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Home My WebLink About07.D- Audited Annual Financial Report Water and Sewer Utilities for Fiscal Year Ended June 30, 2015 7.D DOC ID: 4300 C CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION Budget From: Stacey R. Aldstadt M/CC Meeting Date: 03/21/2016 Prepared by: Georgeann "Gigi" Hanna, Dept: Water Ward(s): All Subject: Audited Annual Financial Report of the Water Department's Water and Sewer Utilities for Fiscal Year Ended June 30, 2015 (At Meeting of March 7, 2016, Item Continued to March 21, 2016) (#4300) Current Business Registration Certificate: Not Applicable Financial Impact: N/A Motion: Receive and file. Background: State law requires that every general purpose government publish within six months of the close of each fiscal year a complete set of audited financial statements. The attached report is published to fulfill that requirement for the San Bernardino Municipal Water Department for the fiscal year ended June 30, 2015. Supporting Documents: CAFR 063015Final - San Bernardino Water (PDF) Packet Pg. 710 Updated: 3/8/2016 by Linda Sutherland C - 7.D.a m m COMPREHENSIVE ANNUAL FINANCIAL w REPORT OF THE CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT, A DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA y 4- yO L O ��Q. fi LL C IC _ LL R 7 C j = Q c M d .r+ iC O _ 'a L t. L d m 0 r O M tD O LL Q U Y _ C) G U O a+ Q Packet Pg.711 m c c w City of San Bernardino Municipal Water Department >- Comprehensive Annual Financial Report o Fiscal Year Ending June 30, 2015 y m Table of Contents L Page No, Introductory Section: c Letter of Transmittal i L Organizational Chart vii co Financial Section: Independent Auditor's Report 1 0 Management's Discussion and Analysis 5-11 C Basic Financial Statements: Statement of Net Position 14-15 � Statement of Revenues, Expenses and Changes in Net Position 16 = Statement of Cash Flows 17-18 LL Notes to the Basic Financial Statements 19-49 c Statistical Section: Changes in Net Position—Combined Funds 53 Q Changes in Net Position—Water Fund 54 °' Changes in Net Position—Sewer Fund 55 Net Position by Component—Combined 56 Q Net Position by Component—Water Fund 57 c Net Position by Component—Sewer Fund 58 d Water Fund Revenue by Type 59 u, Sewer Fund Revenue by Type 60 Water Fund Expenses by Type 61 0 Sewer Fund Expenses by Type 62 = Water Fund Debt Service Coverage 64 Sewer Fund Debt Service Coverage 65 Demographic Statistics 67 m Major Employers 68 Authorized Positions History 69 ' Water Rates: Minimum Monthly Charge 71 Water Connections and Revenues by User Types 72 a_ UJ Water Rates—Elevation Charges per HCF 73 c Top Ten Water Consumers 74 0 Sewage Treatment Rate History 75 Sewage Treatment Connections and Revenue by User Type 76 a Top Ten Sewage Treatment Customers 77 U c Q E Q Packet Pg. 712 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT _ BOARD OF WATER COMMISSIONERS p,I`1 BE STACEY R.ALDSTADT uj h'rtr General Manager TONI CALLICOTT 04 ��i ROBIN L.OHAMA U- President Deputy General Manager E. Z MIGUEL GUERRERO,P.E. '— Commissioners j '` O Director of Water Utility a) JUDITH VALLES JOHN A.CLAUS LOUIS A.FERNANDEZ Director of Water Reclamation WAYNE HENDRIX tL JENNIFER SHEPARDSON DAVID E.MLYNARSKI 7 E R D4 Director of Environmental& N Regulatory Compliance TERRI WILLOUGHBY Director of Finance -p "Trusted, Quality Service since 1905" L 4- January 27, 2016 0 r- 0 s=. Members of the Board of Water Commissioners San Bernardino Municipal Water Department L) _ _ Introduction: U- State law requires that every general purpose government publish within six months of the close of each fiscal year a mplete set of audited financial statements. This report is published to fulfill that requirement for the San Bernardino Q ,Municipal Water Department("Department")for the fiscal year ended June 30, 2015. Management assumes full responsibility for the completeness and reliability of the information contained in this report, a 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 reasonable, rather o than absolute, assurance that the financial statements are free of any material misstatements. Davis Farr LLP has issued an unqualified ("clean") opinion on the Department's financial statements for the year ended June 30,2015. The independent auditor's report is located at the front of the financial section of this report. Management's discussion and analysis ("MD&A") immediately follows the independent auditor's report and c 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. L m Profile of the Department: The San Bernardino Municipal Water Department and the Board of Water Commissioners ("Board") were =_ established on May 8th, 1905 by the Mayor and Common Council of San Bernardino in accordance with the n provisions specified in the City charter. The Board assembled for the first time on May 16th, 1905 to meet the M water supply needs of the community by providing trusted, quality service to our customers. This service has o grown through the years to include: water supply, water reclamation, geothermal heating supply, and wl administrative support for our growing community. U _ d E t v 300 North "D" Street, San Bernardino, California 92418 P.O. Box 710, 92402 Phone: (909) 384-5141 FACSIMILE NUMBERS: Administration:(909)384-5215 Engineering:(909)384-5532 Customer Service:(909)384-7211 Q Corporate Yards:(909)384-5260 Water Reclamation Plant:(909)384-5258 i Packet Pg. 713 Board of Water Commissioners January 27, 2016 Page 2 c ie first water distribution system of San Bernardino included water supply for approximately six thousand 0 ,itizens within a one square mile service area. In contrast, the water supply distribution network now encompasses over 40,000 service connections including 550 miles of water mains. Although the number of w connections has increased during the past one hundred years, our commitment to providing trusted, quality u_ L service remains the same. 0 N The San Bernardino service area receives the majority of its water supply from an underground aquifer 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 Bernardino Mountains. This local water supply ensures that the customers of the San Bernardino Municipal Water Department receive high quality, inexpensive water as compared to other communities. Many other communities in Southern California must import their water supplies from remote locations via the Colorado River and Northern California 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. The Department is committed to providing trusted, quality service to our customers as we provide water supply, 0 water reclamation, geothermal heating, and administrative services to our community. 0 a� CO Water Revenue by Type - 2015 CO _ LL 3% �a 0 Residential-Single Family Y w Residential-Multi Family Q A' Commercial/Industrial c CD E Landscape m other a IS City Usage i: 0 _ �a L _ L d m _ _ Fiscal Management: The Board annually adopts an operating and capital budget prior to the new fiscal year. The budget authorizes M and provides the basis for reporting and control of financial operations and accountability for the Department's o functions, including the Water and Sewer Funds. The budget and reporting treatment applied to a fund is consistent with the accrual basis of accounting and the financial statement basis. Each year the Department Q adopts a balanced budget. a� E U Y Y a i� Packet Pg. 714 Board of Water Commissioners January 27, 2016 Page 3 )cal Economy: The Department's offices are located in the City of San Bernardino in San Bernardino County. According to w the California Department of Finance, San Bernardino's population as of January 1, 2015 was 213,933. San U_ Bernardino's local economy has been affected by the recent recession, both to a greater extent and for a o longer period than surrounding cities. This has affected the Department as increased residential and a commercial vacancies have led to a declining customer base. However, as the local real estate and employment markets improve, this customer base should begin to recover. The City's unemployment rate is currently 7.6%, down from 9.4% in the prior year. Local 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. California's water supply continues to be a concern due to projected population increases and dwindling c supplies from traditional sources. The Department has expanded and will continue to expand its 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. On January 17, 2014, Governor Edmund G. Brown Jr. 0 proclaimed a State of Emergency related to the drought conditions in California and formed the Drought Task o Force. On April 1, 2015, Governor Brown issued an executive order mandating a statewide 25% reduction for urban water suppliers. On May 5, 2015, the State Water Resources Control Board adopted an emergency regulation which assigned a conservation standard to each urban water supplier. The conservation standard •i3 assigned to the Department was 28%. In turn, the Department's Board of Water Commissioners declared that c Stage IIA, Extreme Mandatory Restrictions were in effect. These restrictions imposed a 28% reduction in ;l, water usage and assess financial penalties on usage in excess of these amounts. As a result of these 3 restrictions, water consumption in Fiscal Year 2014-15 decreased 11% from the prior year. _ Q During the past three years, the Department's expenses related to the cost of water production have reduced, despite an increase in customers of 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 a was 50,843 cubic feet but fell to 33,505 per cubic feet in 2015. c 0 M d' L Q� Water Production In Cubic Feet 2 cc 2,500,000,000 m ca ,R.1.�„207,153 r_2,000,000,000 1b o�zs26020- a 1,569,854,500 C 1,500,000,000 --T - LL Water Production o 1,000,000,000 - �D 0 I LL 500,000,000 Q U c (D E 2011 2012 2013 2014 2015 w Q "' Packef Pg. 71 5 7.D.a Board of Water Commissioners January 27, 2016 Page 4 mg Term Financial Planning: The Department's financial plan includes the establishment of reserve funds in accordance with the w 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 d r 2013. = ➢ Operating Reserve: This reserve is established to ensure adequate cash flow is available to meet day- to-day expenses. The target balance is 45 days of the operating expenses budgeted for each respective fund. _ ➢ 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 20% of budgeted water sales. The minimum target balance for the Sewer Fund is 10% of budgeted sewer sales. 0 ➢ Emergency Replacement Reserve: The purpose of this reserve was to minimize the impact of 0 unforeseen capital asset and operating expenses. The target balance for the Water Fund is 2°Ao of the � total recorded value of capital assets as of the previous fiscal year. The target balance for the Sewer Fund is 3% of the total recorded value of capital assets as of the previous fiscal year. _ ➢ Capital Replacement Reserve: The Capital Replacement Reserve was set up in order to provide LL funding in support of the Department's capital program. The basis for calculating the target balance for ga this reserve is a rolling five-year average of the Department's Capital Improvement Program projects, excluding those with external funding. The target balance will be assessed on an annual basis as part ¢ of the budgeting process. Debt Administration: ¢ 0 The Department's outstanding debt as of June 30, 2015 consists of four Notes Payable in the Water Fund, and M debt obligations consisting of a Note Payable and Certificates of Participation in the Sewer Fund, as shown in the table below: Water Fund Long-Term Debt Activity 0 Year of Issuance/Description Use of Proceeds 2002 California Infrastructure & Economic Funding for transmission mains, booster Development Bank CIEDB Note Stations and a reservoir. 2007 California Infrastructure& Economic Funding for booster stations and transmission m Development Bank CIEDB Note mains in the Verdemont area. 2012 California Infrastructure& Economic Funding for the construction of the 12 million gallon v� Development Bank CIEDB Note Ogden Reservoir and pipeline improvements. 2012 San Bernardino Valley Funding for the purchase of real property. _ Municipal Water District Note U) T Sewer Fund Lon -Term Debt Activity Year of Issuance/Description Use of Proceeds 2001 State Revolving Fund Note Payable Funding for the San Bernardino/Colton Q Rapid Infiltration Extraction (RIX) project v 1998 Certificates of Participation Advance refunding of the 1992 Certificates of Participation and funding for capital improvements. E U R r� Q iv Packet Pg.716 7.D.a Board of Water Commissioners January 27, 2016 Page 5 (levant Financial Policies: c Internal Control Structure w U- Department management is responsible for the establishment and maintenance of the internal control structure w 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 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 are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management. U) 0 Major Initiatives and Key Values: ID ca The activities of the Board and staff at the Department are driven by our key value statements as outlined 0 below: t: 0 0. 1. Provide the highest level of customer service to our community. Q 2. Establish fair and equitable rates. 3. Provide the highest quality of water and wastewater services. 4. Provide responsible stewardship of our resources and our environment. 5. Require ethical business practices. LL 6. Promote staff development. _ c knowledgements: Q Preparation of this report was accomplished by the combined efforts of Department staff. We appreciate the dedicated efforts and professionalism that these staff members contribute to the service of the Department's Q customers. The contributions made by Susan Justice, Principal Accountant, and Michelle Honis and Jennifer o Francis, Senior Accountants, deserve special recognition. We would also like to thank and recognize the M members of the Board for their continued support in planning and implementation of the Department's fiscal L policies. 0 c Respectfully submitted, �a L 0 _ L Q� Stacey R. stadt, General Manager Terri A. Willoughby, Director of ance c LO 0 M (D O U- Q U c a� E U R Q Packet Pg. 717 a� City of San Bernardino Municipal Water Department _ W Mayor of the City of San Bernardino ,0 R. Carey Davis y Board of Water Commissioners Toni Callicott, President David E. Mlynarski, Commissioner = Dr. Louis A. Fernandez, Commissioner Wayne Hendrix, Commissioner Dr. Judith Valles, Commissioner o Administration 0 0 Q. Stacey R. Aldstadt, General Manager Robin L. Ohama, Deputy General Manager Miguel Guerrero, Director of Water Utilities co John A. Claus, Director of Water Reclamation U_ Terri Willoughby, C.P.A., Director of Finance = _ Q Mission Statement a To meet our customer's needs by providing high-quality service in water supply, o CD water reclamation and geothermal heating in the most professional and cost- effective manner possible. id 2� J Organization _ The City of San Bernardino Municipal Water Department was formed in 1905 co under the Charter of the City of San Bernardino. The Department is governed by m the Board of Water Commissioners who are appointed by the Mayor of the City of CU San Bernardino. The Charter gives the Board of Water Commissioners semi- I? autonomous authority to govern the Department independent of the City Council. The Department operates two enterprise funds: the Water Utility Enterprise Fund LO Irl Co and the Sewer Utility Enterprise Fund. Water service encompasses the City, with the exception of the east end, which is served by the East Valley Water District. C)I Sewer service encompasses all of the City of San Bernardino, the City of Loma Linda, the former Norton Air Force Base, Patton State Hospital and portions of the areas serviced by East Valley Water District. E U f4 Q Vi Packet Pg. 718 dM d / @ a) o t \ E ( q k \ k E ° m = ƒ � / 7 } 0 m § k . = e / � } > > 0 � $ I io 0 E ^\ a 10 c -n ® \ \ 4 . / / E �k f IS i E u / E \ \ § 0 § # k f f ! u C 5 G § LU E ` E . ... o » E } .. \.. . .. ..y \ § d _ \ q } £ to « ) « _ : Q 00 c ._ e ¥ E $ E ° £ E c c o 3 a c x \ 2 ° k i _/ > � S k / } / 3 . 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Municipal Water Department of the City of San Bernardino 0 San Bernardino, California Y Z) Independent Auditor's Report a� Report on the Financial Statements We have audited the accompanying financial statements of the Municipal Water Department of the City of San Bernardino, California ("Department"), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Department's basic financial statements as listed in the table of contents. 0 0 Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes r- the design, implementation, and maintenance of internal control relevant to the preparation and fair S presentation of financial statements that are free from material misstatement, whether due to fraud or error. c Q Auditor's Responsibility Y Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, o issued by the Comptroller General of the United States. Those standards require that we plan and v perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Ca An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in o the financial statements. The procedures selected depend on the auditor's judgment, including the S assessment of the risks of material misstatement of the financial statements, whether due to fraud or a error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are m 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 M 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 = U- statements. r 0 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for o our audit opinion. Wi LL Q c a� E U Q 1 Packet Pg. 721 7.D.a Board of Water Commissioners Municipal Water Department of the City of San Bernardino, California = w Page 2 of 3 LL L Opinion ° N N In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Municipal Water Department of the City of San Bernardino, California, as of D June 30, 2015, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. ° Emphasis of Matters c L As discussed in Note 1, 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 o City of San Bernardino, California that are attributable to the transactions of the Department. They do : not purport to, and do not, present fairly the financial position of the City of San Bernardino as of June 30, 2015, 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 La modified with respect to this matter. c On August 1, 2012, the City of San Bernardino filed a petition under Chapter 9 of the United States U_ tz Bankruptcy Code seeking to adjust the timing and amount of the payments associated with the City's obligations. As discussed in note two to the financial statements, there is considerable uncertainty associated with this process and the effects of this process upon the Department are not known at this time. The financial statements for the year ended June 30, 2015 reflect certain prior period adjustments as a described further in Note 15 to the financial statements and Governmental Accounting Standards Board c Statement No. 68 as described further in Note 7. Our opinion is not modified with respect to this matter. M L Other Matters 2 Required Supplementary Information 0 Accounting principles generally accepted in the United States of America require that the management's cc discussion and analysis be presented to supplement the basic financial statements. Such information, E although not a part of the basic financial statements, is required by the Governmental Accounting m Standards Board (GASB) who considers it to be an essential part of financial reporting for placing the R basic financial statements in an appropriate operational, economic, or historical context. We have N applied certain limited procedures to the required supplementary information in accordance with CU auditing standards generally accepted in the United States of America, which consisted of inquiries of = management about the methods of preparing the information and comparing the information for n consistency with management's responses to our inquiries, the basic financial statements, and other M knowledge we obtained during our audit of the basic financial statements. We do not express an opinion o 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. Q U c m E w Q 2 Packet Pg. 722 7.D.a a� _ _ Board of Water Commissioners Municipal Water Department of the City of San Bernardino, California w Page 3 of 3 >. LL L W Other Information d Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Department's basic financial statements. The introductory section and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory and the supplemental sections have not been subjected to N the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. L Q Y Other Reporting Required by Government Auditing Standards 0 In accordance with Government Auditing Standards, we have also issued our report dated January 26, o 2016 on our consideration of the Department's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit = performed in accordance with Government Auditing Standards in considering the Department's internal LL control over financial reporting and compliance. Q a a� Y Irvine, California Q January 26, 2016 0 0 M L d Y f0 O _ L Cz _ L M� W _ r� N _ U- LO r M t0 O LL Q U _ d E U Y Y a 3 Packet Pg. 723 7.D.a m c 3 M d _ W } LL. L 0 Mme. Q� Y L 3 m U) c co L d �0+ L O Q. N(1) li PAGE INTENTIONALLY LEFT BLANK = �s c U- "a Q a� =a Q 0 0 M L Q� 2� l O c L c L M� W c Y! c LL Lo r CD M CD O I LL a U _ a� E Q 4 Packet Pg. 724 7.Da CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 m a The City of San Bernardino's Municipal Water Department (Department) is a water and sewer treatment utility w responsible for delivering high quality, economically priced water and sewer treatment service to a quarter of a LL million customers in and around the City of San Bernardino, California. This section of the Department's annual o financial report presents managements analysis of the Department's financial performance during the fiscal year that ended on June 30, 2015. 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 L otherwise noted. 3 a� Financial Highlights N New significant Accounting Standards implemented. In fiscal year 2014-15, the Department adopted two new statements of financial accounting standards issued by the Government Accounting Standards Board (GASB) a; that relate to pension activity: Statement No. 68, "Accounting and Financial Reporting for Pensions — an amendment of Statement No. 27," and Statement No. 71, "Pension Transition for Contributions Made o Subsequent to the Measurement Date-an amendment of GASB Statement No. 68. . Statement No. 68 0 (Statement) establishes standards of accounting and financial reporting, but not funding or budgetary standards, CL m for the Department's defined benefit pension plans. This Statement replaces the requirements of prior GASB statements impacting accounting and disclosure of pensions. Statement No. 71 amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Both Statements are to be applied simultaneously. The significant impact to the Department of implementing Statement No. 68 is the reporting of the a Department's pension liability on the Department's financial statement. There are also new note disclosures .a and required schedules as a result of implementing this Statement. In order to implement the Statements, a prior period adjustment was made to the Department's July 1, 2014 net position. The prior period decreased a the Department's beginning net position by$49 million and reflects the reporting of: 1) net pension liabilities of $40.9 million, 2) deferred outflow of resources of$3 million and 3) deferred inflow of resources of$9.7 million. c°o� v Other highlights: L • The Department's overall net position increased by$11.5 million. a • Operating revenues decreased by slightly more than 7% from the prior year, primarily due to reduced °c water consumption. • Operating expenses decreased $2.9 million, or 5%from the prior fiscal year. E m m • Net income/loss before capital contributions increased by $830,000. primarily due to a gain attributed c R to the investment in the RIX Joint Venture. Cn • The Department's current ratio (the ability to pay short-term obligations)was 2.48. U_ • enses with cash)was 381 days. Ln Cash available (the ability to cover current exp 0 M Overview of the Financial Statements o i The discussion and analysis are intended to serve as an introduction to the Department's basic financial statements. The Department's basic financial statements are comprised of two components: the Financial v Statements and the Notes to the Basic Financial Statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Information providing citywide financial results is available in the City's Comprehensive Annual Financial Report. Q 5 Packet Pg. 725 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued m For the Year Ended June 30, 2015 m c Required Financial Statements W The financial statements of the Department report information about the Department using accounting methods similar to those used by private sector companies. These statements offer short-term and long-term 4° afinancial information about its activities. The Statement of Net Position (pages 14-15) includes all of the Department's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the j basis for evaluating the capital structure of the Department and assessing the liquidity and financial flexibility of the Department. All of the current year's revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position (page 16) statement measures the success of the Department's cn 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 CD financial statement is the Statement of Cash Flows (pages 17-18). The primary purpose of this statement is to provide information about the Department's cash receipts and cash payments during the reporting period. The ,- statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, 0 0 and financing activities and provides answers to such questions as where did cash come from, what was cash 0 used for, and what was the change in cash balance during the reporting period. Financial Analysis of the Department L) Our analysis of the Department begins on page 14 of the financial statements. One of the most important questions to ask about the Department's finances is "Whether the Department, as a whole, is better off or "- worse off as a result of the years activities? The Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position report information about the Department's activities in a way that will Q help answer this question. These two statements report the net position of the Department and changes in -a them. Measuring the change in the Department's net position -the difference between assets and liabilities - is m one way to measure financial health or financial position. Over time, increases or decreases in the Department's a net assets are indications of whether its financial health is improving or deteriorating. However, one will need to consider other non-financial factors such as changes in economic conditions, population growth, zoning and new o or changed government legislation. L Water Utility Fund To begin our analysis, a summary of the Water Utility Fund's Statements of Net Position is presented in Table A- o c L c L m U) U. r O M to O LL Q U c ro E 0 m Q 6 Packet Pg. 726 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Kn` ;g 4 Np Management's Discussion and Analysis, continued - m For the Year Ended June 30, 2015 a� -a c TABLE A-1 w Condensed Statement of Net Position-Water Utility � L (amounts expressed in thousands of dollars) N 2015 2014 $Change %Change Current and noncurrent assets $ 78,876 $ 77,056 $ 1,820 2.36% Capital assets 188,080 185,851 2,228 1.20% m Total assets 266,956 262,908 4,048 1.54% -0 c Deferred outflows of resources 1,698 - 1,698 c° Q Current liabilities 12,730 9,208 3,522 38.24% 'S Noncurrent liabilities 98,612 78,174 20,439 26.15% 0 Total liabilities 111,342 87,382 23,960 27.42% m Deferred inflows of resources 5,501 0 5,501 R U C Net investment in capital assets 166,963 163,797 3,166 1.93% _ Restricted - - - 0.00% u- Unrestricted (15,153) 11,728 (26,881) -229.20% c Total net position $ 151,810 $ 175,525 $ (23,715) -13.51% Q d Y_ As can be seen from the table above, the Water Utility net position decreased $23,715 to $151,810 in fiscal year Q 2015. The primary result of this decrease was a prior period adjustment of $27.9 million due to the °o implementation of new pension reporting standards related to the Department's pension obligations. The net investment in capital assets increased $3.2 million in fiscal year 2015 due to the completion of capital projects L within the period. Ca 0 c L L m R Cn U- LA r O M tD O V- Q U c a� E t U Q 7 Packet Pg. 727 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued 0 For the Year Ended June 30, 2015 m c TABLE A-2 W Condensed Statement of Revenues, Expenses and Changes in Net Position-Water Utility U_ L (amounts expressed in thousands of dollars) ,° N 2015 2014 $Change %Change Operating revenue $ 33,121 $ 36,672 $ (3,551) -9.68% m Capital contributions 3,905 6,522 (2,616) -40.12% 3 CD Other non-operating revenue 2,872 2,767 106 3.81% ui Total revenues 39,898 45,960 (6,062) -13.19% c=c L Operating expenses $ 35,505 $ 36,042 (537) -1.49% W Non-operating expenses 169 262 (93) -35.41% 0 Total expenses 35,674 36,303 (630) -1.73% 0 CL Change in net position 4,225 9,657 (5,432) -56.25% W Net position,beginning balance 175,525 168,892 6,633 3.93% .5 Prior period adjustment (27,940) (3,023) (24,916) N/A c Total net position $ 151,810 $ 175,525 $ (23,715) -13.51% u- which resulted Total revenues decreased by 13%, or $6.0 million, primarily due to decreased water revenues = c from decreased consumption after mandatory conservation regulations were imposed. Total expenses Q decreased almost 2%due to prudent cost control measures adopted by the Water Utility. ° m TABLE A-3 Q Capital Assets-Water Utility 0 (amounts expressed in thousands of dollars) ° M 2015 2014 $Change %Change Land and easements $ 5,654 $ 5,654 $ - 0.00% Construction in progress 3,523 6,224 (2,701) -43.40% 0 c Wells and pumping 98,173 96,612 1,561 1.62% Distribution 146,681 136,982 9,698 7.08% Plant and facilities 3,222 3,097 125 4.03% m Other capital assets 15,827 13,902 1,925 13.84% co Total capital assets 273,079 262,472 10,607 4.04% c Less: accumulated depreciation (84,999) (76,620) (8,379) 10.94% LL T_ CD Total capital assets,net $ 188,080 $ 185,851 $ 2,228 1.20% 0 I u. Total capital assets increased $2.2 million in fiscal year 2015. Approximately $8.4 million in construction in v progress was completed and placed in service. Major project completions include the North San Bernardino Industrial Park Phase II Pipe Installation project and the Irvington Avenue Transmission Main Project. Additional E information on capital assets is presented in Note 4 of the Notes to the Basic Financial Statements. 0 r Q 8 Packet Pg.728 7.Da CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT . n Management's Discussion and Analysis, continued CD For the Year Ended June 30, 2015 c TABLE A-4 W Long-term Debt-Water Utility u- L (amounts expressed in thousands of dollars) 2015 2014 $Change %Change °r r Notes payable $ 21,117 $ 22,800 $ (1,684) -7.39% Compensated absences 942 1,077 (135) -12.51% m Total long-term debt $ 22,058 $ 23,877 $ (1,819) -7.62% c During the year,the Water Utility's long-term debt decreased by $1.8 million which can be attributed to normal CD debt payments. Additional information on long term debt is presented in Note 6 of the Notes to Basic Financial Statements. 0 t 0 CL Sewer Utility Fund R TABLE B-1 Condensed Statement of Net Position-Sewer Utility (amounts expressed in thousands of dollars) ii Ta 2015 2014 $Change %Change = c Current and noncurrent assets $ 59,627 $ 66,773 $ (7,146) -10.70% 'a Capital assets 64,146 59,489 4,657 7.83% a) Total assets 123,773 126,262 (2,489) -1.975/c Q Deferred outflow of resources 1,348 - 1,348 - M Current liabilities 8,568 7,435 1,133 15.24% L Noncurrent liabilities 21,015 17,164 3,851 22.44% CD Total liabilities 29,583 24,599 4,984 20.26% o c Deferred inflow of resources 4,150 0 4,150 - =a c L Net investment in capital assets 56,090 37,787 18,303 48.44% m Restricted 7,633 7,348 285 3.88% Unrestricted 27,664 56,527 (28,863) -51.06% Cn Total net position $ 91,387 $ 101,662 $ (10,275) -10.11% iT T 0 M As can be seen from the table above, the Sewer Utility net position decreased $10.3 million to $91,387 in fiscal year 2015. The primary result of this decrease was a prior period adjustment of $21.1 million due to the implementation of new pension reporting standards related to the Department's pension obligations. The net Q investment in capital assets increased $18.3 million, due to the completion of several long-term capital projects v within the period. E t U to Q 9 Packet Pg.729 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued °' d For the Year Ended June 30, 2015 -a a� c TABLE B-2 W Condensed Statement of Revenues, Expenses and Changes in Net Position-Sewer Utility tai. L (amounts expressed in thousands of dollars) 2015 2014 $Change %Change i+ Operating revenue $ 24,734 $ 25,671 $ (936) -3.65% D Capital contributions 1,073 989 84 8.46% Other non-operating revenue 1,326 667 659 98.93% co Total revenues 27,133 27,327 (193) -0.71% L Operating expenses 19,620 21,974 (2,354) -10.71% 1 ro Non-operating expenses 227 1,796 (1,569) -87.35% 0 Total expenses 19,847 23,770 (3,922) -16.50% o 0. Change in net position 7,286 3,557 3,729 104.84% Net position,beginning balance 105,178 108,296 (3,117) -2.88% Prior period adjustment (21,077) (6,674) (14,403) -215.80% c Total net position $ 91,387 $ 105,178 $ (13,791) -13.115,o 'u. tv 0 c c During Fiscal Year 2015,total revenues for the Sewer Utility decreased by less than 1%from the prior year,while a total expenses decreased almost 17% during the same time period. 0 Q TABLE B-3 0 M Capital Assets-Sewer Utility �! (amounts expressed in thousands of dollars) ca 2015 2014 $Change %Change 0 E Land and easements $ 12,168 $ 11,482 $ 686 5.98% L Construction in progress 13,934 9,408 4,526 48.11% 0 c Pumping 3,192 1,360 1,833 134.81% m Buildings,plants and stores 129,866 120,109 9,757 8.12% Field and office equipment 5,866 5,601 265 4.73% N Total capital assets 165,026 147,959 17,067 11.53% c U_ LO Less: accumulated depreciation (100,880) (92,427) (8,453) 9.15% M Total net assets $ 64,146 $ 55,533 $ 8,613 15.51% ci Total capital assets increased by $8.6 in fiscal year 2015, with approximately $6.1 million in construction in Q progress completed and place in service. Major project completions include the Bypass Line between Units 3 & v 1 and the Sludge Dewatering Centrifuge projects. One of the major projects still in progress is the Unit 1 Primary Clarifier and Aeration System Upgrade project. More information relating to capital assets can be found in note E 4 of the notes to the financial statements. 