HomeMy WebLinkAbout22-Water Department CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION ORIGINAL
From: Stacey R.Aldstadt, General Manager Subject: Receive and File—Annual Audit of the Water
Department's Water and Sewer Utilities for the fiscal year
Dept: Water ending June 30, 2007
Date: 1/24/2008 M&CC Meeting Date: 2/19/2008
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 Annual Audit of the Water Department's Water and Sewer Utilities for
the fiscal year ending June 30, 2007.
Signature
Contact person: Stacey R.Aldstadt, General Manager Phone: 384-5091
Supporting data attached: Yes Ward:
FUNDING REQUIREMENTS: Amount: N/A
Source-.(Acct. No.) Water Department
(Acct. Description)
Finance:
Council Notes:
a i off'
75-0262 Agenda Item No..
i
CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
STAFF REPORT
Subject:
Annual Audit of the Water Department's Water and Sewer Utilities for the fiscal year ending
June 30, 2007.
Background:
The firm of Mayer Hoffman McCann PC, has completed the Annual Audit of the Water
Department's Water and Sewer Utilities for the fiscal year ending June 30, 2007. This report
was presented to and accepted by the Board of Water Commissioners at their meeting of
January 15, 2008.
Financial Impact:
None.
Recommendation:
That the Mayor and Common council receive and file the completed Annual Audit of the Water
Department's Water and Sewer Utilities for the fiscal year ending June 30, 2007.
MUNICIPAL WATER DEPARTMENT OF THE
CITY OF SAN BERNARDINO, CALIFORNIA
Financial Statements
Year ended June 30, 2007
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Financial Statements
Year ended June 30, 2007
TABLE OF CONTENTS
Page
FINANCIAL SECTION
Independent Auditors' Report 1
Management's Discussion and Analysis 5
Basic Financial Statements:
Statement of Net Assets 12
Statement of Revenues, Expenses, and Changes in Net Assets 15
Statement of Cash Flows 16
Notes to Basic Financial Statements 18
SUPPLEMENTARY INFORMATION
Other Information:
Board of Water Commissioners and Organization 47
Schedule of Insurance Coverage 48
Schedule of Water System Demographics 50
Schedule of Water Production 51
Schedule of Water Rates 53
Schedule of Sundry Water Statistical Data 54
Schedule of Service Area and Customers 56
Schedule of Sewer Rates and Statistics 57
Schedule— 1992 Certificates of Participation, San Bernardino
Public Safety Authority 60
Schedule— 1998 Refunding Sewer Revenue Certificates of Participation,
San Bernardino Public Safety Authority 61
Bond Schedule— General Obligation Waterworks Bonds, Series C 62
Report on Compliance and Other Matters and on Internal Control over
Financial Reporting Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards 63
An Independent CPA firm
't ..!'"..+.ck:'9.,
2301 Dupont Drive, Suite 200
I Irvine,California 92612
¢ 949-474-2020 ph
949-263-5520 fx
www.mhm-pc.com
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying financial statements of each major fund of the Municipal
Water Department of the City of San Bernardino ("Department"), as of and for the year ended
June 30, 2007, which collectively comprise the Department's basic financial statements, as
listed in the table of contents. These financial statements are the responsibility of the
management of the Department. Our responsibility is to express opinions on these financial
statements based on our audit. The prior year summarized partial comparative information has
been derived from the financial statements of the Department for the year ended June 30, 2006
and, in our report dated October 25, 2006, we expressed an unqualified opinion on those
financial statements.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements present only the financial activities of the
Department and are not intended to present fairly, in all material respects, the financial position
of the City of San Bernardino, California, and the results of its operations and cash flows of its
proprietary fund types, in conformity with accounting principles generally accepted in the United
States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of of the Department, as of June 30, 2007, and the respective changes in
financial position and cash flow of the Department for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
1
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page Two
The information identified in the accompanying table of contents as management's discussion
and analysis is not a required part of the basic financial statements, but is supplementary
information required by accounting principles generally accepted in the United States of
America. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion
on it.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Department's basic financial statements. The schedules listed in the
table of contents as supplementary information are presented for purposes of additional
analysis and are not a required part of the basic financial statements. These schedules have
not been subjected to the auditing procedures applied in the audit of the basic financial
statements and, accordingly, we express no opinion on them.
In accordance with Government Auditing Standards, we have also issued a report dated
January 4, 2008 on our consideration of the Department's internal control over financial
reporting and our tests of its compliance with certain provisions of laws, regulations, contracts,
grant agreements, and other matters. The purpose of that report is to describe the scope of
our testing of internal control over financial reporting and compliance and the results of that
testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards and should be considered in assessing the results of our audit.
Irvine, California
January 4, 2008
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
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4
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
Year ended June 30, 2007
As management of the San Bernardino Municipal Water Department ("Department"), a
department of the City of San Bernardino, California ("City"), we offer the readers of these
financial statements a narrative overview and analysis of the financial statements for the fiscal
year ended June 30, 2007. We encourage the readers to consider the information presented
here in conjunction with the accompanying financial statements. All amounts, unless otherwise
indicated, are expressed in thousands of dollars.
Overview of the Financial Statements:
This discussion and analysis is intended to serve as an introduction to the Department's
financial statements. Because the utility is a business-type activity of the City, an enterprise
fund is used to account for the Department and its operations. These financial statements
include only activities for the Water fund ("water fund") and Sewer fund ("sewer fund").
Information on Citywide financial results is available in the City's Comprehensive Annual
Financial Report as of June 30, 2007.
The Department's financial statements are comprised of two components: 1) financial
statements and 2) notes to financial statements. Included as part of the financial statements
are the Balance Sheets, Statement of Revenues, Expenses and Changes in Net Assets and
Statement of Cash Flows.
The Balance Sheets present the assets and liabilities with the difference between the two
reported as net assets. Over time, increases or decreases in net assets may serve as a useful
indicator of whether the financial condition of the Department is improving or deteriorating.
The Statement of Revenues, Expenses and Changes in Net Assets present information
showing how the Department's net assets have changed during the most recent fiscal year.
Results of operations are recorded using the accrual basis of accounting, whereby transactions
are reported as underlying events occur, regardless of the timing of the cash flows. Thus,
revenues and expenses are reported in these statements for some items that will result in cash
flows in future fiscal periods, such as accounts receivable and accounts payable.
The Statements of Cash Flows present the flows of cash and cash equivalents during the last
two fiscal years, including certain restricted amounts.
The Notes to the Financial Statements provide additional information that is essential to the full
understanding of the data provide in the financial statements.
5
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Financial Highlights:
Water fund:
The net assets of the water fund increased $15,582 during the fiscal year ended June 30, 2007.
A net profit of$3,651 combined with an increase in contributed capital of$11,931 account for
the increase in net assets. Net profit increased $3,472 when compared to the prior fiscal year.
Operating revenues increased $6,472 as a result of implementation of the first of a three-year
rate increase in August 2006 and a 15% increase in water sales during the current fiscal year.
Operating expenses increased $3,236 due to increases in administration, customer service,
plant operations, distribution, engineering and overhead.
Net non-operating revenue increased $301 due to increases in interest income offset by losses
on the disposition of salvage assets.
Sewer fund:
The net assets of the sewer fund increased $554 during the fiscal year ended June 30, 2007. A
net loss of$2,420 combined with an increase in contributed capital of$2,974 account for the
increase in net assets. Net loss increased $191 when compared to the prior fiscal year. The
sewer fund incurred a non-recurring one-time expense in the amount of$1,200 for the Agua
Manza road. Excluding that extraordinary item, the amount of the next loss would have been
reduced by $1,009 from last year.
Operating revenues increased $639 on slightly higher usage during the current fiscal year.
Operating expenses increased $1,523 largely due to increases in plant administration,
operations and maintenance costs.
Net non-operating expenses were reduced by $693 largely due to $1,244 in additional interest
income and $472 less loss on the disposal of assets offset by the $1,200 non-recurring one-
time expense for the Agua Manza road.
6
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Financial Analysis:
Assets, liabilities and net assets:
Water Sewer
Description 2007 2006 Variance 2007 2006 Variance
Current and other assets 91,461 91,573 (112) 41,564 41,007 557
Net capital assets 130,861 115,269 15,592 105,396 109,126 (3,730)
Total assets 222,322 206,842 15,480 146,960 150,133 (3,173)
Long-term liabilities 75,269 76,040 (771) 39,154 43,036 (3,882)
Current liabilities 8,750 8,087 663 7,741 7,587 154
Total liabilities 84,019 84,127 (108) 46,895 50,623 (3,728)
Invested in capital assets,
net of related debt 122,081 106,036 16,045 66,116 66,080 36
Restricted 11,294 8,720 2,574 15,896 16,138 (242)
Unrestricted 4,928 7,959 (3,037) 17,963 17,292 671
Total net assets 138,303 122,715 15,588 100,065 99,510 555
As noted earlier net assets may serve over time as a useful indicator of the Department's
financial position. At June 30, 2007, the water and sewer utilities had assets that exceeded
liabilities by$138,303 and $100,065, respectively.
A majority of the Department's net assets represent investment in capital assets; such as
production, transmission and distribution facilities. The assets represent 88% and 66% of the
net assets for the water and sewer utilities, respectively.
A portion of the Department's net asset represents resources that are subject to external
restrictions on usage. These restrictions are for items such as debt repayment or other legally
restricted purposes. The assets represent 8% and 16% of the net assets for the water and
sewer utilities, respectively.
The final portion of the Department's net assets represents resources that may be used to meet
the ongoing obligations to creditors and customers. These unrestricted assets amount to 6%
and 18% of the net assets for the water and sewer utilities.
