design
standards and Uniform Building Codes (UBC) as well as replace aging pipelines,wells and plant facilities, cn
Gates Q
U
The Department implemented the last of a three-phase water utility rate increase and the last of a two-phase Q
increase to sewer treatment rates in January 2012. The Department continues to review revenue and expense ?
levels to determine when rate increases will be necessary.
T
Contacting the (department's Director of Finance c°�
E-
This financial report is designed to provide our customers and creditors with a general overview of the o
Department finances and to demonstrate the Department's accountability for the money it receives. If you have Q
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
contact the City's finance department at(909)384-5242. v
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Basic- Financial Statements
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Packet Pg.477
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s
CITY OE SAN BERNARDINO MUNICIPAL WATER DEPARTMENT C.N."Statement of Net Position
June 30, 2014
Water Sewer Interfund
Utility Utility Eliminations Total o
ASSETS >_
U_
Current assets: c
Cash and cash equivalents(note 3) $ 7,888,566 5,213,133 93,101,69!
Investments(note 3) 3,984,295 23,671,574 27,655,86! a
Accounts receivable,net 7,627,361 4,040,966 (13,568) 11,654,75!
Interest receivable 11,988 135,295 - 147,28:
Due from other entities 1,S91,360 230,460 1,821,82( _
Inventory 1,690,743 1,690,74: c
LL
Current portion of prepaid expenses 211,446 139,S77 351,02:
Total current assets 23,005,759 33,431,005 (13,568) 56,423,19E
Noncurrent assets: Q
Prepaid expenses 687,309 - 687,309 d
Investment injointventure-RIX(note 10) 21,541,930 - 21,541,930 E
Investment in joint venture=BSA(note 10) - 3,575;059 - 3,575,059 a
Restricted assets: d
Cash and cash equivalents(note 3):
10 Restricted for capital related fees 7,486,594 - 7,486,594
Restricted for conse nt decree(notes 3&13) 99,207 - - 99,207
Investments(note 3): N
T
Restricted for consent decree(note 13) 21,259,686 - 21,259,686 c
Interest receivable-consentdecree(note 93) 64,084 - 64,084 N
Prepaid insurance-consent decree(note 93) 31,881,232 - 31,881,232 w
Note proceeds held by state 746,201 - 746,201 E
Capital assets(note 4):
Non-depreciable assets 11,878,419 20,889,570 32,767,989 N
Depreciable assets 250,593,271 127,069,864 - 377,663,935
Less:accumulated depreciation and amortization (76,620,263) (92,426,651) - (169,046,914) v
Total capital assets(net of accumulated a
depreciation and amortization) 185,851,427 55,532,783 - 241,384,210 ?
Total noncurrent assets 239,901,837 88,823,675 - 328,725,592
Total assets 262 907,596 12Z254,680 N
(13,568) 385,148,708 �
DEFERRE12 QUTFLOW OF RESOURCE ❑
Q
Deferred charge on refunding - 108,823 - 108,823
c
m
Total deferred outflow of resources - 108,823 108,823 E
t
(continued on next page) M
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Packet Pg.478
i
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Net Position
June 30, 2014 C."I
Water Sewer interfund
T
Utility Utility Eliminations Total N
LIABILITIES >
U_
L
Current liabilities: 0 y
Accounts payable 2,511,206 2,980,736 (13,568) 5,478,37 a
Related parties payable(note 9) 2,283,375 268,613 2,551,98
Accrued compensation 556,219 337,049 - 893,26
Claims payable(note 11) 731,496 268,107 - 999,60;
Consumer deposits 502,298 - - 502 29.
Current portion of compensated absences(note 6) 661,888 220,220 882,10; u-
Current portion of notes payable (note 6) 1,702,526 1,664,425 - 3,366,95:
c
Current portion of certificates of participation(note 6) 2,945,328 2,945,321 Q
Accrued interest payable 259,403 221,269 - 480,67; N
d
Total current liabilities 9,208,411 8,905,747 (13,568) 18,100,59(
L
Noncurrent liabilities: d
O
Consumer deposits 3,080,692 - 3,080,69;
:10 Compensated absences(note 6) 414,703 146,447 - 561,15C
Unearned revenue-consent decree(note 13) 53,304,210 - S3,304,21C
Notes payable(note 6) 21,097,814 1,709,710 - 22,807,529
Certificates of participation(note 6) - 6,347,036 - 6,347,036 w
OPEB obligation(note 8) 276,407 76,103 - 352,510 H
Z
w
Total noncurrent liabilities 78,173,831 8,279,296 - 86,453,127 2
w
F_
Total liabilities 87,382,242 17,185,043 (13,568) 104,553,717
NET POSITION Q
V
Z
Q
Net investment in capital assets(note 14) 163,797,283 42,866,284 - 206,663,567 ?
U.
Restricted for capital-related fees(note 14) - 7,515,658 - 7,515,6S8
Unrestricted(note 14) 11,728,071 54,796,518 66,524,589 N
H
Total net position $175,525,354 105,178,460 - 280r 703,814
Q
c
m
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s
a
See accompanying independent auditors' report and notes to the basic financial statements
12
Packet Pg.479
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Statement of Revenue, Expenses and Changes in Net Position x
For the Year Ended June 30, 2014
Water Sewer Interfund o
N
Utility Utility Eliminations Total >-
Operating revenues: LL
Charges for services $ 35,968,790 25,350,989 (17,137) 61,302,64 N
Other operating revenues 703,113 319,785 (33,112) 989,78 0
CL
Total operating revenues 36,671,903 25,670,774 (50,249) 62,292,42 0
Operating expenses _
Administration and customer service 6,485,280 2,754,625 - 9,239,90
Utility administration 622,403 449,769 - 1,072,17 .-S—
i
Plant operations 6,960,724 8,907,163 - 15,267,88
Maintenance 1,837,556 3,146,275 (33,112) 4,950,71,
Environmental control - 621,055 - 621,05 Q
Distribution 4,434,581 - - 4,434,58: Y
Engineering and waterquality control 2,426,717 527,294 - 2,954,01: d
General,administration and overhead 7,302,717 2,141,332 (17,137) 9,426,91;
Depreciation and amortization 5,971,638 3,426,515 - 9,398,15: Q
a)
Total operating expenses 36,041,616 21,974,028 (50,249) 57,965,39' C1
Q
Operating income(loss) 630,287 3,696,746 4,327,03:
Nonoperating revenues(expenses) N
Investment income 93,428 443,836 537,262
Rental income 160,089 20,669 - 180,75£
Noncapitai grant funds 2,030,066 - 2,030,06E N
Gain(loss)on asset disposition 4,446 (16,244) - (11,792 w
Gain(loss)on joint venture-RIX - (1,222,459)
(1,222,45S w
Interest expense and fiscal charges (261,836) (SS7,049) (818,885 Q
Other 478,512 202,078 - 680,59C F-
Total nonoperating revenues(expenses) 2,504,705 (1,129,169) - 1,375,536 Q
Net income (loss) before capital contributions 3,134,992 2,567,577 5,702,569 Z
i q
j Capital contributions: Z
u-
Aoquisitionfees 1,069,145 - 1,069,145 v
Capacity fees 5,191,617 814,325 6,005,942 N
EPA grants 260,839 - 260,839 �-
Othercapital restricted fees - 174,851 - 174,851
Q
Total capital contributions 6,521,601 989,176 - 7,510,777
c
Change in net position 9,656,593 3,556,753 - 13,213,346 E
s
Net position,beginning of year,as restated (footnote 1S) 165,868,761 101,621,707 - 267,490,468 Y
Net position,end of year $175,525,354 105,178,460 - 280,703,814
See accompanying independent auditors' report and notes to the basic financial statements
F
13
1
Packet Pg.480
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT "•<,
Statement of Cash Flows
For the Year Ended June 30,2014
Water Sewer Interfund
Utility Utility Eliminations Total
N
Cash flow from operating activities: >_
Cash received from customers $ 37,714,256 26,033,778 - 63,748,032 L
Rental income 160,089 20,669 180,75E N
Nonoperating miscellaneous revenue(expenses) 478,S13 202,078 - 680,599 c
Cash paid to employees for services (8,865,507) (5,505,795) - (14,371,30; m
Cash paid to suppliers of goods and services (21,990,302) (12,782,203) - 34,772,50E
Net cash provided by operating activities 7,497,049 7,968,527 15,465,57E _
c�
c
Cash flow from noncapital financing activities: U.
Cash paid to RlXjoint venture - (1,487,467) (1,487,467 3
Consent Decree insurance drawdowns 2,030,066 - 2,030,06E
a
Net cash provided by noncapital financing activities 2,03Q066 (1,487,467) 542,599 y
Cash flow from capital and related financing activities: d
Capital fees received 6,260,762 989,176 - 7,249,938
Drawdown on CI EDB loan 2,453,244 - - 2,453,244 m
Proceeds from disposal of capital assets 163,579 17,197 180,776 0
Cash paid to acquire capital assets (16,606,674) (4,191,053) (20,797,727 )
Principal paid on capital-related debt (1,658,265) (4,443,762) - (6,102,027 ?,
Interest paid on capital-relate debt (660,854) (542,429) (1,203,283 N
Grant proceeds 260,839 260,839 M
Net cash provided by(used for)capital and related N
financing activities (9,787,369) (8,170,871) (17,958,240 Z
w
Cash flow from investing activities: M
w
Purchase of investments (S,392,176) (11,873,592) - (17,265,768 ~Q
Sales and maturities of investments 8,153,132 9,761,721 - 17,914,853
Interest received 113,681 390,520 504,201 Q
Net cash provided by investing activities 2,874,637 (1,721,351) 1,153,286 0
Net increase (decrease)in cash 2,614,383 (3,411,162) (796,779; z
U_
Cash and cash equivalents at beginning of year 5,373,390 16,250,466 - 21,623,856
0
Cash and cash equivalents at end of year $ 7,987,773 12,8139,304 20� 8®
0
Reconciliation of cash and cash equivalents to amounts Q
reported on the statement of net position:
Cash and cash equivalents $ 7,888,566 5,213,133 13,101,699
Restricted cash and cash equivalents: s
Restricted forcapital related feed - 7,486,594 - 7,486,594 y
Restricted forconsent decree 99,207 - 99,207 Q
Cash and cash equivalents at a nd of year $ 7,987,773 12,699,727 - 20,687,500
(continued on next page)
{ 14
3
Packet Pg.481
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT cal' '1111 Statement of Cash Flows, continued For the Year Ended June 30,2014
Water Sewer Interfund
Utility utili Eliminations Total
0
Reconciliation of operating income to net cash `V
provided by(used for)operating activities:
Operating income(loss) $ 630,287 3,696,746 - 4,327,033 ,0
Depreciati on and amortization
5,971,638 3,426,515 - 9,398,153 t
Nonoperating miscellaneous revenue(expenses) 478,513 202,078 - 680,591 m
Rental income 160,089 20,669 - 180,758 IX
c
Adjustments
c
(increase)decrease in accounts receivable (585,945) (721,135) - (1,307,080)
(increase)decrease in due from otherentities 1,492,583 340,260 - 1,832,843 Ri
(Increase)decrease in inventory (118,281) - (118'281) _
(increase)decrease in prepaid expenses (100,416) 160,083 59,667 N
Increase(decrease)in accounts payable 424,821 1,403,350 - 1,828,171
d
74
Increase(decrease)in related parties payable 74,828 (245) ,
- 583 E
t
Increase(decrease)in accrued compensation (160,877) 55,772 - (105,105) a
Increase(decrease)in compensated absences °'
0
current portion 71,015 (76,230} - (5,215) Q
Increase(decrease)in compensated absences t°
non-current portion (257,859) 13,942 - (243,917)
Increase(decrease)in claims payable 162,647 (118} - 162,529 oo
Increase(decrease)in consumer deposits cn
current portion 23,786 - 23,786
Increase (decrease)in consumer deposits Z
w
non-current portion 111.929 - - 111,929 w
Increase(decrease)in OPEB obligation (881,709) (553,160) - (1,434,869) Q
N
Net cash provided by operating activities $7,497,049 7,968,527 - 15,465,576
Cn
U
Z
Q
There were no significant noncash investing,capital and financing related activties forthe year ended June 30,2014.