0 a 10 Packet Pg. 730 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued m For the Year Ended June 30, 2015 -a a� TABLE B-4 W Long-term Debt-Sewer Utility L- L (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Notes payable $ 1,710 $ 3,374 $ (1,664) -49.33% m Certificates of participation 6,346 9,292 (2,946) -31.70% 3 Compensated absences 284 367 (82) -22.48% co Total long-term debt $ 8,340 $ 13,033 $ (4,693) -36.01% L a� c� During the year, the Sewer Utility's long-term debt decreased $4.7 million which can be attributed to normal 0 debt payments. Additional information on long term debt is presented in Note 6 of the Notes to Basic Financial o Q Statements. Management Challenges and Opportunities U c Economics _ u_ The ongoing economic downturn continues to limit the planned capital expansion of the water and sewer treatment facilities. Development in San Bernardino has significantly slowed and delinquencies continue. c Additionally, the fiscal challenges of the City as a whole hinder progress within the Water Department. Q However, as the local economy begins to improve, the Department's customer base should improve and the delinquency rate should return to pre-recession levels. Q Capital Construction 0 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 Water Utility continues to concentrate on retrofitting and upgrading existing facilities to current design ca standards and Uniform Building Codes (UBC) as well as replace aging pipelines,wells and plant facilities. 0 c Rates L The Department implemented the last of a three-phase water utility rate increase and the last of a two-phase increase to sewer treatment rates in January 2012. A three-phase sewer treatment rate increase was approved m in September 2015, and will be effective through 2017. The Department continues to review revenue and = R expense levels to determine when rate increases will be necessary. Cn Contacting the Department's Director of Finance LL This financial report is designed to provide our customers and creditors with a general overview of the Ln Department finances and to demonstrate the Department's accountability for the money it receives. If you have questions about this report or need additional financial information, please contact the Department's Director o� 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. Q U Y d E U Y Y Q 11 _ Packet Pg. 731 7.D.a m _ _ -a -a c w LL L 0 4� Q� Y Y D L 3 cn _ L y� L 0 Q Q� 0 PAGE INTENTIONALLY LEFT BLANK U- c _ Q m a 0 Cl M d' L CD r cc 0 L Cu _ L Md W _ V/ _ U- Lo r O M Cl LL a U c d E t U w a 12 Packet Pg.732 a� 3 C W U- L 2) L CD 4) cc L a) Y tz W �0+ L O Q. LL U Basic Financial Statements U- a a 0 0 M L 2� l 0 L L Co C R U) (C C LL r O M tD O LL a U c t U a+ r-+ Q 13 Packet Pg.733 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Statement of Net Position O June 30,2015 -p d 'O C W Water Sewer Interfund U_ LL Utility Utility Eliminations Total `" O r.. ASSETS 0 Current assets: Cash and investments(note 3) $ 17,789,720 22,926,544 40,716,264 , Accounts receivable,net 6,365,070 2,462,691 (7,803) 8,819,958 L Interest receivable 11,684 136,051 147,735 3 Due from other entities 599,163 164,668 763,831 to Inventory 1,991,313 - 1,991,313 Current portion of prepaid expenses 297,911 139,577 437,488 C Total current assets 27,054,861 25,829,531 (7,803) 52,876,589 r O Noncurrent assets: Prepaid expenses 681,663 681,663 O Investment in joint venture-RIX(note 10) 21,887,814 21,887,814 0 Investment in joint venture-PSA(note 10) 3,594,562 3,594,562 Q Restricted assets: d Cash and cash equivalents(note 3): Restricted for capital-related fees 7,633,049 7,633,049 O Restricted for consent decree(notes 3&13) 528,651 - 528,651 C O Investments(note 3): Restricted for consent decree(note 13) 21,125,203 21,125,203 �- Interestreceivable-consent decree(note 13) 65,494 65,494 3 Prepaid insurance-consent decree(note 13) 30,101,766 - 30,101,766 C s= Capital assets(note 4): Q Non-depreciable assets 9,177,446 26,102,047 35,279,493 Depreciable assets 263,901,535 138,924,135 402,825,670 Less:accumulated depreciation and amortization (84,999,216) (100,880,133) (185,879,349) 3 Total capital assets(net) 188,079,765 64,146,049 252,225,814 Q Total noncurrent assets 239,900,879 97,943,137 337,844,016 p Total assets 266,955,740 123,772,668 (7,803) 390,720,605 0 L y DEFERRED OUTFLOW OF RESOURCES Deferred charge on refunding - 66,698 66,698 Deferred pension contributions(note 7) 1,698,121 1,281,039 2,979,160 0 Total deferred outflow of resources 1,698,121 1,347,737 3,045,858 L (continued on next page) m C C IL u) r O M u7 See accompanying independent auditor'report and notes to the basic financial statements of U. Q U c a� E U a+ a+ Q 14 Packet Pg.734 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT as c Statement of Net Position,continued June 30,2015 a O C W Water Sewer Interfund u' L Utility Utility Eliminations Total „0 N LIABILITIES Current liabilities: Accounts payable 4,674,430 2,355,339 (7,803) 7,021,966 Related parties payable(note 9) 2,655,137 265,300 2,920,437 Accrued compensation 860,556 470,786 - 1,331,342 3: Claims payable(note 11) 1,213,539 239,673 1,453,212 U) Consumer deposits 583,345 583,345 = Current portion of compensated absences(note 6) 753,511 227,394 980,905 Current portion of notes payable(note 6) 1,748,054 1,709,710 3,457,764 CD Current portion of certificates of participation(note 6) - 3,155,000 3,155,000 O Accrued interest payable 241,369 144,780 386,149 12,729,941 8,567,982 (7,803) 21,290,120 O Total current liabilities � O CL Noncurrent liabilities: I 0 t -, , 3274097 Consumer deposits - 3,274,097 188,378 56,848 245,226 Compensated absences(note 6) c� Unearned revenue-consent decree(note 13) 51,821,114 - 51,821,114 Notes payable(note 6) 19,368,473 - 19,368,473 Certificates of participation(note 6) - 3,191,308 3,191,308 OPEB obligation(note 8) 628,895 166,326 795,221 40,932,398 Net pension liabilities(note 7) 23,331,467 17,600,931 _ Total noncurrent liabilities 98,612,424 21,015,413 119,627,837 Q Total liabilities 111,342,365 29,583,395 (7,803) 140,917,957 y 'a DEFERRED INFLOW OF RESOURCES Q Deferred inflows-actuarial(note 7) 5,501,195 4,150,024 - 9,651,219 Total deferred inflow of resources 5,501,195 4,150,024 9,651,219 co NET POSITION L Net investment in capital assets(note 14) 166,963,238 56,090,031 223,053,269 Restricted for capital-related fees(note 14) - 7,633,049 7,633,049 ?r Unrestricted(note 14) (15,152,937) 27,663,906 12,510,969 0 Total net position $ 151,810,301 91,386,986 - 243,197,287 :a L L QM� W rn U_ u7 See accompanying independent auditor'report and notes to the basic financial statements roe LO 0 I Q U c d E U r •r+ Q 15 Packet Pg.M 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Statement of Revenues,Expenses and Changes in Net Position Fiscal Year Ended June 30,2015 'C d C W } Water Sewer Interfund L- Utility Utility Eliminations Total `0 Operating revenues: N Charges for services $ 32,334,810 24,399,415 56,734,225 a+ Other operating revenues 786,318 335,010 (38,004) 1,083,324 Total operating revenues 33,121,128 24,734,425 (38,004) 57,817,549 ,. d Q Operating expenses fn Administration and customer service 6,575,895 2,387,122 8,963,017 Utility administration 653,209 638,613 1,291,822 Plant operations 7,813,911 8,697,724 16,511,635 CD Maintenance 1,988,719 2,906,853 (15,173) 4,880,399 1 Environmental control - 594,777 594,777 Distribution 4,653,106 - 4,653,106 0 Engineering and water quality control 2,439,170 534,226 2,973,396 t General,administration and overhead 6,015,448 990,463 (22,831) 6,983,080 0 Depreciation and amortization 5,365,124 2,870,550 8,235,674 W Total operating expenses 35,504,582 19,620,328 (38,004) 55,086,906 U C Operating income(loss) (2,383,454) 5,114,097 2,730,643 co Nonoperating revenues(expenses) ; Investment income 54,786 481,211 535,997 = Rental income 181,809 700 - 182,509 Q Noncapital grant funds 2,089,637 - 2,089,637 m Gain(loss)on asset disposition - Gain(loss)on joint venture-RIX 345,884 - 345,884 Interest expense and fiscal charges (169,119) (227,165) - (396,284) Q Other 545,840 498,247 - 1,044,087 ° Total nonoperating revenues(expenses) 2,702,953 1,098,877 - 3,801,830 0 Net income(loss)before capital contributions 319,499 6,212,974 - 6,532,473 Capital contributions: , , 1631678 1,631,678 0 Acquisition fees C Capacity fees 2,187,090 938,131 3,125,221 EPA grants 86,336 - 86,336 Other capital restricted fees 134,710 134,710 m Total capital contributions 3,905,104 1,072,841 - 4,977,945 M c Change in net position 4,224,603 7,285,815 - 11,510,418 W ra Net position,beginning of year,as restated(footnote 15) 147,585,698 84,101,171 - 231,686,869 C Net position,end of year $ 151,810,301 91,386,986 243,197,287 Ln r 0 M See accompanying independent auditor'report and notes to the basic financial statements °I W Q U c a� E U r r+ a 16 Packet Pg. 736 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT c Statement of Cash Flows Fiscal Year EndedJune 30,2015 p d Water Sewer Interfund c Utility Utility Eliminations Total W Cash flow from operating activities: LL. Cash received from customers $ 35,650,068 26,242,134 61,892,202 p Rental income 181,809 700 182,509 Nonoperating miscellaneous revenue(expenses) 545,840 498,247 1,044,087 Cash paid to employees for services (9,233,112) (5,914,404) (15,147,516) , Cash paid to suppliers of goods and services (18,568,787) (11,816,350) (30,385,137) :3 d Net cash provided by operating activities 8,575,818 9,010,327 17,586,145 ?� d N Cash flow from noncapital financing activities: Cash paid to RIX joint venture - c Consent Decree insurance drawdowns 2,089,637 2,089,637 d Net cash provided by noncapital financing activities 2,089,637 2,089,637 Cash flow from capital and related financing activities: O Capital fees received 3,818,768 1,072,841 4,891,609 0 Drawdown on CIEDB loan 746,201 - 746,201 p Cash paid to acquire capital assets (7,584,022) (11,483,816) (19,067,838) c' d Principal paid on capital-related debt (1,683,818) (4,629,425) (6,313,243) Interest paid on capital-related debt (187,153) (242,585) (429,738) Grant proceeds 86,336 86,336 Net cash provided by(used for)capital and related c financing activities (4,803,688) (15,282,985) (20,086,673) LL. Cash flow from investing activities: 3 Purchase of investments (17,210,432) (11,877,148) (29,087,580) Q Sales and maturities of investments 17,599,300 11,588,638 29,187,938 a Interest received 53,683 480,453 534,136 a> Net cash provided by investing activities 442,551 191,943 634,494 Net increase(decrease)in cash 6,304,318 (6,080,715) 223,603 Q 0 Cash and cash equivalents at beginning of year 7,987,773 12,699,727 20,687,500 c M d' Cash and cash equivalents at end of year $ 14,292,091 6,619,012 20,911,103 L Reconciliation of cash and cash equivalents to amounts R reported on the statement of net position: Cash and investments $ 17,789,720 22,926,544 40,716,264 C Restricted cash and cash equivalents: Restricted for capital related fees - 7,633,049 7,633,049 Restricted for consent decree 528,651 - 528,651 d Less those not meeting the definition of a cash equivalent (4,026,280) (23,940,581) m c Cash and cash equivalents at end of year $ 14,292,091 6,619,012 48,877,964 (continued on next page) c Ln T M f� O I U_ Q U c d E t crs r Q 17 Packet Pg. 737 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT O C Statement of Cash Flows,continued O June 30,2015 O d C W Water Sewer Interfund U_ Utility Utility Eliminations Total L. O Reconciliation of operating income to net cash y provided by(used for)operating activities: ±+ Operating income(loss) $ (2,383,454) 5,114,097 2,730,643 rr Depreciation and amortization 5,355,684 2,870,550 8,226,234 Nonoperating miscellaneous revenue(expenses) 545,840 498,247 1,044,087 3 Rental income 181,809 700 182,509 d N 13 Adjustments (Increase)decrease in accounts receivable 1,262,291 1,578,275 2,840,566 (Increase)decrease in due from other entities 992,197 65,792 1,057,989 4; (Increase)decrease in inventory (300,570) - - 300,570) O (Increase)decrease in prepaid expenses (86,465) 5,646 (80,819) (Increase)decrease in deferred pension contributions (178,081) (134,342) (312,423) O 0 Increase(decrease)in accounts payable 2,163,224 (625,397) - 1,537,827 Q. Increase(decrease)in related parties payable 371,762 (3,313) 368,449 y Increase(decrease)in accrued compensation 304,337 133,737 438,074 Increase(decrease)in compensated absences current portion 1,323,776 7,174 1,330,950 Increase(decrease)in compensated absences c 1,458,478 1. non-current portion ( ) (89,599) (1,548,077) j Increase(decrease)in claims payable 482,043 (28,434) 453,609 O Increase(decrease)in consumer deposits C current portion 81,047 81,047 Q Increase(decrease)in consumer deposits 'p non-current portion 193,405 - 193,405 {; Increase(decrease)in OPEB obligation 352,488 90,223 442,711 Increase(decrease)in net pension liability (6,128,232) (4,623,053) (10,751,285) Q Increase(decrease)in deferred inflows-actuarial 5,501,195 4,150,024 9,651,219 c 0 Net cash provided by operating activities $ 8,575,818 9,010,327 17,586,145 L There were no significant noncash investing,capital and financing related activties for the year ended June 30,2015. +; O C .a L L Md W LO r 0 M tD O I See accompanying independent auditor'report and notes to the basic financial statements W Q U c m E U a� a 18 Packet Pg.738 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements For the Year Ended June 30, 2015 CD (1) Reporting Entity and Summary of Significant Accounting Policies _ A. Organization and Operations of the Reporting Entity W The San Bernardino Municipal Water Department(Department) is governed under the Charter of the City of San o Bernardino (City). A Board of Water Commissioners (BOWC) appointed by the Mayor and approved by City N Council, has Charter defined powers, with full authority for administration of the water utility and delegated authority for the sewer treatment utility.The Department has served the community since 1905. j L B. Basis of Accounting and Measurement Focus m The Department reports its activities as enterprise funds, which are used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the Department C is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Revenues and expenses are recognized on the 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. 0 0 Operating revenues, such as charges for services (water sales, sewer services and water services) result from m exchange transactions associated with the principal activity of the Department. Exchange transactions are those 0� in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property c taxes and investment income, result from nonexchange transactions or ancillary activities in which the Department gives(receives)value without directly receiving (giving)equal value in exchange. LL, When both restricted and unrestricted resources are available for use,the Department uses restricted resources and then unrestricted resources. _ a The funds of the Department are described below: Water Utility Fund—The Water Utility Enterprise Fund (Water Utility) is used to account for the operations Q of the Department's water system and related revenues. 0 Sewer Utility Fund—The Sewer Utility Enterprise Fund (Sewer Utility) is used to account for the operations of the City's wastewater treatment system and related revenues. The Sewer conveyance system is under the direction of the City's Public Works Department. �a Administrative and engineering services are provided by the Water Utility to the Sewer Utility. Electrical services o are provided by the Sewer Utility to the Water Utility. L C. Implementation of GASB Pronouncements L m In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions — An m Amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and in financial reporting for pensions. The provisions of this Statement are effective for financial statements for periods beginning after June 30, 2014. The Department implemented this Statement in the fiscal year ending June 30, 2015. ,Wn In 2014, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date— an Amendment of GASB Statement No. 68. The objective of this Statement is to address o� an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial LL Reporting for Pensions. The provision of this Statement are effective for financial statements for periods v beginning after June 15, 2014. The Department implemented this Statement in the fiscal year ending June 30, _ 2015. E Accounting changes adopted to conform to the provisions of these statements should be applied retroactively. The result of the implementation of these standards decreased the net position at July 1, 2014 by $49,016,946. Q See footnotes 8 and 15 for further information. 19 Packet Pg. 739 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued - a� For the Year Ended June 30, 2015 (1) Reporting Entity and Summary of Significant Accounting Policies, continued w D. Financial Reporting >_ The Department's basic financial statements are presented in conformance with the provisions of Governmental o Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments" (GASB No. 34). This statement established revised financial reporting requirements for state and local governments throughout the United States for the purpose :,D L of enhancing the understandability and usefulness of financial reports. GASB No. 34 and its related GASB pronouncements provide for a revised view of financial information and in 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 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 statement of cash flows be prepared using the direct method. Under the direct method, cash flows from 0 operating activities are presented by major categories. CL W E. Assets, Liabilities and Net Position R 1. Use of Estimates The preparation of the basic financial statements in conformity with generally accepted accounting S principles requires management to make estimates and assumptions that affect the reported amounts of _ assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, _ and the reported changes in net position during the reporting period. Actual results could differ from those Q estimates. m 1. Cash and Investments a For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments o (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 L 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. 0 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 c L realized upon the liquidation of investments. m 2. Accounts Receivable Customer or trade receivables are shown net of an allowance for uncollectible accounts based on historical and management estimates. Transactions between funds that are representative of lending or borrowing c arrangements outstanding at the end of the fiscal year are referred to as "interfund receivables/ payables" ,L T11 or"advances to/from" other funds. All interfund transactions are eliminated for financial reporting. to 0 3. Inventory Materials and supplies inventory consists primarily of water meters, pipe and pipefittings for construction a and repair to the Department's water transmission and distribution system and items necessary for v maintenance at the sewer treatment facilities. Inventory is valued at cost using a weighted average method. Inventory items are charged to expense at the time that individual items are withdrawn from inventory or E U consumed. id Q 20 Packet Pg. 740 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT �r Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 (1) Reporting Entity and Summary of Significant Accounting Policies, continued w E. Assets, Liabilities and Net Position,continued >- L 4. Prepaid Expense and Deposit ,o Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are 0 recorded as prepaid items in the basic financial statements. L S. Capital Assets ° 3 Capital assets acquired or constructed are capitalized at historic cost. Department policy has set the capitalization threshold for reporting capital assets at $5,000 and a life expectancy of at least 3 years. _ Overhead is capitalized at the rate of 28.9% of labor and benefits, 10% of material and supplies and 2% of L significant contracts. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets as follows: 0 • Source of supply plant 8 to 50 years o • Disposal plant and interceptor lines 35 to 50 years m • Other facilities (shops, leasehold &yards) 5 to 25 years • Tools, office equipment&communications 4 to 20 years U • Computer equipment 3 to 5 years • Automotive and fleet equipment 3 to 15 years U_ R 6. Compensated Absences ' _ Department policy is to permit employees to accumulate a limited amount of earned vacation and sick Q leave. Various negotiation groups have different sell-back and cash out options. Additionally, cash out Q options upon retirement or death of the employee vary based on the negotiation group. Employees' D vacation and sick leave benefits are recognized as a liability of the Department. Q 7. Restricted Assets and Amounts Payable from Restricted Assets o Amounts shown as restricted assets have been restricted by bond indentures or are to be used for specified v purposes based on contract provisions, such as bonded debt service. Certain liabilities which are currently payable have been classified as current liabilities payable from restricted assets since assets have been restricted for their payment. ° 8. Pensions For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to m pensions, pension expense, information about the fiduciary net position and additions to/deductions from = the fiduciary net position have been determined on the same basis as they are reported by the co Department. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair S Ln value. c M GASB 68 requires that the reported results must pertain to liability and asset information within certain o' defined timeframes. For this report,the following timeframes are used: Q U Valuation Date (VD) June 30, 2013 Measurement Date (MD) June 30, 2014 ° Measurement Period (MP) June 30, 2013 to June 30, 2014 Q 21 Packet Pg.741 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT a� ryY Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 �t'g -a (1) Reporting Entity and Summary of Significant Accounting Policies, continued c W E. Assets, Liabilities and Net Position, continued >_ U. Deferred Outflows/Inflows ,o In addition to assets, the Statement of Net Position will sometimes report a separate section of deferred outflows of resources. This separate financial statement element, deferred outflows of resources, j represents consumption of net position that applies to a future period and so will not be recognized as an L m outflow of resources (expenses/expenditures) until then. The Department has two items that qualify for 3 reporting in this category: the deferred outflows on pension contributions, and the deferred charges on Un debt refundings. These are reported on the Statement of Net Position. In addition to liabilities, the statement of financial position will sometimes report a separate section for a, deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and will not be recognized as inflow o of resources (revenue) until that time. The District has one item that qualifies for reporting in this category, o deferred inflow—actuarial. ° m o! 9. Interfund Eliminations �a The interfund eliminations column represents entries made to eliminate interfund income and expenditure r_ transactions between the water utility fund and the sewer utility fund for the purposes of consolidated c LL financial statements. Ta 10. Net Position Q The financial statements utilize a net position presentation. Net position is categorized as follows: • Net Investment in Capital Assets—This component of net position consists of capital assets, net of accumulated depreciation and reduced by any debt outstanding against the acquisition, a construction or improvement of those assets. °o M • Restricted Net Position — This component of net position consists of constraints placed on net position use through external constraints imposed by creditors, grantors, contributors, or laws or +(D regulations of other governments or constraints 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 meet the definition of restricted or net investment in capital assets. m 11. Capital Contributions Contributions in aid of construction represent cash and utility plant additions contributed to the Department N by property owners or developers desiring services that require capital expenditures or capacity commitment. In accordance with Governmental Accounting Standards Board Statement No. 33, the capital contributions are recorded on the Statement of Revenues, Expenses and Changes in Net position. o M 12. Budgetary Policies of The Department adopts an annual budget for planning, control, and evaluation purposes. Budgetary control Q and evaluation are affected by comparisons of actual revenues and expenses with planned revenues and v expenses for the period. Encumbrance accounting is not used to account for commitments related to outstanding contracts for construction and services. E Y Q 22 Packet Pg.7Q 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 m (2) City of San Bernardino Bankruptcy W Without reserves and facing a $45.8 million budget deficit, in July of 2012, the City determined that it was no y_ longer able to meet its contractual obligations and declared a fiscal emergency. On August 1, 2012,the City filed L a petition under Chapter 9 of the United States Bankruptcy Code in Riverside seeking to adjust its debts. On 4° N August 28, 2013,the Bankruptcy Court ruled that the City is eligible for bankruptcy protection. Based on the California Constitution, precedents established in prior municipal bankruptcies in California, and � various legal opinions provided to the Department by special legal counsel and the City Attorney's office, the Department believes that its revenues, derived from ratepayer fees, will be protected from attachment by the in City's creditors. Although unlikely, it is possible that the bankruptcy court will make a different determination. -a The Department's arguments for the protection of its assets from the claims of the City's creditors are set forth L in further detail below. The bankruptcy case seeks the adjustment of the obligations of the City and does not extend to City funds with 3: Federal, State or other restrictions. The Department has continued to operate and use its restricted resources 0 for only the expenses incurred to operate the water system and sewer treatment plants. Debt obligations Q 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. State and federal laws place protections on the revenues of the Department. Section 902(2) of the Bankruptcy Code defines special revenues as, among other things, "receipts derived from the ownership, operation, or disposition of projects or systems of the debtor that are primarily used or intended to be used primarily to "a 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 552 (a) of this title Q and subject to subsection (b) of this section, special revenues acquired by the debtor after the commencement m of the case shall remain subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case"; and "(b) Any such lien on special revenues, other than municipal Q betterment assessments, derived from a project or system shall be subject to the necessary operating expenses o 0 of such project or system,as the case may be." v Chapter 9 of the Bankruptcy Code does not have a provision for liquidation of assets of the City and distribution of the proceeds to creditors. Additionally, Chapter 9 does not prevent a debtor from borrowing additional funds M while under bankruptcy protection. The Tenth Amendment of the United States Constitution and Supreme o Court decisions in upholding municipal bankruptcy legislation place severe limitations upon the power of the E bankruptcy court in chapter 9 cases. L In addition, at least two aspects of California law place restrictions on the use of revenue of the Department. m First, under Articles XIIIC and XIIID of the California Constitution (enacted pursuant to the voter approved c Proposition 218), money raised from municipal utility rates must only be used to fund such utility operations, in and not to fund general municipal operations. Thus, when the Department charges a water delivery or consumption fee, or rates for wastewater services, and places those monies into its specially segregated Water Fund and Sewer Fund accounts, those charges are considered property-related fees and are subject to the r constitutional constraints enacted pursuant to Proposition 218. This has very specific consequences for the amount of money that can be collected, as well as the use to which those funds can be put. Specifically, Cal. of Const.Article XIII D section 6(b) states that: u_ Q U c a� E .c U r Q 23 Packet Pg..743 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT �k"^ y Notes to the Basic Financial Statements, continued d For the Year Ended June 30, 2015 (2) City of San Bernardino Bankruptcy, continued A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following >- LL requirements: L 0 (1) Revenues derived from the fee or charge shall not exceed the funds required to provide the 0 property related service. (2) Revenues derived from the fee or charge shall not be used for any purpose other than that for d which the fee or charge was imposed. (3) The amount of a fee or charge imposed upon any parcel or person as an incident of property N ownership shall not exceed the proportional cost of the service attributable to the parcel. ca L (5) No fee or charge may be imposed for general governmental services including, but not limited o to, police, fire, ambulance or library services, where the service is available to the public at large in t substantially the same manner as it is to property owners. (Cal Const, Art.XIII D §6.) m 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 c service attributable the payer.' cc The second relevant aspect of state law is the City's status as a Charter City. Under California law a city charter "' R 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 Q Cal.App.4th 1178, 1186, citing Domar Electric, Inc. v. City of Los Angeles (1994) 9 Cal.4th 161, 170.) The a Department was created by and currently operates pursuant to Article IX of the City's Charter, and provides both retail water and sewer service pursuant to the City Charter provisions. Specifically, Article IX, Section 164 Q of the City Charter provides that the Water Department Board of Commissioners, and not the City Council, shall have power to control and order the expenditure of all money received from sale or use of water, for the defraying of expenses or maintenance and repairs and operation of the water system, and for any expenses for additions to the same; and for supplying the City with water for any and all purposes; provided that all such a; 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 °c discussion above, the constitutional requirements under Proposition 218 apply to "counties, cities, cities and L counties, including charter cities or counties, any special district, or other local or regional governmental entity. (Cal. Const., art. XIIIC, § 1(b), emphasis added.) Courts have routinely held that "[t]here is no question that m Proposition 218, as a constitutional initiative, is binding upon charter cities." (Howard Jarvis Taxpayers Assn. v. _ City of Roseville (2003) 106 Cal.App.4th 1178, 1185.) In order to provide for the safety of the Department's UI) liquid assets,the Department established its own bank account and investment portfolio within the City treasury as required by the City Charter. Representatives of the City Treasurer's office and the Water Department are U- signatories to these accounts. As previously noted,the City Charter specifically grants to the Water Department LO Board of Commissioners the power to control and order the expenditure of these funds and limits the M withdrawal of these funds for the payment of demands authenticated by the Board of Commissioners. of IX LL Q U c m E See League of California Cities,Proposition 218 Implementation Guide(2007 Ed.)at pp.49-50;see also Howard Jarvis Taxpayers Assn v.City of Roseville(2002)97 Cal.App.4th 637,647-648[interpreting Art.XIIID,§6(b)and emphasizing,"[t]he key is that the revenues derived from the fee or Q charge are required to provide the service,and may be used only for the service."] 24 Packet Pg.744 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 "t•�"'"`rR (2) City of San Bernardino Bankruptcy, continued _ Accordingly, both the City Charter and the California Constitution require that the Department's special >_ revenues collected for water-related services may only be used for expenditures related to those services. Due L to these additional state law restrictions, the Department believes that the revenues of the Department (and accumulated assets since those assets were accumulated as a result of collection of revenue) can only be used for Department expenses and obligations. y D On October 16, 2013, Bankruptcy Judge Meredith Jury issued an opinion on the City's eligibility for bankruptcy. 3 "...CalPERS submits that the uncontroverted fact that the City's Water Fund had a large cash balance before and n after the petition date which the City did not tap to attempt to balance its books is evidence of lack of desire to effect a plan.This argument has no legal legs. It is a matter of California constitutional law that the City may not c=e use funds belonging to the Water Department for general fund purposes. Amendments to the Constitution a; enacted by Proposition 218 in 1996, which added Articles XIIIC and XIIID, expanded restrictions on local government revenue-raising and imposed limitations on local government use of special fees, including water o and sewer fees. C.A. Const. art. XIIIC and XIIID. Article XIIID covers water fees and prohibits the use of such fees o for general governmental services, including police,fire and other services. Bighorn Desert View Water Agency v. m 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 c purposes. "Similarly, the City could not have borrowed funds from the Water Department without incurring debt that it ILL 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 t fiscal year. The Water Fund cash was thereby out of reach to address the City's insolvency and this issue is an Q outlier to the Court's analysis." (Case No.: RS 6: 12-bk-28006 M1). 