7
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Revenues, expense and net equity:
Water Sewer
Description 2007 2006 Variance 2007 2006 Variance
Operating revenues 28,232 21,760 6,472 22,002 20,363 1,639
Operating expenses (28,069) (24,833) (3,236) (22,041) (20,518) (1,523)
Operating Income 163 (3,073) 3,236 (39) (155) 116
Investment income 1,181 401 780 1,906 662 1,244
Interest expense (313) (366) 53 (2,021) (2,164) 143
Miscellaneous non-operating
income(expense) 2,620 3,152 (532) (2,266) (572) (1,694)
Net profit 3,651 114 3,537 (2,420) (2,229) (191)
Contributed capital 11,931 13,766 (1,835) 2,975 4,664 (1,689)
Increase in equity 15,582 13,880 1,702 555 2,435 (1,880)
Beginning assets, July 1 122,721 108,841 13,880 99,510 97,075 2,435
Ending assets, June 30 138,303 122,721 15,582 100,065 99,510 555
Total water utility sales for fiscal year 2007 were $28,232. Most of this increase was due to a
water rate increase implemented in August 2006. Actual water sales increased 15% adding to
the increase. Sewer sales of$22,002 were up almost 8% based on higher usage.
Operating expensed increased for both utilities9.9%.
Investment income was substantially increased for both utilities. This is based largely on the
annual GASB 31 adjustment to current market valuations.
Interest expense was slightly lower for both utilities as principal on older debt continues to be
paid off.
Non-operating income decreased in Water primarily due to $656 less from the disposal of
capital assets from the prior year. That was partially offset by an increase in non-capital grant
funding. Sewer's decrease was primarily a result of the one-time extraordinary expense of$1.2
million related to Agua Manza road and the City of Colton. Additionally, there was less loss in
the disposal of capital assets verses the prior year.
Net profit for water improved dramatically due to an increase in water rates, restrictions on
budgeted operating expenditures and a slight increase in volume. Sewer net profit was
approximately the same, despite supporting the extraordinary expense.
8
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Capital assets:
Water Sewer
Description 2007 2006 Variance 2007 2006 Variance
Land and easements 2,945 2,945 -0- 12,741 12,471 -0-
Wells and pumping plant 48,220 47,194 1,026 3,192 3,192 -0-
Distribution 73,377 65,938 7,439 -0- -0- -0-
Plant and facilities 1,930 1,627 303 151,901 150,874 1,027
Other capital 12,261 11,821 440 6,451 6,190 261
C W I P 41,651 34,368 7,283 5,340 5,048 292
Total capital assets 180,384 163,893 16,491 179,355 177,775 1,580
Accumulated depreciation (49,523) (48,624) (899) (73,959) (68,649) (5,310)
Net capital assets 130,861 115,269 15,592 105,396 109,126 (3,730)
The Department is involved in an aggressive expansion effort in capital improvements in the
developing "Verdemont" area. In addition, the replacement of century old infrastructure
continues. The sewer utility capital expenditures were moderate. The expected increase due
to the expansion at RIX has been delayed, however is expected to occur in the next 18 months.
Long-term debt and debt service coverage:
Water Sewer
Description 2007 2006 2007 2006
Net Profit 3,650 114 (2,420) (2,229)
Depreciation 4,065 3,482 51338 5,331
Amortization 28 37 44 4$
Interest Expense 1,181 366 2,021 2164
Other fees -0- -0- 2,974 4664
Gain or(loss)on asset (37) (694) 2 475
Cash available 8,887 3,305 7,959 10,451
Senior debt
CIEDB 777 777 -0- -0-
COPS -0- -0- 3,285 3,249
Senior debt service 777 777 3,285 3,249
Senior debt coverage 11.4 x 4.3 x 2.4 x 3.2 x
Subordinate debt 79 79 2,494 2,494
Aggregate P&I 856 856 5,779 5,743
Aggregate coverage 10.4x 3.9 x 1.4 x 1.8 x
9
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
As of June 30, 2007, the water utility had $10,446 in long-term obligations; including $8,716 in
notes payable; $1,495 in compensated balances; $170 in leases payable and $65 in bonds
payable. Of that amount, $1,534 is due during fiscal 2008.
Subsequent to the end of the fiscal year, on August 1, 2007, the water utility issued a second
note payable to CIEDB in the amount of$10 million. That loan will fund capital improvements in
the 1720 pressure zone, the Palm and Magnolia booster stations and a transmission main
connecting for the Verdemont expansion.
As of June 30, 2007, the sewer utility had $43,464 in long-term obligations; including $25,846 in
certificates of participation (net unamortized discounts of$199); $17,012 in notes payable, $606
in compensated absences. Of that among $4,311 is due during fiscal 2008.
Additional details regarding debt may be found by reviewing Note 5 of the Notes to Basic
Financial statements provided in this document.
Requests for information:
This financial report is designed to provide a general overview of the Department's financial
condition. Questions concerning any information provided in this report or requests for
additional financial information should be addressed to the Finance Director, City of San
Bernardino Municipal Water Department, P.O. box 710, San Bernardino, CA 92402.
10
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11
BASIC FINANCIAL STATEMENTS
11
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Net Assets
June 30,2007
(With comparative totals for 2006)
Water Sewer Interfund Totals
Utility Utility Eliminations 2007 2006
Assets
Current assets:
Cash and investments(note 2) 5,112,337 16,626,905 21,739,242 23,256,980
Accounts receivable,net 4,248,299 2,574,210 6,822,509 6,324,087
Due from other entities 650,991 368,822 1,019,813 1,797,017
Interfund receivable 144,327 - (144;327) - -
Related parties receivable(note 8) 355,126 612,899 968,025 674,240 32612798
Inventory 1,637,686 - 1,637,686 1,709,910 -33917690
Prepaid expenses 14,523 1,070,662 1,085,185 1,168,987
Total current assets 12,163,289 21,253,498 (144,327) 33,272,460 34,931,221
Noncurrent assets:
Restricted assets:
Cash and investments(note 2):
Restricted for debt service 22,870 3,578,642 3,601,512 3,570,921
Restricted for capital-related fees 11,294,440 15,985,893 27,280,333 24,859,169
Restricted for consumer deposits 2,393,628 - 2,393,628 2,128,718
Restricted for consent decree(note 12) 2,109,594 2,109,594 1,279,867
Guaranteed investment contract(note 12) 16,717,733 - 16,717,733 16,482,039
Interest receivable 865,695 80,765 946,460 298,949
Prepaid insurance-consent decree(note 12) 44,173,868 - 44,173,868 46,477,019
Note proceeds held by state 934,000 934,000 934,000
Total restricted assets 78,511,828 19,645,300 98,157,128 96,030,682
Notes receivable 785,250 - - 785,250 785,250
Capital assets(note 3):
Land and easements 2,944,972 12,470;740 15,415,712 15,415,712
Construction in progress 41,651,088 5,339,508 46,990,596 39,416,027
Water rights,wells and pumping plants 48,220,266 3,192,218 51,412,484 50,386,639
Distribution systems 73,376,986 - 73,376,986 65,937,908
Building,plants and store yards 1,929,705 151,900,811 153,830,516 152,501,308
Tools and equipment 2,623,794 3,155,109 5,778,903 5,238,910
Fieet and rolling stock 3,462,846 1,204,374 4,667,220 4,572,905
Office leasehold improvements 1,919,987 - 1,919,987 1,919,987
Office,computer,engineering
equipment 3,097,961 1,171,328 4,269,289 4,236,683
Radio and interoffice communication
equipment 283,802 99,138 382,940 382.940
Telemetry systems and equipment 639,670 628,699 1,268,369 1,231,464
Miscellaneous 233,534 193,015 426,549 426,549
Less accumulated depreciation and
amortization (49,523.290) (73,958,939) X123,482,229) _(117,272,343)
Total capital assets(net of
accumulated depreciation
and amortization) 130,861,321 105,396,001 236,257,322 224,394,689
Other assets:
Debt issue costs,net - 261,344 261,344 301,725
Deferred call premium 403.698 403,698 445,823
Total other assets 665,042 665,042 747,548
Total noncurrent assets 210,158,399 125,706,343 335,864342 321,958,169
Total assets 222,321,688 146,959,841 (144,327) 369,137,202 356,889,390
(Continued)
12
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Net Assets
(Continued)
Water Sewer Interfund Totals
Utility Utility Eliminations 2007 2006
Liabilities and net assets
Liabilities:
Current liabilities:
Accounts payable 3,524,219 2,078,805 - 5,603,024 4,880,067
Interfund payable - 144,327 (144,327) - -
Related parties payable (note 8) 675,355 180,992 - 856,347 691,894
Accrued expenses 1,298 38,850 - 40,148 13,564
Accrued compensation 805,141 326,433 - 1,131,574 1,280,763
Claims payable(note 10) 411,449 25,640 - 437,089 359,251
Consumer deposits 1,677,234 570 - 1,677,804 1,917,890
Current portion of compensated
absences (note 5) 993,075 407,053 - 1,400,128 1,376,609
Current portion of leases payable(note 5) 73,843 - - 73,843 71,805
Current portion of notes payable(note 5) 457,056 1,917,200 - 2,374,256 2,294,001
Current portion of certificates of
participation (note 5) - 1,986,720 - 1,986,720 1,885,753
Current portion of bonds payable(note 5) 10,000 - - 10,000 10,000
Accrued interest payable 121,292 634,723 - 756,015 806,932
Total current liabilities 8,749,962 7,741,313 (144,327} 16,346,948 15,588,529
Noncurrent liabilities:
Consumer deposits 2,454,703 - - 2,454,703 2,219,862
Compensated absences(note 5) 502,135 199,071 - 701,206 596,909
Deferred revenue-consent decree(note 12) 63,901,948 - - 63,901,948 64,442,890
Leases payable(note 5) 96,626 - - 96,626 170,033
Notes payable(note 5) 8,258,542 15,095,221 - 23,353,763 25,727,735
Certificates of participation (note 5) - 23,859,730 - 23,859,730 25,846,920
Bonds payable(note 5) 55,000 - - 55,000 65,000
Total noncurrent liabilities 75,268,954 39,154,022 - 114,422,976 119,069,349
Total liabilities 84,018,916 46,895,335 (144,327) 130,769,924 134,657,878
Net assets (note 13):
Invested in capital assets, net of related
debt 122,080,723 66,115,772 - 188,196,495 172,115,812
Restricted for:
Capital-related fees 11,294,440 15,985,893 - 27,280,333 24,859,169
Unrestricted 4,927,609 17,962,841 - 22,890,450 25,256,531
Total net assets $ 138,302,772 $ 100,064,506 - 238,367,278 222,231,512
See accompanying notes to basic financial statements.