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See accompanying independent auditors' report and notes to the basic financial statements
y g p re p
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Packet Pg.482
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements
For the Year Ended June 30,2014
(1) Reporting Entity and Summary of Significant Accounting Policies
A. Organization and Operations of the Reporting Entity c
N
The San Bernardino Municipal Water Department (Department) is governed under the Charter of the City of San LL
Bernardino (City). A Board of Water Commissioners (BOWC) appointed by the Mayor and approved by City o
Council, has Charter defined powers, with full authority for administration of the water utility and delegated N
authority for the sewer treatment utility.The Department has served the community since 1905. o
:z
B, Basis of Accounting and Measurement Focus
The Department reports its activities as enterprise funds, which are used to account for operations that are
U
financed and operated in a manner similar to a private business enterprise,where the intent of the Department
is that the costs (including depreciation) of providing goods or services to the general public on a continuing S
' basis be financed or recovered primarily through user charges. Revenues and expenses are recognized on the U.
accrual basis. Revenues are recognized in the accounting period in which they are earned and expenses are
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 Y)
exchange transactions associated with the principal activity of the Department. Exchange transactions are those E
in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property L
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. p
L
When both restricted and unrestricted resources are available for use,the Department uses restricted resources
and then unrestricted resources.
The funds of the Department are described below: N
T
00
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.
Sewer Utility Fund—The Sewer Utility Enterprise Fund (Sewer Utility) is used to account for the operations w
of the City's wastewater treatment system and related revenues. The Sewer conveyance system.is under w
the direction of the City's Public Works Department. F'
Q
H
Administrative and engineering services are provided by the Water Utility to the Sewer Utility. Electrical services N
are provided by the Sewer Utility to the Water Utility. Q
C. Financial Reporting Q
The Department's basic financial statements are presented in conformance with the provisions of Governmental Z
LL
Accounting Standards Board (GASB) Statement No. 34, "Basic Financial Statements — and Management's rt
Discussion and Analysis—for State and Local Governments"(GASB No. 34). This statement established revised N
financial reporting requirements for state and local governments throughout the United States for the purpose
of enhancing the understandability and usefulness of financial reports. j
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
replaces the balance sheet and reports assets, liabilities, and the difference between them as net position, not s
equity.A statement of revenues, expenses and changes in net position replaces both the income statement and
the statement of changes in retained earnings and contributed capital. GASB No. 34 also requires that the Q
statement of cash flows be prepared using the direct method. Under the direct method, cash flows from
operating activities are presented by major categories.
16
Packet Pg.483
5.P.a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT `� .p" ;
IL Notes to the Basic Financiai Statements, continued
For the Year Ended June 30, 2014
(1) Reporting Entity and Summary of Significant Accounting Policies, continued
r
D. Assets, Liabilities and Net Position °
N
1. Use of Estimates u-
L
O
The preparation of the basic financial statements in conformity with generally accepted accounting N
principles requires management to make estimates and assumptions that affect the reported amounts of o
assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, m
and the reported changes in net position during the reporting period. Actual results could differ from those W
estimates. 6
c
2. Cash and Investments
For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments u_
(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 Q
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. m
E
Changes in fair value that occur during a fiscal year are recognized as investment income reported for that.
fiscal year. Investment income includes interest earnings, changes in fair value and any gains or losses CL
4)
realized upon the liquidation of investments.
iO L
d
3. Accounts Receivable �
Customer or trade receivables are shown net of an allowance for uncollectible accounts based on historical
N
and management estimates. Transactions between funds that are representative of lending or borrowing w
arrangements outstanding at the end of the fiscal year are referred to as "interfund receivables/payabies"
or"advances to/from"other funds. All interfund transactions are eliminated for financial reporting. F
4. Inventory W
Materials and supplies inventory consists primarily of water meters, pipe and pipefittings for construction H
and repair to the Department's water transmission and distribution system and items necessary for
maintenance at the sewer treatment facilities. Inventory is valued at cost using a weighted average method. N
Inventory items are charged to expense at the time that individual items are withdrawn from inventory or q
consumed. U
Z
5. Prepaid Expense and Deposit Z
u.
Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are
recorded as prepaid items in the basic financial statements. o
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued =i
For the Year Ended June 30, 2014
(1) Reporting Entity and Summary of Significant Accounting Policies,continued
T
0
D. Assets,Liabilities and Net Position,continued N
U.
6. Capital Assets
L
0
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. Q
Overhead is capitalized at the rate of 28.9%of labor and benefits, 10% of material and supplies and 2% of 0)
significant contracts. Depreciation is recorded on a straight-line basis over the estimated useful lives of the
assets as follows: `�
e Source of supply plant 8 to SO years C
Disposal plant and interceptor lines 35 to SO years U_
e Other facilities(shops, leasehold&yards) S to 25 years
_
s Tools, office equipment&communications 4 to 20 years =
Q
Computer equipment 3 to S years y
o Automotive and fleet equipment 3 to 1S years
7. Compensated Absences E
CU
Department policy is to permit employees to accumulate a limited amount of earned vacation and sick d
leave. Various negotiation groups have different sell-back and cash out options. Additionally, cash out a
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 N
T
00
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 Cl)
payable have been classified as current liabilities payable from restricted assets since assets have been w
restricted for their payment.
w
9. Deferred Charge on Refunding H
a
Deferred charges on refunding are amortized using the straight-line method based on the term of the debt. N
J
10. Interfund Eliminations
v
The interfund eliminations column represents entries made to eliminate interfund income and expenditure q
transactions between the water utility fund and the sewer utility fund for the purposes of consolidated z
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financial statements. d
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued _
For the Year Ended June 30,2014
(1) Reporting Entity and Summary of Significant Accounting Policies,continued r
0
D. Assets, Liabilities and Net Position, continued N
11. Net Position u"
L
O
The financial statements utilize a net position presentation. Net position is categorized as follows:
L
0 Net investment in Capital Assets —This component of net position consists of capital assets, net of m
accumulated depreciation and reduced by any debt outstanding against the acquisition, w
construction or improvement of those assets. i
c
o Restricted Net Position — This component of net position consists of constraints placed on net s
position use through external constraints imposed by creditors, grantors, contributors, or laws or U-
i
regulations of other governments orconstraints imposed by law through constitutional provisions or
enabling legislation.
c
• Unrestricted Net Position —This component of net position consists of net position that does not U)
meet the definition of restricted or net investment in capital assets. c
d
12. Capital Contributions E
CL
c�
-Contributions in aid of construction represent cash aiid utility plant additionS contributed to the Department 4)
by property owners or developers desiring services that require capital expenditures or capacity 0
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 N
V_
00
The Department adopts an annual budget for planning, control, and evaluation purposes. Budgetary control E✓
and evaluation are affected by comparisons of actual revenues and expenses with planned revenues and N
expenses for the period. Encumbrance accounting is not used to account for commitments related to Z
outstanding contracts for construction and services. w�
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(2) City of San Bernardino Bankruptcy U)
J
Without reserves and facing a $45.8 million budget deficit, in July of 2012, the City determined that it was no Q
longer able to meet its contractual obligations and declared a fiscal emergency. On August 1, 2012,the City filed Z
Z
a petition under Chapter 9 of the United States Bankruptcy Code in Riverside seeking to adjust its debts. On Z_
August 28, 2013,the Bankruptcy Court ruled that the City is eligible for bankruptcy protection. L-
Based on the California Constitution, precedents established in prior municipal bankruptcies in California, and N
various legal opinions provided to the Department by special legal counsel and the City Attorney's office, the F_
Department believes that its revenues, derived from ratepayer fees, will be protected from attachment by the D
City's creditors. Although unlikely, it is possible that the bankruptcy court will make a different determination. Q
The Department's arguments for the protection of its assets from the claims of the City's creditors are set forth c
in further detail below, d
E
The bankruptcy case seeks the adjustment of the obligations of the City and does not extend to City funds with m
Federal, State or other restrictions. The Department has continued to operate and use its restricted resources Q
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.
19 _
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!41 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT a
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014 ''`
(2) City of San Bernardino Bankruptcy, continued :;F
0
State and federal laws place protections on the revenues of the Department. Section 902(2) of the Bankruptcy N
Code defines special revenues as, among other things, "receipts derived from the ownership, operation, or LL
disposition of projects or systems of the debtor that are primarily used or intended to be used primarily to 0
provide transportation, utility, or other services, including the proceeds of borrowings to finance the projects or
systems." Further, section 928 of the Bankruptcy Code states: "(a) Notwithstanding section SS2 (a) of this title 0
and subject to subsection (b) of this section, special revenues acquired by the debtor after the commencement I0
of the case shall remain subject to any lien resulting from any security agreement entered into by the debtor
Ta
before the commencement of the case"; and "(b) Any such lien on special revenues, other than municipal
betterment assessments, derived from a project orsystem shall be subject to the necessary operating expenses c
of such project or system,as the case may be."
' Chapter 9 of the Bankruptcy Code does not have a provision for liquidation of assets of the City and distribution 3
of the proceeds to creditors. Additionally, Chapter 9 does not prevent a debtor from borrowing additional funds Q
while under bankruptcy protection. The Tenth Amendment of the United States Constitution and Supreme y
Court decisions in upholding municipal bankruptcy legislation place severe limitations upon the power of the
bankruptcy court in chapter 9 cases.
E
.d
In.addition, at least two-aspects of California law place restrictions on the use of revenue of the Department, Q
First, under Articles XIIIC and XIIID of the California Constitution (enacted pursuant to the voter approved o
Proposition 218), money raised from municipal utility rates must only be used to fund such utility operations, m
and not to fund general municipal operations. Thus, when the Department charges a water delivery or M
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 N
T
constitutional constraints enacted pursuant to Proposition 218. This has very specific consequences for the M
amount of money that can be collected, as well as the use to which those funds can be put. Specifically, Cal. N
Const. Article XII1 D section 6(b)states that; H
Z
Lu
A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following
requirements: W
I-
(1) Revenues derived from the fee or charge shall not exceed the funds required to provide the N
property related service.
Q
(2) Revenues derived from the fee or charge shall not be used for any purpose other than that for z
which the fee or charge was imposed. Q
Z
(3) The amount of a fee or charge imposed upon any parcel or person as an incident of property U_
ownership shall not exceed the proportional cost of the service attributable to the parcel. `t
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(5) No fee or charge may be imposed for general governmental services including, but not limited D
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.) _
a�
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 M
service attributable the payer.; q
' See League of California Cities,Proposition 218 Implementation Guide(2 007 Ed.)at pp.49-50;see also HowordJorvis TaxpayersAss'n v.My
of Roseviiie(2002)97 Cal.App.4th 637,647-648(interpreting Art.XI IID,§6(b)and emphasizing,'It]he key is that the revenues derived from the fee or
charge are required to provide the service,and maybe used only for the service.")
20
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CITY OF SAN BERNARDINO MUNICIPALWATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30,2014
(2) City of San Bernardino Bankruptcy, continued
The second relevant aspect of state law is the City's status as a Charter City. Under California law a city charter N
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 0
Cal.App.4th 1178, 1186, citing Domor Electric, Inc, v. City of Los Angeles (1994) 9 CalAth 161, 170.) The N
Department was created by and currently operates pursuant to Article IX of the City's Charter, and provides L
both retail water and sewer service pursuant to the City Charter provisions. Specifically,Article IX, Section 164 m
of the City Charter provides that the Water Department Board of Commissioners, and not the City Council, " . . X
shall have power to control and order the expenditure of all money received from sale or use of water, for the
defraying of expenses or maintenance and repairs and operation of the water system, and for any expenses for r_
additions to the same; and for supplying the City with water for any and all purposes; provided that all such C
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
discussion above, the constitutional requirements under Proposition 218 apply to "counties, cities, cities and Q
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 "[tjhere is no question that r_
Proposition 218, as a constitutional initiative, is binding upon charter cities." (Howard Jarvis Taxpayers Assn. v.
m
City of Roseville (2003) 106 Cai:App.4th 1178, 1185.) in order to provide for the safety of the Department's M
liquid assets,the Department established its own bank account and investment portfolio within the City treasury
CL
resentatives of the City Treasurer's office and the Water Department are
as required by the City Charter. Rep
"� signatories to these accounts. As previously noted,the City Charter specifically grants to the Water Department °'
M
Board of Commissioners the power to control and order the expenditure of these funds and limits the 2,
withdrawal of these funds for the payment of demands authenticated by the Board of Commissioners. N
T
Accordingly, both the City Charter and the California Constitution require that the Department's special M
revenues collected for water-related services may only be used for expenditures related to those services. Due
N
to these additional state law restrictions, the Department believes that the revenues of the Department (and z
accumulated assets since those assets were accumulated as a result of collection of revenue) can only be used W
for Department expenses and obligations. H
On October 16, 2013, Bankruptcy Judge Meredith Jury issued an opinion on the City's eligibility for bankruptcy.