0 0 (3) Cash and Investments M Cash and investments are reported in the accompanying statement of net position as follows: Q Q 0 �a L _ L Water Sewer m Utility Utility Total _ Cn Cash and investments $ 17,789,720 22,926,544 40,716,264 ' Restricted cash and cash equivalents: Restricted for capital-related fees - 7,633,049 7,633,049 ul Restricted for Consent Decree 528,651 - 528,651 c M Restricted investments: t0 0 Restricted for Consent Decree 21,125,203 - 21,125,203 u. Total Cash and Investments $ 39,443,574 30,559,593 70,003,167 U _ a� E U t� Q 25 Packet Pg. 745 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 m (3) Cash and Investments, continued _ w Cash and investments at June 30, 2015 consisted of the following: >- w L Water Sewer o Utility utility Total Cash on Hand $ 7,000 200 7,200 Deposits with Financial Institutions 14,285,091 6,618,812 20,903,903 Investments 25,151,483 23,940,581 49,092,064 3 Total Cash and Investments $ 39,443,574 30,559,593 70,003,167 a) .a _ ca L m Investments Authorized by the California Government Code and the Department's Investment Policy 4- The table below identifies the investment types that are authorized by the Department and Consent Decree o (see note 13) in accordance with the California Government Code (or the City's investment policy, where more o CL restrictive). The table also identifies certain provisions of the California Government Code (or the City's investment policy, where more restrictive) that addresses interest rate risk, credit risk, and concentration of credit risk. Due to its long-term nature, the Consent Decree has been explicitly exempted from maximum maturity requirements of the California Government Code, which limits maturity of most investments to five = years. All other aspects of the Consent Decree investment policy are consistent with the City's investment 'u- policy. Maximum Maturity Maximum% Maximum% Q Investment Type* Department Consent Decree of Portfolio in One Issuer =a US treasury 5years None None None a US agency 5 years None None None 0 Bankers acceptances 180 days 180 days 40% 30% Commercial paper 270 days 270 days 25% 10% L Negotiable CDs 5years None 30% None Medium-term notes 5years None 30% None Money market mutual funds N/A N/A 205/o 10% _ Mortgage pass through 5years None 20% None Local Agency Investment Fund N/A N/A $40,000,000 None Guaranteed investment N/A N/A None None m ca *- Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. Investments Authorized by Debt Agreements U_ Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather o than the general provisions of the California Government Code or the City's investment policy. Investments c authorized for funds held by bond trustee include, U.S. Treasury Obligations, U.S. Government Sponsored WI Enterprise Securities, the California Local Agency Investment Fund, Guaranteed Investment Contracts, Q Commercial Paper, Local Agency Bonds, Banker's Acceptance and Money Market Mutual Funds. There are no v limitations on the maximum amount that can be invested in one issuer, maximum percentage allowed or the maximum maturity of an investment, except for the maturity of Banker's Acceptance which are limited to one E U year. a 26 Packet Pg. 746 WAN 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (3) Cash and Investments, continued W Custodial Credit Risk >. U- 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 �a0i the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code requires a) that a financial institution secure deposits made by a state or local governmental units by pledging securities in in an undivided collateral pool held by a depository regulated under state law. a The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure the Department's deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits. 0 For investment identified herein as held by bond trustee, the bond trustee selects the investment under the t terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the C reporting government. Investment in State Investment Pool _ The Department is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the = California Government Code under the oversight of the Treasurer of the State of California.The fair value of the Department's investment in this pool is reported in the accompanying financial statements at amounts based = upon the Department's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation Q to the amortized cost of that portfolio).The balance available for withdrawal is based on the accounting records a CD maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated by a nationally recognized statistical rating organization, but, as stated previously, it is regulated by the California Government Code, and is Q therefore exempt from rating requirements. c O Interest Rate Risk Interest rate risk is the possibility that fluctuations in market interest rates will adversely affect the fair value of (D an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value f° will be to changes in market interest rates. One method that the Department uses to manage its exposure to 0 interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as = necessary to provide requirements for cash flow and liquidity needed for operations. m _ R U) t6 C LO r O M O O Q U c E U a 27 Packet Pg. 747 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 -a m (3) Cash and Investments, continued Information about the sensitivity of the fair values of the Department's investments to market interest rate } fluctuations is provided by the following table that shows the distribution of the Department's investments by 0 maturity date: N a� L QS� y Maturities N Less than 13-24 25-60 More than = Investment Type 12 months months months 60 months Total U.S.Agency Securities $ 2,012,950 2,449,564 7,130,016 - 11,592,530 U.S.Treasuries 116,716 201,172 7,608,482 - 7,926,370 Medium Term Corporate Notes 927,223 612,844 972,197 - 2,512,264 Asset Backed Securities - 79,665 1,520,255 - 1,599,920 O Commercial Paper 484,515 - - - 484,515 lO Money Market Funds 107,342 - - - 107,342 d Local Agency Investment Fund 3,743,920 - - - 3,743,920 IX Consent Decree: cz U.S.Treasuries 303,914 382,364 4,065,210 - 4,751,488 v c U.S.Agency Mortgage Backed Securities - - - 1,510,006 1,510,006 _ U.S Agency Collateralized Mortgage LL. Obligations - - 151,626 1,272,622 1,424,248 U.S.Agency Securities 624,408 1,082,060 2,752,979 - 4,459,447 3 _ Commercial Paper 499,961 - - - 499,961 = Q Corporate Notes 615,190 1,975,931 3,716,407 - 6,307,528 -a Certificates of Deposit 475,329 898,774 399,777 - 1,773,880 a) Asset Back Securities/Collateralized Mortgage Obligations 398,645 - - - 398,645 Q Total Investments 5 10,310,113 7,682,374 28,316,949 2,782,628 49,092,064 oc M L r 2� 7 0 _ L _ L Md W fZ U) _ U- LO r 0 M (D O I LL Q U _ Q E ca r Q 28 Packet Pg.748 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT �y"' Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 kit"""`�5 m (3) Cash and Investments, continued c w Credit Risk >_ Generally, credit risk is the possibility that an issuer of an investment will not fulfill its obligation to the holder of o 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 D L investment type. 3 m v c ca Minimum L CD Legal R Investment Type Rating Rating Total U.S.Agency Securities None AA+ $ 11,592,530 U.S.Treasuries Exempt Exempt 7,926,370 0 CL Medium Term Corporate Notes AA- AAA 360,158 °' AA+ 633,654 "R AA 855,109 c AA- 663,343 a Asset Backed Securities AA AAA 1,599,920 U" Ta Commercial Paper A-1 A-1 484,515 Money Market Funds AA+ AAA 107,342 Q Local Agency Investment Fund None not rated 3,743,923 Consent Decree: U.S.Treasuries Exempt Exempt 4,751,488 Q U.S.Agency Mortgage Backed Securities None AA+ 1,510,006 c U.S.Agency Securities None AA+ 4,459,447 U.S.Agency Collateralized Mortgage .. L Obligation AA AA 1,424,248 a) Corporate Notes A AAA 743,993 3: AA+ 1,161,384 c AA 1,788,763 'a AA- 1,307,551 c A+ 1,305,837 op Commercial paper A-1 A-1 499,961 Certificates of Deposit A A-1+ 400,244 N A-1 973,859 "�V c AA- 399,777 U_ Asset Backed Secui rites/Co l lateral ized c Mortgage Obligation AA AAA 398,644 ca Money Market Funds AA+ AA+ 528,649 CI Total Investments $ 49,620,715 U c m E Q 29 Packet Pg. 749 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 m c W (3) Cash and Investments, continued "- L 0 Concentration of Credit Risk N m Investments in any one issuer (other than for U.S. Treasury securities, mutual funds, and external investment pools)that represent 5%or more of total Department investments are as follows: m Reported Percentage of Issuer Investment Type Amount Investments N Fannie Mae U.S.Agency Securities $ 2,519,945 6% Federal National Mortgage Association U.S.Agency Securities 2,444,812 5% Y (4) Capital Assets w Capital asset activity for the water utility for the fiscal year ended June 30, 2015: 0 t 0 Q m Balance Deletions/ Balance 70 July 1,2014 Additions Transfers June 30,2015 Non-depreciable assets: Land and easements $ 5,654,389 - - 5,654,389 u" R Construction in progress 6,224,030 5,671,874 (8,372,847) 3,523,057 c Total non-depreciable assets 11,878,419 5,671,874 (8,372,847) 9,177,446 Q -a m Depreciable assets: Water rights,wells and pumping 96,612,111 1,560,536 - 98,172,647 Q Distribution system 138,672,711 8,007,924 - 146,680,635 c Buildings,plants,and stores 3,221,571 - - 3,221,571 Field and office equipment 15,110,147 716,536 - 15,826,683 L Total depreciable assets 253,616,540 10,284,996 - 263,901,536 is Less:accumulated depreciation r- c Water rights,wells and pumping (32,242,815) (1,532,740) - (33,775,555) Distribution system (34,701,375) (2,792,111) - (37,493,486) L Buildings,plants,and stores (1,676,055) (109,038) - (1,785,093) m Field and office equipment (11,023,287) (921,795) - (11,945,082) Total accumulated depreciation (79,643,532) (5,355,684) - (84,999,216) N CU Total depreciable assets,net 173,973,008 4,929,312 - 178,902,320 LL Lo r O Total capital assets,net $ 185,851,427 10,601,186 (8,372,847) 188,079,766 0 I LL Q U c d E t U a+ a� Q 30 Packet Pg. 750 7.D.e CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 m (4) Capital Assets, continued c w Capital asset activity for the sewer utility for the fiscal year ended June 30, 2015: �. U_ L 4-. L d Balance Deletions/ Balance July 1,2014 Additions Transfers June 30,2015 Cl) .a Non-depreciable assets: Land and easements $ 11,481,942 686,112 - 12,168,054 `m Construction in progress 9,407,628 10,672,880 (6,146,515) 13,933,993 Total non-depreciable assets 20,889,570 11,358,992 (6,146,515) 26,102,047 0 0 Depreciable assets: m Pumping 3,192,218 - - 3,192,218 Buildings,plants,and stores 123,860,500 6,253,133 (248,062) 129,865,571 U Field and office equipment 5,601,463 266,466 (1,583) 5,866,346 Total depreciable assets 132,654,181 6,519,599 (249,645) 138,924,135 = LL R Less:accumulated depreciation c Water rights,wells and pumping (2,454,606) (39,651) - (2,494,257) Q Buildings,plants,and stores (90,333,632) (2,536,358) - (92,869,990) Field and office equipment (5,222,730) (294,541) 1,385 (5,515,886) a Total accumulated depreciation (98,010,968) (2,870,550) 1,385 (100,880,133) Q 0 0 Total depreciable assets,net 34,643,213 3,649,049 (248,260) 38,044,002 L Total capital assets,net $ 55,532,783 15,008,041 (6,394,775) 64,146,049 0 c =a L L Md W lC LL In r O M O O V_ Q U c d E Y .M+ Q 31 Packet Pg. 751 7.Da CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 d (5) Operating Leases 'a c 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 L 0 lease payments as of June 30, 2015: N Water Sewer = Year Utility Utility Total D L 2016 $ 228,408 31,152 259,560 3 m 2017 228,408 31,152 259,560 C/) 2018 228,408 31,152 259,560 $ 685,224 93,456 778,680 co (6) Long-term Liabilities 0 Water Utility Fund 0 Changes in long-term liabilities in the water utility fund for the year ended June 30, 2015 are as follows: Balance Balance Current Long-term v July 1,2014 Additions Reductions June 30,2015 Portion Portion Notes Payables: 2002 CIEB $ 5,177,248 - (575,228) 4,602,020 594,440 4,007,580 7V_ 2007 CIEB 7,359,166 - (479,775) 6,879,391 492,777 6,386,614 C 2012 CIEB 9,586,740 - (424,046) 9,162,694 435,114 8,727,580 = Q SMVMWD Note 677,191 - (204,769) 472,422 225,723 246,699 -a Total Notes Payable 22,800,345 - (1,683,818) 21,116,527 1,748,054 19,368,473 ++ 'a Compensated Absences 1,076,591 935,324 (1,070,026) 941,889 753,511 188,378 Q 0 0 Total long term-debt,Water fund $ 23,876,936 935,324 (2,753,844) 22,058,416 2,501,565 19,556,851 M L cc 2002 California Infrastructure and Economic Development Bank(CIEDB)Note Payable 3: 0 In April 2002, CIEDB issued a $10,000,000 note to the Department to provide funding for transmission mains, "a booster stations and a reservoir identified in the Water System Reliability Schedule of Improvements. The note was issued with an interest rate of 3.34% with interest payable semiannually on February 1 and August 1. m Principal payments are due annually on February 1. Cn Debt service requirements on the 2002 CIEDB Note Payable are as follows: Year Principal Interest Total = ii 2016 $ 594,440 153,708 748,148 0 2017 614,294 133,854 748,148 2018 634,812 113,336 748,148 �I 2019 656,014 92,133 748,147 a 2020 677,925 70,222 748,147 v 2021-2022 1,424,535 71,760 1,496,295 $ 4,602,020 635,013 5,237,033 E m Q 32 Packet Pg.,752 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT 4 Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (6) Long-term Liabilities, continued w 2007 CIEDB Note Payable >_ In July 2007, CIEDB issued a $10,000,000 note to the Department to provide funding for booster stations and o transmission mains in the Verdemont area. The note was issued with an interest rate of 2.71% with interest payable semiannually on February 1 and August 1. Principal payments are due annually on August 1. Debt service requirements on the 2007 CIEDB Note Payable are as follows: Year Principal Interest Total 2016 $ 492,777 179,754 672,531 0 2017 506,131 166,219 672,350 2018 519,847 152,317 672,164 2019 533,935 138,038 671,973 4- 2020 548,405 123,373 671,778 0 t 2021-2025 2,973,170 382,585 3,355,755 a00 2026-2027 1,305,126 35,605 1,340,731 $ 6,879,391 1,177,891 8,057,282 c 2012 CIEDB Note Payable c LL 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 c of 2.61% with interest payable semiannually on February 1 and August 1. Principal payments are due annually Q on August 1. Debt service requirements on the 2012 CIEDB Note Payable are as follows: Q Year Principal Interest Total °o 2016 $ 435,114 233,468 668,582 2017 446,470 221,963 668,433 L m 2018 458,123 210,158 668,281 2019 470,080 198,045 668,125 0 2020 482,349 185,616 667,965 2021-2025 2,607,286 729,988 3,337,274 = L 2026-2030 2,965,768 366,828 3,332,596 m 2031-2032 1,297,504 34,083 1,331,587 $ 9,162,694 2,180,149 11,342,843 N �a SBVMWD Note Payable LL In July 2012, the Department closed escrow on the purchase of real property from the San Bernardino Valley c Municipal Water District (SBVMWD), which included a down payment of $1,000,000 and a promissory note of $1,117,500 to be paid in sixty(60) monthly installments due on or before the 15t of each month. Debt service requirements on the SBVMWD Note Payable are as follows: LL Q U Year Principal Interest Total 2016 $ 225,723 3,504 229,227 E 2017 246,699 1,238 247,937 U 2 $ 472,422 4,742 477,164 Q 33 Packet Pg.753 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 z3 m (6) Long-term Liabilities, continued a c w Debt Service Coverage The Water Utility Fund is required to maintain net revenues adequate to cover 110% of annual debt service. o Gross revenue is defined as Operating Revenue combined with non-operating revenue. Debt service coverage 0 for the Water Utility Fund for the year ended June 30, 2015 was as follows: D L Gross revenue $ 33,121,128 y v) Operating expenses 35,504,584 Less:depreciation expense (5,365,124) L Net operating expenses 30,139,460 Net revenues $ 2,981,668 0 t Annual debt service $ 2,318,805 0 m Actual coverage ratio 1.29 .v c c U_ Sewer Utility Fund 3 Changes in long-term liabilities in the sewer utility fund for the year ended June 30, 2015 are as follows: a Balance Balance Current Long-term a July 1,2014 Additions Reductions June 30,2015 Portion Portion Notes Payables: State Revolving Fund $ 3,374,135 - (1,664,425) 1,709,710 1,709,710 Q Total Notes Payable 3,374,135 - (1,664,425) 1,709,710 1,709,710 C M d' Certificates of Participation: L 1998 Certificates of Participation 9,340,000 (2,965,000) 6,375,000 3,155,000 3,220,000 Q Less:unamortized discounts (47,636) 18,944 (28,692) - (28,692) Total Certficates of Partcipiation 9,292,364 - (2,946,056) 6,346,308 3,155,000 3,191,308 0 .r— Compensated Absences 366,667 688,116 (770,541) 284,242 227,394 56,848 20 C L Total long term-debt,Sewer fund $ 13,033,166 688,116 (5,381,022) 8,340,260 5,092,104 3,248,156 W m C R State Revolving Fund Note Payable The State Water Resources Control Board issued a note to Santa Ana Watershed Authority to provide funding = for the Santa Ana Watershed Authority providing funding for the San Bernardino/Colton Rapid Infiltration U_ Extraction (RIX) project in the amount of$25,978,599. In April 2001, the agreement was amended to transfer o the note obligation to the successors in interest being the City of San Bernardino Board of Water Commissioners c and the City of Colton. The Department will use revenues from the sewer treatment utility fund towards �I LL repayment of the note. Q U Debt service requirements on the State Revolving Fund Note Payable are as follows: a� Year Principal Interest Total t 2016 $1,709,710 47,872 1,757,582 Y $1,709,710 47,872 1,757,582 Q 34 Packet Pg.754 7.Da CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT *nk Notes to the Basic Financial Statements, continued y AB lYG +. For the Year Ended June 30, 2015 (6) Long-term Liabilities, continued W r 1998 Certificates of Participation v_ L In 1998, the sewer treatment utility issued $36,230,000 in Certificates of Participation to advance refund the 1992 Sewer Certificates of Participation and fund additional capital improvements. The 1992 Certificates a; originally provided for the construction of certain capital improvements. The proceeds of the 1998 Certificates were invested and used to pay interest on the 1998 issue until February 1, 2001, when the 1992 Certificates were called at a prepayment premium of two percent. The Department now pays the installment payments on the 1998 Certificates from the net revenues of the sewer treatment system. The issue has interest rates between 3.95%-5.25%, annual debt service payments of$1,697,000-$3,474,000, and a maturity date of 2017. L Debt service requirements on the 1998 Certificates of Participation are as follows: all Year Principal Interest Total 0 2016 $3,155,000 318,750 3,473,750 t 0 2017 3,220,000 161,000 3,381,000 $6,375,000 479,750 6,854,750 Debt Service Coverage The Sewer Utility Fund is required to maintain net revenues adequate to cover 110%of annual debt service. The LL Department's Certificates of Participation hold a senior lien on net revenues of the Sewer Utility Fund. Gross Fa revenue is defined as Operating Revenue combined with non-operating revenue. Debt service coverage for the c Sewer Utility Fund for the fiscal year ended June 30, 2015 was as follows: Q a� =a Q 0 0 M Gross revenue $ 24,598,067 L Operating expenses 19,167,269 R Less:depreciation expense (2,417,491) 0 Net operating expenses 16,749,778 =a L Net revenues $ 7,948,289 d Senior Lien- annual debt service $ 3,439,412 m Subordinate Lien- annual debt service 1,758,901 Total annual debt service $ 5,198,313 _R c Senior lien debt coverage ratio 2.28 LO Aggregate debt coverage ratio 1.51 cfl 0 I u. Q U c a� E t U R a� Q 35 —' Packet Pg.755 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT F Notes to the Basic Financial Statements, continued m ' R 4� •y For the Year Ended June 30, 2015 ¢+r` as (7) Pension Plan c W Plan Description >_ The Department is considered to be part of the City of San Bernardino PERS pension plan, therefore all related o information included in this note refers to the City as a whole unless specifically indicating otherwise. All qualified permanent and probationary employees are eligible to participate in the Department's Miscellaneous Plan, an agent multiple-employer defined benefit pension plan administered by the California Public Employees' D Retirement System (CaIPERS), which acts as a common investment and administrative agent for its participating 3 member employers. Benefit provisions under the Plan are established by State statute and Local Government in resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. M L Additional disclosures regarding the City plan can be found in the City's audited financial statements. a; Benefits provided 0 CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits t to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited Q. service, equal to one year of full time employment.The Plans' provisions and benefits in effect at June 30, 2015, are summarized as follows: �a U C Miscellaneous Prior to January 1, On or after January 1, ii Hire date 2013 2013 `� Benefit formula 2.7% @> 55 2% @ 60 Q Benefit vesting schedule 5 years service 5 years of service -a m Benefit payments monthly for life monthly for life Retirement age 50-55 52-67 Q Month) benefits as a %of eligible Y 2.0%to 2.7% 1.0%to 2.5% °c compensation Required employee contribution rates 8% 8% Required employer contribution rates 22.024% 22.024% Employees Covered c As of June 30, 2013,the following employees were covered by the benefit terms of the Plan: c L City-wide Department ca Inactive employees or beneficiaries c Cn currently receiving benefits 1,262 123 Inactive employees entitled to but not yet c receiving benefits 843 0 LL Active employees 736 246 M Total 2,841 43 0� u. a U c a� >_ t v r a 36 - _ Packet Pg. 756 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENTV Notes to the Basic Financial Statements, continued " m For the Year Ended June 30, 2015 CD (7) Pension Plan, continued c W Contribution Description >- Section 20814(c) of the California Public Employees' Retirement Law (PERL) requires that the employer o contribution rates for all public employers be determined on an annual basis by the actuary and shall be N effective on the July 1 following notice of a change in the rate. The total plan contributions are determined :tl_' through CaIPERS' annual actuarial valuation process. The actuarially determined rate is the estimated amount D necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2014 (the measurement date),the average active employee contribution rate is 7.936 percent of annual pay, CU and the employer's contribution rate is 18.186 percent of annual payroll. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting Cz adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where o members are paying a portion of the employer contribution. o Actuarial Methods and Assumptions used to determine Total Pension Liability For the measurement period ended June 30, 2014 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2013 total pension liability. The June 30, 2013 and the June 30, 2014 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Entry Age Normal in accordance with the requirements of c GASB Statement No. 68 Q Actuarial Assumptions m Discount Rate 7.50% a Inflation 2.75% Q Salary Increases Varies by Entry Age and Service °o Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative �t Expenses: includes Inflation Mortality Rate Table' Derived using CaIPERS' Membership Data for all funds 0 Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power applies, 2.75%thereafter cc c L 'The mortality table used was developed based on CaIPERS'specific data.The table includes 20 years of op mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the cc 2014 experience study report. N All other actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and LL retirement rates. The Experience Study report can be obtained at the CalPERS website under Forms and c M Publications. 0 I v_ Q U i+ Q� E V Y Q 37 Packet Pg. 757 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (7) Pension Plan, continued W Discount Rate >_ UL The discount rate used to measure the total pension liability was 7.50 percent. To determine whether the o municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed == discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 D L percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long- 3 term expected discount rate of 7.50 percent is applied to all plans in the Public Employees Retirement Fund.The stress test results are presented in a detailed report called "GASB Crossover Testing Report" that can be c obtained at CaIPERS'website under the GASB 68 section. L CD According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without M reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis 0 points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower a discount rate has resulted in a slightly higher total pension liability and net pension liability. CaIPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CaIPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) c review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. a CalPERS will continue to check the materiality of the difference in calculation until such time as we have m changed our methodology. Q The long-term expected rate of return on pension plan investments was determined using a building-block O method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension M plan investment expense and inflation) are developed for each major asset class. L i+ In determining the long-term expected rate of return, staff took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the o funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short- _ term and long-term,the present value of benefits was calculated for each fund.The expected rate of return was m set by calculating the single equivalent expected return that arrived at the same present value of benefits for = cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was in then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. ii Ln r O M O O C� LL Q U _ a� E s Q 38 Packet Pg.,758 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT o'y Notes to the Basic Financial Statements, continued a� For the Year Ended June 30, 2015 (7) Pension Plan, continued The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated W using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of u- return are net of administrative expenses. ° N d Asset Class New Strategic Real Return Real Return Allocation Years 1 - 101 Years 11+1 D L Global Equity 47.0% 5.25% 5.71% 3 Global Fixed Income 19.0 0.99 2.43 cn Inflation Sensitive 6.0 0.45 3.36 Private Equity 12.0 6.83 6.95 Real Estate 11.0 4.50 5.13 Infrastructure and Forestland 3.0 1 4.50 5.09 0 Liquidity 2.0 (0.55) (1.05) Q a� 'An expected inflation of 2.5% used for this period �a 'An expected inflation of 3.0% used for this period c _ Pension Plan Fiduciary Net Position The plan fiduciary net position disclosed in the GASB 68 accounting valuation report may differ from the plan assets reported in the funding actuarial valuation report due to several reasons. First, for the accounting Q valuations, CaIPERS must keep items such as deficiency reserves, fiduciary self-insurance and OPEB expense included as assets. These amounts are excluded for rate setting purposes in the funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled Q reserves. 0 0 M L �.d O _ 2 _ L QM� W _ tQ lB _ U_ Ln r O M O O Q: V_ a U r c m E t U f3 r rr Q 39 Packet Pg. 759 7.D:a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 m (7) Pension Plan, continued c w Changes in Net Pension Liability �- u_ L 0 The following table shows the Plan's proportionate share of the net pension liability of the City's plan N over the measurement period: Y Increase(Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Cn (a) (b) (c) _(a)-(b) Balance at: 6/30/2013 (VD) 170,090,256 123,406,572 51,683,684 Balance at: 6/30/2014(MD) 182,054,201 141,121,803 40,932,398 Net Changes during 2013-14 6,963,945 17,715,231 (10,751,285) o t= 0 Q. m U C Sensitivity of the Net Pension Liability to Changes in the Discount Rate = U. The following presents the net pension liability of the Plan as of the Measurement Date, calculated using the discount rate of 7.50 percent, as well as what the net pension liability would be if it were calculated Q using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 .a percent)than the current rate: •°_D Discount Rate—1% Current Discount Rate Discount Rate+1% Q (6.50%) (7.50%) (8.50%) o 0 Plan's Net Pension Liability— Department Allocation (36%) $ 64,214,204 $ 40,932,398 $ 21,619,155 L 0 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. m Recognition of Gains and Losses U_ Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are c recognized in pension expense systematically over time. ` cD 0 Q U c d E t U Q 40 Packet Pg. 760' 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued +�~ m For the Year Ended June 30, 2015 m (7) Pension Plan, continued "a c The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The r remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions Lo and are to be recognized in future pension expense. m The amortization period differs depending on the source of the gain or loss: Difference between projected and 5 year straight-line amortization actual earnings All other amounts Straight-line amortization over the average = expected remaining service lives of all M L members that are provided with benefits (active, inactive, and retired) as of the ?� beginning of the measurement period. o V_ The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). The EARSL for the Plan for the 2013-14 measurement period is 2.4 years, which was obtained by dividing the total service years of 6,678 (the sum of remaining service lifetimes of the active employees) by 2,841 (the total _ number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining LL service lifetimes equal to 0. Also note that total future service is based on the members' probability of decrementing due to an event other than receiving a cash refund. Q Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions =a For the measurement period ending June 30, 2014 (the measurement date), the Department recognized a Q pension expense of$2,666,737 for the Plan. o 0 M As of June 30, 2014, the Department reports other amounts for the Plan as deferred outflow and deferred L inflow of resources related to pensions as follows: Deferred Outflows of Deferred Inflows of O Resources Resources `a c� Pension contributions subsequent to measurement date $2,979,160 $0 m Differences between Expected and Actual = R Experience 0 0 N Changes of Assumptions 0 0 Net Difference between Projected and Actual U_ Earnings on Pension Plan Investments 0 (9,651,219) `- Total $2,979,160 $(9,651,219) M co 0 I The amounts above are net inflows and outflows recognized in the 2013-14 measurement period expense. Q U $2,979,160 reported as deferred outflows of resources related to employer contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: a 41 Packet Pg. 761 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT LA4 Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 a� (7) Pension Plan, continued w U_ L Deferred N Measurement period Outflows/(Inflows) Ended June 30: of Resources 2015 $(2,412,805) 2016 (2,412,805) 2017 (2,412,805) N 2018 (2,412,805) 2019 0 `m Thereafter 0 4- 0 t= 0 CL (8) Other Post-Employment Benefits Plan Description L) _ The Department provides health benefits to all qualifying retirees and their spouses in accordance with CU Memorandums of Understanding under various labor agreements. u_ Eligibility = Employees are eligible for retiree health benefits if they retire from the Department on or after age 50 with at Q 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, 2014. Membership consists of the following: Q Retirees and beneficiaries receiving benefits 123 c 0 Active plan members 246 Total plan members 369 Funding Policy 0= The contribution requirements of plan members and the Department are established and may be amended by the Board. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as may be determined annually by the Board. The Department has m established an irrevocable trust to which pre-funding contributions are made. For fiscal year 2015, the Department has funded $2,256,321 for the current year. The Department pays up to the entire cost of health benefits for eligible retirees and their spouses,subject to the City's vesting schedule. c U_ 0 M t0 O LL Q U d E U a-+ Q 42 Packet Pg. 762 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued ` m For the Year Ended June 30, 2015 a� c W (8) Other Post-Employment Benefits, continued >_ UL Annual OPEB Cost and Net OPEB Obligation o The Department's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the y annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the +, parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over 3 a period not to exceed thirty years. The following table shows the components of the Department's annual in OPEB cost for the year,the amount actually contributed to the plan, and changes in the Department's net OPEB = obligation: L m Actual required contribution (ARC) $ 2,707,000 Interest on new OPEB obligation 22,032 0 Amortization of net OPEB obligation (30,000) 0 0 Q. Annual OPEB cost(expense) 2,699,032 d a: Contributions made 2,256,321 Increase in net OPEB obligation 442,711 Net OPEB obligation- beginning of year 352,510 U_ Net OPEB obligation-end of year $ 795,221 The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net Q OPEB obligation for 2014 and the two preceding years were as follows: a� Percentage of Year Annual Paid AnnualOPEB OPEB Q Ended OPEB Cost Contribution Cost Contibuted Obligation ° 0 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 6/30/2015 2,699,032 2,256,321 84% 795,221 Funded Status and Funding Progress °_ =a As of June 30, 2014,the most recent actuarial valuation date, the plan was 38.2%funded. The actuarial accrued c liability for benefits was $35,012,000, the actuarial value of assets was $13,380,000 and the unfunded actuarial accrued liability (UAAL) was $21,632,000. The covered payroll (annual payroll of active employees covered by m the plan)was $15,531,000 and the ratio of the UAAL to the covered payroll was 139.3%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions 7V about the probability of occurrence of events far into the future. Examples include assumptions about future LO employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress presents multi-year trend information about whether the actuarial value of plan assets is increasing or U_ decreasing over time relative to the actuarial accrued liabilities for benefits. Q U c m E m Y Q 43 Packet Pg. 763 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 v (8) Other Post-Employment Benefits, continued w u_ Actuarial Methods and Assumptions o Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as a) understood by the employer and the plan members) and include the types of benefits provided at the time of F, each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the in long-term perspective of the calculations. In the June 30, 2014, actuarial valuation, the entry age actuarial cost method was used. The actuarial a, assumptions included a rate of return of 6.25% and annual healthcare cost trend rates of 7.5% initially, reduced by increments to an ultimate rate of 5% in 2021. Both rates included a 3% inflation assumption. The actuarial o value of assets was determined using techniques that spread the effects of short-term volatility in the market o value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected m payroll on a closed basis.The remaining amortization period at June 30, 2015,was 19 years. Schedule of Funding Progress Actuarial UAAL as a = U_ Actuarial Actuarial Accrued Unfunded %of Covered Valuation Value of Liability AAL Funded Ratio Covered Payroll Date Assets(a) (AAL)(b) (UAAL)(b-a) (a/b) Payroll(c) (b-a)/c Q 6/30/2010 $ - $28,676,000 $28,676,000 0.0% $ 12,619,000 227.2% y 6/30/2012 8,556,000 28,831,000 20,275,000 29.7% 14,765,000 137.3% 6/30/2014 13,380,000 35,012,000 21,632,000 38.2% 15,531,000 139.3% Q 0 0 M (9) Related Party Transactions m The following is a summary of transactions and balances with the City of San Bernardino and its various Departments as of and for the year ended June 30, 2015. o c 2 Water Sewer c L Receipts Utility Utility Total op City of San Bernardino: in Revenue from Water Charges $ 1,307,085 - 1,307,085 Revenue from Sewer Charges - 77,569 77,569 Revenue from Geothermal Charges 29,944 - 29,944 LO Billing&Collection Charges- Refuse 360,000 - 360,000 Billing&Collection Charges-Storm Drain 4,770 - 4,770 °► Billing&Collection Charges-Sewer Collection 63,000 - 63,000 Cost Reimbursement 69,400 - 69,400 Q U Total receipts from related parties $ 1,834,199 77,569 1,911,768 E U f� r+ r+ Q 44 Packet Pg. 764 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 m c W (9) Related Party Transactions, continued >- u_ L O Nom. N Water Sewer Payments Utility Utility Total j City of San Bernardino: Worker's Compensation (Admin. Charges) $ 387,444 140,456 527,900 3: Printing Services - 679 679 m Postage 20,480 - 20,480 c c� Refuse Disposal Service 19,996 21,038 41,034 Consulting Services 3,158,832 - 3,158,832 Franchise Fee - 107,784 107,784 0 Permits 91,247 919 92,166 t Cost Reimbursement 9,964 3,881 13,845 m Total payments to related parties $ 3,687,963 274,757 3,962,720 �a U c c Water Sewer ii Receivables Utility Utility Total 3 City of San Bernardino: Q Related party receivable $ 927,874 47,565 975,439 Accounts receivable, net 41,311 300 41,611 D Due from other entities 165,828 - 165,828 Total receivable from related parties $ 1,135,013 47,865 1,182,878 Q 0 0 M Water Sewer Payables utility Utility Total City of San Bernardino: c Related party payable $ 2,523,358 230,300 2,753,658 a Accounts payable 3,285,973 168,352 3,454,325 Claims payable 1,213,539 239,673 1,453,212 Total payable to related parties $ 2,523,358 638,325 7,661,195 m ca U) c U- LO 0 M fD O LL Q U c E U Q 45 Packet Pg.765 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT '"� �'• Notes to the Basic Financial Statements, continued a� For the Year Ended June 30, 2015 v (10) Joint Ventures Colton/San Bernardino Regional Tertiary Treatment and Water Reclamation Authority >- ILL On August 2, 1994, the City of San Bernardino, through the Department formed a joint powers authority with o w the City of Colton to construct, operate, use and maintain tertiary wastewater treatment, disposal and water 0 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 D the Department's BOWC and two appointed by the City Council of the City of Colton. Construction of RIX was 0 administered by the Santa Ana Watershed Project Authority and was substantially completed during 1996. in 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 Ca 80% / 20% split, respectively. Substantially all of the assets of RIX are in the form of capital assets. RIX has no a; liabilities. Annual revenues (in the form of contributions from the two member cities) are equal to annual f° expenses. The Department's equity interest in this joint venture has been reported as an investment in joint — venture in the accompanying statement of net position. r- 0 CL San Bernardino Public Safety Authority °' On April 1, 1968,the City of San Bernardino and the County of San Bernardino formed the San Bernardino Public Safety Authority (PSA), a joint powers authority, as a financing vehicle to construct public safety buildings and improvements to the wastewater treatment plant. In accordance with the terms of an installment purchase U- agreement, title to the capital assets financed through the PSA were recognized as capital assets of the City at 6 the inception of the installment purchase agreement between the City and the PSA. The City's remaining interest in the joint venture is in the form of cash and investments held by the PSA for debt service related Q activity.The Department's equity interest in these assets has been recognized in the accompanying statement of r net position as an investment in joint venture. West End Water Development, Treatment and Conservation Joint Powers Authority Q 0 On August 15, 1990, the City of San Bernardino joined the West End Water Development, Treatment and Conservation Joint Powers Authority (WEJPA) as a financing vehicle for construction of water facilities. A three- y member board consisting of one representative from each agency's governing body governs the WEJPA. This joint venture was formed to provide a financing vehicle for the three member agencies. This joint venture is currently inactive. 0 =a (11) Commitments and Contingencies L Risk Management m Risk management activities are recorded in both utility funds. Significant losses are covered by insurance for all R major events except workers' compensation, for which the Department retains risk of loss in conjunction with N the City of San Bernardino's risk management program for workers compensation. Settlement amounts have not exceeded insurance coverage for the current year or the prior three years. Insurance coverage has been U- increased over the past several years. o M The Department records an estimated liability for workers' compensation. Claims liabilities are based on o� estimates of the ultimate cost of reported claims and an estimate for claims incurred but not reported based W upon historical experience. Workers' compensation claims liability is not discounted. v c d E U f6 a+ Q 46 Packet Pg.,766 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 CD -a (11) Commitments and Contingencies, continued The following are the changes in approximate aggregate liabilities for the year ended June 30, 2015. >- U- Water Sewer o Claims Liabilities Utility Utility Total W Claims payable,beginning of year $ 731,496 $ 268,107 $ 999,603 Claims and changes in estimates 835,698 177,237 1,012,935 L Claims payments (353,655) (205,671) (559,326) Claims payable,end of year $ 1,213,539 $ 239,673 $ 1,453,212 N 0 L Litigation In the ordinary course of operations, the Department is subject to claims and litigation from outside parties. After consultation with legal counsel,the Department believes the ultimate outcome of such matters, if any,will t: not materially affect its financial condition. o c. m (12) Federal and State Grants �a Grant funds received by the Department are subject to audit by the grantor agencies. Such audit could lead to 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. The U. Department produces a Single Audit that details the use of grant and Consent Decree funds (see note 13 for 3 information on the Consent Decree). _ Q a� (12) Subsequent Events o Q On December 1St, 2015, the Board of Water Commissioners approved a loan with the San Bernardino Valley c Municipal Water District up to$1.2 million for the UV System Rehabilitation Project. L 0 _ L 0 _ L Md W _ Cn 0 U- Ln r O M tD O LL Q U Y _ 0 E L U w a 47 Packet Pg. 767 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT F Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 m (13) Consent Decree a _ In 1996, the City of San Bernardino filed a complaint against the United States of America, Department of the } Army to recover damages, response costs and other available remedies relating to contamination alleged to LL have originated at a World War II army installation known as Camp Ono. In March 2005, the United States ° District Court, Central Division entered judgment, in the form of a consent decree, in the matter of City of San Bernardino v. United States of America. The Consent Decree settles the City's and the State's claims arising from the groundwater contamination allegedly caused by the Army. The Consent Decree contains a number of provisions obligating the City (through the Department) to operate and maintain the Newmark Groundwater Superfund site (Site). The Site consists of two operable units, the Newmark Operable Unit and the Muscoy cn Operable Unit. The Newmark Operable Unit was declared operational and functional in 1998. The Muscoy Operable unit was declared operational and functional in 2007. The Consent Decree provided for a payment of $69 million from the Army to the City for performance of the � work outlined in the Consent Decree. Upon acceptance of the Consent Decree,the Department received title to 0 all facilities constructed by the United States Environmental Protection Agency (EPA) of the Site and agreed to 0 operate and maintain the groundwater extraction and treatment system for a period of 50 years. The $69 m million payment consisted of$59 million for operations and maintenance and $10 million for the construction of certain capital facilities that would be required in the future; the funds are subject to strict limitations, contained in the Consent Decree, as to how the money may be spent. _co Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside to be used only for(i) U- funding construction of treatment and directly related transmission systems that expand the Department's 3 capacity to deliver potable water and (ii) funding work performed by the Department to complete construction Q of the Muscoy Operable Unit extraction system. These capital facility funds may not be used for costs incurred to operate, maintain, repair or retrofit components of the site extraction of treatment systems constructed by EPA. Q In March 2006, the Department entered into a Guaranteed Investment Contract with AIG Match Funding c Corporation. The Department invested $16,482,039 of excess Consent Decree funds into an interest bearing M Escrow Fund investment with an interest rate of 4.95% per annum. These funds were invested to pay costs L associated with the water facilities defined in the Consent Decree for years 2035-2056. An additional $50 a) million was used to purchase a blended insurance policy to provide a financial vehicle that provides cost gap 3: coverage for the first 30 years of expenses. ° The terms of the Guaranteed Investment Contract only provided the Department with the position of a secured creditor with respect to an AIG bankruptcy. As concerns arose regarding AIG's financial credibility, in October 2009,the Department negotiated and accepted a "payout" in the amount of$18,661,876 which represented the m principal and accrued interest as of that date. These funds are currently invested in a diversified portfolio in managed by PFM Asset Management and present in more detail in note 3. LL LO T O M �D O V_ a U c d >_ Q 48 Packet Pg. 768 7.D.a CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT >'`•,^ke, Notes to the Basic Financial Statements, continued m For the Year Ended June 30, 2015 W (14) Net Position 'c c w Net position at June 30, 2015, consisted of the following: >- u_ L Water Sewer utility utility Total y Net investment in capital assets: �. Non-depreciable assets $ 9,177,446 26,102,047 35,279,493 L Depreciable assets 263,901,536 138,924,135 402,825,671 3 Accumulated Depreciation and amortization (84,999,216) (100,880,133) (185,879,349) N Less:related debt -a Notes payable,current portion 1,702,526 1,664,425 3,366,951 Certificates of participation, current portion - 2,965,000 2,965,000 Notes payable,noncurrent portion 19,414,001 45,285 19,459,286 Certificates of participation, noncurrent portion - 3,381,308 3,381,308 O Total net investment in capital assets 166,963,239 56,090,031 223,053,270 O Q Restricted for capital-related fees: Cash and cash equivalents,restricted for capital-related fees 7,643,404 7,643,404 U C Unrestricted: ca Designated for operating reserve 3,780,556 3,780,556 7,561,112 a LL Designated for rate stabilization reserve 4,248,000 4,248,000 8,496,000 Designated for emergency replacement reserve - 11,115,109 11,115,109 Designated for capital replacement reserve 533,559 11,665,577 12,199,136 Q Undesignated - 10,635,783 10,635,783 Total unrestricted 8,562,115 41,445,025 50,007,140 Total net position $ 175,525,354 $ 105,178,460 $ 280,703,814 Q 0 0 M L (15) Prior Period Adjustment During the year the Department implemented GASB 68 resulting in recording a net pension liability and deferred o outflow of resources as a prior period adjustment. c� c L Water Sewer m Utility Utility Total = U) Net position at beginning of the S year,as previously reported $ 175,525,354 105,178,460 280,703,814 Ln Implementation of GASB 68 (27,939,656) (21,077,289) (49,016,945) o Net position at beginning of the o year,restated $ 147,585,698 84,101,171 231,686,869 LLI Q U c d E t U Rf Y Y Q 49 Packet Pg.-769 7.D.a m _ a� w LL L O L 3 a� U) c Cu L Y Co O 0 Q Na) {L. U _ _ LL �E 3 C PAGE INTENTIONALLY LEFT BLANK Q m r a 0 O M d' L CD r.r m 0 r- L L . MM W _ tQ U) R r- U- Lo r O M O �I LL Q U c d E t v R Y Q 50 Packet Pg. 770 _ _ W LL s- o 4-� N N i+ L 3 m U) _ �a L CD m W �0+ L O Q STATISTICAL SECTION �U (Unaudited) U- 7E _ a a 0 0 M L _ L _ L M� W _ _ Lo r O M co O I Q U _ a� E t U r+ r Q 51 Packet Pg.771 7.D.a m m w LL L 0 y.. .F+ .V L 3 m CO M L �F+ CU 4. �0 L 0 Q. NN� LJ� FINANCIAL TRENDS _ M _ U_ _ _ These schedules contain trend informaton to help the Q reader understand how the Department's financial performance Q and well-being have changed over time. o M d' L Q� 0 _ L _ L M _ CE _ LL LO r O M (D O LL Q U _ m E U y Q 52 Packet Pg. 772 City of San Bernardino Municipal Water Department :? Changes in Net Position Last Ten Fiscal Years Total Non- y Total Total Operating Total Fiscal Year Operating Operating Operating Income Contributed Changes in Net Ended Revenue Expense Income (Expense) Capital Position CD 6/30/2006 41,163,361 44,391,520 (3,228,159) 1,112,920 18,430,146 16,314,907 W 6/30/2007 47,914,999 48,791,026 (876,027) 2,106,963 14,904,830 16,135,766 U. I- 0 6/30/2008 46,757,411 54,172,974 (7,415,563) 3,838,588 13,263,336 9,686,361 N Q Y 6/30/2009 47,171,798 54,044,608 (6,872,810) 2,717,707 5,197,854 1,042,751 j L 6/30/2010 47,808,997 57,965,395 (10,156,398) 1,375,536 7,510,777 (1,270,085) d 6/30/2011 54,280,835 56,328,523 (2,047,688) 1,408,498 4,390,162 3,750,972 Cl) C cC 6/30/2012 60,756,697 58,971,535 1,785,162 1,974,266 3,055,921 6,815,349 6/30/2013 61,883,615 57,327,537 4,556,078 1,861,758 4,896,921 11,314,757 O 6/30/2014 62,292,428 57,965,395 4,327,033 1,375,536 7,510,777 13,213,346 0 Q 6/30/2015 57,805,304 55,074,661 2,730,643 3,801,830 4,977,945 11,510,418 O 5 Source: Department's annual reports v C C IL Changes in Net Position- Combined Funds h 18,000 Q c 16,000 O m ++ c 14,000 'O 12,000 O a 10,000 – 8,000 j F Changes in Net Position IF M 6,000 4,000 2,000 "- (2,000) 006-2007-2008-2009-2 10 011-20 2 2m3 201a X015 0 C (4,000) L L d m R U_ u7 r 0 M O O �I LL Q U 4j c a� E c� r a 53 Packet Pg.;773 City of San Bernardino Municipal Water Department Water Fund Changes in Net Position Last Ten Fiscal Years Total Non- y Total Total Operating Total Fiscal Year Operating Operating Operating Income Contributed Changes in Net Ended Revenue Expense Income (Expense) Capital Position a) 6/30/2006 21,760,104 24,833,550 (3,073,446) 3,186,965 13,766,100 13,879,619 = W 6/30/2007 28,232,366 28,069,392 162,974 3,487,628 11,931,117 15,581,719 Iri L O 6/30/2008 27,337,093 32,453,101 (5,116,008) 3,479,605 11,397,947 9,761,544 N O 6/30/2009 27,258,954 32,934,974 (5,676,020) 2,853,518 3,919,197 1,096,695 6/30/2010 27,688,694 31,953,080 (4,264,386) 2,101,540 5,829,803 3,666,957 3 O 6/30/2011 33,027,707 35,811,915 (2,784,208) 2,025,029 2,782,168 2,022,989 N C t0 6/30/2012 37,106,217 39,155,830 (2,049,613) 2,436,449 2,384,710 2,771,546 r R 6/30/2013 37,868,846 37,430,224 438,622 2,492,448 3,421,521 6,352,591 w.. O 6/30/2014 36,671,903 36,041,616 630,287 2,504,705 6,521,601 9,656,593 C O. 6/30/2015 33,121,128 35,504,582 (2,383,454) 2,702,953 3,905,104 4,224,603 i0 Source: Department's annual reports v C «s C LL is Changes in Net Position-Water Fund N 18,000 Q M 16,000 m 0 14,000 `a r � 12,000 Q 10,000 o 8,000 5 K Changes in Net Position M 6,000 L 4,000 2,000 i _ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 a L L d 00 tSf LL Ln r O Cl) tD O I LJ. Q U c m E U t4 a+ Q 54 Packet Pg. 774 City of San Bernardino Municipal Water Department Sewer Fund Changes in Net Position Last Ten Fiscal 1T&J04 Non- Total Total Operating Total Fiscal Year Operating Operating Operating Income Contributed Changes in Net Ended Revenue Expense Income (Expense) Capital Position 6/30/2006 20,363,472 20,518,185 (154,713) (2,074,045; 4,664,046 2,435,288 W 6/30/2007 21,002,484 22,041,485 (1,039,001; (1,380,665; 2,973,713 554,047 > LL I- 6/30/2008 20,847,984 23,147,539 (2,299,555; 358,983 1,865,389 (75,183) 2 N O 6/30/2009 21,208,021 22,404,811 (1,196,790; (135,811) 1,278,657 (53,944) 6/30/2010 22,424,943 24,474,747 (2,049,804; (19,598) 495,768 (1,573,634; y d 6/30/2011 23,433,833 22,697,313 736,520 (616,531) 1,607,994 1,727,983 to C 6/30/2012 25,888,729 22,053,954 3,834,775 (462,183) 671,211 4,043,803 ca L d 6/30/2013 26,414,653 22,297,197 4,117,456 (630,690) 1,475,400 4,962,166 4- 6/30/2014 25,670,774 21,974,028 3,696,746 (1,129,169; 989,176 3,556,753 O It O 6/30/2015 24,734,425 19,620,328 5,114,097 1,098,877 1,072,841 7,285,815 0. a) Source: Department's annual reports U C C LL Changes in Net Position-Sewer Fund 8,000 c 7,000 c 6,000 +; 5,000 d 4,000 3,000 &ChargesinNetPosition 2,000 M 1,000 F? L (1,000) 010 2011 2012 20]3 Zola 2015 w; ca (2.000) (3,000) O c =a crs c L MLV W CU C0 LL. to r 0 M to O �I LL a U c m E U ftS r.+ r+ a 55 Packet Pg. 775 City of San Bernardino Municipal Water Department Net Position By Component Last Ten Fiscal Years N Fiscal Year Net Investment Restricted Unrestricted Total Net = Ended in Capital Assets Net Position Net Position Position 6/30/2006 175,115,812 24,859,169 25,256,531 225,231,512 C 6/30/2007 188,196,495 27,280,333 22,890,450 238,367,278 W U- L- 6/30/2008 196,892,664 24,205,033 26,955,942 248,053,639 v- 6/30/2009 199,628,149 19,831,726 29,636,515 249,096,390 Y 6/30/2010 204,066,502 11,992,059 35,131,152 251,189,713 L Q 6/30/2011 206,520,977 8,276,462 40,143,246 254,940,685 a) 6/30/2012 212,490,593 7,389,246 43,545,621 263,425,460 ca L 6/30/2013 200,072,942 7,799,773 69,315,171 277,187,886 6/30/2014 206,663,567 7,515,658 66,524,589 280,703,814 p 6/30/2015 223,053,269 7,633,049 12,510,969 243,197,287 a O Source: Department's annual reports U C t6 Net Position by Component U. Combined 0 Unrestricted Net Position = N 300,000 Q v 250,000 s Restricted Net Position 200,000 150,000 ®Net Investment in Capital Q Assets 100,000 O O M 50,000 - -H1L 4> c5�OyO 'V '15�Dya�oyh R O C L L M� W CU rn LL LO r O M to O I Q U c a� E s v ca r w a 56 Packet Pg.776 City of San Bernardino Municipal Water Department Net Position By Component-Water Fund Last Ten Fiscal Years U Fiscal Year Net Investment Restricted Unrestricted Total Net Ended in Capital Assets Net Position Net Position Position 6/30/2006 106,036,062 8,720,267 7,964,724 122,721,053 C 6/30/2007 122,080,723 11,294,440 4,927,609 138,302,772 W LL 6/30/2008 130,610,364 8,406,696 9,047,256 148,064,316 `0 0 6/30/2009 133,834,066 6,328,449 8,998,496 149,161,011 r 6/30/2010 139,688,690 1,528,434 11,610,844 152,827,968 L 3 6/30/2011 140,912,873 - 13,938,084 154,850,957 6/30/2012 148,063,104 41,320 13,658,195 161,762,619 = L 6/30/2013 156,758,127 12,133,904 168,892,031 6/30/2014 163,797,283 11,728,071 175,525,354 0 t 6/30/2015 166,963,238 (15,152,937) 151,810,301 Q d Source: Department's annual reports U C cu Net Position by Component: LL Water Fund 200,000 150,000 L Unrestricted Net Position d 0 r � 100,000 o Restricted Net Position Q O 50,000 ■Net Investment in Capital O M Assets CU - L � (50,000) 0 L L Md W R LL r O M O O LL a U c as E v ca r Q 57 Packet Pg. 777 City of San Bernardino Municipal Water Department Net Position By Component-Sewer Fund Last Ten Fiscal Years d Fiscal Year Net Investment Restricted Unrestricted Total Net = Ended in Capital Assets Net Position Net Position Position 6/30/2006 66,079,750 16,138,902 17,291,807 99,510,459 C 6/30/2007 66,115,772 15,985,893 17,962,841 100,064,506 W LL 6/30/2008 66,282,300 15,798,337 17,908,686 99,989,323 LO N 6/30/2009 65,794,083 13,503,277 20,638,019 99,935,379 6/30/2010 64,377,812 10,463,625 23,520,308 98,361,745 L 3 6/30/2011 65,608,104 8,276,462 26,205,162 100,089,728 6/30/2012 64,427,489 7,347,926 29,887,426 101,662,841 R L d 6/30/2013 43,314,815 7,799,733 57,181,267 108,295,815 6/30/2014 42,866,284 7,515,658 54,796,518 105,178,460 0 V_ 6/30/2015 56,090,031 7,633,049 27,663,906 91,386,986 C Source: Department's annual reports U C Net Position by Component: Sewer Fund _ ILL h 120,000 c � M. 100,000 = 'o M Unrestricted Net Position a 80,000 — "a d ■Restricted Net Position 60,000 40,000 ■Net Investment in Capital Q Assets C 20,000 M �OO�X001�OO��OO�ti�yO ti�11 tidy~ti�y�ti�y�ti�yh 0 C 'a L L M� W rn LL LO r 0 M CO O LL a U c m E ca y Q 58 Packet Pg.778 City of San Bernardino Municipal Water Department Water Fund Revenue by Type Last Ten Fiscal Years Gain on Total Non Fiscal Year Service Other Total Operating Interest Rental Other asset Noncapital Operating Ended Water Sales Charges/Fees Services Revenue Income Income Income disposition grant funds Income 6/30/2006 19,293,502 2,243,214 223,388 21,760,104 401,369 89,761 421,317 693,500 1,983,509 3,589,456 d 6/30/2007 25,136,912 2,929,446 166,008 28,232,366 1,180,789 82,944 227,509 37,377 2,300,151 3,828,770 W 6/30/2008 24,194,275 3,005,938 136,880 27,337,093 1,613,192 95,818 178,348 - 2,715,957 4,603,315 >_ LL 6/30/2009 24,147,627 2,991,468 119,859 27,258,954 1,008,607 101,130 - 309,708 2,043,889 3,463,334 LO 4- 6/30/2010 24,436,854 3,118,571 133,269 27,688,694 578,912 98,638 175,782 8,988 1,894,624 2,756,944 N 0) 6/30/2011 29,782,786 3,101,431 143,489 33,027,707 451,927 117,454 59,960 - 1,928,999 2,558,340 6/30/2012 33,315,084 3,665,354 125,779 37,106,217 219,027 133,400 1,041,667 1,838,223 3,232,317 6/30/2013 34,252,357 3,476,061 140,429 37,868,846 - 122,826 211,032 - 3,110,201 3,444,059 d 6/30/2014 34,777,112 1,754,614 140,176 36,671,903 93,428 160,089 478,512 4,446 2,030,066 2,766,541 C f� 6/30/2015 31,217,534 1,789,654 113,940 33,121,128 54,786 181,809 545,840 - 2,089,637 2,872,072 s. M Source: Department's annual reports w 4- O O Q Operating Revenue by Type-Water Fund N 40,000 ........... ...........--_..._..___._. O v 35,000 V c N '0 30,000 .........- ........ ....... .. ........ 25,000 z �- 20,000 c Other Services U_ 15,000 - ■Service Charges/Fees 10,000 ■Water Sales 5,000 .. _._...- ._........... ............ ----- ........... .................. -......... .---- --- - Q OOG 001 000 61 010 011 IS, 01'y 6; , 01h Q1 olti 6P (Z�ti oq e 9 (S' o�ti 1�1 9 3 a 0 0 Non-Operating Revenue by Type:Water Fund d' L.Noncapital grant funds L 4,500 4,000 £y a Gain on asset disposition t 3,500 - N Other Income ~ 3,000 2,500 :_S Rental Income Q 2,000 C 3 ; -�-- -�- -��-� ■Interest Income •- 1,500 'a -r v 1,000 500 t. rye ry�1 �� rya ryolo ti011 ryolti ti01� ryola ti01y m 3 6 e\�o\ o\ G\�o\ G\�o\ 6\�0\ 6\�0\ 6\�0\ G\3o\ 6\�0\ Cl) ns C LL U) T O M O O LL Q U c m V 1 3 a 59 Packet Pg. 779 .�..n.�r■rrr� �L�. City of San Bernardino Municipal Water Department Sewer Fund Revenue by Type Last Ten Fiscal Years Gain on d Asset = Sewer Other Disposition Total Non Fiscal Year Treatment Industrial Operating Total Operating Interest Rental Other /Joint Operating -a Ended Revenue Waste Revenue Revenue Income Income Income Venture Income 6/30/2006 19,492,372 366,321 504,779 20,363,472 662,460 29,181 - - 691,641 C W 6/30/2007 20,083,001 390,328 529,155 21,002,484 1,906,369 29,101 - - 1,935,470 >. ILL 6/30/2008 20,009,959 372,631 465,394 20,847,984 2,319,570 29,425 - - 2,348,995 1- O 6/30/2009 20,124,192 406,686 677,142 21,208,021 1,652,562 26,826 1,679,388 N 6/30/2010 20,771,749 431,300 1,221,894 22,424,942 1,603,840 26,303 - - 1,630,143 }r 6/30/2011 21,833,085 379,316 1,221,431 23,433,833 817,740 23,517 - 41,609 882,866 L' 6/30/2012 24,250,417 376,550 1,261,762 25,888,729 812,885 21,907 - - 834,792 Q 6/30/2013 25,261,792 296,153 856,708 26,414,654 340,689 22,574 - - 363,263 C 6/30/2014 25,350,988 319,786 - 25,670,774 443,836 20,669 202,078 - 666,583 L d a� 6/30/2015 24,399,415 335,010 - 24,734,425 481,211 700 498,247 345,884 1,326,042 >� 4- Source: Department's annual reports O It O Operating Revenue by Type-Sewer Fund Q- d 30,000 a G (� 25,000 _..... ................. .......... ....-.... � t 20,000 -�_- - (tf 15,000 .... ----- ---.. -___ .__._ ....... .._....... ............. 6 Other Operating Revenue E 10,000 -- ■Industrial Waste ■Sewer Treatment Revenue = 5,000 .... .._.___ ................ _. .. C Q G o1 04 of 10 ,y1 .y'L13 1a 1y oo o o o�yoo o�yo o o\T o\1 o�tio oltio �+ Q O O M d' Non-Operating Revenue by Type-Sewer Fund L N 2,500 r c 2,000 0 ~ 1,500 -..._.............. .-_-_. .........._--__.._.._..___.__................ ........_...___--- O Gain on Asset Disposition/Joint Venture C 1,000 -- -- - E Other Income ,i e!.Rental Income Soo - L ■Interest Income N m - �6 cP^ oo� &� 01° 011 o1'L 013 o1a o1h tt5 3�\ry 36\ 3(\ry 36~ 3o�ti 3�\ry 3�\� 3�\~ 3o�ti 3�\~ IG C i1 r O M co O I U_ Q U c a� E U w Q 60 Packet,Pg.,780 City of San Bernardino Municipal Water Department 7.D.a Water Fund Expenses by Type Last Ten Fiscal Years Plant Administration Operations Depreciation Total Loss on Other Non- Total Non- C Fiscal Year &Customer and and Operating Interest asset operating Operating Ended Service Distribution Engineering Maintenance Amortization Expense Expense disposition expense Expense 6/30/2006 8,477,420 9,251,147 1,873,653 1,748,898 3,482,432 24,833,550 365,636 - 36,855 402,491 6/30/2007 9,142,746 10,532,739 2,334,538 1,994,341 4,06S,028 28,069,392 313,450 - 27,692 341,142 W 6/30/2008 12,493,276 11,250,830 2,405,221 1,813,310 4,490,464 32,453,101 592,182 531,528 - 1,123,710 >_ L 6/30/2009 11,901,700 10,908,332 3,046,765 1,853,244 5,224,933 32,934,974 601,795 - 8,021 609,816 0 to 6/30/2010 11,552,062 11,209,298 2,204,374 1,577,642 5,409,704 31,953,080 175,782 8,988 1,894,624 2,079,394 0 6/30/2011 15,489,152 10,440,753 2,220,956 1,634,919 5,396,135 35,181,915 531,839 1,472 - 533,311 L 6/30/2012 16,304,830 12,959,507 2,492,056 1,628,764 5,770,673 39,155,830 526,915 268,953 795,868 4) 6/30/2013 16,149,788 11,073,338 2,813,459 1,888,236 5,505,403 37,430,224 689,665 261,946 - 951,611 a) 6/30/2014 14,410,400 11,395,305 2,426,717 1,837,556 5,971,638 36,041,616 261,836 - - 261,836 C of 6/30/2015 13,244,552 12,467,017 2,439,170 1,988,719 5,365,124 35,504,582 169,119 - - 169,119 L Q) tZ Source: Department's annual reports O t O Q a) Operating Expenses by Type-Water Fund N 45,000 40,000 --- - v o 35,000 30,000 - -- - - ---- - ------ -- --- _ s Depreciation and Amortization 25,000 j R Maintenance LL zo,000 15,000 _._.. ._.......... ........._... .___. _ .._-...... ... ■Engineering t9 3 10,000 ■Plant operations and Distribution 5,000 = ■Administration&Customer Service Q 'Y00r0 'Y001 0 ,10ti~ .t0~ry 'Y01'' ,L0~o- ,LO.Yh o\'L Q O Non-Operating Expense by Type:Water Fund d 2,500 ..r v Other Non-operating expense L 2,000 rte+ s C Loss on asset disposition ~ 1,500 -'---..._................-......_--_-...................... --_---_-_- 1,000 E Interest Expense O C 500 R 006 00A 000 00Cj 0,y0 0~~ 01� 0ti0 O,Yh O,�'� MMN Al O�ry O�ry Off~ Off~ O�ry Off~ O�ry Off~ OG\~ W fC Rf G LL LO r O M O O LL Q U c a> E t w Q 61 Packet Pg. 781 City of San Bernardino Municipal Water Department Sewer Fund Expenses by Type Last Ten Fiscal Years Administration Depreciation Loss on Other Non- Total Non- Fiscal Year &Customer Plant and Total Operating Interest asset operating Operating C Ended Service Operations Engineering Maintenance Amortization Expense Expense disposition expense Expense 6/30/2006 2,937,280 9,489,306 - 2,759,868 5,331,731 20,518,185 2,164,150 474,657 126,879 2,765,686 0) 6/30/2007 3,180,710 10,388,472 45,794 3,088,137 5,338,372 22,041,485 2,021,326 2,037 1,292,772 3,316,135 -a C 6/30/2008 4,318,939 10,293,707 32,336 3,138,509 5,364,048 23,147,539 1,868,033 3,784 118,195 1,990,012 iL 6/30/2009 3,334,540 10,237,490 16,278 2,928,189 5,888,314 22,404,811 1,701,371 3,736 110,092 1,815,199 L O 6/30/2010 5,807,692 10,170,647 - 3,059,780 5,436,628 24,474,747 1,529,650 2,142 117,949 1,649,741 N 6/30/2011 3,989,616 10,627,225 - 3,108,701 4,971,771 22,697,313 1,343,649 - 155,748 1,499,397 i=+ 6/30/2012 3,823,627 10,328,073 - 3,257,127 4,645,127 22,053,954 1,147,810 34,114 118,051 1,299,975 L 6/30/2013 4,454,713 10,040,895 - 3,392,868 4,408,721 22,297,197 828,129 11,644 154,180 993,953 y 6/30/2014 5,345,726 9,528,218 527,294 3,146,275 3,426,515 21,974,028 557,049 16,244 1,238,703 1,811,996 (n 6/30/2015 4,016,198 9,292,501 534,226 2,906,853 2,870,550 19,620,328 227,165 - - 227,165 L Source: Department's annual reports N f6 4- O t Operating Expenses by Type-Sewer Fund 0 30,000 a c _ N 25,000 00 20,000 --- --- - a Depreciation and Amortization .0 C 15,000 ■Maintenance tC C 10,000 ■Engineering 5,000 ■Plant Operations ■Administration&Customer Service 3 boob ^ tirp9 ° ti°,' ti°•� ti°�� ti°�' tio�y C Ct r.r 7 Non-Operating Expense by Type:Sewer Fund Q 3,500 3,0o0 Other Non-operating expense O M 0 2'500 a Loss on asset disposition r 2,000 L d 1,500 ■Interest Expense 1,000 500 I j � C o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti � m C t6 U) r R C U_ Ln r O M t0 O LL Q U :j C d t v Q 62 Packet Pg. 782 7.D.a s m c m -a c w LL L O 4. U) Q� D L 3 a� U) �a c CU L Y Cz W O t O Q. NQ� I.L. U C f6 DEBT CAPACITY INFORMATION U- 7i These schedules contain information to help the reader assess Q the affordability of the Department's current level of y outstanding debt and ability to issue debt in the future. a O O M L Q� (C 0 L M� W ''CU^ V/ 1 LL L0 r O LL M O ! O Q U d-+ Q) U Rf Q 63 Packet Pg. 783 City of San Bernardino Municipal Water Department Water Fund Debt Service Coverage Last Ten Fiscal Years Net Operating Net Non- _ Total Expenses Net Operating Amount Fiscal Year Operating (Excluding) Operating Income/ Available for Total Debt Coverage Q Ended Revenue Depreciation Income(Loss) (Expense) Debt Service Principal Interest Service Ratio 6/30/2006 21,760,104 21,351,118 408,986 3,186,965 3,595,951 1,765,988 396,183 2,162,171 1.66 W LL 6/30/2007 28,232,366 24,004,364 4,228,002 3,487,628 7,715,630 523,644 582,772 1,106,416 6.97 0 0 6/30/2008 27,337,093 27,962,637 (625,544) 3,479,605 2,854,061 541,079 485,626 1,026,705 2.78 `= 6/30/2009 27,258,954 27,710,041 (451,087) 2,853,518 2,402,431 559,106 603,368 1,162,474 2.07 6/30/2010 27,688,694 26,543,376 1,145,318 2,101,540 3,246,858 956,106 667,146 1,623,252 2.00 !A c 6/30/2011 33,027,707 29,785,780 3,241,927 2,025,029 5,266,956 1,352,148 548,318 1,900,466 2.77 L d 6/30/2012 37,106,217 33,385,157 3,721,060 2,436,449 6,157,509 974,027 505,819 1,479,846 4.16 M 6/30/2013 37,868,846 31,924,821 5,944,025 2,492,448 8,436,473 1,227,491 547,616 1,775,107 4.75 t O M 6/30/2014 36,671,903 30,069,978 6,601,925 2,504,705 9,106,630 1,658,265 660,854 2,319,119 3.93 CD 6/30/2015 33,121,128 30,139,458 2,981,670 2,702,953 5,684,623 1,683,818 187,153 1,870,971 3.04 v c R Source: Department's annual reports LL is c Q m Q O O M d' L Y 0 L L d m L0 r O M f,C O I LL Q U :r c a� E 0 t6 Q 64 Packet Pg. 784 City of San Bernardino Municipal Water Department Sewer Fund Debt Service Coverage Last Ten Fiscal Years Net d Operating Net Non- Total Expenses Net Operating Amount Fiscal Year Operating (Excluding) Operating Income/ Available for Total Debt Coverage O Ended Revenue Depreciation Income(Loss) (Expense) Debt Service Principal Interest Service Ratio 6/30/2006 20,363,472 15,186,454 5,177,018 (2,074,045) 3,102,973 3,603,614 2,143,829 5,747,443 0.54 W U. 6/30/2007 21,002,484 16,703,113 4,299,371 (1,380,665) 2,918,706 3,761,442 2,003,864 5,765,306 0.51 0 0 6/30/2008 20,847,984 17,783,491 3,064,493 358,983 3,423,476 3,823,275 1,855,515 5,678,790 0.60 0 r+ 6/30/2009 21,208,021 16,516,497 4,691,524 (135,811) 4,555,713 4,197,317 1,687,518 5,884,835 0.77 j L 6/30/2010 22,424,942 19,038,119 3,386,823 O (19,598) 3,367,225 4,181,342 1,635,707 5,817,049 0.58 � 6/30/2011 23,433,833 17,725,542 5,708,291 (616,531) 5,091,760 2,130,378 3,706,195 5,836,573 0.87 = to 6/30/2012 25,888,729 17,408,827 8,479,902 (462,183) 8,017,719 4,417,731 1,166,496 5,584,227 1.44 y R 6/30/2013 26,414,654 17,888,476 8,526,178 (630,690) 7,895,488 4,724,227 757,010 5,481,237 1.44 w O 6/30/2014 25,670,774 18,547,513 7,123,261 (1,129,169) 5,994,092 4,424,090 747,460 5,171,550 1.16 O Q 6/30/2015 24,734,425 16,749,778 7,984,647 1,098,877 9,083,524 4,629,425 568,888 5,198,313 1.75 W Source: Department's annual reports C1 C C LL 3 C C Q CD r_ 7 Q O O Cl) L 2� 7 O L L M� W R LO T1. O M O O I IX LL Q U c E U R W Q 65 Packet Pg. 7 55 7.D.a a� c a� w LL I- 0 V� M-+ 43 L L 4� 0 V- 0 Q. NQ� 1.I.. U C DEMOGRAPHIC AND ECONOMIC INFORMATION U- These schedules offer demographic and economic indicators a to help the reader understand the environment within which the Department's financial activities take place. a 0 0 M d' L R 0 L Itf L f m i = r Cn R C T- r O M t0 O I Q U E U r.. w Q 66 ticket Pg. 786 City of San Bernardino Municipal Water Department Demographic Statistics Last Ten Fiscal Years Estimated Personal Per Capita Fiscal Year Population Income(In Personal Unemployment Q C Ended (1) Thousands) Income(2) Rate(3) � 6/30/2006 201,396 5,982,065 29,703 4.90% d 6/30/2007 204,620 6,248,072 30,535 5.80% '0 C W 6/30/2008 205,493 6,318,704 30,749 8.30% >_ LL L 6/30/2009 208,318 6,198,919 29,757 12.90% ,0 N 6/30/2010 209,924 6,256,785 29,805 13.70% N 6/30/2011 210,108 6,559,152 31,218 13.00% L 6/30/2012 210,753 6,807,533 32,301 11.50% d 6/30/2013 211,994 7,001,102 33,025 9.80% -p C 6/30/2014 212,584 7,070,119 33,258 8.20% d 6/30/2015 213,933 n/a n/a 7.30% M v- (1) California Department of Finance O (2) U.S.Department of Commerce,Bureau of Economic Analys for 2006-2013(Riverside-San Bernardino MSA) tO (3) State of California,Economic Development Department Q d *Most recent complete year available. its U Population Personal Income 216,000 8,000,000 _ 214,000 212,000 _ 7,000,000 V 210,000 6,000,000 r 208,000 206,000 5,000,000 = 204,000 4,000,000 Q 202,000 3,000,000 a 200,000 0 198,000 2,000,000 _ 196,000 1,000,000 194,000 Q °°630\��'S0\��30\�lsc 3' �°1°3°\~°yy \�°1~ \ti°1,50\ti°~a,�0\ti°~y 3 ti°°,��°°,5 ti°°3��3~°yO~°13 °~3 X611, 3 ry°~y M 6\ 6\ 6\ 6\ 6\ 6\ 6\ 6\ 6\ 6\ °\ °\ °\ °\ °\ °\ °\ °\ °\ °\ CD 6\ 6\ 6\ 6\ 6\ 6\ 6\ 6\ 6\ 6\ L Per Capita Personal Income Unemployment =O 35,000 16.00% �O 30,000 - 14.00% 25,000 C 12.00% 20,000 10.00% m 15,000 8.00% fC 10,000 6.00% Cn 5,000 4.00% 2.00% C 0.00% LL °°$ °°� °10 °11 °1ti °13 °1A °15 6 0 °� O 'ti 0\V 6\,50\T 6\,�O\T 6\30\ry 6\,�O\1 6\,50\1 6\,50\,6\,�O\�"`o\,�°\�"6\,5°\�" O\,y0°1Z\'T IZ\IT O\,LOO O\,�0,'O\,L01 O\1"01 O\•LO,'p\'l°1 O\'1°1 Cl) 101 6\� 6\, 4\1 411 6\� 4 6\b 6\�' 6\3 r9 0 a U c a� 1 E U !6 Q 67 Packet Pg. 787` City of San Bernardino Municipal Water Department Major Employers Current Year and Nine Years Ago d Fiscal Year 2015 Fiscal Year 2006* _ Employer Ranking Number of Employees Ranking Number of Employees Stater Brothers 1 18,000 c W County of San Bernardino 2 17,395 9 1000+ >- LL L San Bernardino City Unified School District 3 12,629 7 1000+ 0 m California State University,San Bernardino 4 3,012 1 1000+ 45 Saint Bernardine Medical Center 5 1,400 3 Communit y Hospital ital of San Bernardino 6 1,200 4 1000+ .a c City of San Bernardino 7 1,067 3 1000+ San Bernardino Community College District 8 862 8 1000+ 0 V- The Sun Newspaper 9 526 0 Q. am Blood Bank of San Bernardino 10 340 W State of California, Department of Transportation 2 1000+ R c Corona Regional Medical Center 5 1000+ 0 Renzenberger,Inc. 6 1000+ Q San Bernardino Valley College 10 1000+ *Actual employment figures not available Q 0 0 Source: City of San Bernardino Economic Development Department and City's Annual Financial Report L W 0 L L Ma) W LL LO T11 0 M 0 I LL Q U :.c c m E 0 Q 68 Packet Pg. 788 City of San Bernardino Municipal Water Department Authorized Positions History Last Ten Fiscal Years d C Year End Water Fund Sewer Fund Total 2006 178.0 75.0 253.0 y 2007 185.0 78.0 263.0 2008 194.0 79.0 273.0 W 2009 183.0 78.0 261.0 LL 2010 167.0 84.0 251.0 LO 2011 163.5 78.0 241.5 N N 2012 173.5 82.0 255.5 2013 173.5 82.0 255.5 2014 185.5 72.5 258.0 L 2015 183.5 74.5 258.0 U) Source: Department's records -a C ca L Q O O Q. d Q' Authorized Position History 250.0 c 200.0 �a - - c 150.0 - Q ■Water Fund .O 100.0 rl'Sewer Fund w 50.0 Q 0 0.0 O M 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 L O C E L L M� W U) 1 LL LO r O M tD O I D_ Q U d E v r Q 69 Packet Pg. 789 7.D.a a� c .a a� c w LL L 0 m L M L i+ CO 4-. 