13
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14
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Revenues, Expenses, and Changes in Net Assets
Year ended June 30, 2007
(With comparative totals for the year ended June 30, 2006)
Water Sewer Interfund Totals
Utility Utility Eliminations 2007 2006
Operating revenues:
Charges for services $ 26,244,574 20,083,001 (37,578) 46,289,997 39,169,974
Other operating revenues 1,987,792 919,483 (1,282,273) 1,625,002 1,993,387
Total operating revenues 28,232,366 21,002,484 (1,319,851) 47,914,999 41,163,361
Operating expenses:
Administration and customer service 6,757,263 - - 6,757,263 5,968,830
Engineering, operations, and distribution
administration 851,721 1,639,517 (1,216,524) 1,274,714 1,489,748
Plant operations 6,887,003 9,755,331 (24,129) 16,618,205 14,719,038
Maintenance 1,994,341 3,088,137 (45,622) 5,036,856 4,493,649
Environmental control - 633,141 - 633,141 532,086
Distribution 3,645,736 - (215) 3,645,521 3,479,031
Engineering 2,334,538 45,794 - 2,380,332 1,873,653
General, administration, and overhead 1,533,762 1,541,193 (33,361) 3,041,594 3,021,322
Depreciation and amortization (note 3) 4,065,028 5,338,372 - 9,403,400 8,814,163
Total operating expenses 28,069,392 22,041,485 (1,319,851} 48,791,026 44,391,520
Operating income(loss) 162,974 (1,039,001) - (876,027) (3,228,159)
Non-operating revenues(expenses):
Investment income 1,180,789 1,906,369 - 3,087,158 1,063,829
Rental income 82,944 29,101 - 112,045 118,942
Noncapital grant funds 2,300,151 - 2,300,151 1,983,509
Gain(loss)on asset disposition 37,377 (2,037) - 35,340 218,843
Interest expense and fiscal charges (313,450) (2,021,326) - (2,334,776) (2,529,786)
Colton road improvements (1,200,000) (1,200,000)
Amortization of issuance costs (27,692) (43,838) - (71,530) (82,676)
Other 227,509 (48,934) - 178,575 340,259
Total non-operating revenues (expenses) 3,487,628 (1,380,665) - 2,106,963 1,112,920
Net profit(loss) 3,650,602 (2,419,666) - 1,230,936 (27115,239)
Capital contributions:
Capital grants 38,723 - - 38,723 4,378,687
Acquisition fees 3,564,083 - - 3,564,083 2,205,524
Capacity fees 2;421,081 2,814,738 - 5,235,819 11,680,278
Contributed capital assets 5,907,230 - 5,907,230 -
Other capital restricted fees - 158,975 - 158,975 165,657
Total capital contributions 11,931,117 2,973,713 - 14,904,830 18,430,146
Net assets:
Balance at beginning of year 122.721,053 99,510,459 - 222,231,512 205,916,605
Balance at end of year $ 138,302,772 100,064,506 - 238,367,278 222,231,512
See accompanying notes to basic financial statements.
15
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Cash Flows
Year Ended June 30,2007
(With comparative totals for 2006)
Totals
Water Sewer 2007 2006
Cash flows from operating activities:
Cash received from customers $ 28,238,484 20,741,277 48,979,761 45,099,203
Rental income 82,944 29,101 112,045 118,942
Nonoperating miscellaneous revenue(expenses) 264,886 (50,968) 213,918 3,812,857
Settlement 900,000 - 900,000 -
Cash paid to employees for services (7,999,404) (11,431,818) (19,431,222) (18,244,189)
Cash paid to suppliers of goods and services (12,112,439) (5,634,001) (17,746,440) _(21,810,930)
Net cash provided by operating activities 9,374,471 3,653,591 13,028,062 8,975,883
Cash flows from noncapital financing activities:
Purchase of insurance policy to fund future capital projects - - - 1,983,509
Construction of road to rix facility - (1,200,000) (1,200,000) -
Net cash provided by noncapital financing activities - (1,200,000) (1,200,000} 1,983,509
Cash flows from capital and related financing activities:
Capital fees received 5,985,164 2,973,713 8,958,877 14,051,459
Grant proceeds received 38,723 - 38,723 4,378,687
Cash paid to acquire fixed assets (13,828,657) (1,288,680) (15,117,337) (24,738,963)
Principal paid on capital-related debt (523,644) (3,761,442) (4,285,086) (5,369,602)
Interest paid on capital-related debt (582,772) (2,003,864) (2,586,636) (2,540,012)
Net cash provided by(used for)capital and related
financing activities (8,911,186) (4,080,273} (12,991,459) (14,218,431}
Cash flows from investing activities:
Purchase of investments - - - (16,482,039)
Interest received 1,180,790 1,906,369 3,087,159 1,038,449
Net cash provided by investing activities 1,180,790 1,906,369 3,087,159 (15,443,590)
Net increase in cash 1,644,075 279,687 1,923,762 (18,702,629)
Cash and cash equivalents at beginning of year 19,288,794 32,333,111 51,621,905 70,324,534
Cash and cash equivalents at end of year $ 20,932,869 32,612,798 53,545,667 51,621,905
16
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Cash Flows
(Continued)
Totals Totals
Water Sewer 2007 2006
Reconciliation of cash and cash equivalents to amounts
reported on the balance sheet:
Reported on the balance sheet:
Cash and investments $ 5,112,337 16,626,905 21,739,242 23,256,980
Restricted assets 78,511,828 19,645,300 98,157,128 96,030,682
Less restricted assets not meeting the definition of
cash equivalents:
Investment agreements - (3,578,642) (3,578,642) (3,473,750)
Government investment contract (16,717,733) - (16,717,733) (16,482,039)
Interest receivable (865,695) (80,765) (946,460) (298,949)
Prepaid insurance-consent decree (44,173,868) - (44,173,868) (46,477,019)
Note proceeds held by state (934,000) - (934,000) (934,000)
Cash and cash equivalents at end of year $ 20,932,869 32,612,798 53,545,667 51,621,905
Reconciliation of operating income to net cash
provided by(used for)operating activities:
Operating income $ 162,974 (1,039,001) (876,027) (3,228,159)
Depreciation and amortization 4,065,028 5,338,372 9,403,400 8,814,163
Nonoperating miscellaneous revenue(expenses) 227,509 (48,931) 178,578 340,259
GIC interest earned 856,960 - 856,960 -
Rental income 82,944 29,101 112,045 118,942
Settlement 900,000 - 900,000 -
Gain(loss)on asset disposition 37,377 (2,037) 35,340 218,843
Adjustments:
(Increase)decrease in accounts receivable (413,025) (85,397) (498,422) 5,679,167
(Increase)decrease in due from other entities 831,132 (53,928) 777,204 2,155,636
(Increase)decrease in interfund receivable (58,192) - (58,192) (56,333)
(Increase)decrease in related parties receivable (113,711) (180,074) (293,785) 42,486
(Increase)decrease in inventory 72,224 - 72,224 (221,864)
(Increase)decrease in prepaid expenses 18,261 65,541 83,802 86,955
(Increase)decrease in note proceeds held by state - - - 3,439,005
(Increase)decrease in notes receivable - - - (185,250)
(Increase)decrease in other assets 78,472 (313,297) (234,825) (1,218,919)
Increase(decrease)in accounts payable 753,954 (155,530) 598,424 (1,770,351)
Increase(decrease)in interfund payable - 58,192 58,192 56,333
Increase(decrease)in related parties payable 137,001 27,452 164,453 67,506
Increase(decrease)in accrued expenses (1,648) 28,232 26,584 (10,615)
Increase(decrease)in accrued compensation (30,197) 8,824 (21,373) (275,429)
Increase(decrease)in claims payable 101,766 (23,928) 77,838 (146,452)
Increase(decrease)in consumer deposits (5,245) - (5,245) (4,930,040)
(Increase)decrease in prepaid insurance-consent decree 2,303,152 - 2,303,152 -
Increase(decrease)in deferred revenue (632,265) - (632,265} -
Net cash provided by operating activities $ 9,374,471 3,653,591 13,028,062 8,975,883
Noncash Investing,Capital and Financiang Activities
Developers contributed$5,907,230 in capital assets to the system for the year ended June 30,2007.
See accompanying notes to basic financial statements.
17
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
Year ended June 30, 2007
(1) Summary of Significant Accounting Policies
Reporting Entity
The Municipal Water Department of the City of San Bernardino, California ("the
Department") is governed under the Charter of the City of San Bernardino. A Board of
Water Commissioners who is appointed by the Mayor of the City of San Bernardino has
certain limited powers with respect to the Department. The Department has no separate
organizing document and is a part of the legal entity of the City of San Bernardino. The
Department of the City of San Bernardino operates two enterprise funds: the Water
Utility Enterprise Fund (Water Utility) and the Sewer Utility Enterprise Fund (Sewer
Utility). The Water Utility also provides administrative services and contracted services
to the Sewer Utility. The accounting policies of the Department conform to generally
accepted accounting principles (GAAP) as applicable to governments.
The preparation of these financial statements requires management to make estimates
and assumptions. Those estimates and assumptions affect the reported amounts of
assets, liabilities, revenues, and expenses, as well as the disclosure of contingent
assets and liabilities. Actual results could differ from those estimates. Management
also determines the accounting principles to be used in the preparation of the financial
statements. A description of the significant accounting policies employed in the
preparation of these financial statements follows:
Fund Accounting
The accounts of the Department are organized and operated on the basis of funds. A
fund is an independent fiscal and accounting entity with a self-balancing set of accounts.