"...CalPERS submits that the uncontroverted fact that the City's Water Fund had a large cash balance before and Cn Cn
after the petition date which the City did not tap to attempt to balance its books is evidence of lack of desire to Q
effect a plan.This argument has no legal legs. It is a matter of California constitutional law that the City may not U
Z
use funds belonging to the Water Department for general fund purposes. Amendments to the Constitution z
enacted by Proposition 218 in 1996, which added Articles XIIIC and XIIID, expanded restrictions on local FL
government revenue-raising and imposed limitations on local government use of special fees, including water T
and sewer fees. C.A. Const.art. XIIIC and XIIID. Article XIIID covers water fees and prohibits the use of such fees °N
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
City was legally prohibited by the California Constitution from using Water Department funds for general fund Q
purposes.
m
"Similarly, the City could not have borrowed funds from the Water Department without incurring debt that it
could not repay within one year. Article XVi, Section 18 of the Constitution prohibits the City from incurring a
debt in any year that exceeds the available revenues of the City for that year without the approval of a two- Q
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
outlier to the Court's analysis." (Case No.: RS 6: 12-bk-28006 MJ).
21
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i
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Fin ancia/Statements, continued
For the Year Ended June 30,2014
(3) Cash and Investments
T
Cash and investments are reported in the accompanying statement of net position as follows: N
w
L
Water Sewer y
Utility Utility Total o
Cash and Cash Equivalents $ 7,888,566 5,213,133 13,101,699 0
Investments 3,984,295 23,671,574 27,655,869
Restricted cash and cash equivalents:
c
Restricted for capital-related fees - 7,486,594 7,486,594 c
Restricted for Consent Decree 99,207 - 99,207 LL
Restricted investments: 3
c
Restricted for Consent Decree 21,259,686 - 21,259,686
Q
Total Cash and investments $ 33,231,754 36,371,301 69,603,055
JA
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Cash and investments at June 30,2014 consisted of the following: m
D
Water Sewer
Utility Utility Total
Cash on Hand $ 7,000 200 7,200
N
Deposits with Financial Institutions 7,881,566 12,699,527 20,581,093 cco
Investments 25,343,188 23,671,574 49,014,762
Total Cash and Investments $ 33,231,754 36,371,301 69,603,055 Z
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued `{ i
For the Year Ended June 30,2014 "•'"`
(3) Cash and Investments, continued
r
Investments Authorized by the California Government Code and the Department's Investment Policy cov
The table below identifies the investment types that are authorized by the Department and Consent Decree "-
L
(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 i
investment policy, where more restrictive) that addresses interest rate risk, credit risk, and concentration of a
credit risk. Due to its long-term nature, the Consent Decree has been explicitly exempted from maximum w
maturity requirements of the California Government Code, which limits maturity of most investments to five m
years. All other aspects of the Consent Decree investment policy are consistent with the City's investment
policy.
LL
Maximum Maturity Maximum% Maximum°%
InvestmentType* Department Consent Decree of Portfolio in One Issuer c
c
US treasury 5years None None None y
US agency 5years None None None m
Bankers acceptances 180days 180 days 40% 30% E
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CQm.mercial paW 270 days 270days 25% 10%
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Negotiable CDs 5years None 30% None
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Medium-term notes 5years None 30% None L
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Money market mutual funds N/A N/A 20% 10 00
Mortgage pass through 5years None 20% None
Local Agency Investment Fund N/A N/A $40,000,000 None N
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Guaranteed investment N/A N/A None None ==
N
*-Excluding amounts held by bond trustee thatare not subject to California Government Code restrictions. �-
z
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Investments Authorized by Debt Agreements w
H
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather
than the general provisions of the California Government Code or the City's investment policy, investments N
authorized for funds held by bond trustee include, U.S. Treasury Obligations, U.S. Government Sponsored Q
Enterprise Securities, the California Local Agency Investment Fund, Guaranteed investment Contracts, U
Z
Commercial Paper, Local Agency Bonds, Banker's Acceptance and Money Market Mutual Funds. There are no z
limitations on the maximum amount that can be invested in one issuer, maximum percentage allowed or the FL
maximum maturity of an investment, except for the maturity of Bankers Acceptance which are limited to one
year. CD
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT '"
10 Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014 ^.,^
(3) Cash and Investments, continued :;i"
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Custodial Credit Risk N
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a o
government will not be able to recover its deposits or will not be able to recover collateral securities that are in '�-
N
the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the c
failure of the counterparty to a transaction, a government will not be able to recover the value of its investment m
or collateral securities that are in the possession of another party. The California Government Code requires W
that a financial institution secure deposits made by a state or local governmental units by pledging securities in f°
an undivided collateral pool held by a depository regulated under state law. c
ca
The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount LL
deposited by the public agencies. California law also allows financial institutions to secure the Department's
deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits.
c
For investment identified herein as held by bond trustee, the bond trustee selects the investment under the y
terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the c
reporting government.
E
Investment in State Investment Pool c`c
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m
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 a;
Department's investment in this pool is reported in the accompanying financial statements at amounts based f°
upon the Department's pro-rata share of the fair value provided by LAW 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 r
00
maintained by LAW, which are recorded on an amortized cost basis. LAW is not rated by a nationally recognized
statistical rating organization, but, as stated previously,it is regulated by the California Government Code,and is
Cn
therefore exempt from rating requirements. Z
Interest Rate Risk w
w
Interest rate risk is the possibility that fluctuations in market interest rates will adversely affect the fair value of
an investment. Generally, the longer the maturity of an investment,the greater the sensitivity of its fair value
will be to changes in market interest rates. One method that the Department uses to manage its exposure to Q
interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash z
flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as Q
necessary to provide requirements for cash flow and liquidity needed for operations. Information about the Z
U.
sensitivity of the fair values of the Department's investments to market interest rate fluctuations is provided by v
the following table that shows the distribution of the Department's investments by maturity date: c
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F—
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014
(3) Cash and Investments,continued
Maturities N
Lessthan 13-Z4 25-60 More than U.
investment Type 12 months months months 60 months Total L
U.S.Agency Securities $ 2,463,007 5,483,645 3,796,987 - 11,743,639 `-
N
U.S-Treasuries - 2,533,204 4,668,515 7,201,719 L
Medium Term Corporate Notes 264,581 1,554,910 980,077 2,799,568 Q
Asset Hacked Securities 432,034 580,931 475,466 - 1,488,431
Commercial Paper 479,647 - - - 479,647
Mon ey Ma r ke t Fu nds 208,363 - 208,363 v
Local Agency Investment Fund 3,734,502 - - 3,734,502
Consent Decree:
'u.
U.S.Treasuries 761,338 2,631,596 3,209,623 - 6,602,557
U.S.Agency Mortgage Backed Securities - - - 1,517,299 1,517,299
c
U.S.Agency Securities 1,843,559 3,827,096 - 5,670,655
Corporate Notes - 1,049,733 4,445,907 - 5,495,040 N
Certificates of Deposit 1,000,680 973,455 - 1,974,735
Money Market Funds 99,207 - - 99,207
E
Total Investments $ 9,443,359 16,650,433 211,403,671 1,517,299 49,014,762
CL
Credit Risk
0
Generally,credit risk is the possibility that an issuer of an investment will not fulfill its obligation to the holder of a;
the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the minimum rating required by (where applicable) the California Government
Code, the Department's investment policy, or debt agreements, and the actual rating as of year-end for each V-
investment type.
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014 n
(3) Cash and Investments,continued d
r
Minimum °
N
Legal >'
u_
investmentType Rating Rating Total o
0
U.S.Agency Securities None AA+ 11,743,639
U.S.Treasuries Exempt Exempt 7,201,719 0
Medi um Term Corporate Notes AA- AAA 360,377 Q
AA+ 641,640 i
AA 1,124,803 =
AA- 672,748
Asset Backed Securities AA AAA 1,488,431 L
Commercial Paper A-1 A-1 479,647
r-
Money Market Funds AA+ AAA 208,363 c
a
Local Agency investment Fund N/R not rated 31734,502
c
Consent Decree:
E
U.S.Treasuries Exempt Exempt 6,602557 L
U.S.Agency Mortgage Backed Securities None AA+ 1,517,299 w
U.S.Agency Securities None AA+ 5,670,655
Corporate Notes A AAA 242,482
AA+ 1,109,365 'S
AA 1,800,308 N
T
AA- 1,038,461 M
A+ 1,304,424
Certificates of Deposit A A-1+ 497,958 z
A-1 976,034 W
AA- 500,143 W
H
Money Market Funds AA+ AA+ 99,207 a
H
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Total Investments 49,014,762 Q
Concentration of Credit Risk Z
investments in any one issuer (other than for U.S. Treasury securities, mutual funds, and external investment z_
LL
pools)that represent 5%or more of total Department investments are as follows:
T
Reported Percentage of °
N
Issuer Investment Type Amount Investments F_
U.S.Agency Mortgage Backed Securities/ 0
Fannie Mae $ 4,140,500 9% Q
U.S.Agency Securities
Federal National Mortgage Association U.S.Agency Securities 5,369,736 1230
Federal Home Loan Banks U.S.Agency Securities 3,563,333 80/0 E
Federal Home Loan Mortgage Corporation U.S.Agency 5ecurities 3,827,866 8Yo U
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30,2014
(4) Capital Assets
Capital asset activity for the water utility for the fiscal year ended June 30, 2014: o
04
Balance Deletions/ Balance U
July 1,2013* Additions Transfers June 3Q 2014
O
Non-depreciable assets: "—
I 5,654,389
Land and easements 5,650, 43 4, 16 N
L
Construction in progress 18,535,611 10,804,894 (23,116,475) 6,224,030 Q
Total non-depreciable assets 24,185_ 54 10,808,940 (23,116.475} 11,878,419
c4
Depreciable assets: U
Water rights,wells and pumping 82,054,688 14,557,423 96,612,111
Distribution System 124,99Q205 13,032,904 (1,040,878) 136,982,231 C
Buildings,plants,and stores 3,087,584 9,258 3'096'842 u-
Field and office equipment 12,455,593 1,696,128 (249,634) 13_ 99
Total depreciable assets 222,588,070 29,295,713 (1,290,512) 250,593,271
Q
Less:accumulated depreciation N
Water rights,wells and pumping (29,847,445) (2,395,370) {32,242,815} C
d
Oistributionsystern (31,368,626) (2,575,218) 932,949 (33,010,895) E
Buildings,plants,and stores -{1,441,189) (110,137)' (155 1,326)
Feld and office equipment (9,122,742) (890,913) _ 198 (9,8�`,�7) �
Total accumulated depreciation (71,780,002) (5,971,638) 1,131,377 (76,620,263) 0
L
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Total depreciable assets,net 150,808,068 23,324,075 (159,135 173,973,008 CU
'S
Total capital assets,net $174,994,022_ ,13 23,275,610_) 185,851,427 N
r
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n July 1,2013 balances have been restated.See footnote 15for more information.