0 0 CL W w REVENUE CAPACITY U- These schedules contain information to help the reader assess a the Department's significant revenue sources. a 0 0 M d' L 0 L L CO W U- LO r" O M O O LL Q U c d E U R w Q 70 Packet Pg. 790 City of San Bernardino Municipal Water Department Water Rates:Minimum Monthly Charge Last Ten Fiscal Years d C O Effective ($/month) O Date 1/2" 5/8" 3/4" 1" 1-1/2" 2" 3" 4" 6" 8" 10" 12" O W 7/1/2006 * 8.32 11.10 13.27 23.81 33.26 56.56 96.02 172.87 259.28 324.10 388.98 � L 7/1/2007 * 8.59 11.47 13.71 24.6 34.36 58.43 99.19 178.57 267.84 334.8 401.82 - L- 7/1/2008 * 8.88 11.84 14.16 25.41 35.49 60.35 102.46 184.47 276.67 345.84 415.08 0 7/1/2009 * 8.88 11.84 14.16 25.41 35.49 60.35 102.46 184.47 276.67 345.84 415.08 +; 2/1/2010 10.55 10.55 13.00 17.90 30.15 44.85 79.15 128.15 250.70 397.75 569.30 1/1/2011 12.20 12.20 15.15 21.00 35.75 53.45 94.75 153.70 301.15 478.10 684.55 1/1/2012 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 * N 7/1/2013 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 7/1/2014 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 * 0 7/1/2015 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 C ca *Information not reported mL All water usage,except municipal,will be billed at the rate of$0.94 and$0.97 per 100 cubic feet effective July 1,2007 and July 1,2008, R respectively,with no minimum allowance. O Source: Department's Records O Q d is .0 C Rf C LL 3 C C Q CD O Q O O M d' L R O a L 1_ L CO U cc LL U1 r O M O O I LL a U c a� E s U R a 71 Packet Pg. 791 City of San Bernardino Municipal Water Department 7.� a Water Connections and Revenues by User Type Last Ten Fiscal Years d C 2015 2014 2013 2012 � arType Connections Revenue Connections Revenue Connections Revenue Connections Revenue O Single family 35,695 $ 16,775,834 35,012 $ 18,583,708 34,913 $ 18,741,773 34,716 $ 18,094,052 = W Multiple family 2,869 4,349,601 2,824 4,591,290 2,820 4,704,384 2,801 4,510,962 } W Commercial 3,097 6,332,882 3,085 6,566,344 3,082 6,800,310 3,117 5,790,427 i Landscape 1,130 3,079,610 1,140 3,616,135 1,104 3,591,678 1,151 3,321,846 Other 1,791 679,606 1,703 913,810 1,663 599,210 1,626 1,597,791 N O r.+ Total all users 44,582 $ 31,217,533 43,764 $ 34,271,287 43,582 $ 34,437,355 43,411 $ 33,315,078 =3 L d 2011 2010 2009 2008 d Connections Revenue Connections Revenue Connections Revenue Connections Revenue N .a C Single family 34,695 $ 15,665,580 34,542 $ 13,899,599 34,418 $ 13,943,441 34,316 $ 13,419,093 L Multiple family 2,806 4,025,079 2,799 3,442,271 2,801 3,547,811 2,834 3,419,696 +' Commercial 3,117 4,678,003 3,127 3,826,613 3,126 3,867,923 4,003 5,765,993 Landscape 1,149 2,745,990 1,158 2,367,514 1,173 2,454,044 O Other 1,571 701,296 1,553 900,840 1,545 1,094,364 1,820 1,518,693 t O Q. Total all users 43,338 $ 27,815,948 43,179 $ 24,436,837 43,063 $ 24,907,583 42,973 $ 24,123,475 N Q' 2007 2006 U Connections Revenue Connections Revenue = O _C Single family 34,842 $ 13,794,954 34,900 $ 10,139,954 Multiple family 2,913 3,536,202 2,922 3,266,928 O ,ercial 3,954 5,807,406 3,847 4,746,866 C cape - _ _ _ Q Other 1,755 1,795,878 1,572 717,589 O Total all users 43,464 $ 24,934,440 43,241 $ 18,871,337 Q Source: Department's records O O M L w 0 L (4 L �„0\ IM U- LO O M t9 O I LL Q U c a� E t U fC r+ Q 72 Packet Pg. 792 City of San Bernardino Municipal Water Department Water Rates: Elevation Charges$ per HCF Last Ten Fiscal Years m c a� Effective Date Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 ° 07/01/06 0.00 0.06 0.14 0.20 0.30 0.47 w 07/01/07 0.00 0.06 0.14 0.21 0.12 0.12 07/01/08 0.00 0.06 0.15 0.21 0.13 0.13 ° 07/01/09 0.00 0.06 0.15 0.21 0.13 0.13 07/01/10 0.09 0.17 0.15 0.12 0.21 0.21 D 07/01/11 0.10 0.18 0.16 0.13 0.22 0.22 07/01/12 0.11 0.19 0.17 0.14 0.23 0.23 07/01/13 0.11 0.19 0.17 0.14 0.23 0.23 07/01/14 0.11 0.19 0.17 0.14 0.23 0.23 07/01/15 0.11 0.19 0.17 0.14 0.23 0.23 co 0 t 0 Q. m c c LL c c Q v d �a 0 Q 0 0 M L 0 S L L CO W V/ LL LO r 0 M O O I u- Q U a.: c m E t v ca Q 73 Packet Pg. 793 City of San Bernardino Municipal Water Department Top Ten Water Customers Fiscal Year 2015 m _ Customer-2015 c w City of San Bernardino $ 1,260,575 U- San Bernardino Unified School District 719,163 ° Cott Beverages 311,477 County of San Bernardino 284,351 .� Housing Authority 232,150 California State University 225,113 3 m St. Bernardino Hospital/CHW 130,572 N Successor to Former San Bernardino EDA 124,327 = R W. Dean Weidner 123,825 a; Pama Management Company 123,007 CO 0 Top Ten Customers Total $ 3,534,560 0 Q m Total Water Revenue $ 32,220,868 Top Ten Customers Percent of Total f° 10.97% _ LL Note: Data not available for the fiscal period ended nine years prior. Q a� w Q 0 0 M L O O _ L _ L M� W _ Cn _ Q M O O LL Q U _ m E v ca Q 74 Packet Pg. 794 City of San Bernardino Municipal Water Department Sewage Treatment Rate History Fiscal Years 1995 through 2015 Q c 7/1/1995 1996-2004 7/1/2004 1/1/2009 11112010 2/1/2011 1/1/2012 10/1/2015 c W Residential(monthly per EDU) 13.25 no change 14.50 15.25 16.00 17.00 18.50 20.65 LL LL Commercial: I- 0 Commodity Charge(per HCF): N a� Multi-family,mobile home parks 0.75 no change 0.83 0.90 0.95 1.10 1.25 1.36 Retail,commercial,light industrial 1.10 no change 1.70 1.80 1.90 2.00 2.10 2.28 Auto repair,car wash 1.20 no change 1.17 1.25 1.30 1.30 1.30 1.41 3 Offices,motels(w/o restaurants) 0.95 no change 1.32 1.40 1.50 1.50 1.50 1.63 am Restaurants,hotels 1.70 no change 1.84 1.90 2.00 2.35 2.70 2.93 .0 Laundromats 0.90 no change 1.15 1.25 1.30 1.40 1.50 1.63 = Hospitals,convalescent homes 0.80 no change 0.84 0.90 0.95 1.15 1.35 1.46 m Schools,churches,nursery schools 0.50 no change 0.62 0.65 0.70 0.90 1.10 1.19 M Industrial: 3: Discharge Flow(per million gallons) 826.67 no change 816.10 860.00 900.00 900.00 900.00 977.00 0 Biological Oxygen demand '_ g Yg (per 1,000 Ibs) * no change 264.91 280.00 292.00 330.00 360.00 391.00 O Suspended Solids * CL (per 1,000 Ibs) no change 577.41 610.00 640.00 640.00 640.00 694.00 a' *data not reported IC C R C Source: Department's records U. c c Q CD Q 0 0 M L .F+ R 0 L F L m R r__ LL LO V_ 0 M tD 0 I LL Q U c a� E cc r Q 75 Packet P9. 795 City of San Bernardino Municipal Water Department Sewage Treatment Connections and Revenue by User Type Last Ten Fiscal Years d C 2015 2014 2013 2012 User Type Connections Revenue Connections Revenue Connections Revenue Connections Revenue a San Bernardino Residential 32,874 $8,056,827 32,537 $8,111,634 32,563 $7,922,936 32,571 $7,650,1 W San Bernardino Nonresidential 5,344 7,240,533 5,410 8,033,072 5,447 8,332,214 5,412 7,877,4 W East Valley Residential 18,480 4,093,625 18,404 4,149,836 18,925 4,188,434 18,813 4,019,1 LL East Valley Nonresidential 1,051 2,571,813 1,115 2,725,075 1,126 2,434,118 1,128 2,492,3 ,O Loma Linda Residential 5,040 997,242 4,656 991,387 4,663 1,063,124 4,443 933,6 ai Loma Linda Nonresidential 588 1,294,612 592 1,330,102 585 1,549,643 589 1,258,7 r Total all users 63,377 $24,254,651 62,714 $25,341,106 63,309 $25,490,469 62,956 $24,231,4 CD 2011 2010 2009 2008 CO Connections Revenue Connections Revenue Connections Revenue Connections Revenue San Bernardino Residential 32,447 $7,053,263 32,307 $6,670,859 32,050 $6,288,804 32,058 $6,197,8 San Bernardino Nonresidential 5,416 7,131,988 5,196 6,699,228 5,434 6,625,012 5,491 6,570,1 a; East Valley Residential 18,700 3,645,721 18,157 3,348,238 17,986 3,285,452 17,956 3,221,4 East Valley Nonresidential 1,138 2,070,233 1,132 2,185,072 1,146 2,139,543 1,159 2,213,9 4- Loma Linda Residential 4,648 870,734 4,688 839,451 4,692 781,159 4,407 767,0 0 Loma Linda Nonresidential 584 1,048,402 588 1,016,088 559 984,117 576 1,011,7 Q d Total all users 62,933 $21,820,341 62,068 $20,758,936 61,867 $20,104,087 61,647 $19,982,2 2007 2006 N Connections Revenue Connections Revenue San Bernardino Residential 32,367 U- $6,238,570 31,523 $6,021,449 ` Bernardino Nonresidential 5,528 6,654,231 5,401 6,448,117 3 /alley Residential 18,085 3,231,282 18,005 3,184,223 = C Valley Nonresidential 1,160 2,252,260 1,160 2,171,095 Q Loma Linda Residential 4,567 728,111 4,493 728,713 Loma Linda Nonresidential 584 950,227 584 910,116 Q Total all users -62,291 $20,054,681 61,166 $19,463,713 0 0 M d' Source: Department's records L d Q L L M� W U) LL LO r O M (D 0 Ix LL Q U c a� E t U fC w Q 76 Packet Pg:796 City of San Bernardino Municipal Water Department Top Ten Sewage Treatment Customers Fiscal Year 2015 m c w Customer-2015 LL L O Farmdale Creamery, Inc. $ 420,205 Y Cott Beverage 329,155 County of San Bernardino 3231520 L m Patton State Hospital 202,653 m Housing Authority 172,232 San Bernardino City Unified School District 172,145 Cz L St. Bernardine Hospital/CHW 107,797 Co-West Commodities 97,898 Pama Management Company 94,078 0 Cal State University San Bernardino 83,312 0 CL m o! Top Ten Customers Total $ 2,002,995 ; U C Total Sewer Revenue $ 24,263,000 = U- �a Top Ten Customers Percent of Total 8.26% a Source: Department's records Q Note: Data not available for the fiscal period ended 0 nine years prior. 0 L Y R 0 L L CO W R CO ca s C LL LO r O M O O ( Q U c a> E Q 77 Packet Pg. 797 Ooo CITY OF SAN BERNARDINO—REQUEST FOR COUNCIL ACTION From: Stacey R. Aldstadt, General Manager Subject: Receive and File — Audited Annual Financial Report of the Water Department's Dept: Water Water and Sewer Utilities for Fiscal Year Ended June 30, 2015 Date: February 2, 2016 Council Date: February 16, 2016 Synopsis of Previous Council Action: Similar action taken each year following completion of the annual audit report. Recommended Motion: That the Mayor and Council receive and file the audited Annual Financial Report of the Water Department's water and sewer utilities for fiscal year ended June 30, 2015. Signature Contact person: Stacey R Aldstadt- General Manager Phone: 909-384-5091 Supporting data attached: Yes Ward: FUNDING REQUIREMENTS: Amount: N/A Source: (Acct. No.) -0- (Acct DescripfjQt]) -0- Finance: Council Notes: Agenda Item No. 7P COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT, A DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA ,: i ' • • FISCAL , • ENDED JU Nn � 1' ' , � 1 � ' City of San Bernardino Municipal Water Department Comprehensive Annual Financial Report Fiscal Year Ending June 30, 2015 Table of Contents Page No. Introductory Section: Letter of Transmittal i Organizational Chart vii Financial Section: Independent Auditor's Report 1 Management's Discussion and Analysis 5-11 Basic Financial Statements: Statement of Net Position 14-15 Statement of Revenues, Expenses and Changes in Net Position 16 Statement of Cash Flows 17-18 Notes to the Basic Financial Statements 19-49 Statistical Section: Changes in Net Position—Combined Funds 53 Changes in Net Position—Water Fund 54 Changes in Net Position—Sewer Fund 55 Net Position by Component—Combined 56 Net Position by Component—Water Fund 57 Net Position by Component—Sewer Fund 58 Water Fund Revenue by Type 59 Sewer Fund Revenue b;/Type 60 Water Fund Expenses by Type 61 Sewer Fund Expenses by Type 62 Water Fund Debt Service Coverage 64 Sewer Fund Debt Service Coverage 65 Demographic Statistics 67 Major Employers 68 Authorized Positions History 69 Water Rates: Minimum Monthly Charge 71 Water Connections and Revenues by User Types 72 Water Rates— Elevation Charges per HCF 73 Top Ten Water Consumers 74 Sewage Treatment Rate History 75 Sewage Treatment Connections and Revenue by User Type 76 Top Ten Sewage Treatment Customers 77 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT BOARD OF WATER COMMISSIONERS 5NN g�� STACEY R.ALDSTADT General Manager TONI CALLICOTT 0 4 9� ROBIN L.OHAMA Id President a d Deputy General Manager I- L MIGUEL GUERRERO,P.E. Commissioners j p Director of Water Utility JUDITH VALLES JOHN A.CLAUS LOUIS A.FERNANDEZ Director of Water Reclamation r WAYNE HENDRIX = 4�. JENNIFER SHEPARDSON DAVID E.MLYNARSKI 92h E R D� Director of Environmental& Regulatory Compliance 'FERRI WIL.L.OUGHBY Director of Finance "Trusted, Quality Service since 1905" January 27, 2016 Members of the Board of Water Commissioners San Bernardino Municipal Water Department Introduction: State law requires that every general purpose government publish within six months of the close of each fiscal year a complete set of audited financial statements. This report is published to fulfill that requirement for the San Bernardino Municipal Water Department ("Department")for the fiscal year ended June 30, 2015. Management assumes full responsibility for the completeness and reliability of the information contained in this 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 reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. Davis Farr LLP has issued an unqualified ("clean") opinion on the Department's financial statements for the year ended June 30,2015. The independent auditor's report is located at the front of the financial section of this report. Management's discussion and analysis ("MD&A") immediately follows the independent auditor's report and 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. Profile of the Department: The San Bernardino Municipal Water Department and the Board of Water Commissioners ("Board") were established on May 8th, 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 16th, 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. 300 North "D" Street, San Bernardino, California 92418 P.O. Box 710, 92402 Phone: (909) 384-5141 FACSIMILE NUMBERS: Administration:(909)384-5215 Engineering:(909)384-5532 Customer Service:(909)384-7211 Corporate Yards:(909)384-5260 Water Reclamation Plant:(909)384-5258 Board of Water Commissioners , January 27, 2016 Page 2 The first water distribution system of San Bernardino included water supply for approximately six thousand , citizens within a one square mile service area. In contrast, the water supply distribution network 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 trusted, quality ' service remains the same. The San Bernardino service area receives the majority of its water supply from an underground aquifer 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 Bernardino Mountains. This local water supply ensures that the customers of the San Bernardino Municipal Water Department receive high ' quality, inexpensive water as compared to other communities. Many other communities in Southern California must import their water supplies from remote locations via the Colorado River and Northern California 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. The Department is committed to providing trusted, quality service to our customers as we provide water supply, water reclamation, geothermal heating, and administrative services to our community. ' Water Revenue by Type - 2415 , 30` ■Residential-Single Family ' ■Residential-Multi Family 16% a Commercial/Industrial ■Landscape ' f ■Other ' �Pr City Usage 4 } ' b Fiscal Management: The Board annually adopts an operating and capital budget prior to the new fiscal year. The budget authorizes and provides the basis for reporting and control of financial operations and accountability for the Department's functions, including the Water and Sewer Funds. The budget and reporting treatment applied to a fund is consistent with the accrual basis of accounting and the financial statement basis. Each year the Department ' adopts a balanced budget. ii Board of Water Commissioners January 27, 2016 Page 3 Local Economy: 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, 2015 was 213,933. 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 commercial vacancies have led to a declining customer base. However, as the local real estate and employment markets improve, this customer base should begin to recover. The City's unemployment rate is currently 7.6%, down from 9.4% in the prior year. Local 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. California's water supply continues to be a concern due to projected population increases and dwindling supplies from traditional sources. The Department has expanded and will continue to expand its 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. On January 17, 2014, Governor Edmund G. Brown Jr. proclaimed a State of Emergency related to the drought conditions in California and formed the Drought Task Force. On April 1, 2015, Governor Brown issued an executive order mandating a statewide 25% reduction for urban water suppliers. On May 5, 2015, the State Water Resources Control Board adopted an emergency regulation which assigned a conservation standard to each urban water supplier. The conservation standard assigned to the Department was 28%. In turn, the Department's Board of Water Commissioners declared that Stage IIA, Extreme Mandatory .Restrictions were in effect. These restrictions imposed a 28% reduction in water usage and assess financial penalties on usage in excess of these amounts. As a result of these restrictions, water consumption in Fiscal Year 2014-15 decreased 11% from the prior year. During the past three years, the Department's expenses related to the cost of water production have reduced, despite an increase in customers of 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 33,505 per cubic feet in 2015. Water Production In Cubic Feet 2,500,000,000 510 207,153,290 2,000,000,000 —_ " ,o17az6,o2o 1,500,000,000 1,569,854,500 Water Production 1,000,000,000 500,000,000 _ 2011 2012 2013 2014 2015 iii Board of Water Commissioners ' January 27, 2015 Page 4 Long Term Financial Planning: , The Department's financial plan includes the establishment of reserve funds in accordance with the 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. ' y Operating Reserve: This reserve is established to ensure adequate cash flow is available to meet day- to-day expenses. The target balance is 45 days of the operating expenses budgeted for each respective fund. y 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 20% of budgeted water ' sales. The minimum target balance for the Sewer Fund is 10% of budgeted sewer sales. y Emergency Replacement Reserve: The purpose of this reserve was to minimize the impact of ' unforeseen capital asset and operating expenses. The target balance for the Water Fund is 2% of the total recorded value of capital assets as of the previous fiscal year. The target balance for the Sewer Fund is 3% of the total recorded value of capital assets as of the previous fiscal year. ' ➢ Capital Replacement Reserve: The Capital Replacement Reserve was set up in order to provide funding in support of the Department's capital program. The basis for calculating the target balance for this reserve is a rolling five-year average of the Department's Capital Improvement Program projects, ' excluding those with external funding. The target balance will be assessed on an annual basis as part of the budgeting process. Debt Administration: ' The Department's outstanding debt as of June 30, 2015 consists of four Notes Payable in the Water Fund, and ' debt obligations consisting of a Note Payable and Certificates of Participation in the Sewer Fund, as shown in the table below: Water Fund Long-Term Debt Activity Year of Issuance/Description Use of Proceeds 2002 California Infrastructure& Economic Funding for transmission mains, booster .Development Bank CIEDB Note Stations and a reservoir. ' 2007 California Infrastructure & Economic Funding for booster stations and transmission Development Bank CIEDB Note mains in the Verdemont area. 2012 California Infrastructure & Economic Funding for the construction of the 12 million gallon Development Bank CIEDB Note O den Reservoir and i eline im rovements. 2012 San Bernardino Valley Funding for the purchase of real property. Municipal Water District Note Sewer Fund Lon -Term Debt Activity Year of Issuance/Description Use of Proceeds 2001 State Revolving Fund Note Payable Funding for the San Bernardino/Colton Rapid Infiltration Extraction (RIX) project 1998 Certificates of Participation Advance refunding of the 1992 Certificates of Participation and funding for capital improvements. r iv Board of Water Commissioners January 27, 2016 Page 5 Relevant Financial Policies: Internal Control Structure Department management is responsible for the establishment and maintenance of the internal control 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 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 are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management. Major Initiatives and Key Values: The activities of the Board and staff at the Department are driven by our key value statements as outlined below: 1. Provide the highest level of customer service to our community. 2. Establish fair and equitable rates. 3. Provide the highest quality of water and wastewater services. 4. Provide responsible stewardship of our resources and our environment. 5. Require ethical business practices. 6. Promote staff development. Acknowledgements: Preparation of this report was accomplished by the combined efforts of Department staff. We appreciate the dedicated efforts and professionalism that these staff members contribute to the service of the Department's customers. The contributions made by Susan Justice, Principal Accountant, and Michelle Honis and Jennifer Francis, Senior Accountants, deserve special recognition. We would also like to thank and recognize the members of the Board for their continued support in planning and implementation of the Department's fiscal policies. Respectfully submitted, Stacey R. astadt, General Manager Terri A. Willoughby, Director of Nnance City of San Bernardino Municipal Water Department ' Mayor of the City of San Bernardino R. Carey Davis Board of Water Commissioners ' Toni Callicott, President David E. Mlynarski, Commissioner ' Dr. Louis A. Fernandez, Commissioner Wayne Hendrix, Commissioner Dr. Judith Valles, Commissioner Administration Stacey R. Aldstadt, General Manager , Robin L. Ohama, Deputy General Manager Miguel Guerrero, Director of Water Utilities , John A. Claus, Director of Water Reclamation Terri Willoughby, C.P.A., Director of Finance ' Mission Statement ' To meet our customer's needs by providing high-quality service in water supply, water reclamation and geothermal heating in the most professional and cost- ' effective manner possible. Organization The City of San Bernardino Municipal Water Department was formed in 1905 under the Charter of the City of San Bernardino. The Department is governed by ' the Board of Water Commissioners who are appointed by the Mayor of the City of San Bernardino. The Charter gives the Board of Water Commissioners semi- ' autonomous authority to govern the Department independent of the City Council. The Department operates two enterprise funds: the Water Utility Enterprise Fund , and the Sewer Utility Enterprise Fund. Water service encompasses the City, with the exception of the east end, which is served by the East Valley Water District. Sewer service encompasses all of the City of San Bernardino, the City of Loma ' Linda, the former Norton Air Force Base, Patton State Hospital and portions of the areas serviced by East Valley Water District. ' Vi ' 4m i � - =r ' d9 0 0 i. OrQ m o -0 rD c ru S W CT (D (D ID :3 y m 1' 1 ID Z (D -a a) ou m 01 10 Dpi CL 70 :) > pp Z 0 m (D aq cr 0- 1 ........... ..... 70 0 (D rD oj > (D C o rn tu UQ 3 0 CL Z 0 0 =r 0 CD CD Ln U 3 m > (D m m 1 fD eb = m m O m 0 0 0 3 ' D) cu 3 rD (D 0 (D rt 3 :3 rD w w '0 w a) 90 (D ' O 0 FL 3 00 0 0) fD o CD V) M 0 2 M < A (D VII pxw l-y�pZIuawpedaQjaleM\SM\ele4SIJ\SIJ(1M\ �INO. w % z �O d.L19• W > > I u ~ V/ Z ■� w 30NVHO vrivfflfw V -J U) z z , W W 'p o W <a w W . � _ i-,�. H o°, j z 3 Q ii -OO as V) _ 2 - ' I rn 02 1 SOW03ddLL 1 cn Q j _- _ z0 C7 g 1 1 NO -- a W / �U mow•, z W a >` j 40 1 W L) W W ui 1 ~ ~ �J EEL 3aiSa3Na w i ZL W z OW ' I a F' Z O I LL. z 0 0 W / zlau `I as � ¢ m �? a a IIl1 W �� W ZQ ., j WW CO W • W O 1 W U `V I z � N O N -- VIII --- -- --_ - Davis Farr LLP DavisFarr 2301 Dupont Drive I Suite 200 1 Irvine,CA 92612 CERTIFIED PUBLIC ACCOUNTANTS Main:949.474.2020 1 Fax:949.263.5520 Board of Water Commissioners Municipal Water Department of the City of San Bernardino San Bernardino, California Independent Auditor's Report Report on the Financial Statements We have audited the accompanying financial statements of the Municipal Water Department of the City of San Bernardino, California ("Department"), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Department's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes ; the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or ' error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ' the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by 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. 1 Board of Water Commissioners ' Municipal Water Department of the City of San Bernardino, California , Page 2 of 3 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Municipal Water Department of the City of San Bernardino, California, as of ' June 30, 2015, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matters As discussed in Note 1, 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 not purport to, and do not, present fairly the financial position of the City of San Bernardino as of June ' 30, 2015, 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. On August 1, 2012, the City of San Bernardino filed a petition under Chapter 9 of the United States Bankruptcy Code seeking to adjust the timing and amount of the payments associated with the City's obligations. As discussed in note two to the financial statements, there is considerable uncertainty associated with this process and the effects of this process upon the Department are not known at this time. The financial statements for the year ended June 30, 2015 reflect certain prior period adjustments as ' described further in Note 15 to the financial statements and Governmental Accounting Standards Board Statement No. 68 as described further in Note 7. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information , Accounting principles generally accepted in the United States of America require that the management's discussion and analysis be presented to supplement the basic financial statements. Such information, ' although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board (GASB) who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with ' auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. , 2 Board of Water Commissioners Municipal Water Department of the City of San Bernardino, California Page 3 of 3 Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Department's basic financial statements. The introductory section and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory and the supplemental sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 26, 2016 on our consideration of the Department's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Department's internal control over financial reporting and compliance. Irvine, California January 26, 2016 3 PAGE INTENTIONALLY LEFT BLANK , II i 4 , CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 (:5)- The City of San Bernardino's Municipal Water Department (Department) is a water and sewer treatment utility responsible for delivering high quality, economically priced water and sewer treatment service to a quarter of a million customers in and around the City of San Bernardino, California. This section of the Department's annual financial report presents managements analysis of the Department's financial performance during the fiscal year that ended on June 30, 2015. Please read it in conjunction with the basic financial statements, which follow this section. All amounts in the Management's Discussion and Analysis within text areas are in thousands unless otherwise noted. Financial Highlights New significant Accounting Standards implemented. In fiscal year 2014-15, the Department adopted two new statements of financial accounting standards issued by the Government Accounting Standards Board (GASB) that relate to pension activity: Statement No. 68, "Accounting and Financial Reporting for Pensions — an amendment of Statement No. 27," and Statement No. 71, "Pension Transition for Contributions Made Subsequent to the Measurement Date-an amendment of GASB Statement No. 68.". Statement No. 68 (Statement) establishes standards of accounting and financial reporting, but not funding or budgetary standards, for the Department's defined benefit pension plans. This Statement replaces the requirements of prior GASB statements impacting accounting and disclosure of pensions. Statement No. 71 amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Both Statements are to be applied simultaneously. The significant impact to the Department of implementing Statement No. 68 is the reporting of the Department's pension liability on the Department's financial statement. There are also new note disclosures and required schedules as a result of implementing this Statement. In order to implement the Statements, a prior period adjustment was made to the Department's July 1, 2014 net position. The prior period decreased the Department's beginning net position by$49 million and reflects the reporting of: 1) net pension liabilities of $40.9 million, 2) deferred outflow of resources of$3 million and 3) deferred inflow of resources of$9.7 million. Other highlights: • The Department's overall net position increased by$11.5 million. • Operating revenues decreased by slightly more than 7% from the prior year, primarily due to reduced water consumption. • Operating expenses decreased $2.9 million, or 5%from the prior fiscal year. • Net income/loss before capital contributions increased by $830,000. primarily due to a gain attributed to the investment in the RIX Joint Venture. • The Department's current ratio (the ability to pay short-term obligations) was 2.48. • Cash available (the ability to cover current expenses with cash)was 381 days. Overview of the Financial Statements The discussion and analysis are intended to serve as an introduction to the Department's basic financial statements. The Department's basic financial statements are comprised of two components: the Financial Statements and the Notes to the Basic Financial Statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Information providing citywide financial results is available in the City's Comprehensive Annual Financial Report. 5 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT , Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 Required Financial Statements The financial statements of the Department report information about the Department using accounting methods similar to those used by private sector companies. These statements offer short-term and long-term financial information about its activities. The Statement of Net Position (pages 14-15) includes all of the Department's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the 1 basis for evaluating the capital structure of the Department and assessing the liquidity and financial flexibility of the Department. All of the current year's revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position (page 16) statement measures the success of the Department's 1 operations over the past year and can be used to determine whether the Department has successfully recovered all its costs through its user fees and other charges, profitability, and credit worthiness. The final required financial statement is the Statement of Cash Flows (pages 17-18). The primary purpose of this statement is to provide information about the Department's cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities and provides answers to such questions as where did cash come from, what was cash ' used for, and what was the change in cash balance during the reporting period. Financial Analysis of the Department ' Our analysis of the Department begins on page 14 of the financial statements. One of the most important questions to ask about the Department's finances is "Whether the Department, as a whole, is better off or worse off as a result of the year's activities?" The Statement of Net Position, and the Statement of Revenues, , Expenses and Changes in Net Position report information about the Department's activities in a way that will help answer this question. These two statements report the net position of the Department and changes in them. Measuring the change in the Department's net position - the difference between assets and liabilities - is 1 one way to measure financial health or financial position. Over time, increases or decreases in the Department's net assets are indications of whether its financial health is improving or deteriorating. However, one will need to consider other non-financial factors such as changes in economic conditions, population growth, zoning and new ' or changed government legislation. Water Utility Fund To begin our analysis, a summary of the Water Utility Fund's Statements of Net Position is presented in Table A- 1 1. i 1 1 1 6 , CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 ` TABLE A-1 Condensed Statement of Net Position -Water Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Current and noncurrent assets $ 78,876 $ 77,056 $ 1,820 2.36% Capital assets 188,080 185,851 2,228 1.20% Total assets 266,956 262,908 4,048 1.54% Deferred outflows of resources 1,698 - 1,698 Current liabilities 12,730 9,208 3,522 38.24% Noncurrent liabilities 98,612 78,174 20,439 26.15% Total liabilities 111,342 87,382 23,960 27.42% Deferred inflows of resources 5,501 0 5,501 Net investment in capital assets 166,963 163,797 3,166 1.93% Restricted - - - 0.00% Unrestricted (15,153) 11,728 (26,881) -229.20% Total net position $ 151,810 $ 175,525 $ (23,715) -13.51% As can be seen from the table above, the Water Utility net position decreased $23,715 to $151,810 in fiscal year 2015. The primary result of this decrease was a prior period adjustment of $27.9 million due to the implementation of new pension reporting standards related to the Department's pension obligations. The net investment in capital assets increased $3.2 million in fiscal year 2015 due to the completion of capital projects within the period. 