Fund accounting segregates funds according to their intended purpose and uses them
to aid management in demonstrating compliance with finance-related legal and
contractual provisions. The Department's financial statements include only enterprise
funds, which are a proprietary fund type. Enterprise funds are used to account for those
operations that are financed and operated in a manner similar to private business or
where the Board of Water Commissioners has decided that the determination of
revenues earned, costs incurred and/or net income is necessary for management
accountability.
Basis of Accounting
Proprietary funds are accounted for on the flow of economic resources measurement
focus and use the accrual basis of accounting. Under this method, revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred.
The Department applies all applicable GASB pronouncements in accounting and
reporting for its proprietary operations and applicable FASBs that occurred prior to
November 30, 1989.
18
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
{1) Summary of Significant Accounting Policies (Continued)
Cash and Investments
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 because
they are not transferable and they 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 or sale of
investments.
Cash for the Department is pooled with the City of San Bernardino for investment
purposes in order to maximize interest earnings. Such earnings are credited to the
various funds within the City of San Bernardino based upon average monthly cash
balances. The investment policies and the associated risk factors as they relate to the
Department are included in the City's Comprehensive Annual Financial Report.
For the purpose of the statement of cash flows, cash and cash equivalents include all
highly liquid investments (including restricted assets) with maturity of three months or
less when purchased.
Receivables
Trade receivables are shown net of an allowance for uncollectible accounts based on
management's estimate.
Interfund Receivables and Payables
Transactions between funds that are representative of lending/borrowing arrangements
outstanding at the end of the fiscal year are referred to as either "interfund
receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from
other funds" (i.e., the non-current portion of interfund loans). All interfund transactions
are eliminated for financial reporting purposes.
Inventories
Inventories are valued at the lower of cost, using the average-cost method, or market.
19
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1} Summary of Significant Accounting Policies (Continued)
Restricted Assets
Various resources of the Department are limited as to their use by law or by certificates
of participation and bond covenants and are classified on the balance sheet as
restricted assets. Proceeds of the certificates of participation and bonds are restricted
for the construction of water and sewer system improvements and for repayments.
Assessments collected from property owners are restricted for the payment of bond
principal and interest. Also, fees imposed on new real estate development are restricted
by law for the construction of capital improvements that benefit the development
projects.
Issuance Costs and Discount
Issuance costs, discounts, and deferred funding charges for certificates of participation
and bonds payable are being amortized using the effective interest rate method over the
term of the related certificate or bond or the straight-line method which approximates the
effective interest method.
Capital Assets
Property, plant, equipment and water rights are recorded at cost. The Department's
policy is to capitalize all property having a value of$5,000 or more and a life expectancy
of 3 years or more. Major outlays for capital assets and improvements are capitalized
as projects are constructed. Material interest incurred during the construction phase is
reflected in the capitalized value of the asset constructed, net of interest earned on the
invested proceeds over the same period, if any. Overhead costs are capitalized at the
rate of 28.9% for labor/benefits, 10% for materials/supplies, 2% for significant contracts
and are reflected in the capitalized value of the asset constructed. Depreciation has
been provided for using the straight-line method over the estimated useful lives of the
related assets. Useful lives for depreciation purposes are as follows:
Wells, pumping plants, reservoirs, and distribution system 8 to 50 years
Interceptor lines 50 years
Disposal plant 35 to 50 years
Leasehold improvements 5 to 25 years
Shops, offices, stores, and yards 10 to 20 years
Tools and equipment 4 to 20 years
Office equipment 5 to 20 years
Communication equipment 8 to 10 years
Computer equipment 3 to 5 years
Automotive equipment 3 to 15 years
20
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Capital Assets (Continued)
Equipment leased under capital leases is recorded at cost, and amortization has been
provided for using the straight-line method over the estimated useful life. Amortization is
included in depreciation expense.
Compensated Absences
Employees gain a vested right to accumulated unpaid vacation based on years of
service but cannot accumulate more than two years of accrued vacation. Once each
fiscal year, employees with at least three weeks of accrued vacation have the option of
receiving payment at their regular rate of pay for up to two weeks of regular paid
vacation. Employees'vacation benefits are recognized as a liability of the Department.
Sick leave is accumulated without limit for each employee at the rate of 3.7 hours per
pay period. Leave with pay is provided when employees are absent for health reasons.
Upon termination employees are entitled to 25 percent of accumulated sick leave with
five years of service and a minimum of 480 hours of accumulated sick leave. Upon
retirement or death, employees are entitled to 50 percent of accumulated sick leave up
to a maximum of 1,152 hours. Accrued sick leave benefits are recognized as a liability
of the Department.
Classification of Revenues and Expenses
Proprietary funds distinguish operating revenues and expenses from non-operating
items. Operating revenues and expenses generally result from providing services and
producing and delivering goods in connection with a proprietary fund's principal ongoing
operations. The principal operating revenues of the Department's enterprise funds are
charges to customers for services. The Department recognizes the collection of fees to
connect new customers to the system as operating revenues. Operating expenses for
the enterprise funds include the cost of services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition
are reported as non-operating revenues and expenses.
Capital contributions consist of contributed capital assets and special charges that are
legally restricted for capital expenditures by state law or by the Board of Water
Commissioners action that established those charges.
Interfund Eliminations
The interfund eliminations column represents entries made to eliminate interfund income
and expenditure transactions between the water and sewer funds for the purposes of
consolidated financial statements.
21
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Comparative Data
Prior year data has been included where practical for comparison purposes only. The
prior year data does not represent a complete presentation in accordance with
accounting principles in the United States of America.
Certain minor reclassifications of prior year data have been made in order to enhance
their comparability with current year figures.
(2) Cash and Investments
Cash and investments as of June 30, 2007 are classified in the accompanying financial
statements as follows:
Statement of net assets:
Cash and investments $21,739,242
Cash and investments for debt service 3,601,512
Cash and investments for capital-related fees 27,280,333
Cash and investments for consumer deposits 2,393,628
Cash and investments for consent decree 2,109,594
Guaranteed investment contract 16,717,733
Total cash and investments $73 842.042
Cash and investments as of June 30, 2007 consist of the following:
Cash on hand $ 5,700
Deposits with financial institutions 3,319,872
Investments 70.516,470
Total cash and investments $73.842.042
22
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Investments Authorized by the California Government Code and the Entity's Investment
Policy
The table below identifies the investment types that are authorized for the Department
by the California Government Code (or the Department's investment policy, where more
restrictive). The table also identifies certain provisions of the California Government
Code (or the Department's investment policy, where more restrictive) that address
interest rate risk, credit risk, and concentration of credit risk. This table does not
address investments of debt proceeds held by bond trustee that are governed by the
provisions of debt agreements of the Department, rather than the general provisions of
the California Government Code or the Department's investment policy.
Authorized by Maximum Maximum
Investment Types Investment _ Maximum Percentage Investment
Authorized by State Law Policy Maturity* of Portfolio* In One Issuer*
Local Agency Bonds No 5 years None None
U.S. Treasury Obligations Yes 5 years None None
U.S. Agency Securities Yes 5 years None None
Banker's Acceptances Yes 180 days 40% 30%
Commercial Paper Yes 270 days 25% 10%
Negotiable Certificates of Deposit Yes 5 years 30% None
Repurchase Agreements No 1 year None None
Reverse Repurchase Agreements No 92 days 20% of base value None
Medium-Term Notes Yes 5 years 30% None
Mutual Funds No N/A 20% 10%
Money Market Mutual Funds Yes N/A 20% 10%
Mortgage Pass-Through Securities Yes 5 years 20% None
County Pooled Investment Funds No N/A None None
Local Agency Investment Fund Yes N/A None None
JPA Pools (other investment pools) No N/A None None
Guaranteed Investment Contract Yes N/A None None
* Based on state law requirements or investment policy requirements, whichever is more
restrictive.
The Board of Water Commissioners has also authorized the investment of Consent
Decree (see note 12) funds in the state Local Agency Investment Fund (LAIF) and in
guaranteed investment contracts (GICs)with maturities in excess of five years.
23
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Investments Authorized by Debt Agreements
Investment 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 Department's investment policy. The table below identifies the investment types
that are authorized for investments held by bond trustee. The table also identifies certain
provisions of these debt agreements that address interest rate risk, credit risk, and
concentration of credit risk.
Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity Allowed In One Issuer
U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Banker's Acceptances 180 days None None
Commercial Paper 270 days None None
Money Market Mutual Funds N/A None None
Repurchase Agreements 270 days None None
Investment Contracts 30 years None None
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the
fair value of an investment. Generally, the longer the maturity of an investment, the
greater the sensitivity of its fair value to changes in market interest rates. One of the
ways that the Department manages 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 is maturing or coming close to maturity evenly
over time as necessary to provide the cash flow and liquidity needed for operations.
24
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Disclosures Relating to Interest Rate Risk (Continued)
Information about the sensitivity of the fair values of the Department's investments
(including investments held by bond trustee) to market interest rate fluctuations is
provided by the following table that shows the distribution of the Department's
investments by maturity:
Remaining Maturing (in Months)
12 Months 13 to 24 25 to 60 More Than
Investment Type Total Or Less Months Months 60 Months
Equity in City
investment pool(*) $51,587,823 51,587,823 - - -
State investment pool 2,109,594 2,109,594 - - -
Guaranteed
investment contract 16,717,733 - - - 16,717,733
Held by bond trustee:
Federal agency
securities 101,320 101,320 - - -
Total $70,516.470 53,798.737 - - 16.717 733
(*)—The pool typically includes a composition of short term and long term investments.