Capital asset activity for the sewer utility for the fiscal year ended June 30, 2014: z
Balance (Deletions/ Balance W
July 1,2013* Additions Transfers June 30,2014 W
H
Non-depreciable assets: Q
Land and easements $ 11,557,311 (75,369) 11,481942 I'
Construction in progress 6,189,172 4,678,317 (1,45901) 9,407T�28 J
Total non-depreciable assets 17,746,483 _ 4,678,317 (1,535,230) 20,889,570 Q
U
Z
i Q
Depreciable assets:
Pumping 1,359,506
1,359,506 Z
Buildings,plants,and stores 119,485,693 750,449 (127,247) 120,108,895 d
Feld and office equipment 5,440,821 297,518 {136,876 5,601463 c
Total depreciable assets 126,286,020 1,047,967 (264,123) 127,DG9,864 04
0
Less:accumulated depreciation
Water rights,wells and pumping (2,343,279) (37,344) (2,380,623) a
Buildings,plants,and stores (82,214,923) (3,236,318) 118,013 (85,333,228)
Feld and office equipment (4,672,615) (152,853) 112,668 (4,71ZBD0) E
Total accumulated depreciation (89,230,817) (3,426,515) 230,681 (92,426,651} v
Total depreciable assets,net 37,OS5,203 (2,378,548) (33,44L 34,643,213 Q
Total capital assets,net $ 54,801,686 2,299,769 (1,568,672) 55,532,783
July 1,2013 balances have been restated.See footnote 15 for more information.
i 27
Packet Pg. 494
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT "'"'••
Notes to the Basic Financial Statements, continued r
For the Year Ended June 30, 2014 "`
(4) Capital Assets, continued
T
Significant project commitments as of June 30,2014 include: Co
Outside Iri
Project Authorized Expenditures Remaining Funding O
Water Uti lity: N
Reservoir 5eismic Upgrade $ 1,653,200 519,385 1,133,815 - p
Groundwater Flow Model 1,470,000 505,011 964,989 1,422,756 4Qi
EPA#109 Shallow Well Design and Construction 1,414,000 3,608 1,410,392 1,414,000
I-215/Devore Interchange Transmission Main 1,115,000 13,843 1,101,157 - v
Department Administration Facility 2,000,000 - 2,000,000 2,OOQOOO
4 c
LL
Total Water Utility $ 7,652,200 1,041,847 6,610,353 4,836,756
3
C
C
Q
Outside JA
r
Project Authorized Expenditures Remaining Funding =
d
Sewer Utility: E
Vnit 1 Primary Q ri fi er $ 10,3TI= 1,237,633 %140,367
Recycled Water Plant 2,309,600 1,303,398 1,006,202 302,000 m
Tertiary Treatment System 1,471,500 4,177 7,467,323 300,000
Arrowhead Pump Stattion 14,415,000 117,343 14,297,657
Primary Influent Flow Equalization 1,500,000 1,500,000
Department Adminstration Facility 1,875,000 1,875,000 1,875,000 N
00
Total Sewer Utility $ 31,943,100 2,656,551 29,286,549 2,477,000
(5) Operating Leases
Z
LU
Effective December 15, 2008, the Department took possession of leased space from Superior Homes LLC for
administrative office and warehouse space for a term of ten years. The following is a schedule of minimum uJ
lease payments as of June 30,2014:
Cn
Water Sewer
Q
Year Utility Utility Total V
2015 $ 228,408 31,152 259,560 Q
2016 228,408 31,152 259,560 Z
2017 228,408 31,152 259,560 �*
2018 228,408 31,152 259,560 N
$ 913,632 124,608 1,038,240 p
Q
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Packet Pg.495
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014 ..�
(6) Long-term Liabilities --
T
Water Utility Fund N
Changes in long-term liabilities in the water utility fund for the year ended June 30, 2014 are as follows:
L
O
Balance Balance Current Long-term
July 1,2013 Additions Reductions June 30, 2014 Portion Portion o
Notes Payables: 0
2002 CIEB $ 5,733,883 - (556,635) 5,177,248 575,227 4,602,021
2007 CIEB 7,826,282 - (467,116) 7,359,166 479,775 6,879,391 6
2012 CIEB 10,000,000 (413,260) 9,586,740 424,046 9,162,694 �
5MVMWO Note 898,445 (221,254) 677,191 223,478 453,73.3 =
LL
Total Notes Payable 24,458,610 (1,658,265) 800,345 1,702,526 21,097,819
y 22,
To
Compensated Absences 1,263,435 882,889 (1,069,733) 1,076,591 661,888 414,703 Q
N
Total long term-debt,Waterfund $25,722,045 882,889 (2,727,998) 23,876,936 2,364,414 21,512,522
m
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2002 California Inffastructuretmd Economic Development Bank(GEDBr Nate Payable a
In April 2002, CIEDB issued a $10,000,000 note to the Department t0 provide funding for transmission mains,
booster stations and a reservoir identified in the Water System Reliability Schedule of Improvements. The note CU
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. N
T
Debt service requirements on the 2004 CIEDB Note Payable are as follows: M
Year Principal Interest Total
2015 $ 575,227 172,921 748,148 LLJ
2016 594,440 153,708 748,148 w
2017 614,294 133,854 7480148 Q
2018 634,812 113,336 748,148 u~i
2019 656,014 70,222 726,236 Q
2020-2022 2,102,461 71,760 2,174,221 v
z
$ 5,177,248 715,801 5,893,049 Z
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT "'•4
Notes to the Basic Financial Statements, continued
For the Year Ended June 30,2014 `�« „;.•
(6) Long-term Liabilities,continued
T
2007 CIEDB Note Payable N
u_
In July 2007, CIEDB issued a $10,000,000 note to the Department to provide funding for booster stations and L
0
transmission mains in the Verdemont area. The note was issued with an interest rate of 2.71% with interest 4Cn
payable semiannually on February 1 and August 1. Principal payments are due annually on August 1.
I 0
Debt service requirements on the 2007 CIEDB Note Payable are as follows: 0_
m
Year Principal Interest Total f°
'v
2015 $ 479,775 192,932 672,707
2016 492,777 179,754 672,531
LL
2017 506,131 166,219 672,350 Ta
2018 519,847 152,317 672,164
c
2019 533,935 145,274 679,209 `1
2020-2024 2,894,723 501,320 3,396,043
2025-2027 1,931,978 105,644 2,037,622
$ 7,359,166 1,443,460 8,802,626
CL
2012 OEDB Note Payable d
O
In May 2012, CIEDB issued a $10,000,000 note to the Department to provide funding for the construction of the
12 million gallon Ogden Reservoir and certain pipeline improvements. The note was issued with an interest rate 'S
of 2.61%with interest payable semiannually on February 1 and August 1. Principal payments are due annually N
on August 1.
oo
M
Debt service requirements on the 2012 CIEDB Note Payable are as follows: �-
z
w
Year Principal Interest Total
2015 $ 424,046 244,680 668,726 Q
2016 435,114 233,468 668,582 �-
2017 446,470 221,963 668,433 -j
2018 458,123 210,158 668,281
U
2019 470,080 204,180 674,260 z
a
2020-2024 2,540,966 830,332 3,371,298 z
2025-2029 2,890,330 480,970 3,371,300 d
2030-2032 1,921,611 405,950 2,327,561 N
$ 9,586,740 2,831,701 12,418,441 t
0
SBVMWD Nate Payable
Q
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 E
$1,117,500 to be paid in sixty(60)monthly installments due on or before the 1"of each month. �
Q
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Packet Pg. 497
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued a
For the Year Ended June 30,2014 �''•• •`
(6) Long-term Liabilities,continued
Debt service requirements on the SBVMW D Note Payable are as follows: o
N
Year Principal Interest Total LL
2015 $ 223,478 5,749 229,227 ,o
2016 225,723 3,504 229,227 (40
2017 227,990 1,238 229,228 Q-
$677,191 10,491 687,682 0�
? Dent Service Coverage
_
The Water Utility Fund is required to maintain net revenues adequate to cover 110% of annual debt service.
Gross revenue is defined as Operating Revenue combined with non-operating revenue. Debt service coverage U.
for the Water Utility Fund for the year ended June 30,2014 was as follows: 3
Gross revenue =
$ 39,176,608 Q
N
Operating expenses 36,041,616
Less:depreciation expense (5,971,638)
Net operati iig expenses 30,069,978 Q.
d
Net revenues $ 9,106,630
d
M
Annual debtservice $ 2,319,122
N
r
Actual coverage ratio 3,93 M
Sewer Utility Fund Cl)
z
Changes in long-term liabilities in the sewer utility fund for the year ended June 30,2014 are as follows: w
Balance Balance Current Long-term H
July 1,2013 Additions Reductions June 30,2014 Portion Portion Q
H
Notes Payables: N
State Revolving Fund $ 4,993,225 (1,619,090) 3,374,135 1,664,425 1,709,710 J
Q
Total Notes Payable 4,993,225 (1,619,0901 %374,135 _ 1,664,425 1,709,710 U
z
!. Q
Certificates of Participation: z
LL
i
1998 Certificates of Participation 12,145,000 (2,805,000) 9,340,000 2,965,000 6,375,000
Less:unamortized discounts (67,308) 19,672 (47,636) (19,672) (27,964) c
Total Certficates ofPartcipiation 12,077,692 (2,785,328) _9,292,364 _ 2,945,328 6,347,036 N
F-
Compensated Absences 428,955 552,971 (615,259) 366,667 220,220 146,447
Q
Total long term-det,Sewer fund $ 17,499,872 _ 552,971 (5,019,677) 13,033,166 4,829,973 8,203,193 c
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Packet Pg.498
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014
(6) Long-term Liabilities, continued
T
State Revolving Fund Note Payable N
The State Water Resources Control Board issued a note to Santa Ana Watershed Authority to provide funding o
for the Santa Ana Watershed Authority providing funding for the San Bernardino/Colton Rapid Infiltration
Extraction (RIX) project in the amount of$25,978,599. In April 2001, the agreement was amended to transfer L
the note obligation to the successors in interest being the City of San Bernardino Board of Water Commissioners Q
m
and the City of Colton. The Department will use revenues from the sewer treatment utility fund towards
repayment of the note.
U
Debt service requirements on the State Revolving Fund Note Payable are as follows:
Year Principal Interest Total u
2015 $1,664,425 94,475 1,758,900
2016 1,709,710 47,872 1,757,582 Q
$3,374,135_ 142,347 3,516,482 y
c
1998 Certificates of Participation m
E
In 1998, the sewer treatment utility ssued 36 230 000 in Certificates of ParticiPatiQn fic a�r[anc refund the
Y $_ _L a
1992 Sewer Certificates of Participation and fund additional capital improvements. The 1992 Certificates p
originally provided for the construction of certain capital improvements. The proceeds of the 1998 Certificates m
were invested and used to pay interest on the 1998 issue until February 1, 2001, when the 1992 Certificates
were called at a prepayment premium of two percent. The Department now pays the installment payments on
the 1998 Certificates from the net revenues of the sewer treatment system. The issue has interest rates r
between 3.95% -5.25%, annual debt service payments of$1,697,000 -$3,474,000,and a maturity date of 2017. M
Debt service requirements on the 1998 Certificates of Participation are as follows:
Year Principal Interest Total w
2015 $2,965,000 474,412 3,439,412 w
2016 3,155,000 318,750 3,473,750
2017 3,220,000 161,000 3,381,000 N
$9,340,000 954,162 10,294,162 Q
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Packet Pg. 499
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements,continued = __
For the Year Ended June 30, 2014
(6) Long-term Liabilities, continued d
r-
Debt Service Coverage N
The Sewer Utility Fund is required to maintain net revenues adequate to cover 1100 of annual debt service. The L
Department's Certificates of Participation hold a senior lien on net revenues of the Sewer Utility Fund. Gross
revenue is defined as Operating Revenue combined with non-operating revenue. Debt service coverage for the
Sewer Utility Fund for the fiscal year ended June 30,2014 was as follows:
Q
Gross revenue
$24,541,505 �
Operating expenses 21,974,028
{ less:depreciation expense J
3 426 515' °y
{ ,
} Net operating expenses 18,547,513
c
Net revenues 5 5,994,092
Y)
Senior Lien-annual debt service $ 3,4J2,650
Subordinate Lien -annual debt service 1,758,900
_ ca
Totafannual debt service $ 5,171,550 m
O
Senior lien debt coverage ratio 1.76
Aggregate debt coverage ratio 1,15
N
(7) Defined Benefit Pension Plan 00
M
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). For fiscal year 2014 the payments w
made to PERS were as follows:
W
Water Sewer F
Q
Utility Utility Total ~
N
Employee Contribution $ 310,253 198,208 508,461 Q
Employer Contribution 1,492,341 950,573 2,442,914 Z
Total $ 1,802,594 1,148,781 2,951,375 Q
} z
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
N
cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are p
established by state statutes, as legislatively amended within the Public Employees' Retirement Law. Int eh
CALPERS Miscellaneous Plan of the City of San Bernardino dated October 2012 the contribution rate for fiscal Q
year 2014 for employees is 18.186%. PERS issues a separate comprehensive annual financial report that includes aci
financial statements and required supplementary information. Copies of the PERS annual financial report may s
be obtained from the PERS Executive Office,400 "P"Street,Sacramento, CA 95814. PERS also issues a separate cvo
report on the actual valuation of the plan of the City of San Bernardino, which is available at the Department. Q
Additional information regarding the City's participation in PERS can be found in the City's financial statements.