7 em CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENTp Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 TABLE A-2 ' Condensed Statement of Revenues, Expenses and Changes in Net Position- Water Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Operating revenue $ 33,121 $ 36,672 $ (3,551) -9.68% Capital contributions 3,905 6,522 (2,616) -40.12% Other non-operating revenue 2,872 2,767 106 3.81% Total revenues 39,898 45,960 (6,062) -13.19% Operating expenses $ 35,505 $ 36,042 (537) -1.49% ' Non-operating expenses 169 262 (93) -35.41% Total expenses 35,674 36,303 (630) -1.73% Change in net position 4,225 9,657 (5,432) -56.25% ' Net position, beginning balance 175,525 168,892 6,633 3.93% Prior period adjustment (27,940) (3,023) (24,916) N/A ' Total net position $ 151,810 $ 175,525 $ (23,715) -13.51% Total revenues decreased by 13%, or $6.0 million, primarily due to decreased water revenues which resulted ' from decreased consumption after mandatory conservation regulations were imposed. Total expenses decreased almost 2% due to prudent cost control measures adopted by the Water Utility. TABLE A-3 ' Capital Assets-Water Utility (amounts expressed in thousands of dollars) ' 2015 2014 $Change %Change Land and easements $ 5,654 $ 5,654 $ 0.00% Construction in progress 3,523 6,224 (2,701) -43.40% Wells and pumping 98,173 96,612 1,561 1.62% Distribution 146,681 136,982 9,698 7.08% Plant and facilities 3,222 3,097 125 4.03% Other capital assets 15,827 13,902 1,925 13.84% Total capital assets 273,079 262,472 10,607 4.04% Less: accumulated depreciation (84,999) (76,620) (8,379) 10.94% Total capital assets, net $ 188,080 $ 185,851 $ 2,228 1.20% ' Total capital assets increased $2.2 million in fiscal year 2015. Approximately $8.4 million in construction in , progress was completed and placed in service. Major project completions include the North San Bernardino Industrial Park Phase II Pipe Installation project and the Irvington Avenue Transmission Main Project. Additional , information on capital assets is presented in Note 4 of the Notes to the Basic Financial Statements. 8 ' CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 TABLE A-4 Long-term Debt-Water Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Notes payable $ 21,117 $ 22,800 $ (1,684) -7.39% Compensated absences 942 1,077 (135) -12.51% Total long-term debt $ 22,058 $ 23,877 $ (1,819) -7.62% During the year, the Water Utility's long-term debt decreased by $1.8 million which can be attributed to normal debt payments. Additional information on long term debt is presented in Note 6 of the Notes to Basic Financial Statements. Sewer Utility Fund TABLE B-1 Condensed Statement of Net Position -Sewer Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Current and noncurrent assets $ 59,627 $ 66,773 $ (7,146) -10.70% Capital assets 64,146 59,489 4,657 7.83% Total assets 123,773 126,262 (2,489) -1.97% Deferred outflow of resources 1,348 - 1,348 - Current liabilities 8,568 7,435 1,133 15.24% Noncurrent liabilities 21,015 17,164 3,851 22.44% Total liabilities 29,583 24,599 4,984 20.26% Deferred inflow of resources 4,150 0 4,150 - hill Net investment in capital assets 56,090 37,787 18,303 48.44% Restricted 7,633 7,348 285 3.88% ' Unrestricted 27,664 56,527 (28,863) -51.06% Total net position $ 91,387 $ 101,662 $ (10,275) -10.11% As can be seen from the table above, the Sewer Utility net position decreased $10.3 million to $91,387 in fiscal year 2015. The primary result of this decrease was a prior period adjustment of $21.1 million due to the ' implementation of new pension reporting standards related to the Department's pension obligations. The net investment in capital assets increased $18.3 million, due to the completion of several long-term capital projects within the period. 9 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 TABLE B-2 , Condensed Statement of Revenues, Expenses and Changes in Net Position -Sewer Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Operating revenue $ 24,734 $ 25,671 $ (936) -3.65% ' Capital contributions 1,073 989 84 8.46% Other non-operating revenue 1,326 667 659 98.93% , Total revenues 27,133 27,327 (193) -0.71% Operating expenses 19,620 21,974 (2,354) -10.71% , Non-operating expenses 227 1,796 (1,569) -87.3S% Total expenses 19,847 23,770 (3,922) -16.50% Change in net position 7,286 3,557 3,729 104.84% , Net position,beginning balance 105,178 108,296 (3,117) -2.88% Prior period adjustment (21,077) (6,674) (14,403) -215.80% Total net position $ 91,387 $ 105,178 $ (13,791) -13.11% During Fiscal Year 2015, total revenues for the Sewer Utility decreased by less than 1%from the prior year,while total expenses decreased almost 17% during the same time period. TABLE B-3 Capital Assets- Sewer Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Land and easements $ 12,168 $ 11,482 $ 686 5.98% Construction in progress 13,934 9,408 4,526 48.11% Pumping 3,192 1,360 1,833 134.81% Buildings, plants and stores 129,866 120,109 9,757 8.12% Field and office equipment 5,866 S,601 265 4.73% Total capital assets 165,026 147,959 17,067 11.53% Less: accumulated depreciation (100,880) (92,427) (8,453) 9.15% Total net assets $ 64,146 $ 55,533 $ 8,613 15.51% Total capital assets increased by $8.6 in fiscal year 2015, with approximately $6.1 million in construction in progress completed and place in service. Major project completions include the Bypass Line between Units 3 & 1 and the Sludge Dewatering Centrifuge projects. One of the major projects still in progress is the Unit 1 Primary Clarifier and Aeration System Upgrade project. More information relating to capital assets can be found in note 4 of the notes to the financial statements. 10 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Management's Discussion and Analysis, continued For the Year Ended June 30, 2015 `� v TABLE B-4 Long-term Debt- Sewer Utility (amounts expressed in thousands of dollars) 2015 2014 $Change %Change Notes payable $ 1,710 $ 3,374 $ (1,664) -49.33% Certificates of participation 6,346 9,292 (2,946) -31.70% Compensated absences 284 367 (82) -22.48/ Total long-term debt $ 8,340 $ 13,033 $ (4,693) -36.01% During the year, the Sewer Utility's long-term debt decreased $4.7 million which can be attributed to normal debt payments. Additional information on long term debt is presented in Note 6 of the Notes to Basic Financial Statements. Management Challenges and Opportunities Economics The ongoing economic downturn continues to limit the planned capital expansion of the water and sewer treatment facilities. Development in San Bernardino has significantly slowed and delinquencies continue. 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 delinquency rate should return to pre-recession levels. Capital Construction 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 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. Rates The Department implemented the last of a three-phase water utility rate increase and the last of a two-phase increase to sewer treatment rates in January 2012. A three-phase sewer treatment rate increase was approved in September 2015, and will be effective through 2017. The Department continues to review revenue and expense levels to determine when rate increases will be necessary. Contacting the Department's Director of Finance This financial report is designed to provide our customers and creditors with a general overview of the Department finances and to demonstrate the Department's accountability for the money it receives. If you have 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. 11 1 PAGE INTENTIONALLY LEFT BLANK t I I 12 Basic Financial Statements r ' 13 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT ' Statement of Net Position June 30,2015 Water Sewer Interfund , Utility Utility Eliminations Total ASSETS Current assets: , Cash and investments(note 3) $ 17,789,720 22,926,544 40,716,264 Accounts receivable, net 6,365,070 2,462,691 (7,803) 8,819,958 Interest receivable 11,684 136,051 147,735 Due from other entities 599,163 164,668 763,831 ' Inventory 1,991,313 - 1,991,313 Current portion of prepaid expenses 297,911 139,577 437,488 Total current assets 27,054,861 25,829,531 (7,803) 52,876,589 ' Noncurrent assets: Prepaid expenses - 681,663 681,663 Investment in joint venture-RIX(note 10) 21,887,814 21,887,814 ' Investment in joint venture-PSA(note 10) 3,594,562 3,594,562 Restricted assets: Cash and cash equivalents(note 3): Restricted for capital-related fees - 7,633,049 7,633,049 Restricted for consent decree(notes 3&13) 528,651 - 528,651 Investments(note 3): Restricted for consent decree(note 13) 21,125,203 21,125,203 Interest receivable-consent decree(note 13) 65,494 65,494 Prepaid insurance-consent decree(note 13) 30,101,766 - 30,101,766 Capital assets(note 4): ' Non-depreciable assets 9,177,446 26,102,047 35,279,493 Depreciable assets 263,901,535 138,924,135 402,825,670 Less:accumulated depreciation and amortization (84,999,216) (100,880,133) (185,879,349) Total capital assets(net) 188,079,765 64,146,049 252,225,814 Total noncurrent assets 239,900,879 97,943,137 337,844,016 Total assets 266,955,740 123,772,668 (7,803) 390,720,605 DEFERRED OUTFLOW OF RESOURCES Deferred charge on refunding - 66,698 66,698 Deferred pension contributions(note 7) 1,698,121 1,281,039 2,979,160 Total deferred outflow of resources 1,698,121 1,347,737 3,045,858 (continued on next page) See accompanying independent auditor'report and notes to the basic financial statements 14 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Statement of Net Position,continued June 30,2015 Water Sewer Interfund Utility Utility Eliminations Total LIABILITIES Current liabilities: Accounts payable 4,674,430 2,355,339 (7,803) 7,021,966 Related parties payable(note 9) 2,655,137 265,300 2,920,437 Accrued compensation 860,556 470,786 1,331,342 Claims payable(note 11) 1,213,539 239,673 1,453,212 Consumer deposits 583,345 - 583,345 Current portion of compensated absences(note 6) 753,511 227,394 980,905 Current portion of notes payable(note 6) 1,748,054 1,709,710 3,457,764 Current portion of certificates of participation(note 6) - 3,155,000 3,155,000 Accrued interest payable 241,369 144,780 386,149 Total current liabilities 12,729,941 8,567,982 (7,803) 21,290,120 Noncurrent liabilities: Consumer deposits 3,274,097 - 3,274,097 Compensated absences(note 6) 188,378 56,848 245,226 Unearned revenue-consent decree(note 13) 51,821,114 - 51,821,114 Notes payable(note 6) 19,368,473 - 19,368,473 Certificates of participation(note 6) - 3,191,308 3,191,308 OPEB obligation(note 8) 628,895 166,326 795,221 Net pension liabilities(note 7) 23,331,467 17,600,931 40,932,398 Total noncurrent liabilities 98,612,424 21,015,413 119,627,837 Total liabilities 111,342,365 29,583,395 (7,803) 140,917,957 DEFERRED INFLOW OF RESOURCES Deferred inflows-actuarial (note 7) 5,501,195 4,150,024 9,651,219 Total deferred inflow of resources 5,501,195 4,150,024 9,651,219 NET POSITION Net investment in capital assets(note 14) 166,963,238 56,090,031 223,053,269 Restricted for capital-related fees(note 14) - 7,633,049 7,633,049 Unrestricted(note 14) (15,152,937) 27,663,906 12,510,969 Total net position $ 151,810,301 91,386,986 243,197,287 ' See accompanying independent auditor'report and notes to the basic financial statements 15 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Statement of Revenues,Expenses and Changes in Net Position Fiscal Year Ended June 30,2015 Water Sewer Interfund Utility Utility Eliminations Total Operating revenues: Charges for services $ 32,334,810 24,399,415 56,734,225 Other operating revenues 786,318 335,010 (38,004) 1,083,324 Total operating revenues 33,121,128 24,734,425 (38,004) 57,817,549 Operating expenses Administration and customer service 6,575,895 2,387,122 8,963,017 Utility administration 653,209 638,613 1,291,822 Plant operations 7,813,911 8,697,724 16,511,635 Maintenance 1,988,719 2,906,853 (15,173) 4,880;399 Environmental control 594 ' ,777 - 594,777 Distribution 4,653,106 - 4,653,106 Engineering and water quality control 2,439,170 534,226 2,973,396 General,administration and overhead 6,015,448 990,463 (22,831) 6,983,080 ' Depreciation and amortization 5,365,124 2,870,550 8,235,674 Total operating expenses 35,504,582 19,620,328 (38,004) 55,086,906 Operating income(loss) (2,383,454) 5,114,097 2,730,643 ' Nonoperating revenues(expenses) Investment income 54,786 481,211 535,997 ' Rental income 181,809 700 182,509 Noncapital grant funds 2,089,637 - 2,089,637 Gain(loss)on asset disposition - - - Gain(loss)on joint venture-RIX 345,884 345,884 ' Interest expense and fiscal charges (169,119) (227,165) (396,284) Other 545,840 498,247 1,044,087 Total nonoperating revenues(expenses) 2,702,953 1,098,877 3,801,830 ' Net income(loss)before capital contributions 319,499 6,212,974 6,532,473 Capital contributions: ' Acquisition fees 1,631,678 - 1,631,678 Capacity fees 2,187,090 938,131 3,125,221 EPA grants 86,336 - 86,336 ' Other capital restricted fees - 134,710 134,710 Total capital contributions 3,905,104 1,072,841 4,977,945 Change in net position 4,224,603 7,285,815 11,510,418 , Net position,beginning of year,as restated(footnote 15) 147,585,698 84,101,171 231,686,869 Net position,end of year $ 151,810,301 91,386,986 243,197,287 See accompanying independent auditor'report and notes to the basic financial statements 16 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Statement of Cash Flows Fiscal Year EndedJune 30,2015 Water Sewer Interfund Utility Utility Eliminations Total Cash flow from operating activities: Cash received from customers $ 35,650,068 26,242,134 61,892,202 Rental income 181,809 700 182,509 Nonoperating miscellaneous revenue(expenses) 545,840 498,247 1,044,087 Cash paid to employees for services (9,233,112) (5,914,404) (15,147,516) Cash paid to suppliers of goods and services (18,568,787) (11,816,350) (30,385,137) Net cash provided by operating activities 8,575,818 9,010,327 17,586,145 Cash flow from noncapital financing activities: Cash paid to RIX joint venture - _ - Consent Decree insurance drawdowns 2,089,637 2,089,637 Net cash provided by noncapital financing activities 2,089,637 - 2,089,637 Cash flow from capital and related financing activities: Capital fees received 3,818,768 1,072,841 4,891,609 Drawdown on CIEDB loan 746,201 - 746,201 Cash paid to acquire capital assets (7,584,022) (11,483,816) (19,067,838) Principal paid on capital-related debt (1,683,818) (4,629,425) (6,313,243) Interest paid on capital-related debt (187,153) (242,585) (429,738) Grant proceeds 86,336 86,336 Net cash provided by(used for)capital and related financing activities (4,803,688) (15,282,985) (20,086,673) Cash flow from investing activities: Purchase of investments (17,210,432) (11,877,148) (29,087,580) Sales and maturities of investments 17,599,300 11,588,638 29,187,938 Interest received 53,683 480,453 534,136 Net cash provided by investing activities 442,551 191,943 634,494 Net increase(decrease)in cash 6,304,318 (6,080,715) 223,603 Cash and cash equivalents at beginning of year 7,987,773 12,699,727 20,687,500 Cash and cash equivalents at end of year $ 14,292,091 6,619,012 20,911,103 Reconciliation of cash and cash equivalents to amounts reported on the statement of net position: Cash and investments $ 17,789,720 22,926,544 40,716,264 Restricted cash and cash equivalents: Restricted for capital related fees - 7,633,049 7,633,049 Restricted for consent decree 528,651 - 528,651 Less those not meeting the definition of a cash equivalent (4,026,280) (23,940,581) Cash and cash equivalents at end of year $ 14,292,091 6,619,012 48,877,964 (continued on next page) 17 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Statement of Cash Flows,continued June 30,2015 Water Sewer Interfund Utility Utility Eliminations Total Reconciliation of operating income to net cash provided by(used for)operating activities: Operating income(loss) $ (2,383,454) 5,114,097 2,730,643 , Depreciation and amortization 5,355,684 2,870,550 8,226,234 Nonoperating miscellaneous revenue(expenses) 545,840 498,247 1,044,087 Rental income 181,809 700 182,509 Adjustments , (Increase)decrease in accounts receivable 1,262,291 1,578,275 2,840,566 (Increase)decrease in due from other entities 992,197 65,792 1,057,989 (Increase)decrease in inventory (300,570) - (300,570) (Increase)decreasein prepaid expenses (86,465) 5,646 (80,819) (Increase)decrease in deferred pension contributions (178,081) (134,342) (312,423) Increase(decrease)in accounts payable 2,163,224 (625,397) 1,537,827 ' Increase(decrease)in related parties payable 371,762 (3,313) 368,449 Increase(decrease)in accrued compensation 304,337 133,737 438,074 Increase(decrease)in compensated absences current portion 1,323,776 7,174 1,330,950 ' Increase(decrease)in compensated absences non-current portion (1,458,478) (89,599) (1,548,077) Increase(decrease)in claims payable 482,043 (28,434) 453,609 Increase(decrease)in consumer deposits , current portion 81,047 81,047 Increase(decrease)in consumer deposits non-current portion 193,405 - 193,405 Increase(decrease)in OPEB obligation 352,488 90,223 442,711 ' Increase(decrease)in net pension liability (6,128,232) (4,623,053) (10,751,285) Increase(decrease)in deferred inflows-actuarial 5,501,195 4,150,024 9,651,219 Net cash provided by operating activities $ 8,575,818 9,010,327 17,586,145 ' There were no significant noncash investing,capital and financing related activties for the year ended June 30,2015. See accompanying independent auditor'report and notes to the basic financial statements 18 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements For the Year Ended June 30, 2015 (1) Reporting Entity and Summary of Significant Accounting Policies A. Organization and Operations of the Reporting Entity The San Bernardino Municipal Water Department (Department) is governed under the Charter of the City of San Bernardino (City). A Board of Water Commissioners (BOWC) appointed by the Mayor and approved by City Council, has Charter defined powers, with full authority for administration of the water utility and delegated authority for the sewer treatment utility. The Department has served the community since 1905. B. Basis of Accounting and Measurement Focus The Department reports its activities as enterprise funds, which are used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the Department is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Revenues and expenses are recognized on the 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. Operating revenues, such as charges for services (water sales, sewer services and water services) result from exchange transactions associated with the principal activity of the Department. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property taxes and investment income, result from nonexchange transactions or ancillary activities in which the Department gives (receives) value without directly receiving (giving) equal value in exchange. 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: 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 of the City's wastewater treatment system and related revenues. The Sewer conveyance system is under the direction of the City's Public Works Department. Administrative and engineering services are provided by the Water Utility to the Sewer Utility. Electrical services are provided by the Sewer Utility to the Water Utility. C. Implementation of GASB Pronouncements In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions — An Amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting for pensions. The provisions of this Statement are effective for financial statements for periods beginning after June 30, 2014. The Department implemented this Statement in the fiscal year ending June 30, 2015. In 2014, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date — an Amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The provision of this Statement are effective for financial statements for periods beginning after June 15, 2014. The Department implemented this Statement in the fiscal year ending June 30, ' 2015. Accounting changes adopted to conform to the provisions of these statements should be applied retroactively. The result of the implementation of these standards decreased the net position at July 1, 2014 by $49,016,946. ' See footnotes 8 and 15 for further information. 19 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT a� ' Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (1) Reporting Entity and Summary of Significant Accounting Policies, continued D. Financial Reporting The Department's basic financial statements are presented in conformance with the provisions of Governmental , Accounting Standards Board (GASB) Statement No. 34, "Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments" (GASB No. 34). This statement established revised ' financial reporting requirements for state and local governments throughout the United States for the purpose of enhancing the understandability and usefulness of financial reports. GASB No. 34 and its related GASB pronouncements provide for a revised view of financial information and , restructure the format of financial information provided prior to its adoption. A statement of net position replaces the balance sheet and reports assets, liabilities, and the difference between them as net position, not equity. A statement of revenues, expenses and changes in net position replaces both the income statement and ' the statement of changes in retained earnings and contributed capital. GASB No. 34 also requires that the statement of cash flows be prepared using the direct method. Under the direct method, cash flows from operating activities are presented by major categories. , E. Assets, Liabilities and Net Position 1. Use of Estimates ' The preparation of the basic financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported changes in net position during the reporting period. Actual results could differ from those estimates. 1. Cash and Investments For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments (including restricted assets) with a maturity of three months or less when purchased. ' Investments are reported in the accompanying balance sheet at fair value, except for certain certificates of deposit and investment contracts that are reported at cost as they are not transferable and have terms that ' are not affected by changes in market interest rates. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value and any gains or losses ' realized upon the liquidation of investments. 2. Accounts Receivable Customer or trade receivables are shown net of an allowance for uncollectible accounts based on historical and management estimates. Transactions between funds that are representative of lending or borrowing arrangements outstanding at the end of the fiscal year are referred to as "interfund receivables / payables" or "advances to/from" other funds. All interfund transactions are eliminated for financial reporting. 3. Inventory Materials and supplies inventory consists primarily of water meters, pipe and pipefittings for construction 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. Inventory items are charged to expense at the time that individual items are withdrawn from inventory or r consumed. 20 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT e Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 ` (1) Reporting Entity and Summary of Significant Accounting Policies, continued E. Assets, Liabilities and Net Position,continued 4. Prepaid Expense and Deposit Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are recorded as prepaid items in the basic financial statements. S. Capital Assets Capital assets acquired or constructed are capitalized at historic cost. Department policy has set the capitalization threshold for reporting capital assets at $5,000 and a life expectancy of at least 3 years. Overhead is capitalized at the rate of 28.9% of labor and benefits, 10% of material and supplies and 2% of significant contracts. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets as follows: • Source of supply plant 8 to 50 years • Disposal plant and interceptor lines 35 to 50 years • Other facilities (shops, leasehold &yards) 5 to 25 years • Tools, office equipment&communications 4 to 20 years • Computer equipment 3 to 5 years • Automotive and fleet equipment 3 to 15 years 6. Compensated Absences Department policy is to permit employees to accumulate a limited amount of earned vacation and sick leave. Various negotiation groups have different sell-back and cash out options. Additionally, cash out options upon retirement or death of the employee vary based on the negotiation group. Employees' vacation and sick leave benefits are recognized as a liability of the Department. ' 7. Restricted Assets and Amounts Payable from Restricted Assets Amounts shown as restricted assets have been restricted by bond indentures or are to be used for specified purposes based on contract provisions, such as bonded debt service. Certain liabilities which are currently ' payable have been classified as current liabilities payable from restricted assets since assets have been restricted for their payment. ' 8. Pensions For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, pension expense, information about the fiduciary net position and additions to/deductions from ' the fiduciary net position have been determined on the same basis as they are reported by the Department. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair ' value. GASB 68 requires that the reported results must pertain to liability and asset information within certain ' defined timeframes. For this report, the following timeframes are used: Valuation Date (VD) June 30, 2013 ' Measurement Date (MD) June 30, 2014 Measurement Period (MP) June 30, 2013 to June 30, 2014 21 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 201S (1) Reporting Entity and Summary of Significant Accounting Policies, continued , E. Assets, Liabilities and Net Position,continued Deferred Outflows/Inflows ' In addition to assets, the Statement of Net Position will sometimes report a separate section of deferred outflows of resources. This separate financial statement element, deferred outflows of resources, ' represents consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expenses/expenditures) until then. The Department has two items that qualify for reporting in this category: the deferred outflows on pension contributions, and the deferred charges on , debt refundings. These are reported on the Statement of Net Position. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and will not be recognized as inflow of resources (revenue) until that time. The District has one item that qualifies for reporting in this category, deferred inflow—actuarial. 9. Interfund Eliminations The interfund eliminations column represents entries made to eliminate interfund income and expenditure transactions between the water utility fund and the sewer utility fund for the purposes of consolidated financial statements. 10. Net Position The financial statements utilize a net position presentation. Net position is categorized as follows: • Net Investment in Capital Assets— This component of net position consists of capital assets, net of accumulated depreciation and reduced by any debt outstanding against the acquisition, construction or improvement of those assets. • Restricted Net Position — This component of net position consists of constraints placed on net position use through external constraints imposed by creditors, grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. • Unrestricted Net Position — This component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. 11. Capital Contributions Contributions in aid of construction represent cash and utility plant additions contributed to the Department by property owners or developers desiring services that require capital expenditures or capacity commitment. In accordance with Governmental Accounting Standards Board Statement No. 33, the capital contributions are recorded on the Statement of Revenues, Expenses and Changes in Net position. 12. Budgetary Policies The Department adopts an annual budget for planning, control, and evaluation purposes. Budgetary control and evaluation are affected by comparisons of actual revenues and expenses with planned revenues and expenses for the period. Encumbrance accounting is not used to account for commitments related to outstanding contracts for construction and services. 22 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 � = (2) City of San Bernardino Bankruptcy Without reserves and facing a $45.8 million budget deficit, in July of 2012, the City determined that it was no longer able to meet its contractual obligations and declared a fiscal emergency. On August 1, 2012, the City filed a petition under Chapter 9 of the United States Bankruptcy Code in Riverside seeking to adjust its debts. On August 28, 2013,the Bankruptcy Court ruled that the City is eligible for bankruptcy protection. Based on the California Constitution, precedents established in prior municipal bankruptcies in California, and various legal opinions provided to the Department by special legal counsel and the City Attorney's office, the Department believes that its revenues, derived from ratepayer fees, will be protected from attachment by the City's creditors. Although unlikely, it is possible that the bankruptcy court will make a different determination. The Department's arguments for the protection of its assets from the claims of the City's creditors are set forth in further detail below. The bankruptcy case seeks the adjustment of the obligations of the City and does not extend to City funds with Federal, State or other restrictions. The Department has continued to operate and use its restricted resources for only the expenses incurred to operate the water system and sewer treatment plants. Debt obligations secured by Department revenues are treated as secured obligations and are not expected to be affected so long as the revenues of the Department are sufficient to meet debt service. State and federal laws place protections on the revenues of the Department. Section 902(2) of the Bankruptcy Code defines special revenues as, among other things, "receipts derived from the ownership, operation, or disposition of projects or systems of the debtor that are primarily used or intended to be used primarily to provide transportation, utility, or other services, including the proceeds of borrowings to finance the projects or systems." Further, section 928 of the Bankruptcy Code states: "(a) Notwithstanding section 552 (a) of this title and subject to subsection (b) of this section, special revenues acquired by the debtor after the commencement of the case shall remain subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case"; and "(b) Any such lien on special revenues, other than municipal betterment assessments, derived from a project or system shall be subject to the necessary operating expenses of such project or system, as the case may be." Chapter 9 of the Bankruptcy Code does not have a provision for liquidation of assets of the City and distribution ' of the proceeds to creditors. Additionally, Chapter 9 does not prevent a debtor from borrowing additional funds while under bankruptcy protection. The Tenth Amendment of the United States Constitution and Supreme Court decisions in upholding municipal bankruptcy legislation place severe limitations upon the power of the bankruptcy court in chapter 9 cases. In addition, at least two aspects of California law place restrictions on the use of revenue of the Department. First, under Articles XIIIC and XIIID of the California Constitution (enacted pursuant to the voter approved Proposition 218), money raised from municipal utility rates must only be used to fund such utility operations, and not to fund general municipal operations. Thus, when the Department charges a water delivery or consumption fee, or rates for wastewater services, and places those monies into its specially segregated Water ' Fund and Sewer Fund accounts, those charges are considered property-related fees and are subject to the constitutional constraints enacted pursuant to Proposition 218. This has very specific consequences for the amount of money that can be collected, as well as the use to which those funds can be put. Specifically, Cal. ' Const. Article XIII D section 6(b) states that: 23 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT y� Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (2) City of San Bernardino Bankruptcy, continued , A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following requirements: , (1) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service. ' (2) Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. (3) The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel. (5) No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. (Cal Const, Art. XIII D§ 6.) , Put differently, use of fees for general governmental services is prohibited, fees can only be for the service provided, fees cannot exceed the cost of that service, and fees cannot exceed the proportional cost of the service attributable the payer.' The second relevant aspect of state law is the City's status as a Charter City. Under California law a city charter 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 Cal.AppAth 1178, 1186, citing Domor Electric, Inc. v. City of Los Angeles (1994) 9 CalAth 161, 170.) The Department was created by and currently operates pursuant to Article IX of the City's Charter, and provides ' both retail water and sewer service pursuant to the City Charter provisions. Specifically, Article IX, Section 164 of the City Charter provides that the Water Department Board of Commissioners, and not the City Council, " . . shall have power to control and order the expenditure of all money received from sale or use of water, for the defraying of expenses or maintenance and repairs and operation of the water system, and for any expenses for additions to the same; and for supplying the City with water for any and all purposes; provided that all such 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 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 Proposition 218, as a constitutional initiative, is binding upon charter cities." (Howard Jarvis Taxpayers Assn. v. City of Roseville (2003) 106 Cal.AppAth 1178, 1185.) In order to provide for the safety of the Department's liquid assets, the Department established its own bank account and investment portfolio within the City treasury as required by the City Charter. Representatives of the City Treasurer's office and the Water Department are signatories to these accounts. As previously noted, the City Charter specifically grants to the Water Department Board of Commissioners the power to control and order the expenditure of these funds and limits the withdrawal of these funds for the payment of demands authenticated by the Board of Commissioners. See League of California Cities,Proposition 218 Implementation Guide(2007 Ed.)at pp.49-50;see also Howard Jarvis Taxpayers Ass'n v.City of Roseville(2002)97 Cal.App.4th 637,647-648[interpreting Art.XIIID,§6(b)and emphasizing,"[t]he key is that the revenues derived from the fee or charge are required to provide the service,and may be used only for the service."] 