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation
to the holder of the investment. This is measured by the assignment of a rating by a
nationally recognized statistical rating organization. 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 Rating as of Year End
Legal Not
Investment Type Total Rating AAA AA Rated
Equity in City
investment pool $51,587,823 N/A - - 51,587,823
State investment pool 2,109,594 N/A - - 2,109,594
Guaranteed
investment contract 16,717,733 N/A - - 16,717,733
Held by bond trustee:
Federal agency
securities 101,320 AAA 101,320 - -
Total $70,516,470 101 3 0 - 70.415.150
25
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Concentration of Credit Risk
The investment policy of the Department contains no limitations on the amount that can
be invested in any one issuer beyond that stipulated by the California Government
Code. Investments in any one issuer(other than U.S. Treasury securities, mutual funds,
and investment pools) that represent 5% or more of total Department investments are
as follows:
Investment Reported
Issuer Type Amount
AIG Match Funding Corporation Guaranteed Investment Contract $16,717,733
Custodial Credit Risk
Custodial credit risk for deposits (including bank investment contracts) 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 (e.g., broker-dealer) 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 and the
Department's investment policy do not contain legal or policy requirements that would
limit the exposure to custodial credit risk for deposits or investments, other than the
following provision for deposits: The California Government Code requires that a
financial institution secure deposits made by state or local governmental units by
pledging securities in an undivided collateral pool held by a depository regulated under
state law(unless so waived by the governmental unit).
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 dotes having a value. of 150% of the secured public deposits.
For investments 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.
26
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
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.
27
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(3) Capital Assets
Capital asset activity for the year ended June 30, 2007 is as follows:
Balance at Balance at
July 1, 2006 Additions Deletions June 30,2007
Capital projects,not being depreciated:
Land and easements $ 15,415,712 - - 15,415,712
Construction in progress 39,416,027 15,644,857 (8,070,288) 46.990,596
Total capital assets,not being depreciated 54,831,739 15,644,857 (8,070,288) 62,406,308
Capital assets,being depreciated:
Water rights,wells and pumping plants 50,386,639 1,025,845 - 51,412,484
Distribution systems 65,937,908 10,468,037 (3,028,959) 73,376,986
Building,plants and store yards 152,501,308 1,338,321 (9,113) 153,830,516
Tools and equipment 5,238,910 663,221 (123,228) 5,778,903
Fleet and rolling Stock 4,572,905 216,151 (121,836) 4,667,220
Office leasehold improvements 1,919,987 - 1,919,987
Office,computer,engineering equipment 4,236,683 32,606 4,269,289
Radio and interoffice communication equip 382,940 - - 382,940
Telemetry system and equipment 1,231,464 36,905 - 1,268,369
Miscellaneous 426,549 426.549
Total capital assets,being depreciated 286,835,293 13 781,086 (3,283,136) 297,333.243
Less accumulated depreciation for:
Water rights,wells and pumping plants (20,420,474) (1,703,821) - (22,124,295)
Distribution systems (23,455,344) (1,497,656) 2,965,961 (21,987,039)
Building,plants and store yards (63,888,210) (4,782,878) 6,408 (68,664,680)
Tools and equipment (3,397,412) (282,243) 109,881 (3,569,774)
Autos (2,491,472) (366,307) 110,831 (2,746,948)
Office leasehold improvements (82,913) (125,580) - (208,493)
Office,computer and engineering equipment (2,723,970) (414,550) 433 (3,138,087)
Radio and interoffice computer equipment (269,127) (14,519) (283,646)
Telemetry system and equipment (302,481) (203,5241 (506,005)
Miscellaneous (240,940) (12,322) (253,262)
Total accumulated depreciation (117,272,343) (9,403,400) 3,193,514 (123,482,229)
Total capital assets, being depreciated,net 169,562,950 4,377,686 (89,622) 173,851,014
Net property, plant and equipment $224" g 68A 2D,022,543 (8.-7-59 91Q) 2W4 5L2
28
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(3) Capital Assets (Continued)
Significant project commitments as of June 30, 2007 are as follows:
Cumulative
Amount Expenditures Unexpended
Project Description Authorized June 30, 2007 Commitments
Sewer Fund:
RIX Facility Expansion $7,222,743 852,436 6,370,307
(4) Operating Leases
The Department leases office space from the City of San Bernardino under a non-
cancellable operating lease that terminates on March 31, 2012. The following is a
schedule of minimum lease payments as of June 30, 2007:
Office Space
For the year ending June 30 Water Sewer Total
2008 156,347 21,479 177,826
2009 156,347 21,479 177,826
2010 156,347 21,479 177,826
2011 156,347 21,479 177,826
2012 117,365 16.004 133,369
7 2 753 101 920 844 673
Rent expense was $177,826 for the periods ending June 30, 2007 and 2006.
29
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt
The following is a summary of changes in long-term debt obligations for the year ended
June 30, 2007:
Amounts Amounts Due
Balance at Balance at Due Within Beyond
July 1,2006 Additions Reductions June 30,2007 One Year One Year
Compensated absences $1,973,518 127,816 - 2,101,334 1,400,128 701,206
Lease payable 241,838 - (71,369) 170,469 73,843 96,626
Notes payable 28,021,736 - (2,293,717) 25,728,019 2,374,256 23,353,763
Certificates of
Participation 27,955,000 - (1,910,000) 26,045,000 2,010,000 24,035,000
Less deferred amounts:
Unamortized discounts (222,327) 23,777 (198,550) (23,280) (175,270)
Bonds payable 75,000 (10,000) 65,000 10,000 55,000
$5$,144 J_65 12 I_,$_1_6 (4,261,309) 53,911,272
Lease/Purchase Payable
California First Leasing Corporation
Maturity date: 2009
Interest rate: 3.68%
Repayment provisions: Quarterly principal and interest
Payments of$19,772.00
Balance $170,469
Less current portion (73,843)
Long-term portion 96 626
On December 28, 2004, the Department entered into a master equipment
lease/purchase agreement with California First Leasing Corporation for furniture and
equipment for the 5th Floor Remodeling Project, in the amount of $363,000. The
furniture and equipment are pledged as collateral for the term of lease/purchase
agreement.
30
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt(Continued)
Notes Payable
California Infrastructure and Economic Development Bank
Maturity date: 2022
Interest rate: 3.34%
Repayment provisions: Annual principal and interest
payments of$738,147
Balance $8,715,598
San Bernardino Valley Municipal Water District
Original amount: $5,084,729
Maturity date: 2013
Interest rate: 7.25%
Repayment provisions: Annual principal and interest
payments of$456,250
Balance 2,158,050
State Water Resources Control Board (SWRCB)
Original amount: $4,015,216
Maturity date: 2011
Interest rate: 3.3%
Repayment provisions: Annual principal and interest
payments of$279,293
Balance 1,030,755
State Water Resources Control Board (SWRCB)
Original amount: $25,978,599
Maturity date: 2016
Interest rate: 2.8%
Repayment provisions: Annual principal and interest
payments of$1,758,901
Balance 13,823,616
Total notes payable 25,728,019
Less current portion (2,374,256)
Long-term portion $23.353.763
31
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt(Continued)
On March 18, 2004, the California Infrastructure and Economic Development Bank
(CIEDB) issued its Infrastructure State Revolving Fund Revenue Bonds to provide
funding for a portion of the costs of Phases I and 11 of the Water System Reliability
Schedule of Improvements including transmission mains, booster stations, and a
reservoir. Installment Sale Agreement No. 02-027 between the Department and the
CIEDB was pledged as security for the bonds. The Department sets aside water
revenues to make installment payments on the bonds as due.
The State Revolving Fund loans between the State Water Resources Control Board and
the Santa Ana Watershed Authority provided funding for the construction of the San
Bernardino/Colton Rapid Infiltration Extraction (RIX) Project. The loan agreements were
amended in April. 2001 to transfer the loan obligations to the successors in interest,
being the City of San Bernardino Board of Water Commissioners, and the City of
Colton. The loans require the Department to establish a Wastewater Capital Reserve
Sinking Fund (WCRF) for expansion, major repair or replacement of wastewater
treatment works at one-half of one percent of the total loan amount over a period of ten
years. The Department has decided to use the revenues of the Sewer Utility Fund
towards repayment of the loans.
Certificates of Participation
Annual
Interest Issue Maturity Original Principal
Rates Date Date Amount Installments Balance
1998 Refinancing Sewer 3.95% 1998 2017 $36,230,000 $1,505,000
to to
5.00% $3,220,000 $26,045,000
Less current portion
payable from restricted assets (2,010,000)
deferred unamortized discount 23.280
(1,986,720)
Long-term portion
payable from restricted assets 24,035,000
deferred unamortized discount (175.270)
Long-term portion, net of unamortized
discount $23.3.5 L3Q
It has been determined that the amount of $102,310 was due under Internal Revenue
Code Section 148(f)(4)(B) for the temporary investments of the 1998 Refinancing Sewer
Revenue Certificates of Participation and for arbitrage rebate.
32
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt (.Continued)
In 1998, the Department refinanced the acquisition and construction of certain capital
improvements which were originally financed by the 1992 Sewer Certificates of
Participation, dated February 1, 1992. The refinancing was accomplished by issue of
the 1998 Refunding Sewer Revenue Certificates of Participation in the amount of
$36,230,000. The proceeds of the 1998 Certificates were invested and used to pay
interest on the 1998 issue until February 1, 2001. The 1992 Certificates were called on
February 1, 2001 at a prepayment premium of two percent. The funds from the 1998
issue were used to pay off the 1992 Certificates. The Department will now begin paying
the installment payments on the 1998 Certificates from the net revenues on the Sewer
System.
The Department has covenanted that it will budget amounts sufficient to make all
installment payments due.
The required reserve for the 1998 Refunding Sewer Revenue Certificates of Participation
is $2,010,000. As of June 30, 2007, the reserve was fully funded.
Costs related to the issuance of the 1998 Certificates have been paid out of the proceeds
of the issue.
Bonds Payable
Annual
Interest Issue Maturity Original Principal
Rates Date Date Amount Installments Balance
Waterworks Bonds, 7.75% 1988 2013 $150,000 $ 5,000
Series C to
$15,000 $65,000
Less current portion payable from
restricted assets 1� 0,000)
Long-term portion $K,04Q
The Department has covenanted to set aside Water revenues to make installment
payments on the Bonds as due. A financial guaranty insurance policy has been issued,
and accordingly, no cash reserve balance is required to be established.