33
Packet Pg. 500
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30,2014
(8) Other Post-Employment Benefits
T
O
Plan Description N
LL
The Department provides health benefits to all qualifying retirees and their spouses in accordance with
Memorandums of Understanding under various labor agreements. °
Eligibility c
a
Employees are eligible for retiree health benefits if they retire from the Department on or after age 50 with at
least 10, 12 or 15 years of service, depending on bargaining unit, and are eligible for a PERS pension, The latest
actuarial valuation of the plan occurred June 30,2012. Membership consists of the following:
r
Retirees and beneficiaries receiving benefits 100 W
Active plan members 243 6
Total plan members 343 c
4
Funding Policy Y)
r
The contribution requirements of plan members and the Department are established and may be amended by a)
E
the Board. The required contribution is based on projected pay-as-you-go financing requirements, with an
additional amount to prefuhd benefits as may be determined annually by'the Board. The Department has w
established an irrevocable trust to which pre-funding contributions are made. For fiscal year 2014, the
Department has funded$3,872,869 for the current year. Plan members receiving benefits contributed$132,033
(approximately 16% 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.
N
Annual OPEB Cost and Net OPEB Obligation M
The Department's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the N
annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the Z
LU
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 w
a period not to exceed thirty years. The following table shows the components of the Departments annual
OPEB cost for the year,the amount actually contributed to the plan, and changes in the Department's net OPEB N
J
obligation: Q
Actual required contribution (ARC) $ 2,438,000 Z
Intereston new OPEB obligation 111,711 Z
FL
Amortization of net OPEB obligation (111,711)
Annual OPEB cost(expense) 2,438,000 N
Contributions made 3,872,869 ~-
Increase in net OPEB obligation (1,434 869) D
Net OPEB obligation -beginning of year 1,787,379 Q
Net OPEB obligation-end of year $ 352,510 =
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Packet Pg. 501
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
p
For the Year Ended June 30,2014
(8) Other Post-Employment Benefits, continued d
T
The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net N
OPEB obligation for 2014 and the two preceding years were as follows: >'
LL
i
I Percentage of °
Year Annual Paid AnnualOPEB OPEB N
Ended OPEB Cost Contribution Cost Contibuted Obligation C
6/30/2012 $ 2,510,000 $ 9,040,000 360% $
6/30/2013 2,361,000 573,621 24% 1,787,379 v
6/30/2014 2,438,000 3,872,869 159% 352,510
c
Funded Status and Funding Progress LL
As of June 30, 2012,the most recent actuarial valuation date, the plan was 29.7% funded, The actuarial accrued c
liability for benefits was $28,831,000, the actuarial value of assets was $8,556,000 and the unfunded actuarial Q
accrued liability (UAAL) was $20,275,000. The covered payroll (annual payroll of active employees covered by
the plan) was$14,765,000 and the ratio of the UAAL to the covered payroll was 137,3%.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions t
I about th(e probability of occurrence of events far into the future. Examples include assumptions about future m
employment, mortality, and the healthcare cost trend.Amounts determined regarding the funded status of the o
plan and the annual required contributions of the employer are subject to continual revision as actual results are a;
compared with past expectations and new estimates are made about the future. The schedule of funding f°
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.
Actuarial Methods and Assumptions
N
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as Z
understood by the employer and the plan members) and include the types of benefits provided at the time of w
each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to LU
that point. The actuarial methods and assumptions used include techniques that are designed to reduce the
effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets,consistent with the cn
J
long-term perspective of the calculations. Q
In the June 30, 2012, actuarial valuation, the entry age actuarial cost method was used. The actuarial Z
s assumptions included a rate of return of 6.25% and annual healthcare cost trend rates of 8.5%initially, reduced Z
by increments to an ultimate rate of 5% after ten years, Both rates included a 3% inflation assumption. The F-
actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the c
market value of investments over a five-year period. The UAAL is being amortized as a level percentage of N
projected payroll on an open basis.The remaining amortization period at June 30,2014,was 20 years. ~
0
Schedule of Funding Progress
Q
Actuarial UAAL as a
d
Actuarial Actuarial Accrued Unfunded of covered
Valuation Value of Liability AAL Funded Ratio Covered Payroll U
c�
Date Assets(a) (AAL) (b) (UAAL)(b-a) (a/b) Payroll (c) (b-a)/c Q
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 0.0% 12,619,000 227,2%
6/30/2012 8,556,000 28,831,000 20,275,000 29.7% 14,765,000 137.3%
35
Packet Pg. 502
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT ".
Notes to the Basic Financial Statements, continued
For the Year Ended June 30, 2014
(9) Related Party Transactions
0
The following is a summary of transactions and balances with the City of San Bernardino and its various N
Departments as of and for the year ended June 30,2014. LL
L
Water Sewer 10
Receipts Utility utility Total L
0
City of San Bernardino: Q.
m
Revenue from Water Charges $ 1,411,705 1,411,705 76
Revenue from Sewer Charges 72,967 72,967
c
Revenue from Geothermal Charges 33,124 33,124 f°
Billing&Collection Charges - Refuse 360,000 360,000
Billing&Collection Charges -Storm Drain 4,200 4,200
Billing&Collection Charges-Sewer Collection 63,000 63,000 Q
Cost Reimbursement 69,400 69,400 N
Economic Deve I op me n t Age n cy: c
m
Revenue from Geothermal Charges 7,767 7,767 E
L
Total receipts frorn related parties $ 1,949,196 $ 72,967 $ 2,022;163 a
0
Water Sewer L
d
Payments Utility Utility Total
City of San Bernardino:
Worker's Compensation (Admin.Charges) $ 111,424 64,800 176,224 r
0
P ri n ti ng Services 506 1,417 1,923
Postage 18,990 18,990
City Hall Rent 156,329 21,497 177,826 z
w
Phone Charges 94,776 31,624 126,400 2
Refuse Disposal Service 22,430 65,191 87,621 Q
Consulting Services 3,567,383 5,689 3,573,072
Legal Services 160,702 160,702 Q
Data Processing Services 40,000 10,000 50,000 v
Police&Fire Protection - 500>000 500000 z
a
Permits 69,443 - 69,443 z
LL
Cost Reimbursement 9,053 4,341 13,394
Total payments to related parties $ 4,251,036 704,559 4,955,595 N
Water Sewer
D
Receivables Utility Utility Total `t
City of San Bernardino:
Re late dpartyreceivable $ 927,874 47,565 975,439 E
Accounts receivable,net 41,311 300 41,611 U
Due from other entities 165,828 - 165,828 Q
Total receivable from related parties $ 1,135,013 47,865 1,182,878
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Packet Pg. 503
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�e. CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Stotements, continued
For the Year Ended June 30,2014
(9) Related Party Transactions, continued
T
CD
Water Sewer N
Payables Utility Utility Total "-
L
City of San Bernardino: 0-
Related party payable $ 2,283,374 268,613 2,551,987 i
Accounts payable 94,945 54,174 149,119
o
Claims payable 731,496 268,107 999,603
Total payable to related parties $ 3,109,815 590,894 3,700,709
c
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(10) Joint Ventures
U-
Calton/San Bernardino Regional Tertiary Treatment and Water Reclamation Authority 6
c
On August 2, 1994, the City of San Bernardino, through the Department formed a joint powers authority with Q
the City of Colton to construct, operate, use and maintain tertiary wastewater treatment, disposal and water N
reclamations systems, including the Regional Rapid Infiltration and Extraction Facility (RIX). This authority is
governed by a separate board consisting of four members;two appointed by the City of San Bernardino through E
the Department's BOWC and two appointed by the City Council of the City of Colton. Construction of RIX was is
administered by the Santa Ana Watershed Project Authority and was substantially completed during 1996. d
Administration and operation was turned over at that time. The cities of San Bernardino and Colton each have a
measurable equity interest in the net position of RIX in proportion to its contributions, which are based on an
80%/20% split, 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 <v
expenses. The Department's equity interest in this joint venture has been reported as an investment in joint M
venture in the accompanying statement of net position. --
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San Bernardino Public Safety Authority �-
z
w
On April 1, 1968,the City of San Bernardino and the County of San Bernardino formed the San Bernardino Public 2
Safety Authority (PSA), a joint powers authority, as a financing vehicle to construct public safety buildings and Q
improvements to the wastewater treatment plant. In accordance with the terms of an installment purchase t—
agreement, title to the capital assets financed through the PSA were recognized as capital assets of the City at
the inception of the installment purchase agreement between the City and the PSA. The City's remaining Q
interest in the joint venture is in the form of cash and investments held by the PSA for debt service related Z
activity.The Department's equity interest in these assets has been recognized in the accompanying statement of `t
net position as an investment in joint venture.
ILL
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v
West End Water Development,Treatment and Conservation Joint Powers Authority c
N
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. Athree-
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. E
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued
For the Year Ended June 30,2014
(11) Commitments and Contingencies
Risk Management °
N
Risk management activities are recorded in both utility funds. Significant losses are covered by insurance for all U-
major events except workers' compensation, for which the Department retains risk of loss in conjunction with 0
the City of San Bernardino's risk management program for workers compensation. Settlement amounts have cn
not exceeded insurance coverage for the current year or the prior three years. Insurance coverage has been a
increased over the past several years. d
o:
The Department records an estimated liability for workers' compensation. Claims liabilities are based on
estimates of the ultimate cost of reported claims and an estimate for claims incurred but not reported based =
upon historical experience. Workers'compensation claims liability is not discounted. c
The following are the changes in approximate aggregate liabilities forthe year ended June 30,2014.
Water Sewer Q
Claims Liabilities Utility Utility Total y
Claims payable,beginning of year $ 568,850 $ 268,224 $ 837,074
Claims and changes in estimates 404,877 140,754 545,631 E
Claims payments (242,231) (140,871) (383,102) a
Claims payable,end of year $ 731,496 $ 268,107 $ 999,603
L
Utrgotion
In the ordinary course of operations, the Department is subject to claims and litigation from outside parties. N
After consultation with legal counsel,-the Department believes the ultimate outcome of such matters, if any,will
oo
not materially affect its financial condition.