24 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued ors For the Year Ended June 30, 2015 (2) City of San Bernardino Bankruptcy, continued Accordingly, both the City Charter and the California Constitution require that the Department's special revenues collected for water-related services may only be used for expenditures related to those services. Due to these additional state law restrictions, the Department believes that the revenues of the Department (and accumulated assets since those assets were accumulated as a result of collection of revenue) can only be used for Department expenses and obligations. 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 after the petition date which the City did not tap to attempt to balance its books is evidence of lack of desire to effect a plan. This argument has no legal legs. It is a matter of California constitutional law that the City may not use funds belonging to the Water Department for general fund purposes. Amendments to the Constitution enacted by Proposition 218 in 1996, which added Articles XIIIC and XIIID, expanded restrictions on local government revenue-raising and imposed limitations on local government use of special fees, including water and sewer fees. C.A. Const. art. XIIIC and XIIID. Article XIIID covers water fees and prohibits the use of such fees 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 purposes. "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- 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). (3) Cash and Investments Cash and investments are reported in the accompanying statement of net position as follows: ' Water Sewer Utility Utility Total ' Cash and investments $ 17,789,720 22,926,544 40,716,264 Restricted cash and cash equivalents: Restricted for capital-related fees - 7,633,049 7,633,049 ' Restricted for Consent Decree 528,651 - 528,651 Restricted investments: Restricted for Consent Decree 21,125,203 - 21,125,203 ' Total Cash and Investments $ 39,443,574 30,559,593 70,003,167 25 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (3) Cash and Investments, continued ' Cash and investments at June 30, 2015 consisted of the following: Water Sewer , Utility Utility Total Cash on Hand $ 7,000 200 7,200 Deposits with Financial Institutions 14,285,091 6,618,812 20,903,903 , Investments 25,151,483 23,940,581 49,092,064 Total Cash and Investments $ 39,443,574 30,559,593 70,003,167 ' Investments Authorized by the California Government Code and the Department's Investment Policy The table below identifies the investment types that are authorized by the Department and Consent Decree (see note 13) in accordance with the California Government Code (or the City's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City's ' investment policy, where more restrictive) that addresses interest rate risk, credit risk, and concentration of credit risk. Due to its long-term nature, the Consent Decree has been explicitly exempted from maximum maturity requirements of the California Government Code, which limits maturity of most investments to five years. All other aspects of the Consent Decree investment policy are consistent with the City's investment policy. Maximum Maturity Maximum% Maximum% Investment Type* Department Consent Decree of Portfolio in One Issuer US treasury 5 years None None None , US agency 5 years None None None Bankers acceptances 180 days 180 days 40% 30% , Commercial paper 270 days 270 days 25% 10% Negotiable CDs 5years None 30% None Medium-term notes 5years None 30% None ' Money market mutual funds N/A N/A 20% 10% Mortgage pass through 5 years None 20% None Local Agency Investment Fund N/A N/A $40,000,000 None Guaranteed investment N/A N/A None None *- Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. Investments Authorized by Debt Agreements Investments of debt proceeds held by 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 authorized for funds held by bond trustee include, U.S. Treasury Obligations, U.S. Government Sponsored Enterprise Securities, the California Local Agency Investment Fund, Guaranteed Investment Contracts, Commercial Paper, Local Agency Bonds, Banker's Acceptance and Money Market Mutual Funds. There are no limitations on the maximum amount that can be invested in one issuer, maximum percentage allowed or the maximum maturity of an investment, except for the maturity of Banker's Acceptance which are limited to one year. 26 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 ` (3) Cash and Investments, continued Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code requires that a financial institution secure deposits made by a state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure the Department's deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits. For investment identified herein as held by bond trustee, the bond trustee selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The Department is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the Department's investment in this pool is reported in the accompanying financial statements at amounts based upon the Department's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated by a nationally recognized statistical rating organization, but, as stated previously, it is regulated by the California Government Code, and is therefore exempt from rating requirements. Interest Rate Risk 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 interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash ' flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as necessary to provide requirements for cash flow and liquidity needed for operations. 27 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued , For the Year Ended June 30, 2015 (3) Cash and Investments, continued , Information about the sensitivity of the fair values of the Department's investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Department's investments by , maturity date: Maturities Less than 13-24 25-60 More than Investment Type 12 months months months 60 months Total U.S.Agency Securities $ 2,012,950 2,449,564 7,130,016 11,592,530 U.S.Treasuries 116,716 201,172 7,608,482 7,926,370 Medium Term Corporate Notes 927,223 612,844 972,197 2,512,264 Asset Backed Securities - 79,665 1,520,255 1,599,920 Commercial Paper 484,515 - - 484,515 ' Money Market Funds 107,342 107,342 Local Agency Investment Fund 3,743,920 - - 3,743,920 Consent Decree: U.S.Treasuries 303,914 382,364 4,065,210 - 4,751,488 U.S.Agency Mortgage Backed Securities - - - 1,510,006 1,510,006 U.S Agency Collateralized Mortgage Obligations - - 151,626 1,272,622 1,424,248 U.S.Agency Securities 624,408 1,082,060 2,752,979 - 4,459,447 Commercial Paper 499,961 - - 499,961 Corporate Notes 615,190 1,975,931 3,716,407 6,307,528 Certificates of Deposit 475,329 898,774 399,777 1,773,880 Asset Back Securities/Collateralized Mortgage Obligations 398,645 - - - 398,645 Total Investments $ 10,310,113 7,682,374 28,316,949 2,782,628 49,092,064 28 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT y,.° °�•,y Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 '. (3) Cash and Investments, continued Credit Risk Generally, credit risk is the possibility that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating 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 investment type. Minimum Legal Investment Type Rating Rating Total U.S. Agency Securities None AA+ $ 11,592,530 U.S. Treasuries Exempt Exempt 7,926,370 Medium Term Corporate Notes AA- AAA 360,158 ' AA+ 633,654 AA 855,109 AA- 663,343 Asset Backed Securities AA AAA 1,599,920 Commercial Paper A-1 A-1 484,515 Money Market Funds AA+ AAA 107,342 Local Agency Investment Fund None not rated 3,743,923 ' Consent Decree: U.S. Treasuries Exempt Exempt 4,751,488 U.S.Agency Mortgage Backed Securities None AA+ 1,510,006 U.S.Agency Securities None AA+ 4,459,447 U.S. Agency Collateralized Mortgage ' Obligation AA AA 1,424,248 Corporate Notes A AAA 743,993 AA+ 1,161,384 AA 1,788,763 AA- 1,307,551 A+ 1,305,837 Commercial paper A-1 A-1 499,961 Certificates of Deposit A A-1+ 400,244 A-1 973,859 t AA- 399,777 Asset Backed Secuirites/Collateralized Mortgage Obligation AA AAA 398,644 Money Market Funds AA+ AA+ 528,649 Total Investments $ 49,620,715 29 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (3) Cash and Investments, continued Concentration of Credit Risk Investments in any one issuer (other than for U.S. Treasury securities, mutual funds, and external investment pools)that represent 5%or more of total Department investments are as follows: Reported Percentage of Issuer Investment Type Amount Investments Fannie Mae U.S.Agency Securities $ 2,519,945 6% Federal National Mortgage Association U.S.Agency Securities 2,444,812 5% (4) Capital Assets Capital asset activity for the water utility for the fiscal year ended June 30, 2015: Balance Deletions/ Balance July 1, 2014 Additions Transfers June 30, 2015 ' Non-depreciable assets: Land and easements $ 5,654,389 - - 5,654,389 Construction in progress 6,224,030 5,671,874 (8,372,847) 3,523,057 Total non-depreciable assets 11,878,419 5,671,874 (8,372,847) 9,177,446 Depreciable assets: Water rights,wells and pumping 96,612,111 1,560,536 - 98,172,647 Distribution system 138,672,711 8,007,924 - 146,680,635 Buildings, plants,and stores 3,221,571 - - 3,221,571 Field and office equipment 15,110,147 716,536 - 15,826,683 Total depreciable assets 253,616,540 10,284,996 - 263,901,536 Less: accumulated depreciation Water rights,wells and pumping (32,242,815) (1,532,740) - (33,775,555) Distribution system (34,701,375) (2,792,111) - (37,493,486) Buildings, plants,and stores (1,676,055) (109,038) - (1,785,093) Field and office equipment (11,023,287) (921,795) - (11,945,082) Total accumulated depreciation (79,643,532) (5,355,684) - (84,999,216) Total depreciable assets,net 173,973,008 41929,312 - 178,902,320 Total capital assets,net $ 185,851,427 10,601,186 (8,372,847) 188,079,766 11 30 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued ,'1= For the Year Ended June 30, 2015 (4) Capital Assets, continued Capital asset activity for the sewer utility for the fiscal year ended June 30, 2015: Balance Deletions/ Balance July 1,2014 Additions Transfers June 30,2015 Non-depreciable assets: Land and easements $ 11,481,942 686,112 - 12,168,054 Construction in progress 9,407,628 10,672,880 (6,146,515) 13,933,993 Total non-depreciable assets 20,889,570 11,358,992 (6,146,515) 26,102,047 Depreciable assets: Pumping 3,192,218 - - 3,192,218 Buildings,plants,and stores 123,860,500 6,253,133 (248,062) 129,865,571 Field and office equipment 5,601,463 266,466 (1,583) 5,866,346 Total depreciable assets 132,654,181 6,519,599 (249,645) 138,924,135 Less:accumulated depreciation Water rights,wells and pumping (2,454,606) (39,651) - (2,494,257) Buildings,plants,and stores (90,333,632) (2,536,358) - (92,869,990) E Field and office equipment (5,222,730) (294,541) 1,385 (5,515,886) Total accumulated depreciation (98,010,968) (2,870,550) 1,385 (100,880,133) ' Total depreciable assets, net 34,643,213 3,649,049 (248,260) 38,044,002 Total capital assets,net $ 55,532,783 15,008,041 (6,394,775) 64,146,049 31 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT r _ Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (5) Operating Leases Effective December 15, 2008, the Department took possession of leased space from Superior Homes LLC for administrative office and warehouse space for a term of ten years. The following is a schedule of minimum , lease payments as of June 30, 2015: Water Sewer ' Year Utility Utility Total 2016 $ 228,408 31,152 259,560 2017 228,408 31,152 259,560 ' 2018 228,408 31,152 259,560 $ 685,224 93,456 778,680 , (6) Long-term Liabilities Water Utility Fund ' Changes in long-term liabilities in the water utility fund for the year ended June 30, 2015 are as follows: Balance Balance Current Long-term July 1,2014 Additions Reductions June 30,2015 Portion Portion Notes Payables: 2002 CIEB $ 5,177,248 (575,228) 4,602,020 594,440 4,007,580 2007 CIEB 7,359,166 (479,775) 6,879,391 492,777 6,386,614 2012 CIE 9,586,740 (424,046) 9,162,694 435,114 8,727,580 SMVMWD Note 677,191 (204,769) 472,422 225,723 246,699 Total Notes Payable 22,800,345 - (1,683,818) 21,116,527 1,748,054 19,368,473 ' Compensated Absences 1,076,591 935,324 (1,070,026) 941,889 753,511 188,378 Total long term-debt,Water fund $ 23,876,936 935,324 (2,753,844) 22,058,416 2,501,565 19,556,851 ' 2002 California Infrastructure and Economic Development Bank(CIEDB) Note Payable In April 2002, CIEDB issued a $10;000,000 note to the Department to provide funding for transmission mains, booster stations and a reservoir identified in the Water System Reliability Schedule of Improvements. The note was issued with an interest rate of 3.34% with interest payable semiannually on February 1 and August 1. Principal payments are due annually on February 1. Debt service requirements on the 2002 CIEDB Note Payable are as follows: Year Principal Interest Total 2016 $ 594,440 153,708 748,148 2017 614,294 133,854 748,148 2018 634,812 113,336 748,148 2019 656,014 92,133 748,147 2020 677,925 70,222 748,147 2021-2022 1,424,535 71,760 1,496,295 $ 4,602,020 635,013 5,237,033 32 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 * ` (6) Long-term Liabilities, continued 2007 CIEDB Note Payable In July 2007, CIEDB issued a $10,000,000 note to the Department to provide funding for booster stations and transmission mains in the Verdemont area. The note was issued with an interest rate of 2.71% with interest payable semiannually on February 1 and August 1. Principal payments are due annually on August 1. Debt service requirements on the 2007 CIEDB Note Payable are as follows: Year Principal Interest Total 2016 $ 492,777 179,754 672,531 2017 506,131 166,219 672,350 2018 519,847 152,317 672,164 2019 533,935 138,038 671,973 2020 548,405 123,373 671,778 2021-2025 2,973,170 382,585 3,355,755 2026-2027 1,305,126 35,605 1,340,731 $ 6,879,391 1,177,891 8,057,282 2012 CIEDB Note Payable In May 2012, CIEDB issued a $10,000,000 note to the Department to provide funding for the construction of the 12 million gallon Ogden Reservoir and certain pipeline improvements. The note was issued with an interest rate of 2.61% with interest payable semiannually on February 1 and August 1. Principal payments are due annually ' on August 1. Debt service requirements on the 2012 CIEDB Note Payable are as follows: ' Year Principal Interest Total 2016 $ 435,114 233,468 668,582 ' 2017 446,470 221,963 668,433 2018 458,123 210,158 668,281 2019 470,080 198,045 668,125 2020 482,349 185,616 667,965 2021-2025 2,607,286 729,988 3,337,274 2026-2030 2,965,768 366,828 3,332,596 ' 2031-2032 1,297,504 34,083 1,331,587 $ 9,162,694 2,180,149 11,342,843 SBVMWD Note Payable ' In July 2012, the Department closed escrow on the purchase of real property from the San Bernardino Valley Municipal Water District (SBVMWD), which included a down. payment of $1,000,000 and a promissory note of $1,117,500 to be paid in sixty(60) monthly installments due on or before the 1"of each month. Debt service requirements on the SBVMWD Note Payable are as follows: Year Principal Interest Total 2016 $ 225,723 3,504 229,227 2017 246,699 1,238 247,937 $ 472,422 4,742 477,164 33 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued ' For the Year Ended June 30, 2015 (6) Long-term Liabilities, continued , Debt 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 for the Water Utility Fund for the year ended June 30, 2015 was as follows: ■ Gross revenue $ 33,121,128 Operating expenses 35,504,584 Less: depreciation expense (5,365,124) Net operating expenses 30,139,460 Net revenues $ 2,981,668 Annual debt service $ 2,318,805 Actual coverage ratio 1.29 ' Sewer Utility Fund Changes in long-term liabilities in the sewer utility fund for the year ended June 30, 2015 are as follows: Balance Balance Current Long-term July 1,2014 Additions Reductions June 30,2015 Portion Portion Notes Payables: State Revolving Fund $ 3,374,135 (1,664,425) 1,709,710 1,709,710 Total Notes Payable 3,374,135 (1,664,425) 1,709,710 1,709,710 - Certificates of Participation: 1998 Certificates of Participation 9,340,000 (2,965,000) 6,375,000 3,155,000 3,220,000 Less:unamortized discounts (47,636) 18,944 (28,692) - (28,692) Total Certficates of Partcipiation 9,292,364 (2,946,056) 6,346,308 3,155,000 3,191,308 Compensated Absences 366,667 688,116 (770,541) 284,242 227,394 56,848 Total long term-debt,Sewer fund $ 13,033,166 688,116 (5,381,022) 8,340,260 5,092,104 3,248,156 State Revolving Fund Note Payable The State Water Resources Control Board issued a note to Santa Ana Watershed Authority to provide funding 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 the note obligation to the successors in interest being the City of San Bernardino Board of Water Commissioners g and the City of Colton. The Department will use revenues from the sewer treatment utility fund towards repayment of the note. Debt service requirements on the State Revolving Fund Note Payable are as follows: Year Principal Interest Total 2016 $ 1,709,710 47,872 1,757,582 $ 1,709,710 47,872 1,757,582 34 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 ` (6) Long-term Liabilities, continued 1998 Certificates of Participation In 1998, the sewer treatment utility issued $36,230,000 in Certificates of Participation to advance refund the 1992 Sewer Certificates of Participation and fund additional capital improvements. The 1992 Certificates originally provided for the construction of certain capital improvements. The proceeds of the 1998 Certificates were invested and used to pay interest on the 1998 issue until February 1, 2001, when the 1992 Certificates were called at a prepayment premium of two percent. The Department now pays the installment payments on the 1998 Certificates from the net revenues of the sewer treatment system. The issue has interest rates between 3.95% -5.25%, annual debt service payments of$1,697,000-$3,474,000, and a maturity date of 2017. Debt service requirements on the 1998 Certificates of Participation are as follows: Year Principal Interest Total 2016 $ 3,155,000 318,750 3,473,750 2017 3,220,000 161,000 3,381,000 $ 6,375,000 479,750 6,854,750 Debt Service Coverage The Sewer Utility Fund is required to maintain net revenues adequate to cover 110% of annual debt service. The 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, 2015 was as follows: Gross revenue $ 24,598,067 ' Operating expenses 19,167,269 Less: depreciation expense (2,417,491 Net operating expenses 16,749,778 ' Net revenues $ 7,848,289 Senior Lien- annual debt service $ 3,439,412 Subordinate Lien- annual debt service 1,758,901 Total annual debt service $ 5,198,313 ' Senior lien debt coverage ratio 2.28 Aggregate debt coverage ratio 1.51 35 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (7) Pension Plan Plan Description The Department is considered to be part of the City of San Bernardino PERS pension plan, therefore all related information included in this note refers to the City as a whole unless specifically indicating otherwise. All qualified permanent and probationary employees are eligible to participate in the Department's Miscellaneous Plan, an agent multiple-employer defined benefit pension plan administered by the California Public Employees' ' Retirement System (CaIPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding , benefit provisions, assumptions and membership information that can be found on the CalPERS website. Additional disclosures regarding the City-plan can be found in the City's audited financial statements. Benefits provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited ' service, equal to one year of full time employment. The Plans' provisions and benefits in effect at June 30, 2015, are summarized as follows: Miscellaneous Prior to January 1, On or after January 1, Hire date 2013 2013 Benefit formula 2.7% @ 55 2% @ 60 Benefit vesting schedule 5 years service 5 years of service Benefit payments monthly for life monthly for life , Retirement age 50-55 52-67 Monthly benefits,as a % of eligible 2.0%to 2.7% 1.0%to 2.5% compensation ' Required employee contribution rates 8% 8% Required employer contribution rates 22.024% 22.024% Employees Covered , As of June 30, 2013,the following employees were covered by the benefit terms of the Plan: City-wide Department Inactive employees or beneficiaries currently receiving benefits 1,262 123 Inactive employees entitled to but not yet receiving benefits 843 0 Active employees 736 246 Total 2,841 43 36 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued ` For the Year Ended June 30, 2015 (7) Pension Plan, continued Contribution Description Section 20814(c) of the California Public Employees' Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CaIPERS' annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2014 (the measurement date), the average active employee contribution rate is 7.936 percent of annual pay, and the employer's contribution rate is 18.186 percent of annual payroll. Employer contribution rates may, change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where members are paying a portion of the employer contribution. Actuarial Methods and Assumptions used to determine Total Pension Liability For the measurement period ended June 30, 2014 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2013 total pension liability. The June 30, 2013 and the June 30, 2014 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 68 Actuarial Assumptions Discount Rate 7.50% Inflation 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses: includes Inflation Mortality Rate Table' Derived using CaIPERS' Membership Data for all funds Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power applies, ' 2.75%thereafter 'The mortality table used was developed based on CaIPERS'specific data. The table includes 20 years of ' mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial ' experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at the CalPERS website under Forms and Publications. 37 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT . Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (7) Pension Plan, continued Discount Rate The discount rate used to measure the total pension liability was 7.50 percent. To determine whether the , municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long- term expected discount rate of 7.50 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called "GASB Crossover Testing Report" that can be obtained at CalPERS' website under the GASB 68 section. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower ' discount rate has resulted in a slightly higher total pension liability and net pension liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) ' review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. , The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension ' plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, staff took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short- term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. 38 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (7) Pension Plan, continued The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. Asset Class New Strategic Real Return Real Return Allocation Years 1 - 10' Years 11+2 Global Equity 47.0% 5.25% 5.71% Global Fixed Income 19.0 0.99 2.43 Inflation Sensitive 6.0 0.45 3.36 Private Equity 12.0 6.83 6.95 Real Estate 11.0 4.50 5.13 r Infrastructure and Forestland 3.0 4.50 5.09 Liquidity 2.0 (0.55) (1.05) 'An expected inflation of 2.5% used for this period ' 2 A expected inflation of 3.0% used for this period Pension Plan Fiduciary Net Position The plan fiduciary net position disclosed in the GASB 68 accounting valuation report may differ from the plan assets reported in the funding actuarial valuation report due to several reasons. First, for the accounting valuations, CaIPERS must keep items such as deficiency reserves, fiduciary self-insurance and OPEB expense ' included as assets. These amounts are excluded for rate setting purposes in the funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled reserves. 39 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (7) Pension Plan, continued Changes in Net Pension Liability , The following table shows the Plan's proportionate share of the net pension liability of the City's plan over the measurement period: ' Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a) (b) (c) _(a) -(b) Balance at: 6/30/2013 (VD) 174,090,256 123,406,572 51,683,684 Balance at: 6/30/2014 (MD) 182,054,201 141,121,803 40,932,398 Net Changes during 2013-14 6,963,945 17,715,231 (10,751,285) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Plan as of the Measurement Date, calculated using the discount rate of 7.50 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 percent) than the current rate: , Discount Rate—1% Current Discount Rate Discount Rate+1% (6.50%) (7.50%) (8.50%) ' Plan's Net Pension Liability— Department Allocation (36%) $ 64,214,204 $ 40,932,398 $ 21,619,155 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Recognition of Gains and Losses Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. 40 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (7) Pension Plan, continued The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss: Difference between projected and 5 year straight-line amortization actual earnings All other amounts Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period. The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). The EARSL for the Plan for the 2013-14 measurement period is 2.4 years, which was obtained by dividing the total service years of 6,678 (the sum of remaining service lifetimes of the active employees) by 2,841 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members' probability of decrementing due to an event other than receiving a cash refund. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions For the measurement period ending June 30, 2014 (the measurement date), the Department recognized a pension expense of$2,666,737 for the Plan. As of June 30, 2014, the Department reports other amounts for the Plan as deferred outflow and deferred inflow of resources related to pensions as follows: Deferred Outflows of Deferred Inflows of Resources Resources ' Pension contributions subsequent to measurement date $2,979,160 $0 Differences between Expected and Actual ' Experience 0 0 Changes of Assumptions 0 0 Net Difference between Projected and Actual Earnings on Pension Plan Investments 0 (9,651,219) Total $2,979,160 $(9,651,219) ' The amounts above are net inflows and outflows recognized in the 2013-14 measurement period expense. $2,979,160 reported as deferred outflows of resources related to employer contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: 41 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued yf a For the Year Ended June 30, 2015 (7) Pension Plan, continued ' Deferred ' Measurement period Outflows/(Inflows) Ended June 30: of Resources ' 2015 $(2,412,805) 2016 (2,412,805) 2017 (2,412,805) 2018 (2,412,805) 2019 0 Thereafter 0 (8) Other Post-Employment Benefits Plan Description The Department provides health benefits to all qualifying retirees and their spouses in accordance with Memorandums of Understanding under various labor agreements. Eligibility ' 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, 2014. Membership consists of the following: ' Retirees and beneficiaries receiving benefits 123 Active plan members 246 ' Total plan members 369 Funding Policy The contribution requirements of plan members and the Department are established and may be amended by the Board. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as may be determined annually by the Board. The Department has established an irrevocable trust to which pre-funding contributions are made. For fiscal year 2015, the Department has funded $2,256,321 for the current year. The Department pays up to the entire cost of health benefits for eligible retirees and their spouses, subject to the City's vesting schedule. 42 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (8) Other Post-Employment Benefits, continued Annual OPEB Cost and Net OPEB Obligation The Department's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the Department's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the Department's net OPEB obligation: Actual required contribution(ARC) $ 21707,000 Interest on new OPEB obligation 22,032 Amortization of net OPEB obligation (30,000) Annual OPEB cost(expense) 2,699,032 Contributions made 2,256,321 Increase in net OPEB obligation 442,711 Net OPEB obligation- beginning of year 352,510 Net OPEB obligation-end of year $ 795,221 The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2014 and the two preceding years were as follows: ' Percentage of Year Annual Paid AnnuaIOPEB OPEB Ended OPEB Cost Contribution Cost Contibuted Obligation ' 6/30/2013 $ 2,361,000 $ 573,621 24% $ 1,787,379 6/30/2014 2,438,000 3,872,869 159% 352,510 6/30/2015 2,699,032 2,256,321 84% 795,221 Funded Status and Funding Progress As of June 30, 2014, the most recent actuarial valuation date, the plan was 38.2%funded. The actuarial accrued liability for benefits was $35,012,000, the actuarial value of assets was $13,380,000 and the unfunded actuarial accrued liability (UAAL) was $21,632,000. The covered payroll (annual payroll of active employees covered by the plan) was $15,531,000 and the ratio of the UAAL to the covered payroll was 139.3%. ' Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future ' employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding ' progress 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. 43 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued y, i For the Year Ended June 30, 2015 (8) Other Post-Employment Benefits, continued ' Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2014, actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a rate of return of 6.25% and annual healthcare cost trend rates of 7.5% initially, reduced by increments to an ultimate rate of 5% in 2021. Both rates included a 3% inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market ' value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 2015, was 19 years. Schedule of Funding Progress ' Actuarial UAAL as a Actuarial Actuarial Accrued Unfunded %of Covered Valuation Value of Liability AAL Funded Ratio Covered Payroll Date Assets(a) (AAL)(b) (UAAL)(b-a) (a/b) Payroll(c) (b-a)/c 6/30/2010 $ - $ 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% 6/30/2014 13,380,000 35,012,000 21,632,000 38.2% 15,531,000 139.3% (9) Related Party Transactions The following is a summary of transactions and balances with the City of San Bernardino and its various Departments as of and for the year ended June 30, 2015. Water Sewer Receipts Utility Utility Total City of San Bernardino: Revenue from Water Charges $ 1,307,085 - 1,307,085 Revenue from Sewer Charges - 77,569 77,569 Revenue from Geothermal Charges 29,944 - 29,944 Billing&Collection Charges - Refuse 360,000 - 360,000 Billing&Collection Charges- Storm Drain 4,770 - 4,770 Billing&Collection Charges-Sewer Collection 63,000 - 63,000 Cost Reimbursement 69,400 - 69,400 Total receipts from related parties $ 1,834,199 77,569 1,911,768 44 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued * , For the Year Ended June 30, 2015 ` (9) Related Party Transactions, continued Water Sewer Payments Utility Utility Total City of San Bernardino: Worker's Compensation(Admin. Charges) $ 387,444 140,456 527,900 Printing Services - 679 679 Postage 20,480 - 20,480 Refuse Disposal Service 19,996 21,038 41,034 Consulting Services 3,158 832 - 3,158,832 Franchise Fee - 107,784 107,784 Permits 91,247 919 92,166 Cost Reimbursement 9,964 3,881 13,845 Total payments to related parties $ 3,687,963 274,757 3,962,720 Water Sewer Receivables Utility Utility Total City of San Bernardino: Related party receivable $ 927,874 47,565 975,439 Accounts receivable,net 41,311 300 41,611 Due from other entities 165,828 - 165,828 Ifr Total receivable from related parties $ 1,135,013 47,865 1,182,878 Water Sewer Payables Utility Utility Total ' City of San Bernardino: Related party payable $ 2,523,358 230,300 2,753,658 Accounts payable 3,285,973 168,352 3,454,325 Claims payable 1,213,539 239,673 1,453,212 Total payable to related parties $ 2,523,358 638,325 7,661,195 45 �er, CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued r For the Year Ended June 30, 2015 (10) Joint Ventures Colton/San Bernardino Regional Tertiary Treatment and Water Reclamation Authority On August 2, 1994, the City of San Bernardino, through the Department formed a joint powers authority with , the City of Colton to construct, operate, use and maintain tertiary wastewater treatment, disposal and water reclamations systems, including the Regional Rapid Infiltration and Extraction Facility (RIX). This authority is governed by a separate board consisting of four members; two appointed by the City of San Bernardino through ' the Department's BOWC and two appointed by the City Council of the City of Colton. Construction of RIX was administered by the Santa Ana Watershed Project Authority and was substantially completed during 1996. 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 expenses. The Department's equity interest in this joint venture has been reported as an investment in joint venture in the accompanying statement of net position. San Bernardino Public Safety Authority On April 1, 1968, the City of San Bernardino and the County of San Bernardino formed the San Bernardino Public Safety Authority (PSA), a joint powers authority, as a financing vehicle to construct public safety buildings and improvements to the wastewater treatment plant. In accordance with the terms of an installment purchase agreement, title to the capital assets financed through the PSA were recognized as capital assets of the City at the inception of the installment purchase agreement between the City and the PSA. The City's remaining interest in the joint venture is in the form of cash and investments held by the PSA for debt service related activity. The Department's equity interest in these assets has been recognized in the accompanying statement of net position as an investment in joint venture. , West End Water Development, Treatment and Conservation Joint Powers Authority On August 15, 1990, the City of San Bernardino joined the West End Water Development, Treatment and Conservation Joint Powers Authority (WEJPA) as a financing vehicle for construction of water facilities. A three- member board consisting of one representative from each agency's governing body governs the WEJPA. This joint venture was formed to provide a financing vehicle for the three member agencies. This joint venture is currently inactive. (11) Commitments and Contingencies Risk Management Risk management activities are recorded in both utility funds. Significant losses are covered by insurance for all major events except workers' compensation, for which the Department retains risk of loss in conjunction with the City of San Bernardino's risk management program for workers compensation. Settlement amounts have not exceeded insurance coverage for the current year or the prior three years. Insurance coverage has been increased over the past several years. 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. 