33
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt (Continued)
The annual requirements to amortize long-term debt subsequent to June 30, 2007 are
as follows:
June 30 Principal Interest Total
Lease payable 2008 73,843 5,246 79,089
2009 77,034 2,055 79,089
2010 19,592 180 19,772
170,469 7,481 177,950
Notes payable 2008 2,374,256 894,482 3,268,738
2009 2,457,461 809,906 3,267,367
2010 2,544,396 721,554 3,265,950
2011 2,634,928 629,558 3,264,485
2012 2,449,946 533,733 2,983,679
2013-2017 9,874,047 1,435,923 11,309,969
2018-2021 3,393,285 378,659 3,771,945
25,728,019 5,404,115 31,132,135
Certificates of participation 2008 2,010,000 1,275,055 3,285,055
2009 2,125,000 1,174,555 3,299,555
2010 2,240,000 1,078,930 3,318,930
2011 2,365,000 973,650 3,338,650
2012 2,510,000 855,400 3,365,400
2013-2016 14,795,000 2,297,988 17,092,988
26,045,000 7,655,578 33,700,578
Bonds payable 2008 10,000 5,038 15,038
2009 10,000 4,263 14,263
2010 10,000 3,488 13,488
2011 10,000 2,713 12,713
2012 10,000 1,938 11,938
2013-2016 15,000 1,163 16,163
65,000 18,603 83,600
$52,008,487 13,186,214 04,094,701
34
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term_Debt(Continued)
Compensated Absences
The Department's policies relating to compensated absences are described in note 1.
This liability, amounting to $2,101,334 and $1,973,518 at June 30, 2007 and June 30,
2006, respectively, will be paid in future years from future resources from the water and
sewer funds.
(6) Defined Benefit Pension Plan
Qualified employees are covered under a multiple-employer contributory retirement plan
maintained by an agency of the State of California, California Public Employees'
retirement System (PERS).
Plan Description
The Department is a part of the City of San Bernardino. The City contributes to PERS,
an agent multiple-employer public employee retirement system defined benefit pension
plan administered by PERS. All employees who work 1,000 hours or more are eligible
to participate. The plan provides retirement and disability benefits, annual cast-of-living
adjustments, and death benefits to plan members and beneficiaries. Benefit provisions
are established by state statutes, as legislatively amended, within the Public Employees'
Retirement Law. PERS issues a separate comprehensive annual financial report that
includes financial statements and required supplementary information. Copies of the
PERS annual financial report may be obtained from the PERS Executive Office, 400 "P"
Street, Sacramento, California 95814. PERS also issues a separate report on the
actuarial valuation of the plan of the City of San Bernardino, which is available at the
Department. Additional information regarding the City's participation in PERS can be
found in the City's financial statements.
(7) Post-Retirement Health Care Benefits
In addition to the pension benefits described in note 6, the Department provides the
minimum monthly premium for post-retirement medical-health care benefits to each
retiree that meets the eligibility criteria for coverage under a department group health
insurance plan. The retirees may continue to participate in the health care plan provided
the retirees make the arrangements for premiums to be paid with the group plan
administrator. This benefit is dependent upon the continued approval of the insurance
carriers.
35
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(7) Post-Retirement Health Care Benefits (Continued)
For those retirees who retired on or after attaining age 55 with a minimum of 15 years of
service, the Department's contribution is paid directly to the group plan administrator for
a portion of the premium up to $591 per month. Premium amounts in excess of the
contribution are paid by the retirees. Currently, forty-four Water Utility retirees and four
Sewer Utility retirees are receiving the benefit. For those retirees who are not eligible to
receive the monthly contribution and currently enrolled in the Department health group
insurance plan, the Department pays to the group plan administrator the amount
equivalent to the then current minimum eligibility amount from the previous health plan
coverage with PERS. This amount is currently $80.80 per month effective April 1, 2007
and is anticipated to escalate annually. Currently, sixteen retirees are receiving this
benefit. During the year ended June 30, 2007, and June 30, 2006, expenses of
$270,956 and $184,913, respectively, were recognized for post-retirement health care
benefits and administrative costs for the Water and Sewer Utilities.
(8) Related Party Transactions
Following is a summary of transactions and balances with the City of San Bernardino
. and its various departments as of and for the years ended June 30, 2007 and 2006:
Receipts 2007 2006
City of San Bernardino
Revenue from water charges $ 206,809 45,301
Revenue from sewer charges 70,201 54,874
Revenue from geothermal charges 12,142 16,326
Billing and collection charges— refuse 197,570 192,699
Billing and collection charges—storm drain 5,469 5,168
Cost reimbursement 1,000 3,000
Reimbursement— sale of land 58,894 253,656
Interest income 1,995,670 1,634,912
Economic Development Agency
Revenue from geothermal charges 483 763
Total receipts from related parties $2.548.238 2.206.699
36
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(8) Related Party Transactions (Continued)
Payments 2007 2006
City of San Bernardino
10% water revenue $2,373,013 1,933,876
Sewer collection system maintenance 3,073,405 3,019,146
Worker's compensation-administration charges 172,961 136,238
Printing services 5,396 9,583
Postage 10,500 7,403
City Hall rent 177,826 177,826
Phone charges 130,774 126,929
Refuse disposal service 73,081 65,202
Civil service 156,000 113,000
Legal services/affirmative action 170,890 197,750
Rideshare coordination 0 5,000
Employee Assistance 0 9,400
Data processing services 510,499 433,873
Police & Fire Protection 500,000 500,000
Revenue transfer-land sale 3,090 60,000
Facilities Management-new construction 0 10,000
Fuel charges 40,859 26,594
Other services 5,722 964
Miscellaneous charges 233 984
Total payments to related parties $7.404.24. U$3320
Receivables
The receivables to the City of San Bernardino are classified within the Statement of Net
Assets as follows:
Related party receivable $ 968,025 674,240
Accounts receivable, net 51,601 33,890
Due from other entities 37,674 34,557
Total receivables from related parties $ 1.057 300 _ 742.687
Payables
The payables to the City of San Bernardino are classified within the Statement of Net
Assets as follows:
Related party payable $ 856,347 691,894
Accounts payable 1,231,869 888,770
Claims payable (note 10) 437,089 359,251
Total payables to related parties -$2 525,305 1.939.915
37
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(8) Related Party Transactions (Continued)
The Department collects and transmits to the City of San Bernardino ten percent of
collections on gross water revenue and one hundred percent of collections on sewer
collection system maintenance charges from Sewer Utility customers. These
remittances are included in the related party payments shown above.
(9) 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 separate three-member Board
consisting of one representative from each agency's governing body governs the
WEJPA. The Departments' investment in the joint venture is included in the property,
plant, and equipment of the Department. The financial statements of WEJPA are
available at West Valley Water District, 855 West Base Line, Rialto, California 92736.
The joint venture is not experiencing fiscal stress.
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 (1) public safety buildings and (2) improvements to the
wastewater treatment plant.
According to the original joint powers agreement, title to the PSA-constructed
wastewater treatment facility will automatically vest in the City with the residual cash
being transferred to the City after the bonds are repaid. A separate Board consisting of
three members, one appointed by the San Bernardino City Council and two members
appointed by the San Bernardino County Board of Supervisors, governs PSA. Effective
with the transfer of the Sewer Utility to the Department, all the assets and activities of
PSA related to the wastewater treatment plant were also transferred to the Department
pursuant to the enabling resolution of October 1973 and are included in the property,
plant, and equipment of the Sewer Utility. The financial statements of PSA are available
at the Clerk of the Board of Supervisors, County of San Bernardino, 385 N. Arrowhead
Avenue, 2"d Floor, San Bernardino, California 92402. The joint venture is not
experiencing fiscal stress.
38
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(9) Joint Venture (Continued)
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 reclamation systems, including the Regional
Rapid Infiltration and Extraction Facility (RIX). The Colton/San Bernardino Regional
Tertiary Treatment and Water Reclamation Authority is governed by a separate Board
consisting of four members, two of whom are appointed by the City of San Bernardino
through the Department's Board of Water Commissioners and two appointed by the City
Council of the City of Colton. Construction of the project was administered by the Santa
Ana Watershed Project Authority (SAWPA) and was substantially completed during
1996. Administration and operation of the project was turned over to the Colton/San
Bernardino Regional Tertiary Treatment and Water Reclamation Authority at that time.
Each of the cities, San Bernardino and Colton, has an undivided interest in the real
property and any related debt of the RIX project based on a split of 80 percent and 20
percent, respectively. The Departments' investment in the joint venture is included in
the property, plant, and equipment of the Department. The financial statements are
available at the Department. The joint venture is not experiencing fiscal stress.
(10) Construction and Other Significant Commitments
Commitments
Commitments in the form of signed contracts for costs to complete construction projects
or other improvements amounted to $6,370,307 and $7,397,958 at June 30, 2007 and
June 30, 2006, respectively.
Risk Management
The Department's risk management activities are recorded in both of the utility funds.
Significant losses are covered by commercial 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. For
insured events, there have been no significant reductions in insurance coverage.
Settlement amounts have not exceeded insurance coverage for the current year or the
three prior years.
39
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(10) Construction and Other Significant Commitments (Continued)
Workers' Compensation Claims Liabilities
The Department records an estimated liability for workers' compensation. Claims
liabilities are based on estimates of the ultimate cost of reported claims (including future
claim adjustment expenses) and an estimate for claims incurred but not reported based
on historical experience. Workers' compensation unpaid claims liabilities are not
discounted.
The following represents the changes in approximate aggregate liabilities for the
Department for the year ended June 30, 2007:
Total
Liability balance, July 1, 2006 $359,251
Claims and changes in estimates 101,766
Claim payments (23,928)
Claims payable, June 30, 2007 $437.089
The following represents the changes in approximate aggregate liabilities for the
Department for the year ended June 30, 2006:
Total
Liability balance, July 1, 2005 $505,703
Claims and changes in estimates 21,468
Claim payments (124,984)
Claims payable, June 30, 2006 $-359,251
(11) Contingencies
Federal and State Grants
Amounts received or receivable from grant agencies are subject to audit and adjustment
by grantor agencies, principally the federal and state governments. Any disallowed
claims, including amounts already collected, may constitute a liability of the Department.