N
(12) Federal and State Grants
z
Grant funds received by the Department are subject to audit by the grantor agencies. Such audit could lead to w
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. H
The Department has been awarded the following grants. The Department produces a Single Audit that details
13 for information on the Consent Decree).
the use of grant and Consent Decree funds(see note a
U
z
Department of Water Reclamation $ 975,000 Sewer recycling study Q
Environmental Protection Agency 85,000 Sewer recycling study
LL
Environmental Protection Agency 1,422,756 Groundwater modeling 'a
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Packet Pg. 505
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued z
For the Year Ended June 30,2014
(13) Consent Decree
T
In 1996, the City of San Bernardino filed a complaint against the United States of America, Department of the N
Army to recover damages, response costs and other available remedies relating to contamination alleged to >-
have originated at a World War 11 army installation known as Camp Ono. In March 2005, the United States o
District Court, Central Division entered judgment, in the form of a consent decree, in the matter of City of San N
Bernardino v. United States of America. The Consent Decree settles the City's and the State's claims arising from o
the groundwater contamination allegedly caused by the Army. The Consent Decree contains a number of m
provisions obligating the City (through the Department) to operate and maintain the Newmark Groundwater
Superfund site (Site). The Site consists of two operable units, the Newmark Operable Unit and the Muscoy
Operable Unit. The Newmark Operable Unit was declared operational and functional in 1998. The Muscoy
Operable unit was declared operational and functional in 2007.
ILL
I The Consent Decree provided for a payment of$69 million from the Army to the City for performance of the 1E
work outlined in the Consent Decree. Upon acceptance of the Consent Decree,the Department received title to
c
all facilities constructed by the United States Environmental Protection Agency (EPA) of the Site and agreed to Q
operate and maintain the groundwater extraction and treatment system for a period of 50 years. The $69 Y
c
million payment consisted of$59 million for operations and maintenance and$10 million for the construction of 4)
certain capital facilities that would be required in the future;the funds are subject to strict limitations,contained
In the Consent Decree,as to hove the money may be spent. n
v
Pursuant to the Consent Decree,$10 million, including interest earned, has been set aside to be used only for(i)
CD
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 'S
of the Muscoy Operable Unit extraction system. These capital facility funds may not be used for costs incurred N
to operate, maintain, repair or retrofit components of the site extraction of treatment systems constructed by o
EPA. "=
N
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 w
Escrow Fund investment with an interest rate of 4.95% per annum. These funds were invested to pay costs w
associated with the water facilities defined in the Consent Decree for years 2035-2056. An additional $50 Q
million was used to purchase a blended insurance policy to provide a financial vehicle that provides cost gap U)
coverage for the first 30 years of expenses.
Q_
The terms of the Guaranteed Investment Contract only provided the Department with the position of a secured V
Z
i
creditor with respect to an A!G bankruptcy. As concerns arose regarding AIG's financial credibility, in October z
2009,the Department negotiated and accepted a"payout" in the amount of$18,661,876 which represented the W
principal and accrued interest as of that date. These funds are currently invested in a diversified portfolio
managed by PFM Asset Management and present in more detail in note 3. N
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Packet Pg. 506
3
3
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial5totements, continued s
For the Year Ended June 30, 2014
(14) Net Position d
r
Net position at June 30,2014,consisted of the following: c°v
LL
Water Sewer L
Utility Utility Total
w
Net investment in capital assets: L
Non-depreciable assets $ 11,878,419 20,889,570 32,767,989 CL
Depreciable assets 250,593,271 127,069,854 377,663,135 W
Accumulated Depreciation and amortization (76,620,263) (92,426,651) (169,(A6,914) m
Note proceeds held by state 746,201 746,201
Less:related debt
Notes payable,current portion 1,702,526 1,664,425 3,366,951
LL
certificates of participation, current portion - 2,965,000 2,965,000 f°
Notes payable, noncurrent portion 21,097,819 1,709,710 22,807,579
Certificates of participation, noncurrent portion 6,327,364 6,327,354 Q
Total net investment in capital assets 163,797,283 42,866,284 206,663,567 c
d
Restricted for capital-related fees:
E
-Cash and cash equivalents,restricted for capital-rel ated fees 7,515,658 7,519,658
d
Unrestricted: 2
Reserved for investment in RIX 21,541,930 21,541,930
Reserved for debtservice 3,575,059 3,575,059
Designated foroperating reserve 3,582,986 2,248,112 5,831,098.00 r
Designated for rate stabilization reserve 2,772,196 2,612,531 5,384,727.00
M
Designated foremergency replacement reserve 1,002,373 3,812,096 4,814,469.00 N
Designated forcapital replacement reserve 4,370,516 13,921,344 18,291,860 Z
Undesignated - 7,085,446 7,085,446 W
Total unrestricted 11,728,071 54,796,518 66,524,589 H
Total net position Q
$ 175,525,354 $ 105,178,460 $ 280,703,814 !—
J
Q
(15) Prior Period Adjustment V
Z
Q
During the year ended June 30, 2014,it was discovered that capital assets were overstated due to salvage values Z
ILL
being included in the capital asset balance.When the capital assets where originally entered into the fixed asset
module the capital asset policy allowed salvage values to be assigned. The assets were depreciated up to the N
amount of the salvage valuewith the salvage value remaining on the asset.The San Bernardino Municipal Water
Department has since changed the capital asset policy and no longer includes a salvage value when valuing
capital assets, however, this policy was not applied retrospectively to existing assets. This was discovered in the Q
current year and recorded as a prior period adjustment.
m
E
s
An audit was performed of the Colton/San Bernardino Regional Tertiary Treatment and Water Reclamation T
Authority (Investment in Joint Venture — RIX) for fiscal year 2014. During the audit the beginning net position Q
was adjusted. A prior period adjustment was posted to the investment in joint venture — RIX for the
departments portion of the adjustment.
40
Packet Pg. 507
5.P.a
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Basic Financial Statements, continued �!
For the Year Ended June 30, 2014
(15) Prior Period Adjustment,continued
0
N
Water Sewer r
LL
Utility Utility Total I-
0
N
Net position at beginning of the
year,as previously reported $ 168,892,031 108,295,8SS 277,187,886 C
iZ
Adjustment to adjust the value of
the investment in joint venture-RIX - (1,040,102) (1,090,102)
U
Adjustment to remove salvage R
values included in capital assets (3,023,270) (5,584,046) 18,607,316)
Net position ai beginning of the LL.
i ear,restated
y $ 165,868,761 201,622,707 267,490,468 �
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT _ "--
Supplementary Information .t
For the year ended June 30,2014 and prior fiscal years for comparison `'•�•,r•'
TABLE Sl-1 _
Water Production and Utilization
r
(amounts expressed in cubic feet) N
LL
Fiscal Year Ended June 30 2014 2013 2012 0
0
Water sold to direct customers 1,704,432,100 1,712,727,600 1,670,788,800 0
Water sold to other agencies 86,815,384 80,260,800 265,492,811 C
Water sold to or used by City 72,395,018 71,238,400 81,654,202 0�
Total water utilization 1,863,642,502 1,864,226,800 2,017,935,813
c
Total water production 2,017,826,020 2,036,611,730 2,207,153,290
Percentage of water loss 7.6% 8.5% 8.6%
c
c
TABLE S11-2 Q
N
Cast of Water Productfon
m
Fiscal Year Ended June 30 2014 _ 201.3 2012
Total water production(HCF) 20,178,260 20,366,117 22,071,533
O
Production and pumping expenses
Salaries and benefits $ 1,544,049 $ 1,559,658 $ 1,481,694 R
Employee related expenses 7,861 8,098 11,526 �
Office related expenses 25,596 28,700 21,860 N
Contract services - - -
Permits and fees 127,913 93,625 131,594 M
Utilities 4,370,894 3,732,710 3,585,918 N
F—
Materials and supplies 21,828 14,884 18,434 Z LU
Equipment 79,575 32,702 61,117
Chemical and carbon 310,740 814,646 728,801 W
N
d
Sub-total 6,488,456 6,285,023 6,040,944 t~r)
Water stock assessments 43,119 43,298 65,604 —j
Q
Supplemental water purchases 414,400 750,000 2,550,000 v
Water extraction fees 14,750 11,198 6,499 Z
Q
d Z
Total expense before depreciation 6,960,725 7,089,519 8,663,047 L-
Depreciation 4,538,213 4,145,413 4,394,060 c
N
Total expense $ 11,498,938 $ 11,234,932 $ 13,057,107 H
Acre feet of water 46,322.91 46,754.17 50,669.27 Q
w
c
Direct operating cost $ 140.07 $ 134.43 $ 119.22 E
Assessments,purchases and extraction 10.20 17.21 51.75
Depreciation 97.97 88.66 86.72
Q
Total cost per acre foot $ 248.24 $ 240.30 $ 257.69
HCF=Hundred Cubic Feet
1 acre foot=435.6 HCF
{ 44
Packet Pg.511
5Pa_
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information,continued
For the year ended June 30,2014 and prior fiscal years for comparison .c«
TABLE SI-3 _
Water Production by Plant d
T
(amounts expressed in cubic feet) N
Pumping Plant 2013 2013 2012 0
N
L
Antil Plant - - C
Baseline&California 3,151,900 9,627,200 2,213,300
Cajon Boulevard 145,245,400 173,230,800 222,904,600
Cajon Pass&Vincent 50,998,000 40,017,600 40,100,600
Devil Canyon 134,770,720 112,525,030 97,514,090 =_
EPA Wells-Newmark 571,286,300 538,236,100 553,566,700 LL
�o
EPA Wells-Muscoy 331,977,800 375,313,700 443,220,600 =
40th Street 2,351,700 3,746,500 8,427,000
Q
Gilbert Street 15,118,100 200 11,120,400 Jn
w
IVDA Well#111 44,600 2,469,100 2,910,600 m
Kenwood 62,381,700 111,651,000 138,253,400
LeRoy Street 12,568,500 17,366,200 23,482,600 a
Lynwood 33,461,900 30,542,800 - o
Lytle Creek 34,702,400 31,757,700 30,990,500 *;
Mallory 33,129,100 33,432,000 32,531,900 1°
Mill& "D"Streets 21,269,200 22,293,300 17,500,000
N
Newmark 175,766,800 180,278,200 177,144,100 T-
19th Street 54,905,800 59,991,900 57,845,600
Olive &Garner 60,438,900 39,078,000 55,988,700
Perris Hill - 3,100 - Z
w
7th Street 2,083,100 6,236,400 9,617,500 5
w
Sierra Way& 16th Street 99,984,100 91,804,600 99,652,000 ~
Q
10th&"J"Street 74,885,800 63,475,600 88,559,800 U)
30th&Mountain View 44,765,300 19,446,800 11,814,700 —J
Q
27th Street 7,690,600 20,878,900 13,334,000 0
Waterman Avenue 44,848,300 53,209,000 68,460,600 Q
Z
LL
Total water produced 2,017,826,020 2,036,611,730 2,207,153,290 d
0
N
Purchased water - _ E-
0
Total water production 2,017,826,020 2,036,611,730 2,207,153,290 Q
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` 45
Packet Pg.512, '
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT �•••"r•.
Supplementary Information, continued r
For the year ended June 30, 2014 and prior fiscal years for comparison
TABLE SI-4
Water Rate History c
N
Rate Effective Date >-
2/!/2012 1/1 20n z/112010 0
Minimum Monthly Charge($fixed): ,0
Mete r Si ze:
L
o
1/2"or 5/8" 1290 12.20 10.55 C
3/4° 16.15 15.15 13.00
1' 22,60 21.00 17.90
1 2/2" v
38.80 35.75 30.15
2,t ro
5&20 53.45 44.85
F 3" 103.50 94.75 79.15 u_
t �
4" 168.20 153.70 !28.15 3
6" 330.00 301.15 250.70
8" Q
524.15 478.10 397.75
10" 750.65 684.55 569.30
as
Volumetri c Charges($per HCF): E
5-
Commodity- 1,15 1.10 1.05 p,
Replenishment 0.09 0.09 0.09 p
Elevation: L
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Zone! 0.11 0.10 0.09 f°
Zone 2 0.19 0.18 0.17
Zone 3 0.17 0.16 0.15 N
Zone 4 0.14 0.13 0.22 M
Zone 5 0.23 0.22 0.21 to
Zone 6 0.23 0.22 0.21 Z
Conservation Charges: W
Rate per HCF $ 0,35 $ 0.30 $ 0.25 W
Conservation Tiers(rate applicable above monthly usage of): Q
Residential 32 34 36
Multi-Dwel ling(2 units) 42
44 46 Q
Multi-Dwelling(3f units,per unit) 17 18 19 U
Z
Non-residential,5/8"meter 24 25 27 Q
Non-residential,3/4"meter Z
36 38 40 ti
Non-residential,!" meter 65 70 75
Non-reside ntial,1-1/2"meter 150 160 170 N
Non-residential,2"meter 250 260 270
Non-residential,3"meter 740 770 800
Commercial,5/8"meter 42 44 46 Q
Commercial,3/4"meter 55 60 65
Commercial,! meter E
��met 130 140
150 E
Commercial, 1-1/2"meter 275 290
305 �
Commercial,2"meter 445 465 485
Commercial,3"meter 875 'Q
920 965
Commercial,4"metier 2,400 2,530 2,660
Commercial,6"meter '
9.� 9,475 9,950
HCF=Hundred Cubic Feet(748 gallons)
46
Packet Pg. 513
i
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT •••,
Supplementary Information, conirnued tt g
For the year ended June 30,2014 and prior fiscal years for comparison :.t,�. '
TAKE 51-5 C
Water Connections and Revenue by User Type N
u_
User Type 2014 2013 2032 �-
w
Connections Revenue Connections Revenue Connectlons Revenue y
Single family 35,012 $ 18,583,708 34,913 $ 18,741,773 34,716 $ 18,094,052 Q
Multiple family 2,824 4,591,290 2,820 4,704,384 2,801 4,510,962
Q.