46 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued For the Year Ended June 30, 2015 (11) Commitments and Contingencies, continued The following are the changes in approximate aggregate liabilities for the year ended June 30, 2015. Water Sewer Claims Liabilities Utility Utility Total Claims payable, beginning of year $ 731,496 $ 268,107 $ 999,603 Claims and changes in estimates 835,698 177,237 1,012,935 Claims payments (353,655) (205,671) (559,326) Claims payable, end of year $ 1,213,539 $ 239,673 $ 1,453,212 Litigation In the ordinary course of operations, the Department is subject to claims and litigation from outside parties. After consultation with legal counsel, the Department believes the ultimate outcome of such matters, if any, will not materially affect its financial condition. r (12) Federal and State Grants Grant funds received by the Department are subject to audit by the grantor agencies. Such audit could lead to 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. The Department produces a Single Audit that details the use of grant and Consent Decree funds (see note 13 for information on the Consent Decree). ' (12) Subsequent Events On December 1St, 2015, the Board of Water Commissioners approved a loan with the San Bernardino Valley ' Municipal Water District up to $1.2 million for the UV System Rehabilitation Project. 47 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued ' For the Year Ended June 30, 2015 (13) Consent Decree , In 1996, the City of San Bernardino filed a complaint against the United States of America, Department of the Army to recover damages, response costs and other available remedies relating to contamination alleged to ' have originated at a World War II army installation known as Camp Ono. In March 2005, the United States District Court, Central Division entered judgment, in the form of a consent decree, in the matter of City of San Bernardino v. United States of America. The Consent Decree settles the City's and the State's claims arising from the groundwater contamination allegedly caused by the Army. The Consent Decree contains a number of provisions obligating the City (through the Department) to operate and maintain the Newmark Groundwater Superfund site (Site). The Site consists of two operable units, the Newmark Operable Unit and the Muscoy Operable Unit. The Newmark Operable Unit was declared operational and functional in 1998. The Muscoy Operable unit was declared operational and functional in 2007. The Consent Decree provided for a payment of $69 million from the Army to the City for performance of the work outlined in the Consent Decree. Upon acceptance of the Consent Decree,the Department received title to all facilities constructed by the United States Environmental Protection Agency (EPA) of the Site and agreed to operate and maintain the groundwater extraction and treatment system for a period of 50 years. The $69 , million payment consisted of$59 million for operations and maintenance and $10 million for the construction of certain capital facilities that would be required in the future; the funds are subject to strict limitations, contained in the Consent Decree, as to how the money may be spent. Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside to be used only for (i) funding construction of treatment and directly related transmission systems that expand the Department's capacity to deliver potable water and (ii) funding work performed by the Department to complete construction of the Muscoy Operable Unit extraction system. These capital facility funds may not be used for costs incurred to operate, maintain, repair or retrofit components of the site extraction of treatment systems constructed by EPA. In March 2006, the Department entered into a Guaranteed Investment Contract with AIG Match Funding Corporation. The Department invested $16,482,039 of excess Consent Decree funds into an interest bearing Escrow Fund investment with an interest rate of 4.95% per annum. These funds were invested to pay costs associated with the water facilities defined in the Consent Decree for years 2035-2056. An additional $50 million was used to purchase a blended insurance policy to provide a financial vehicle that provides cost gap coverage for the first 30 years of expenses. The terms of the Guaranteed Investment Contract only provided the Department with the position of a secured creditor with respect to an AIG bankruptcy. As concerns arose regarding AIG's financial credibility, in October 2009,the Department negotiated and accepted a "payout" in the amount of$18,661,876 which represented the principal and accrued interest as of that date. These funds are currently invested in a diversified portfolio managed by PFM Asset Management and present in more detail in note 3. 48 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Notes to the Basic Financial Statements, continued + For the Year Ended June 30, 2015 (14) Net Position Net position at June 30, 2015, consisted of the following: Water Sewer Net investment in capital assets: Utility Utility Total Non-depreciable assets $ 9,177,446 26,102,047 35,279,493 Depreciable assets 263,901,536 138,924,135 402,825,671 Accumulated Depreciation and amortization (84,999,216) (100,880,133) (185,879,349) Less:related debt Notes payable,current portion 1,702,526 1,664,425 3,366,951 Certificates of participation, current portion - 2,965,000 2,965,000 Notes payable,noncurrent portion 19,414,001 45,285 19,459,286 Certificates of participation, noncurrent portion - 3,381,308 3,381,308 Total net investment in capital assets 166,963,239 56,090,031 223,053,270 Restricted for capital-related fees: Cash and cash equivalents,restricted for capital-related fees - 7,643,404 7,643,404 Unrestricted: Designated for operating reserve 3,780,556 3,780,556 7,561,112 Designated for rate stabilization reserve 4,248,000 4,248,000 8,496,000 Designated for emergency replacement reserve - 11,115,109 11,115,109 Designated for capital replacement reserve 533,559 11,665,577 12,199,136 U ndesignated 10,635,783 10,635,783 Total unrestricted 8,562,115 41,445,025 50,007,140 Total net position $ 175,525,354 $ 105,178,460 $ 280,703,814 (15) Prior Period Adjustment ' During the year the Department implemented GASB 68 resulting in recording a net pension liability and deferred outflow of resources as a prior period adjustment. Water Sewer ' Utility Utility Total Net position at beginning of the ' year,as previously reported $ 175,525,354 105,178,460 280,703,814 Implementation of GASB 68 (27,939,656) (21,077,289) (49,016,945) Net position at beginning of the ' year, restated $ 147,585,698 84,101,171 231,686,869 49 PAGE INTENTIONALLY LEFT BLANK 50 � STATISTICAL SECTION 1 (Unaudited) 1 1 1 1 1 1 1 1 1 51 FINANCIAL TRENDS These schedules contain trend informaton to help the reader understand how the Department's financial performance and well-being have changed over time. 52 City of San Bernardino Municipal Water Department Changes in Net Position Last Ten Fiscal Years Total Non- Total Total Operating Total Fiscal Year Operating Operating Operating Income Contributed Changes in Net Ended Revenue Expense Income (Expense) Capital Position 6/30/2006 41,163,361 44,391,520 (3,228,159) 1,112,920 18,430,146 16,314,907 6/30/2007 47,914,999 48,791,026 (876,027) 2,106,963 14,904,830 16,135,766 6/30/2008 46,757,411 54,172,974 (7,415,563) 3,838,588 13,263,336 9,686,361 6/30/2009 47,171,798 54,044,608 (6,872,810) 2,717,707 5,197,854 1,042,751 6/30/2010 47,808,997 57,965,395 (10,156,398) 1,375,536 7,510,777 (1,270,085) 6/30/2011 54,280,835 56,328,523 (2,047,688) 1,408,498 4,390,162 3,750,972 6/30/2012 60,756,697 58,971,535 1,785,162 1,974,266 3,055,921 6,815,349 6/30/2013 61,883,615 57,327,537 4,556,078 1,861,758 4,896,921 11,314,757 6/30/2014 62,292,428 57,965,395 4,327,033 1;375,536 7,510,777 13,213,346 6/30/2015 57,805,304 55,074,661 2,730,643 3,801,830 4,977,945 11,510,418 Source: Department's annual reports ' Changes in Net Position- Combined Funds 18,000 16,000 c 14,000 12,000 t 10,000 _ 8,000 _ 6,000 m Changes in Net Position 4,000 _ ' 2,000 _ -r--r �--r -r—r0-r—r. .-r--r:..-r—r- 7__r 7-- -r--r � (2,00,0) 006 2007 ?Ong 2nr ' (4,000) 53 City of San Bernardino Municipal Water Department Water Fund Changes in Net Position ' Last Ten Fiscal Years Total Non- Total Total Operating Total Fiscal Year Operating Operating Operating Income Contributed Changes in Net Ended Revenue Expense Income (Expense) Capital Position ' 6/30/2006 21,760,104 24,833,550 (3,073,446) 3,186,965 13,766,100 13,879,619 6/30/2007 28,232,366 28,069,392 162,974 3,487,628 11,931,117 15,581,719 , 6/30/2008 27,337,093 32,453,101 (5,116,008) 3,479,605 11,397,947 9,761,544 6/30/2009 27,258,954 32,934,974 (5,676,020) 2,853,518 3,919,197 1,096,695 ' 6/30/2010 27,688,694 31,953,080 (4,264,386) 2,101,540 5,829,803 3,666,957 6/30/2011 33,027,707 35,811,915 (2,784,208) 2,025,029 2,782,168 2,022,989 ' 6/30/2012 37,106,217 39,155,830 (2,049,613) 2,436,449 2,384,710 2,771,546 6/30/2013 37,868,846 37,430,224 438,622 2,492,448 3,421,521 6,352,591 6/30/2014 36,671,903 36,041,616 630,287 2,504,705 6,521,601 9,656,593 ' 6/30/2015 33,121,128 35,504,582 (2,383,454) 2,702,953 3,905,104 4,224,603 Source: Department's annual reports ' Changes in Net Position-Water Fund , 18,000 N 16,000 00 14,000 ~ 12,000 10,000 , 8,000 Changes in Net Position 6,000 4,000 2,000 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ' 54 City of San Bernardino Municipal Water Department Sewer Fund Changes in Net Position Last Ten Fiscal Years Total Non- Total Total Operating Total Fiscal Year Operating Operating Operating Income Contributed Changes in Net Ended Revenue Expense Income (Expense) Capital Position 6/30/2006 20,363,472 20,518,185 (154,713) (2,074,045) 4,664,046 2,435,288 6/30/2007 21,002,484 22,041,485 (1,039,001) (1,380,665) 2,973,713 554,047 6/30/2008 20,847,984 23,147,539 (2,299,555) 358,983 1,865,389 (75,183) 6/30/2009 21,208,021 22,404,811 (1,196,790) (135,811) 1,278,657 (53,944) 6/30/2010 22,424,943 24,474,747 (2,049,804) (19,598) 495,768 (1,573,634) 6/30/2011 23,433,833 22,697,313 736,520 (616,531) 1,607,994 1,727,983 6/30/2012 25,888,729 22,053,954 3,834,775 (462,183) 671,211 4,043,803 6/30/2013 26,414,653 22,297,197 4,117,456 (630,690) 1,475,400 4,962,166 6/30/2014 25,670,774 21,974,028 3,696,746 (1,129,169) 989,176 3,556,753 6/30/2015 24,734,425 19,620,328 5,114,097 1,098,877 1,072,841 7,285,815 Source: Department's annual reports Changes in Net Position-Sewer Fund 8,000 7,000 0 6,000 5,000 ' 4,000 - 3,000 2,000 Changes in Net Position 1,000 _ (1,000) (2,000) (3,000) 55 City of San Bernardino Municipal Water Department Net Position By Component Last Ten Fiscal Years Fiscal Year Net Investment Restricted Unrestricted Total Net Ended in Capital Assets Net Position Net Position Position 6/30/2006 175,115,812 24,859,169 25,256,531 225,231,512 , 6/30/2007 188,196,495 27,280,333 22,890,450 238,367,278 6/30/2008 196,892,664 24,205,033 26,955,942 248,053,639 ' 6/30/2009 199,628,149 19,831,726 29,636,515 249,096,390 6/30/2010 204,066,502 11,992,059 35,131,152 251,189,713 6/30/2011 206,520,977 8,276,462 40,143,246 254,940,685 , 6/30/2012 212,490,593 7,389,246 43,545,621 263,425,460 6/30/2013 200,072,942 7,799,773 69,315,171 277,187,886 , 6/30/2014 206,663,567 7,515,658 66,524,589 280,703,814 6/30/2015 223,053,269 7,633,049 12,510,969 243,197,287 ' Source: Department's annual reports Net Position by Component Combined ' N 300,000 -- Unrestricted Net Position v m 250,000 - Restricted Net Position 0 200,000 - — 0 Net Investment in Capital 150,000 — - — Assets 100,000 - — — 50,000 ZA Z% ,§5 ti�yO ti�1y ti�1�ti�1�ti�1�ti�1y 56 City of San Bernardino Department Municipal Water De p p Net Position By Component-Water Fund Last Ten Fiscal Years Fiscal Year Net Investment Restricted Unrestricted Total Net ' Ended in Capital Assets Net Position Net Position Position 6/30/2006 106,036,062 8,720,267 7,964,724 122,721,053 6/30/2007 122,080,723 11,294,440 4,927,609 138,302,772 ' 6/30/2008 130,610,364 8,406,696 9,047,256 148,064,316 6/30/2009 133,834,066 6,328,449 8,998,496 149,161,011 6/30/2010 139,688,690 1,528,434 11,610,844 152,827,968 ' 6/30/2011 140,912,873 - 13,938,084 154,850,957 6/30/2012 148,063,104 41,320 13,658,195 161,762,619 6/30/2013 156,758,127 - 12,133,904 168,892,031 6/30/2014 163,797,283 11,728,071 175,525,354 6/30/2015 166,963,238 (15,152,937) 151,810,301 Source: Department's annual reports Net Position by Component: i Water Fund N 200,000 0 a 150,000 Unrestricted Net Position 100,000 — — ■Restricted Net Position ' 50,000 — — — — — — - ■Net Investment in Capital Assets ' tio (50,000) 1 �Op1��-CDO°� Voyo-Coyti ToyL-COyi Toyb-Coyh 57 City of San Bernardino Municipal Water Department ' Net Position By Component-Sewer Fund Last Ten Fiscal Years ' Fiscal Year Net Investment Restricted Unrestricted Total Net Ended in Capital Assets Net Position Net Position Position 6/30/2006 66,079,750 16,138,902 17,291,807 99,510,459 ' 6/30/2007 66,115,772 15,985,893 17,962,841 100,064,506 6/30/2008 66,282,300 15,798,337 17,908,686 99,989,323 6/30/2009 65,794,083 13,503,277 20,638,019 99,935,379 6/30/2010 64,377,812 10,463,625 23,520,308 98,361,745 6/30/2011 65,608,104 8,276,462 26,205,162 100,089,728 6/30/2012 64,427,489 7,347,926 29,887,426 101,662,841 6/30/2013 43,314,815 7,799,733 57,181,267 108,295,815 6/30/2014 42,866,284 7,515,658 54,796,518 105,178,460 6/30/2015 56,090,031 7,633,049 27,663,906 91,386,986 ' Source: Department's annual reports i n , Net Posit b Component:o y onent: Sewer Fund p 120,000 100,000 ' 0 Unrestricted Net Position r 80,000 — , ■Restricted Net Position 60,000 J 40,000 — — — — - -- — — — ®Net Investment in Capital ' Assets , 20,000 gad°�OO,~O110 ale ti�yO ti�1yti�ti �1�11th y 58 City of San Bernardino Municipal Water Department Water Fund Revenue by Type Last Ten Fiscal Years Fiscal Year Gain on Total Non Service Other Total Operating Interest Rental Other asset Noncapital Operating Ended Water Sales Charges/Fees Services Revenue Income Income Income disposition grant funds Income 6/30/2006 19,293,502 2,243,214 223,388 21,760,104 401,369 89,761 421,317 693,500 1,983,509 3,589,456 6/30/2007 25,136,912 2,929,446 166,008 28,232,366 1,180,789 82,944 227,509 37,377 2,300,151 3,828,770 6/30/2008 24,194,275 3,005,938 136,880 27,337,093 1,613,192 95,818 178,348 - 2,715,957 4,603,315 6/30/2009 24,147,627 2,991,468 119,859 27,258,954 1,008,607 101,130 - 309,708 2,043,889 3,463,334 6/30/2010 24,436,854 3,118,571 133,269 27,688,694 578,912 98,638 175,782 8,988 1,894,624 2,756,944 yy 6/30/2011 29,782,786 3,101,431 143,489 33,027,707 451,927 117,454 59,960 - 1,928,999 2,558,340 i' 6/30/2012 33,315,084 3,665,354 125,779 37,106,217 219,027 133,400 1,041,667 - 1,838,223 3,232,317 6/30/2013 34,252,357 3,476,061 140,429 37,868,846 - 122,826 211,032 - 3,110,201 3,444,059 6/30/2014 34,777,112 1,754,614 140,176 36,671,903 93,428 160,089 478,512 4,446 2,030,066 2,766,541 6/30/2015 31,217,534 1,789,654 113,940 33,121,128 54,786 181,809 545,840 - 2,089,637 2,872,072 Source: Department's annual reports Operating Revenue by Type-Water T e-Water Fund ' 40,000 m 35,000 0 30,000 �- 25,000 20,000 -- - " ■Other Services ' 15,000 -� 10,000 a service Charges/Fees 5,000 ._ - ■Water Sales ISP ' Non-Operating Revenue by Type:Water Fund 5,000 --------- - 4,500 -Noncapital grant funds ' 4,000 -- - r.Gain on asset disposition F3,500 ----- 3,000 + Other Income 2,500 _ _ Rental Income - 2,000 Interest Income ' 1,500 { - 1,000 -� - 500 7 -11 1 -1 OOro 1^ COP r 010 r-01ti r O.y'L Oti-y O,tib T O'1y 1 59 City of San Bernardino Municipal Water Department Sewer Fund Revenue by Type Last Ten fiscal Years Gain on Asset Sewer Other Disposition Total Non Fiscal Year Treatment Industrial Operating Total Operating Interest Rental Other /Joint Operating ' Ended Revenue Waste Revenue Revenue Income Income Income Venture Income 6/30/2006 19,492,372 366,321 504,779 20,363,472 662,460 29,181 - - 691,641 6/30/2007 20,083,001 390,328 529,155 21,002,484 1,906,369 29,101 - - 1,935,470 6/30/2008 20,009,959 372,631 465,394 20,847,984 2,319,570 29,425 - - 2,348,995 6/30/2009 20,124,192 406,686 677,142 21,208,021 1,652,562 26,826 - - 1,679,388 6/30/2010 20,771,749 431,300 1,221,894 22,424,942 1,603,840 26,303 - - 1,630,143 , 6/30/2011 21,833,085 379,316 1,221,431 23,433,833 817,740 23,517 - 41,609. 882,866 6/30/2012 24,250,417 376,550 1,261,762 25,888,729 812,885 21,907 - - 834,792 , 6/30/2013 25,261,792 296,153 856,708 26,414,654 340,689 22,574 - - 363,263 6/30/2014 25,350,988 319,786 - 25,670,774 443,836 20,669 202,078 - 666,583 6/30/2015 24,399,415 335,010 - 24,734,425 481,211 700 498,247 345,884 1,326,042 Source: Department's annual reports Operating Revenue by Type-Sewer Fund ' 30,000 a m � 25,000 O 20,000 15,000 -- -' a Other Operating Revenue ■Industrial Waste , 10,000 --- -- -' r Sewer Treatment Revenue 5,000 - o\1CI o\ti o\y o\y o\y o\.y o0, o\ti o\ti o\ti ro\3 (0\3 �o\� (b. IS, Non-Operating Revenue by Type-Sewer Fund 2,500 a 0 2,000 - L 1,500 __-_ Gain on Asset Disposition/Joint Venture 1,000 - - Other Income 500 Rental Income - - ■Interest Income 00(0 001 000 OOoi Oti0 01~ O•y'L 0ti3 OtiP 0ti5 o\�' o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\�' to\3 G\3 ro\3 0 60 City of San Bernardino Municipal Water Department Water Fund Expenses by Type Last Ten Fiscal Years Plant Administration Operations Depreciation Total Loss on Other Non- Total Non- Fiscal Year &Customer and and Operating Interest asset operating Operating Ended Service Distribution Engineering Maintenance Amortization Expense Expense disposition expense Expense 6/30/2006 8,477,420 9,251,147 1,873,6S3 1,748,898 3,482,432 24,833,550 365,636 - 36,855 402,491 6/30/2007 9,142,746 10,532,739 2,334,538 1,994,341 4,065,028 28,069,392 313,450 - 27,692 341,142 6/30/2008 12,493,276 11,250,830 2,405,221 1,813,310 4,490,464 32,453,101 592,182 531,528 - 1,123,710 6/30/2009 11,901,700 10,908,332 3,046,765 1,853,244 5,224,933 32,934,974 601,795 - 8,021 609,816 6/30/2010 11,552,062 11,209,298 2,204,374 1,577,642 5,409,704 31,953,080 175,782 8,988 1,894,624 2,079,394 6/30/2011 15,489,152 10,440,753 2,220,956 1,634,919 5,396,135 35,181,915 531,839 1,472 - 533,311 6/30/2012 16,304,830 12,959,507 2,492,056 1,628,764 5,770,673 39,155,830 526,915 268,953 - 795,868 - 6/30/2013 16,149,788 11,073,338 2,813,459 1,888,236 5,505,403 37,430,224 689,665 261,946 951,611 6/30/2014 14,410,400 11,395,305 2,426,717 1,837,556 5,971,638 36,041,616 261,836 - - 261,836 6/30/2015 13,244,552 12,467,017 2,439,170 1,988,719 5,365,124 35,504,582 . 169,119 - - 169,119 Source: Department's annual reports Operating Expenses by Type-Water Fund ' 45,000 c 40,000 35,000 'o F 30,000 25,000 _ ■Depreciation and Amortization - _. _ 20,000 - ■Maintenance 15,000 - - _ ■Engineering 10,000 ■Plant Operations and Distribution 5,000 - - - ■Administration&Customer Service b\30\'L06\'h0\'L�\'h0\'L�\'ho\'LOb\"Z\'LOS\33\'LO6\3\'LO6\"�O\'LO�\,h0\'L06\,r�0\,ti0 ' Non-Operating Expense by Type:Water Fund 2,5130 a Other Non-operating expense 0 2,000 1,500 s Loss on asset disposition 1,000 - ■Interest Expense ' 500 �.I -� �.r._r�� ■ � o\ti�3° o\tioo1 61ti o\ti� o\tio~O o\T 61T o\tio~3 o\fl o\T (O\3 6\3 6\3 6\3 ro\3 ro\3 6\3 6\3 C�\3 fo\3 61 City of San Bernardino Municipal Water Department Sewer Fund Expenses by Type Last Ten Fiscal Years Administration Depreciation Loss on Other Non- Total Non- ' Fiscal Year &Customer Plant and Total Operating Interest asset operating Operating Ended Service Operations Engineering Maintenance Amortization Expense Expense disposition expense Expense 6/30/2006 2,937,280 9,489,306 - 2,759,868 5,331,731 20,518,185 2,164,150 474,657 126,879 2,765,686 6/30/2007 3,180,710 10,388,472 45,794 3,088,137 5,338,372 22,041,485 2,021,326 2,037 1,292,772 3,316,135 , 6/30/2008 4,318,939 10,293,707 32,336 3,138,509 5,364,048 23,147,539 1,868,033 3,784 118,195 1,990,012 6/30/2009 3,334,540 10,237,490 16,278 2,928,189 5,888,314 22,404,811 1,701,371 3,736 110,092 1,815,199 6/30/2010 5,807,692 10,170,647 - 3,059,780 5,436,628 24,474,747 1,529,650 2,142 117,949 1,649,741 r 6/30/2011 3,989,616 10,627,225 - 3,108,701 4,971,771 22,697,313 1,343,649 - 155,748 1,499,397 ' 6/30/2012 3,823,627 10,328,073 - 3,257,127 4,645,127 22,053,954 1,147,810 34,114 118,051 1,299,975 6/30/2013 4,454,713 10,040,895 - 3,392,868 4,408,721 22,297,197 828,129 11,644 154,180 993,953 6/30/2014 5,345,726 9,528,218 527,294 3,146,275 3,426,515 21,974,028 557,049 16,244 1,238,703 1,811,996 6/30/2015 4,016,198 9,292,501 534,226 2,906,853 2,870,550 19,620,328 227,165 - - 227,165 Source: Department's annual reports , Operating Expenses by Type-Sewer Fund ' 30,000 �- 25,000 - 'o r 20,ODO - - !Depreciation and Amortization 15,000 ■Maintenance 10,000 -- - ■Engineering 5,000 - - -- - --- !Plant Operations ' !Administration&Customer Service O" CP^ C3" OHO Off~ O~~ 011 QN o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti Non-Operating Expense by Type:Sewer Fund 3,500 m ,Other Non-operating expense 3,000 2.500 !Loss on asset disposition F 2,000 - 1,500 E Interest Expense 1,000 - Soo �e �A �$ 00a 0tio 01~ 0'ti oti3 0,o- oti5 o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti o\ti 62 ' DEBT CAPACITY INFORMATION 1 These schedules contain information to help the reader assess ' the affordability of the Department's current level of outstanding debt and ability to issue debt in the future. 63 City of San Bernardino Municipal Water Department ' Water Fund Debt Service Coverage Last Ten Fiscal Years ' Net Operating Net Non- Total Expenses Net Operating Amount Fiscal Year Operating (Excluding) Operating Income/ Available for Total Debt Coverage Ended Revenue Depreciation Income(Loss) (Expense) Debt Service Principal Interest Service Ratio 6/30/2006 21,760,104 21,351,118 408,986 3,186,965 3,595,951 1,765,988 396,183 2,162,171 1.66 6/30/2007 28,232,366 24,004,364 4,228,002 3,487,628 7,715,630 523,644 582,772 1,106,416 6.97 6/30/2008 27,337,093 27,962,637 (625,544) 3,479,605 2,854,061 541,079 485,626 1,026,705 2.78 6/30/2009 27,258,954 27,710,041 (451,087) 2,853,518 2,402,431 559,106 603,368 1,162,474 2.07 6/30/2010 27,688,694 26,543,376 1,145,318 2,101,540 3,246,858 956,106 667,146 1,623,252 2.00 6/30/2011 33,027,707 29,785,780 3,241,927 2,025,029 5,266,956 1,352,148 548,318 1,900,466 2.77 6/30/2012 37,106,217 33,385,157 3,721,060 2,436,449 6,157,509 974,027 505,819 1,479,846 4.16 6/30/2013 37,868,846 31,924,821 5,944,025 2,492,448 8,436,473 1,227,491 547,616 1,775,107 4.75 ' 6/30/2014 36,671,903 30,069,978 6,601,925 2,504,705 9,106,630 1,658,265 660,854 2,319,119 3.93 6/30/2015 33,121,128 30,139,458 2,981,670 2,702,953 5,684,623 1,683,818 187,153 1,870,971 3.04 , Source: Department's annual reports 64 City of San Bernardino Municipal Water Department Sewer Fund Debt Service Coverage Last Ten Fiscal Years Net Operating Net Non- Total Expenses Net Operating Amount Fiscal Year Operating (Excluding) Operating Income/ Available for Total Debt Coverage Ended Revenue Depreciation Income(Loss) (Expense) Debt Service Principal Interest Service Ratio 6/30/2006 20,363,472 15,186,454 5,177,018 (2,074,045) 3,102,973 3,603,614 2,143,829 5,747,443 0.54 6/30/2007 21,002,484 16,703,113 4,299,371 (1,380,665) 2,918,706 3,761,442 2,003,864 5,765,306 0.51 6/30/2008 20,847,984 17,783,491 3,064,493 358,983 3,423,476 3,823,275 1,855,515 5,678,790 0.60 6/30/2009 21,208,021 16,516,497 4,691,524 (135,811) 4,555,713 4,197,317 1,687,518 5,884,835 0.77 6/30/2010 22,424,942 19,038,119 3,386,823 (19,598) 3,367,225 4,181,342 1,635,707 5,817,049 0.58 6/30/2011 23,433,833 17,725,542 5,708,291 (616,531) 5,091,760 2,130,378 3,706,195 5,836,573 0.87 ' 6/30/2012 25,888,729 17,408,827 8,479,902 (462,183) 8,017,719 4,417,731 1,166,496 5,584,227 1.44 6/30/2013 26,414,654 17,888,476 8,526,178 (630,690) 7,895,488 4,724,227 757,010 5,481,237 1.44 ■ 6/30/2014 25,670,774 18,547,513 7,123,261 (1,129,169) 5,994,092 4,424,090 747,460 5,171,550 1.16 6/30/2015 24,734,425 16,749,778 7,984,647 1,098,877 9,083,524 4,629,425 568,888 5,198,313 1.75 Source: Department's annual reports 65 i 1 1 1 1 1 1 1 DEMOGRAPHIC AND ECONOMIC INFORMATION 1 These schedules offer demographic and economic indicators ' to help the reader understand the environment within which 1 the Department's financial activities take place. 1 1 1 1 66 City of San Bernardino Municipal Water Department Demographic Statistics Last Ten Fiscal Years Estimated Personal Per Capita Fiscal Year Population Income(in Personal Unemployment Ended (1) Thousands) Income(2) Rate(3) 6/30/2006 201,396 5,982,065 29,703 4.90% 6/30/2007 204,620 6,248,072 30,535 5.80% 6/30/2008 205,493 6,318,704 30,749 8.30% 6/30/2009 208,318 6,198,919 29,757 12.90% 6/30/2010 209,924 6,256,785 29,805 13.70% 6/30/2011 210,108 6,559,152 31,218 13.00% 6/30/2012 210,753 6,807,533 32,301 11.50% 6/30/2013 211,994 7,001,102 33,025 9.80% 6/30/2014 212,584 7,070,119 33,258 8,20 6/30/2015 213,933 n/a n/a 7.30% (1) California Department of Finance ' (2) U.S.Department of Commerce,Bureau of Economic Analys for 2006-2013(Riverside-San Bernardino MSA) (3) State of California,Economic Development Department *Most recent complete year available. Population Personal Income 216,000 --------- -� 8,000,000 214,000 -----...._..._.._...__...._....�. 212,000 ._..._......_..-....._.........�......�....,._ _ 7,000,000 210,000 •••---••-•-••-• 6,000,000 208,000 206,000 5,000,000 204,000 4,000,000 ' 202,000 200,000 3,000,000 198,000 2,000,000 ..__...._..._......_..._._....�. _ _ 196,000 1,000,000 _ 194,000 11 tk 01� 3�\~��\~�o��\v��o\~�o3O\ti�~30\ti�y,,O\ti�y3O\ti�~3O\ti01,�O\ti��y Per Capita Personal Income 35,000 j Unemployment ' 30,000 0 __ __ 16.00% 25,000 14.00% 1 j 20,000 2.00% --- ( 10.00 15,000 8.00% 10,000 6.00% _ 5,000 � 4.00% ` 2.00% 1 0 O ti y 'b p 5 0.00% \,�O\TO��O\~O 6\,50\~O 6\,�O\~O�\,yO\�O b\,50\�O 6\,60\�O 6\�O\1O 6\,60\V O b\,60\�Oy I O\,tiOO6 O\,tiOO1 O\,LOOS O\ryOO�O\�O'YO O\ryO1,' ryO'r0' \T \11,�O'r�` SON LEE 11 6\6 10; I\3 6\3 6\, I-V 411 e\3p\ Isp 4§1 67 City of San Bernardino Municipal Water Department Major Employers Current Year and Nine Years Ago ' Fiscal Year 2015 Fiscal Year 2006* Employer Ranking Number of Employees Ranking Number of Employees Stater Brothers 1 18,000 County of San Bernardino 2 17,395 9 1000+ San Bernardino City Unified School District 3 12,629 7 1000+ ' California State University,San Bernardino 4 3,012 1 1000+ t Saint Bernardine Medical Center 5 1,400 Community Hospital of San Bernardino 6 1,200 4 1000+ City of San Bernardino 7 1,067 3 1000+ San Bernardino Community College District 8 862 8 1000+ The Sun Newspaper 9 526 Blood Bank of San Bernardino 10 340 State of California, Department of Transportation 2 1000+ Corona Regional Medical Center 5 1000+ Renzenberger,Inc. 6 1000+ San Bernardino Valley College 10 1000+ *Actual employment figures not available Source: City of San Bernardino Economic Development Department and City's Annual Financial Report 68 City of San Bernardino Municipal Water Department Authorized Positions History Last Ten Fiscal Years Year End Water Fund Sewer Fund Total 2006 178.0 75.0 253.0 2007 185.0 78.0 263.0 2008 194.0 79.0 273.0 2009 183.0 78.0 261.0 2010 167.0 84.0 251.0 2011 163.5 78.0 241.5 2012 173.5 82.0 255.5 2013 173.5 82.0 255.5 2014 185.5 72.5 258.0 2015 183.5 74.5 258.0 Source: Department's records 1 Authorized Position History i 250.0 ' 200.0 150.0 - - - ' - - ■Water Fund 100.0 Sewer Fund 50.0 t 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 t 69 t t ' REVENUE E CAPACITY ' These schedules contain information to help the reader assess ' the Department's significant revenue sources. 70 City of San Bernardino Municipal Water Department Water Rates:Minimum Monthly Charge Last Ten Fiscal Years Effective ($/month) Date 112" 5/8" 3/4" 1" 1-112" 2" 3" 4" 6" 8" 10" 12" 7/1/2006 * 8.32 11.10 13.27 23.81 33.26 56.56 96.02 172.87 259.28 324.10 388.98 7/1/2007 * 8.59 11.47 13.71 24.6 34.36 58.43 99.19 178.57 267.84 334.8 401.82 7/1/2008 * 8.88 11.84 14.16 25.41 35.49 60.35 102.46 184.47 276.67 345.84 415.08 7/1/2009 * 8.88 11.84 14.16 25.41 35.49 60.35 102.46 184.47 276.67 345.84 415.08 2/1/2010 10.55 10.55 13.00 17.90 30.15 44.85 79.15 128.15 250.70 397.75 569.30 1/1/2011 12.20 12.20 15.15 21.00 35.75 53.45 94.75 153.70 301.15 478.10 684.55 11112012 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 7/1/2013 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 7/1/2014 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 7/1/2015 12.90 12.90 16.15 22.60 38.80 58.20 103.50 168.20 330.00 524.15 750.65 *Information not reported All water usage,except municipal,will be billed at the rate of$0.94 and$0.97 per 100 cubic feet effective July 1,2007 and July 1,2008,respectively, with no minimum allowance. Source: Department's Records 1 71 City of San Bernardino Municipal Water Department ' Water Connections and Revenues by User Type Last Ten Fiscal Years , 2015 2014 2013 2012 User Type Connections Revenue Connections Revenue Connections Revenue Connections Revenue , Single family 35,695 $ 16,775,834 35,012 $ 18,583,708 34,913 $ 18,741,773 34,716 $ 18,094,052 Multiple family 2,869 4,349,601 2,824 4,591,290 2,820 4,704,384 2,801 4,510,962 Commercial 3,097 6,332,882 3,085 6,566,344 3,082 6,800,310 3,117 5,790,427 Landscape 1,130 3,079,610 1,140 3,616,135 1,104 3,591,678 1,151 3,321,846 Other 1,791 679,606 1,703 913,810 1,663 599,210 1,626 1,597,791 Total all users 44,582 $ 31,217,533 43,764 $ 34,271,287 43,582 $ 34,437,355 43,411 $ 33,315,078 2011 2010 2009 2008 Connections Revenue Connections Revenue Connections Revenue Connections Revenue Single family 34,695 $ 15,665,580 34,542 $ 13,899,599 34,418 $ 13,943,441 34,316 $ 13,419,093 Multiple family 2,806 4,025,079 2,799 3,442,271 2,801 3,547,811 2,834 3,419,696 Commercial 3,117 4,678,003 3,127 3,826,613 3,126 3,867,923 4,003 5,765,993 Landscape 1,149 2,745,990 1,158 2,367,514 1,173 2,454,044 - - Other 1,571 701,296 1,553 900,840 1,545 1,094,364 1,820 1,518,693 Total all users 43,338 $ 27,815,948 43,179 $ 24,436,837 43,063 $ 24,907,583 42,973 $ 24,123,475 2007 2006 Connections Revenue Connections Revenue Single family 34,842 $ 13,794,954 34,900 $ 10,139,954 Multiple family 2,913 3,536,202 2,922 3,266,928 Commercial 3,954 5,807,406 3,847 4,746,866 Landscape - - Other 1,755 1,795,878 1,572 717,589 Total all users 43,464 $ 24,934,440 43,241 $ 18,871,337 Source: Department's records 72 City of San Bernardino Municipal Water Department Water Rates: Elevation Charges $ per HCF Last Ten Fiscal Years Effective Date Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 07/01/06 0.00 0.06 0.14 0.20 0.30 0.47 07/01/07 0.00 0.06 0.14 0.21 0.12 0.12 07/01/08 0.00 0.06 0.15 0.21 0.13 0.13 07/01/09 0.00 0.06 0.15 0.21 0.13 0.13 07/01/10 0.09 0.17 0.15 0.12 0.21 0.21 07/01/11 0.10 0.18 0.16 0.13 0.22 0.22 ' 07/01/12 0.11 0.19 0.17 0.14 0.23 0.23 07/01/13 0.11 0.19 0.17 0.14 0.23 0.23 07/01/14 0.11 0.19 0.17 0.14 0.23 0.23 07/01/15 0.11 0.19 0.17 0.14 0.23 0.23 t , 1 73 City of San Bernardino Municipal Water Department Top Ten Water Customers Fiscal Year 2015 Customer-2015 City of San Bernardino $ 1,260,575 San Bernardino Unified School District 719,163 Cott Beverages 311,477 County of San Bernardino 284,351 Housing Authority 232,150 California State University 225,113 St. Bernardino Hospital/CHW 130,572 Successor to Former San Bernardino EDA 124,327 W. Dean Weidner 123,825 Pama Management Company 123,007 Top Ten Customers Total $ 3,534,560 Total Water Revenue $ 32,220,868 Top Ten Customers Percent of Total 10.97% Note: Data not available for the fiscal period ended nine years prior. 74 City of San Bernardino Municipal Water Department Sewage Treatment Rate History Fiscal Years 1995 through 2015 7/1/1995 1996-2004 7/1/2004 1/1/2009 1/1/2010 2/1/2011 1/1/2012 10/1/2015 Residential(monthly per EDU) 13.25 no change 14.50 15.25 16.00 17.00 18.50 20.65 Commercial: Commodity Charge(per HCF): Multi-family, mobile home parks 0.75 no change 0.83 0.90 0.95 1.10 1.25 1.36 Retail, commercial, light industrial 1.10 no change 1.70 1.80 1.90 2.00 2.10 2.28 Auto repair,car wash 1.20 no change 1.17 1.25 1.30 1.30 1.30 1.41 Offices,motels(w/o restaurants) 0.95 no change 1.32 1.40 1.50 1.50 1.50 1.63 Restaurants, hotels 1.70 no change 1.84 1.90 2.00 2.35 2.70 2.93 Laundromats 0.90 no change 1.15 1.25 1.30 1.40 1.50 1.63 Hospitals,convalescent homes 0.80 no change 0.84 0.90 0.95 1.15 1.35 1.46 Schools,churches,nursery schools 0.50 no change 0.62 0.65 0.70 0.90 1.10 1.19 Industrial: Discharge Flow(per million gallons) 826.67 no change 816.10 860.00 900.00 900.00 900.00 977.00 Biological Oxygen demand(per 1,000 Ibs) * no change 264.91 280.00 292.00 330.00 360.00 391.00 Suspended Solids(per 1,000 Ibs) * no change 577.41 610.00 640.00 640.00 640.00 694.00 *data not reported Source: Department's records 75 City of San Bernardino Municipal Water Department ' Sewage Treatment Connections and Revenue by User Type Last Ten Fiscal Years ' 2015 2014 2013 2012 User Type Connections Revenue Connections Revenue Connections Revenue Connections Revenue San Bernardino Residential 32,874 $8,056,827 32,537 $8,111,634 32,563 $7,922,936 32,571 $7,650,14 San Bernardino Nonresidential 5,344 7,240,533 5,410 8,033,072 5,447 8,332,214 5,412 7,877,416 East Valley Residential 18,480 4,093,625 18,404 4,149,836 18,925 4,188,434 18,813 4,019,12 East Valley Nonresidential 1,051 2,571,813 1,115 2,725,075 1,126 2,434,118 1,128 2,492,37 Loma Linda Residential 5,040 997,242 4,656 991,387 4,663 1,063,124 4,443 933,64 Loma Linda Nonresidential 588 1,294,612 592 1,330,102 585 1,549,643 589 1,258,747 Total all users 63,377 $24,254,651 62,714 $25,341,106 63,309 $25,490,469 62,956 $24,231,45 2011 2010 2009 2008 Connections Revenue Connections Revenue Connections Revenue Connections Revenue San Bernardino Residential 32,447 $7,053,263 32,307 $6,670,859 32,050 $6,288,804 32,058 $6,197,816 San Bernardino Nonresidential 5,416 7,131,988 5,196 6,699,228 5,434 6,625,012 5,491 6,570;12 East Valley Residential 18,700 3,645,721 18,157 3,348,238 17,986 3,285,452 17,956 3,221,45 East Valley Nonresidential 1,138 2,070,233 1,132 2,185,072 1,146 2,139,543 1,159 2,213,94 Loma Linda Residential 4,648 870,734 4,688 839,451 4,692 781,159 4,407 767,075 Loma Linda Nonresidential 584 1,048,402 588 1,016,088 559 984,117 576 1,011,79 Total all users 62,933 $21,820,341 62,068 $20,758,936 61,867 $20,104,087 61,647 $19,982,212 2007 2006 , Connections Revenue Connections Revenue San Bernardino Residential 32,367 $6,238,570 31,523 $6,021,449 San Bernardino Nonresidential 5,528 6,654,231 5,401 6,448,117 , East Valley Residential 18,085 3,231,282 18,005 3,184,223 East Valley Nonresidential 1,160 2,252,260 1,160 2,171,095 Loma Linda Residential 4,567 728,111 4,493 728,713 Loma Linda Nonresidential 584 950,227 584 910,116 ' Total all users 62,291 $20,054,681 61,166 $19,463,713 Source: Department's records 76 City of San Bernardino Municipal Water Department Top Ten Sewage Treatment Customers Fiscal Year 2015 OR Customer-2015 Farmdale Creamery, Inc. $ 420,205 Cott Beverage 329,155 County of San Bernardino 323,520 Patton State Hospital 202,653 Housing Authority 172,232 San Bernardino City Unified School District 172,145 St. Bernardine Hospital/CHW 107,797 Co-West Commodities 97,898 Pama Management Company 94,078 Cal State University San Bernardino 83,312 Top Ten Customers Total $ 2,002,995 Total Sewer Revenue $ 24,263,000 Top Ten Customers Percent of Total 8.26% Source: Department's records Note: Data not available for the fiscal period ended nine years prior. 77