The amount, if any, of expenditures which may be disallowed by the grantor cannot be
determined at this time although the Department expects such amounts, if any, to be
immaterial.
40
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree
In 1996, the City of San Bernardino ("City")filed a complaint against the United States of
America, Department of the Army ("Army") to recover damages, response costs and
other available remedies relating to contamination alleged to have originated at a World
War II Army installation known as Camp Ono. In March 2005, the United States District
Court, Central District, entered judgment, in the form of a consent decree (Consent
Decree), in the matter of City of San Bernardino v. United States of America. The
consent decree settles the City's and the State's claims arising from the groundwater
contamination allegedly caused by the Army. The Consent Decree contains a number
of provisions obligating the City (through the Municipal Water Department) to operate
and maintain the Newmark Groundwater Superfund site ("Site"). The Site consists of
two operable units, the Newmark Operable Unit and the Muscoy Operable Unit. The
Newmark Operable Unit was declared operational and functional in 1998.
The Consent Decree provided for a payment of $69 million from the Army to the City for
performance of the work outlined in the consent decree. Upon entry of the Consent
Decree, the City, through the Department, received title to all facilities constructed by
the United States Environmental Protection Agency (EPA) for the Site and agreed to
operate and maintain the groundwater extraction and treatment system for a period of
50 years. The $69 million dollar payment consisted of $59 million for operation and
maintenance and $10 million for the construction of certain capital facilities that would
be required in the future. The funds are subject to strict limitations, contained in the
Consent Decree, as to how the may be spent.
Pursuant to the Consent Decree, $10 million, including interest earned, has been set
aside to be used only for (i) funding construction of treatment and directly related
transmission systems that expanded the Department's capacity to deliver potable water,
and (ii) funding work performed by the Department to complete construction of the
Muscoy Operable Unit extraction system. These "capital facility" funds may not be used
for costs incurred to operate, maintain, repair or retrofit components of the Site
extraction or treatment systems constructed by EPA. In September 2007, the Muscoy
Operable Unit was declared operational and functional.
When settlement funds were received, the Department recorded the proceeds as
deferred revenue. Revenue associated with the consent decree is recognized at the
time that eligible expenses are incurred.
41
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree (Continued)
The Department invested approximately $50 million to purchase a blended insurance
policy from AIG Insurance. This policy provides both pollution legal liability coverage
and a finite risk policy blend that provides cost cap coverage for the first 30 years of the
Department's 50-year obligations. This policy pays the Department back for itemized
expenses and, when appropriate, for the capital expenses that will be incurred. The
payment made to purchase this insurance has been recorded as prepaid insurance on
the balance sheet of the Department's Water Fund. This asset is amortized over the
period of benefit as costs are incurred.
In March 2006, the Department invested the remaining settlement funds into a
Guaranteed Investment Contract (GIC) with AIG Match Funding Corporation (AIGMFC).
This investment is at an interest rate of 4.95% per annum and is calculated based on
the average balance of the amount outstanding of the investment. AIGMFC will pay out
to the Department years 31-50 of the Consent Decree obligations, based on the
calculated repayment of principal and interest schedule of the GIC. The repayments
begin quarterly from April 2035 through January 2056.
Additionally, the County of San Bernardino paid to the Department a sum of$1,000,000,
which the Department must use solely to perform obligations under the Consent Decree
42
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(13) Net Assets
The following is a detailed breakdown of net assets.
Water Sewer
Total capital assets (net of accumulated
depreciation and accumulated amortization) $130,861,321 105,396,001
Less related debt:
Notes payable (8,715,598) (17,012,421)
Water bonds payable (65,000) -
Certificates of participation - (25,846,450)
Add back:
Portion of debt offsetting debt service reserves - 3,578,642
Total invested in capital assets, net of related
debt 122,080,723 66,115,762
Restricted Net Assets - Capital related fees 11,294,440 15,985,893
Unrestricted Net Assets 4,927,609 17,962,841
Total Net Assets $138,302,772 100.064-50Q
Amounts restricted for debt service is calculated as follows:
Water Sewer
Cash and investments with fiscal agent restricted
for debt service $ - 3,578,642
Less portion of debt offsetting unexpended debt
proceeds held in the debt service amounts - (3,578,642)
43
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(14) Subsequent Events
August 1, 2007, the Department entered into an Installment Sales Agreement with the
CIEDB for$10,000,000.
January 1, 2008, Department employees will receive an increase in their PERS plan
from 2.0 to 2.7 at age 55.
The Department has completed construction of the Muscoy Operable Unit ("Muscoy")
extraction system and it has been declared operable.
44
SUPPLEMENTARY INFORMATION
45
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46
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Board of Water Commissioners and Organization
As of June 30, 2007
MAYOR OF THE CITY OF SAN BERNARDINO
Patrick J. Morris
BOARD OF WATER COMMISSIONERS
Name Office
B. Warren Cocke President
Toni Callicott Commissioner
Louis A. Fernandez Commissioner
Judith W. Battey Commissioner
Norine I. Miller Commissioner
ADMINISTRATION
Stacey R. Aldstadt
General Manager
Robin L. Ohama
Deputy General Manager
Matthew H. Litchfield, P.E.
Director, Water Utility
John A. Perry, P.E.
Director, Water Reclamation
Don Shackelford
Director, Finance
Valerie K. Housel
Director, Environmental
And Regulatory Compliance
ORGANIZATION
The City of San Bernardino Municipal Water Department was formed in 1904 under the Charter
of the City of San Bernardino. The Department is governed by the Board of Water
Commissioners who are appointed by the Mayor of the City of San Bernardino. The Charter
gives the Board of Water Commissioners semi-autonomous authority to govern the Department
independent of the City Council. 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, East Valley Water District, City of
Loma Linda, the former Norton Air Force Base and Patton State Hospital.
47
I
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Insurance Coverage
As of June 30, 2007
Insurance coverage for the Department at June 30, 2007 is summarized below:
Multiple insurance companies and policies; all-risk property coverage, including
Earthquake and flood—July 1, 2006, to July 1, 2007
Primary limit:
Commonwealth Insurance Company, Policy#US6416 $10,000,000
Excess limits:
Landmark American Insurance Co., Policy#NHD412827 2,500,000
Newmarket Underwriters Ins. Co., Policy#NU1181183 2,500,000
Landmark American Insurance Co., Policy#LHD4142828 1,000,000
Underwriter At Lloyds, Policy#06PYOM0176 5,250,000
Commonwealth Insurance Company, Policy#US64171 1,250,000
Underwriter At Lloyds, Policy#GEP7339 2,500,000
RSUI, Policy#NHD412829 100,000,000
Pacific Indemnity Company, Policy#78357989; boiler and machinery
Coverage—July 1, 2006 to July 1, 2007
Per occurrence limit 10,000,000
American Alternative Insurance Co., Policy#SDISSK9100525-2; general
Liability, including bodily injury and property damage, personal injury and
Advertising injury, professional liability and wrong acts—
June 30, 2006 to June 30, 2007
Bodily injury and property damage
Per occurrence 1,000,000
Aggregate 3,000,000
Damages to premises rented to you
Any one premises 1,000,000
Personal injury and advertising injury
Per person 1,000,000
Aggregate 3,000,000
Employee benefits liability
Per person 1,000,000
Aggregate 3,000,000
Professional liability
Per claim 1,000,000
Aggregate 3,000,000
Wrongful acts
Per claim 1,000,000
Aggregate 3,000,000
American Alternative Insurance Co., Policy#SDSA900485-2/00; business
Automobile coverage—June 30, 2006 to June 30, 2007
Owned automobile liability limit 1,000,000
Hired/non-owned automobile liability 1,000,000
Hired car physical damage 50,000
Uninsured motorist liability 1,000,000
Medical 5,000
48
rrr .w --
I
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Insurance Coverage (Continued)
As of June 30, 2007
Multiple insurance companies and policies; excess liability coverage—
June 30, 2006 to June 30, 2007
Primary limit:
American Alternative Ins, Co., Policy# SDISSX9200151-4 10,000,000
Excess limits:
St. Paul Surplus Lines Co., Policy#QY01225346 10,000,000
American International Specialty Lines, Policy#26738997; pollution
Liability—October 30, 2004 to October 30, 2009 (each incident/aggregate)
Third-Party Claims, On-site Bodily Injury and Property Damage 5,000,000
Third-Party Claims, Off-site Clean-Up Resulting from New Conditions 5,000,000
Third-Party Claims, Off-site Bodily Injury and Property Damage 5,000,000
Third-Party Claims, Resulting from Transported Cargo 5,000,000
National Union, Policy#9653120; employment practices liability—
October 30, 2006 to October 30, 2007 2,000,000
Hartford Fire Insurance Company, Policy#83BPEEG2769; crime
coverage's; —March 15, 2007 to March 15,2008
Employee theft (each incident) 500,000
Theft, disappearance and destruction 500,000
American International Specialty Lines, Policy#7783901; pollution
Legal liability clean-up cost cap—September 28, 2004 to March 23, 2035
Coverage A— Legal liability for pollution conditions 25,000,000
Coverage B— Consent decree required clean-up 150,000,000
The Department is self-insured through the City of San Bernardino for workers' compensation
liability and material damage to rolling stock.