Commercial 3,085 6,566,344 3,082 6,800,310 3,117 5,790,427
Landscape 1,140 3,616,135 1,104 3,591,678 1,151 3,321,846 v
Other 1,703 913,810 1,663 599,210 1,626 1,597,791 M
LL
Total all users 43,764 $ 34,271,287 43,582 $ 34,437,355 43,411 $ 33,315,078
7
C
TABLE SI-6 a
N
Top Ten Water Customers c
m
E
Customer Name Sales a
m
City of San Bernardino $ 1,372,935
SB City Unified School District 770,147
County of San Bernardino 329,999 .
Housing Authority 287,499 N
California State University 243742 �?
Cott Beverages
232,470 N
i-
Baseline Mutual Water 232,288
z
LU
Successor to Former SB E.D.A. 190,038
Lu
California Dept. of Transportation 158,779 i-
Rialto School District H
145.601
Cn
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Top Ten Customers Total 3 Q
$ ,963,498 v
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Total Water Sales Revenue $ 35,828,614 z
LL
v
Top Ten Customers%of Total 11.06% N
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary information,continued "*YY
For the year ended June 30, 2014 and prior fiscal years for comparison &
4;
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TABLE SI-7 N
Sewage Treatment Rate History LL
L
Rate Effective Date °
1/1/2012 2/1/2011 1/1/2010 c
Residential (monthly per EDU M
$ 18.50 $ 17.00 $ 16.00
Commercial:
Minimum Monthly Charge 2.40 2.20 2Q0 c
Commodity Charge (per HCF):
c
Multi-Family 1.25 u'
1.10 0.95
Retail/Commercial 2.10 2.00 1.90
Auto Repair/Car Wash 1.30 1.30 1.30 Q
Offices/hote Is 1.50 1.50 `)
Restaurants 35 1'50 m
2
2.70 2.00
Laundromats 1.50 1.40 E
1.30
Hospitals
1.35 1.15 0.95 m
School s/Churche s 1.10 0.90
industrial: 0.70 L
m
Minimum Monthly Charge
1.00 1.00 1.00
Commodity Charge (per HCF) 0.35 0.35 N
Discharge Flow 0'35 r
g (per million gallons) 800,00 900.00 900.00 M
Biological Oxygen Demand(per 1,000lbs.) 360.00 330.00
292.00 N
Suspended Solids(per 1,0001bs.) 640.00 640.00 64000 Z
EDU=Equivalent Dwelling Unit w
HCF=Hundred Cubic Feet(748 gallons) w
H
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TABLE SI.8 Q
SewerTreatment Connections and Revenue by User Type Z
LL
User Type 2014 IT
2013 2022 0
Connections Revenue Connections N
-�� Revenue_ Connections Revenue
City of San Bernardino: 0
Residential 32,537 $ 8,111,634 32,663
Non-residential $ 7,922,936 32,572 $ 7,650,242 Q
5,420 8,033,072 5,447 8,332,224 5,412 '-
East valley Water District: 7,877,416 =
Residential d
18,404 4,149,836 18,925
Non-residenttat 2,125 2,725,075 4,288,434 18,813 4,019,127 t
1,126 2,434,118 1,128 2,492,375 v
City of Loma Linda: �
Residential 4,656 991,387 4,663 992,692 4,443 933,648 Q
Non-residential 692 1,330,102 58S 1,377,598
589 1,258,747
Total all users 62,714
_L 2S,341,10, 63,309 yam'
$$ 25,247,992 62,956 $ 24,`231,455
48
Packet Pg. 515
5.P.a
i
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Supplementary Information, continued
For the year ended June 30,2014 and prior fiscal years for comparison ` . • `
TABLE SI-9
Top Ten Sewage Treatment Customers o
N
Customer Name Sales U.
L
O
4�
Farmdale Creamery, Inc. $ 606,345 (n
County of San Bernardino 400 243 C.
Cott Beverages 324,609 �_
Evolution Fresh, Inc. 319,952 fS
San Bernardino Housing Authority 224,890
San Bernardino City Unified School District 189,643 =
f LL
Patton State Hospital 189,251
St. Bernardine Hospital/CHW 107,357
California State University San Bernardino 107,292 Q
Pama Management Company 88,647
Y
v
Top Ten Customers Total
$ 2,558,229 L
CU
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Total Sewer Sales Revenue $ 25,261,792
L
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Top Ten Customers%of Total 10.13% 'S
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CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
Single Audit Report on
Federal Awards
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Year ended June 30, 2014
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a, CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
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Single Audit Report on Federal Awards
Year ended June 30, 2014
TABLE OF CONTENTS
Page
Report on Internal Control over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards l
Report on Compliance for Each Major Federal Program, Report on
Internal Control over Compliance and Report on the Schedule of Expenditures
of Federal Awards Required by OMB Circular A-133 3
Schedule of Expenditures of Federal Awards 6
Notes to the Schedule of Expenditures of Federal Awards 7
Schedule of Findings and Questioned Costs 9
Summary Schedule of Prior Audit Findings 12
IIK-
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Mayer Hoffman McCann F 0Z
An Independent CPA F1 v
- 2301 Dupont Drive,Suite 200 0 Irvine,California 92 a
Main:949.474.2020 a Fax:949.263.5520 0 www.mhmcpa.c
i City of San Bernardino Municipal Water Department
Board of Water Commissioners
Report on Internal Control Over Financial Reporting and on Compliance and Other
Matters Based on an Audit of Financial Statements Performed in Accordance With
Government Auditing Standards
Independent Auditors' Report
We have audited, in accordance with the auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards issued by the Comptroller General of the United States, the financial
statements of the San Bernardino Municipal Water Department (Department), as of and for the
year ended June 30, 2014, and the related notes to the financial statements, which collectively
comprise the Department's basic financial statements, and have issued our report thereon dated
February 6, 2015.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Department's
internal control over financial reporting (internal control) to determine the audit procedures that
are appropriate in the circumstances for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the
Department's internal control. Accordingly, we do not express an opinion on the effectiveness of
the Department's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct, misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be prevented;
or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance. We considers items 2014-
001 2014-002 and
2014-003 in the
Schedule of Findings and Questioned Costs to meet the
definition of a significant deficiency.
Our consideration of internal control was for the limited purpose described in the first paragraph
of this section and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies. Given these limitations, during our audit we did
not identify any deficiencies in internal control that we consider to be material weaknesses.
However,material weaknesses may exist that have not been identified.
+RESTON Member of Kreston Internatiotaf a globat network of independent accounting firms
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°- City of San Bernardino Municipal Water Department
Board of Water Commissioners
Page Two
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Department's financial statements
are free from material misstatement, we performed tests of its compliance with certain provisions
of laws, regulations, contracts, and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit, and
accordingly, we do not express such an opinion. The results of our tests disclosed no instances of
noncompliance or other matters that are required to be reported under Government Auditing
Standards.
Department's Response to Findings
The Department's response to the findings identified in our audit is described in the
accompanying schedule of findings and questioned costs. The City's response was not subjected
to the auditing procedures applied in the audit of the financial statements and, accordingly, we
express no opinion on it
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of
the entity's internal control or on compliance. This report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the entity's
internal control and compliance. Accordingly, this communication is not suitable for any other
purpose. !!,, 9 n /y
Ra- �7im ,, me
Irvine,Jalifornia
March 5, 2015
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2301 Dupont Drive,Suite 200 2 Irvine,California 92
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City of San Bernardino Municipal Water Department
Board of Water Commissioners
Report on Compliance For Each Major Federal Program; Report on Internal Control Over
Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by
OMB Circular A-133
Independent Auditors' Report
Report on Compliance for Each Major Federal Program
We have audited the San Bernardino Municipal Water Department's (Department) compliance
with the types of compliance requirements described in the OMB Circular A-133 Compliance
Supplement that could have a direct and material effect on each of the Department's major
federal programs for the year ended June 30, 2014. The Department's major federal programs
are identified in the summary of auditor's results section of the accompanying schedule of
findings and questioned costs.
Management's Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts,
and grants applicable to its federal programs.
Auditors'Responsibility
Our responsibility is to express an opinion on compliance for each of the Department's major
federal programs based on our audit of the types of compliance requirements referred to above.
We conducted our audit of compliance in accordance with auditing standards generally accepted
in the United States of America; the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States;.and
OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.
Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain
reasonable assurance about whether noncompliance with the types of compliance requirements
referred to above that could have a direct and material effect on a major federal program
occurred. An audit includes examining, on a test basis, evidence about the Department's
compliance with those requirements and performing such other procedures as we considered
necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each
major federal program. However, our audit does not provide a legal determination of the
Department's compliance.
KRESTON Member of Kreston lnternatioAal-a global network of independent accounting firms
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Page Two
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Opinion on Each Major Federal Program
In our opinion, the Department complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on each of its major
federal programs for the year ended June 30, 2014.
Other Matters
The results of our auditing procedures disclosed an instance of noncompliance, which is required
to be reported in accordance with OMB Circular A-133 and which is described in the
accompanying schedule of findings and questioned costs as item 2014-004. Our opinion on each
major federal program is not modified with respect to these matters.
The Department's response to the noncompliance finding identified in our audit is described in
the accompanying schedule of findings and questioned costs. The Department's response was
not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we
express no opinion on the response.
Report on Internal Control Over Compliance
Management of the Department is responsible for establishing and maintaining effective internal
control over compliance with the types of compliance requirements referred to above. In
planning and performing our audit of compliance, we considered the Department's internal
control over compliance with the types of requirements that could have a direct and material
effect on each major federal program to determine the auditing procedures that are appropriate in
the circumstances for the purpose of g an P J
p expressing opinion on compliance for each major federal
program and to test and report on internal
control over compliance in accordance with OMB
Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal
control over compliance. Accordingly, we do not express an opinion on the effectiveness of
Example Entity's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control
over compliance does not allow management or employees, in the normal course of performing
their assigned functions, to prevent, or detect and correct, noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal
control over compliance is a deficiency, or combination of deficiencies, in internal control over
compliance, such that there is a reasonable possibility that material noncompliance with a type of
compliance requirement of a federal program will not be prevented, or detected and corrected, on
a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a
combination of deficiencies, in internal control over compliance with a type of compliance
requirement of a federal program that is less severe than a material weakness in internal control
over compliance,yet important enough to merit attention by those charged with governance.
4
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to Board of Water Commissioners a.
Page Three
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Our consideration of internal control over compliance was for the limited purpose described in a
the first paragraph of this section and was not designed to identify all deficiencies in internal
control over compliance that might be material weaknesses or significant deficiencies. We did
not identify any deficiencies in internal control over compliance that we consider to be material
weaknesses. However,material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of
our testing of internal control over compliance and the results of that testing based on the
requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other
purpose.
Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133
We have audited the financial statements of the Department as of and for the year ended June 30,
2014, and have issued our report thereon dated March 5, 2015 which contained an unmodified
opinion on those financial statements. Our audit was conducted for the purpose of forming an
opinion on the financial statements as a whole. The accompanying schedule of expenditures of
federal awards is presented for purposes of additional analysis as required by OMB Circular A-
133 and is not a required part of the financial statements. Such information is the responsibility
of management and was derived from and relates directly to the underlying accounting and other
records used to prepare the financial statements. The information has been subjected to the
auditing procedures applied in the audit of the financial statements and certain additional
procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the financial statements or to the financial
statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the schedule of expenditure
of federal awards is fairly stated in all material respects in relation to the financial statements as a
whole:
Irvine, California
March 5, 2015
5
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Expenditures of Federal Awards
Year ended June 30,2014
Federal
Domestic Program
Federal Grantor/ Assistance Identification Program
Program Title Number Number Expenditures
Environmental Protection Agency
Congressionally mandated projects 66.202 XP-OOT37901-1 48,039
Subtotal 48,039
Superfund State,Political Subdivision,and Indian Tribe
Site-Specific Cooperative Agreements 66.802 V-OOT73801-1 260,839
Subtotal 260,839
CONSENT DECREE 66.000 #
Operations and maintenance:
Newmark 521,029
Muscoy 843,397
- Site wide monitoring 121,329
Project management 215,777
Subtotal 1,701,532
Total Expenditures of Federal Awards $ 2,010,410
# A PIN number has not been assigned
See accompanying notes to the schedule of expenditures of federal awards.
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I u CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Schedule of Expenditures of Federal Awards
Year ended June 30, 2014
(1) Summarof Significant Accounting Policies Applicable to the Schedule of Expenditures of
Federal Awards
(a) Scope of Presentation
The accompanying Schedule of Expenditures of Federal Awards (the "Schedule")
includes the federal grant activity of the San Bernardino Municipal Water
Department (the "SBMWD") under programs of the federal government for the year
ended June 30, 2014. The information in this Schedule is presented in accordance
with the requirements of the Office of Management and Budget (OMB) Circular A-
133, Audits of States, Local Governments, and Non-Profit Organizations. Because
the Schedule presents only a selected portion of the operations of the SBMWD, it is
not intended to and does not present the financial position, changes in net assets or
cash flows of the SBMWD.
(b) Basis of Accounting
Expenditures reported on the Schedule are reported on the accrual basis of
accounting. Such expenditures are recognized following the cost principles
contained in OMB Circular A-133, Audits of States, Local Governments, and Non-
Profit Organizations. Under the accrual basis of accounting, expenditures are
recognized when incurred. Expenditures reported include any property or equipment
acquisitions incurred under the federal program.
1
(c) Subrecipients
During the fiscal year ended June 30, 2014, there were no disbursements made to
subrecipients.
4
(2) Background of Consent Decree
In 1996, the City of San Bernardino (City) filed a complaint against the United States of
America, Department of the Army (Army) to recover damages, response costs and other
available remedies relating to contamination alleged to have originated at a World War II
Army installation known as Camp Ono. In March 2005, the United States Department
Court, Central Department, entered judgment, in the form of a consent decree (Consent
Decree), in the matter of City of San Bernardino v. United States of America. The
consent decree settles the City's and the State's claims arising from the groundwater
contamination allegedly caused by the Army. The Consent Decree contains a number of
provisions obligating the City (through the Municipal Water Department) to operate and
maintain the Newmark Groundwater Superfund site (Site). The Site consists of two
operable units, the Newmark Operable Unit and the Muscoy Operable Unit. The
Newmark Operable Unit was declared operational and functional in 1998.
7
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Y
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Notes to the Schedule of Expenditures of Federal Awards a
Year ended June 30, 2014
(2) Background of Consent Decree(Continued)
The Consent Decree provided for a payment of$69 million from the Army to the City for
performance of the work outlined in the consent decree. Upon entry of the Consent
Decree, the City, through the Department, received title to all facilities constructed by the
United States Environmental Protection Agency(EPA) for the Site and agreed to operate
and maintain the groundwater extraction and treatment system for a period of 50 years.
The $69 million payment consisted of$59 million for operation and maintenance and $10
million for the construction of certain capital facilities that would be required in the
future. The funds are subject to strict limitations, contained in the Consent Decree, as to
how they may be spent.
Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside
to be used only for (i) funding construction of treatment and directly related transmission
systems that expanded the Department's capacity to deliver potable water, and (ii)
funding work performed by the Department to complete construction of the Muscoy
Operable Unit extraction system. These"capital facility" funds may not be used for costs
incurred to operate, maintain, repair or retrofit components of the Site extraction or
treatment systems constructed by EPA. In September 2007, the Muscoy Operable Unit
was declared operational and functional.
8
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
14
Schedule of Findings and Questioned Costs a
Year ended June 30, 2014
(A) Summary of Auditors' Results
1. An unmodified report was issued by the auditors on the financial statements of the
auditee.
2. No material weaknesses and three significant deficiencies in internal control over
financial reporting, identified as 2014-001, 2014-002, 2014-003, with respect to
major programs of the auditee were reported.
3. The audit disclosed no noncompliance which is material to the financial statements
of the auditee.
4. No material weaknesses or significant deficiencies in internal control over
compliance with respect to major programs of the auditee were reported.
5. An unmodified report was issued by the auditors on compliance for the Department's
major programs.
6. One matter was required to be reported under paragraph .510(a) of OMB Circular A-
133 were reported and is described at 2014-004.
7. The major program of the auditee was the Environmental Protection Agency —
Consent Decree, CFDA#66.000.
8. The dollar threshold used to distinguish Type A and Type B programs was $300,000.
9. The auditee did not meet the criteria to be classified as a low risk auditee, as defined
by OMB Circular A-133, paragraph .530, for the year ended June 30, 2014 for the
purpose of determining major programs.
(B) Findings Related to the Audit of the Basic Financial Statements Required to be Reported in
Accordance with GAGAS
There were no findings required to be reported in accordance with GAGAS.
s
(C) Findings and Questioned Costs Related to Federal Awards
There was one auditor finding required to be reported in accordance with Paragraph
.510(a) at OMB Circular A-133.
9
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
a
Year ended June 30,2014
(2014-001) Capital Asset Records
"E
During our audit, we detected several errors in the capital asset records that resulted in
recording journal entries. Those errors related to depreciation expense, improper
capitalization of maintenance costs, and an unrecorded capital asset deletion for an asset
that was replaced during the year. The Department's current capital asset records do not
contain sufficient detail to allow staff to properly identify and remove assets that are no
longer in service. It has been several years since a physical count of capital assets
occurred.
Recommendation
We recommend on a go forward basis the Department record capital assets by identifiable
replacement part instead of by projects. We also recommend the Department estimate
deletions for pipes and sewer lines that are replaced during the year when historical
information is not available. Additionally, a physical count of a representative sample of
capital assets should be performed periodically.
Management's Comments Regarding Corrective Action Taken or Planned:
The Department will review our current capital asset procedures develop a methodology to
record capital assets by major identifiable replacement parts. In addition, staff will
develop a process for estimating deletions on an annual basis. In regard to the
recommendation for a periodic physical count of all assets, staff will initiate an annual
physical count of a representative sample of identifiable capital assets.
(2014-002) Segregation of Duties
The Senior Accountant prepares the bank reconciliation, has access to the accounts
payable system, the payroll system, can print checks and sends the positive pay report to
the bank. Additionally, the bank reconciliation was not being reviewed during the period
covered by the audit.
We also noted the Senior Accountant prepares the Mt. Vernon checking account bank
reconciliation and is responsible for the check stock and cash disbursements. During the
period covered by the audit, the bank reconciliation was not being reviewed. The Mt.
Vernon activities are tracked in a separate accounting system and are thus not covered by
the Department's standard internal controls.
Recommendation
We recommend the Finance Director review the bank reconciliation and the positive pay
report. We also recommend the Finance Director evaluate the current duties to identify
opportunities for further segregation of duties between the finance staff.
The Mt. Vernon activities could be recorded in a separate fund in the Department's
accounting system. Once accounted for in the same system, the transactions would be
subject to the normal controls for all District activity. The bank reconciliation should be
reviewed by someone independent of the cash disbursement process.
10
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
Year ended June 30, 2014
(2014-002) Segrregation of Duties, (continued)
Management's Comments Regarding Corrective Action Taken or Planned:
Staff agrees with the recommendations for the review of the bank reconciliation and
banking reports. The Finance Director will be reviewing all duties during the upcoming
fiscal year to ensure that a proper segregation of duties exists for Finance tasks.
I In regard to the Mt. Vernon account, Finance staff will work with our Information
Technology Manager to determine the feasibility of establishing the Mt. Vernon activities
as a separate fund in our financial system. Currently, all payments are signed by the
Deputy General Manager to ensure there is a segregation of duties from the individual
preparing the payments. In the future, the Finance Director will review the Mt. Vernon
bank reconciliations.
(2014-003) Adjustments Detected During the Audit
Auditing standards require the auditors to include in the report of significant control any
material adjustment detected during the audit process. For the year ended June 30, 2014,
the follow material adjustments were made:
• Increase to accounts payable for cost incurred in June 2014
• Increase depreciation expense for an incorrectly Posted iournal entry
• Increase revenue and unbilled receivables for an incorrectly Posted ioumal entry
• Decrease the investment in joint venture — RIX balance based on current year
activity
• Remove capitalized interest recorded on the RIX stand alone financial statements
• An adjustment to capital assets recorded on the RIX stand alone financial
statements
• A Prior period adjustment to remove salvage value that was included in capital
assets
• A Prior period adjustment to adjust the value of the investment in joint venture -
RIX
Management's Comments Regarding Corrective Action Taken or Planned:
We agree with the adjustments.
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Y
Schedule of Findings and Questioned Costs a
Year ended June 30, 2014
2014-004) Complying with Federal Requirements
FEDERAL AGENCIES:
Environmental Protection Agency(EPA)
CFDA No's:
I EPA - 66.000
FEDERAL PROGRAM NAME:
Consent Decree
I
FEDERAL AWARD PROGRAM No's.:
Consent Decree-N/A
QUESTIONED COSTS: $0
Condition: There were instances where the administration of the program did not
address all of the compliance matters of a given federal program. These compliance
matters included retention of evidence regarding the review of suspension and debarment
requirements.
Criteria: Entities are prohibited from using federal funds to contract with or make
subawards to parties that are suspended or debarred or whose principals are suspended or
debarred. Contractors receiving individual awards for $25,000 or more and all
subrecipients must certify that the organization and its principals are not suspended or
debarred. Alternatively, prior to engaging the vendor, the Department may, on its own,
view the federal website that identifies suspended and debarred parties. Evidence of
compliance with these requirements was not provided by the Department. In addition,
entities should have a system in place to assure that procurement documentation is
retained for the time period required by the A-102 Common Rule, OMB Circular A-110
(2 CFR part 215), award agreements, contracts, and program regulations.
Cause: These requirements were not fully adhered to because the departments
administering the grants were unable to provide documentation that a review of
suspension and debarment was performed.
Effect: Failure to follow these requirements could result in disallowed costs for the
Department.
Recommendation: We recommend procurement staff have on-line access to the System
for Award Management (SAM.gov) to search for contractors that are suspended or
debarred prior to award. The results of this search should be retained and documented.
Alternatively the Department could require contractors to certify they are not suspended
or debarred prior to awarding the contract.
12
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
Year ended June 30, 2014
(2014-004) Complying with Federal Requirements(continued,
Management's Comments Regarding Corrective Action Taken or Planned:
Management agrees with his finding and will direct purchasing staff to incorporate the
recommendation.
13
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CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Summary Schedule of Prior Audit Findings
Year ended June 30, 2014
The status of prior year audit findings is as follows:
(2013-1) Complying with Federal Requirements
This finding has been repeated as 2014-1.
14
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