49
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50
ate.... _
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO CALIFORNIA
Schedule of Water System Demographics
Water Production/Utilization (Cubic Feet)
2006-2007 2005-2006 2004-2005
Water utilization (shown in cubic feet)
Water sold to direct customers 1,979,377,300 1,891,121,000 1,783,045,900
Water sold to other agencies 424,271,042 208,657,743 56,760,218
Water sold to or used by City 90,022,904 75,753,797 70,903,097
2,493,671,246 2,175,532,540 1,910,709,215
Loss and other factors 240,610,084 153,875,410 182,631,975
Total water sold, used or lost 2,734,281,330 2,329,407,950 2,093,341,190
Loss and other factors percentage 8.800% 6.606% 8.724%
51
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
SCHEDULE OF WATER PRODUCTION
June 30,2007
2006-2007 2005-2006 2004-2005
Total Water Total Water Total Water
Per 1,000 Per 1,000 Per 1,000
Amount Cubic Feet Amount Cubic Feet Amount Cubic Feet
Summary of total water
production and purchased cost
Total production,purchases,and - 2,734,281 - 2,329,408 - 2,093,341
supplemental
Production and pumping expenses $ 6,617,137 - $ 5,408,474 - 4,919,498 -
Total expense before depreciation 6,617,137 $2.42006 5,408,474 $2.32182 4,919,498 $2.35007
Depreciation of plant facilities 3.016,156 1.10309 2,536,417 1.08887 2,324,233 1.11030
Totals $ 9,633,293 $ 152315 1 7,944,891 $ 3.41069 $ 7,243,731 $ 3.46037
Summary of costs per acre foot
Acre feet - 62,770.455 - 53,475.849 - 48,056.497
Cost per acre feet before
depreciation $105.42 - $101.14 - $102.37 -
Cost per acre feet including
depreciation of plant facilities $153.47 - $148.57 $150.73
*Includes direct pumping and production expenses,and operations administration expenses.
(Dept.3040-3041)
52
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
SCHEDULE OF WATER RATES
Rates effective July 1,2006,are summarized as follows:
Single and Multiple Family Dwelling Units, Commercial. Landscape and Industrial Users
Minimum Monthly Charge
Meter Effective Dates
Size July 1, 2006 July 1 2007
518" $8.32 $8.59
314" $11.10 $11.47
1" $13.27 $13.71
1-112" $23.81 $24.60
2" $33.26 $34.36
S' $56.56 $58.43
4" $96.02 $99.19
6" $172.87 $178.57
8" $259.28 $267.84
10" $324.10 $334.80
12" $388.98 $401.82
All water usage, except municipal,will be billed at the rate of$0.91 and$0.94 per 100 cubic feet effective July 1, 2006,
and July 1,2007, respectively with no minimum allowance
Elevation Zone Charge
Zone Charge per 100 cubic feet
1 $0.00 $0.00
2 $0.06 $0.06
3 $0.14 $0.14
4 $0.20 $0.21
5 $0.30 $0.12
6 $0.47 $0.12
This charge is base on the identified delivery costs associated with a specific elevation zone.
Assessment Districts
All water usage furnished for use by the City of San Bernardino for landscape assessment districts or funded
from other than the City's General Fund will be billed at the rate of$0.288 per 100 cubic feet.
Municipal Water Users
Water furnished for municipal use to the City of San Bernardino shall be exempt from all water service
charges as long as water usage does not exceed 110 percent of the fiscal year 1994/1995 water usage.
Water usage in excess of this amount is charged at$0.288 per 100 cubic foot.
Energy Surcharge
Effective July 5, 2001, all consumption, except municipal, shall be charged$0.05 per cubic foot to offset
the increased power costs to the entire service territory.
These rates were approved by the Board of Water Commissioners on June 20, 2006.
53
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Sundry Water Statistical Data
2006-2007 2005-2006
Production Percent Production Percent
Pumping Plants in Cubic Feet Production in Cubic Feet Production
Antil Plant 3,228,400 0.12% 94,600 0.00%
Baseline&California Well 13,730,300 0.52% 4,058,500 0.18%
Cajon Boulevard Plant 183,006,100 6.90% 156,173,000 7.00%
Cajon Pass&Vincent Wells 10,725,600 0.41% 1,568,900 0.07%
Devil Canyon Plant 148,230,130 5.60% 87,633,950 3.93%
EPA Wells- Newmark OU 656,297,800 24.78% 670,111,400 30.06%
EPA Wells-Muscoy OU 533,951,600 20.17% 577.040,000 25.89%
40th Street Well 1,757,700 0.07% 1,311,500 0.06%
Gilbert Street Well 62,571,700 2.36% 12,634,000 0.57%
IVDA Well#1 1,985,500 0.07% - 0.00%
Kenwood Wells 144,349,100 5.45% 159,946,600 7.18%
LeRoy Street Well 45,795,300 1.73% 23,716,800 1.06%
Lynwood Well 61,583,900 2.33% 34,866,600 1.56%
Lytle Creek Plant 17,428,200 0.66% - 0.00%
Mallory Well 35,684,900 1.35% 35,182.700 1.58%
Mill & "D" Streets Well 19,501,400 0.74% 18,456,300 0.83%
Newmark Plant 168,064,900 6.35% 122,521,500 5.50%
19th Street Plant 71,438,800 2.70% 69,559,800 3.12%
Olive&Garner Well 63,649,600 2.40% 41,192,200 1.85%
Perris Hill Plant 5,858,600 0.22% 6,814,300 0.31%
7th Street Well 7,003,400 0.26% 3,916,700 0.18%
Sierra Way& 16th Street Wells 44,616,500 1.69% 210,000 0.01%
10th &"J" Street Well 91,265,200 3.45% 67,220,600 3.02%
30th&Mountain View Wells 130,756,000 4.94% 66,308,800 2.97%
27th Street Well 26,624,700 1.01% 14,396,300 0.65%
Waterman Avenue Plant 98,441,900 3.72% 54,028,000 2.42%
Total Water Produced 2,647,547,230 100.00% 2,228,963,050 100,00%
Purchased water-
East Valley Water District 86,734,100 100,444,900
Total Water Production 2,734,281,330 100.00% 2,329,407,950 100.00%
54
2004-2005 2003-2004 2002-2003
Production Percent Production Percent Production Percent
in Cubic Feet Production in Cubic Feet Production in Cubic Feet Production
33,443,800 1.63% 82,571,200 3.79% 55,968,400 2.70%
12,249,100 0.60% 20,784,900 0.95% 16,895,500 0.82%
114,021,100 5.54% 98,009,400 4.50% 94,775,100 4.58%
26,840,000 1.30% 38,443,100 1.76% 72,855,700 3.52%
94,388,390 4.59% 123,324,880 5.66% 117,012,030 5.65%
576,392,400 28.02% 565,447,170 25.93% 502,864,300 24.28%
133,156,900 6.47% - 0.00% - 0.00%
1,505,100 0.07% 1,676,100 0.08% 1,569,000 0.08%
43,913,100 2.14% 83,912,300 3.85% 34,258,200 1.65%
153,162,100 7.45% 166,971,400 7.66% 62,409,200 3.01%
59,151,700 2.88% 60,969,500 2.80% 101,743,600 4.91%
38,705,300 1.88% 53,509,860 2.45% 95,388,500 4,61%
5,509,700 0.27% 31,152,100 1.43% 53,527,500 2.58%
35,523,100 1.73% 21,317,100 0.98% 10,662,600 0.51%
20,305,400 0.99% 14,140,800 0.65% 16,517,300 0.80%
148,870,200 7.24% 158,321,800 7.26% 174,258,800 8.42%
129,585,600 6.30% 132,848,000 6.09% 182,126,500 8.80%
96,972,900 4.71% 115,058,398 5.28% 47,612,000 2.30%
17,526,200 0.85% 17,280,200 0.79% 18,211,200 0.88%
5,186,600 0.25% 37,796,200 1.73% 4,544,200 0.22%
166,100 0.01% 205,100 M1% 422,900 0.02%
98,420,900 4.79% 129,074,500 5.92% 107,610,600 5.20%
116,906,300 5.68% 122,995,600 5.64% 187,466,000 9.05%
27,794,700 1.35% 31,616,500 1.45% 11,021,500 0.53%
67,056,200 3.26% 72,891,380 134% 101,031,700 4.88%
2,056,752,890 100.00% 2,180,317,488 100.00% 2,070,752,330 100.00%
36,588,300 73,492,900 55,962,500
2,093,341,190 100.00% 2,253,810,388 100.00% 2,126,714,830 100.00%
55
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
WATER UTILITY
Schedule of Service Area and Customers
Number of Active Connections by Classification of User
as of June 30, 2003 through June 30, 2007
User Type 2007 2006 2005 2004 2003
Single family residential 34,842 34,900 34,360 34,075 33,762
Multiple family residential 2,913 2,922 2,930 2,929 2,886
Commercial/institutional 3,954 3,847 3,812 3,761 3,752
Other 1,755 1,572 1,299 1,223 1,154
Total all users, active 43,464 43,241 42,401 41,988 41,554
Revenue by Class of User
Fiscal Year 2006-2007
Fiscal Year Percentage of
User Class Revenue Annual Revenue
Single family residential $ 13,794,954 55.32%
Multiple family residential 3,536,202 14.18%
Commercial/industrial 5,807,406 23.29%
Other and unmetered 1,795,878 7.20%
Total all users $ 24,934,440 100%
Largest users: The System had no customer accounting for more than three percent of the
revenues for the fiscal year 2006-2007
56
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Schedule of Sewer Rates and Statistics
Regional Facilities Collection
and Treatment System Total monthly
Classification Charge Charge City Charge
Rates effective as of July 1,2004
Residential 514.50 per month $3.45 per month 17.95/
month/unit
Commercial:
Multi-family,mobile home parks $0.83/HCF $0.33 1HCF $1.16/HCF
(4 or more units) +$2.00/month +$1.00/month +$3.00/mo
Retail,commercial,light industrial $1.70 1HCF $0.33/HCF $2.03/HCF
(non-office,bakeries,markets,theaters,dry cleaners) +$2.00 1month +$1.00/month +$3.00/mo
Auto repair,carwash $1.171HCF $0.33/HCF $1.50/HCF
+$2.00/month +$1.00/month +$3.00/mo
Offices,motels(without restaurants) $1.32/HCF $0.331HCF $1,651HCF
+$2.00/month +$1.00/month +$3.00/mo
Restaurants, hotels $1.84/HCF $0.33/HCF $2.17/HCF
(hotel/motels with restaurants) +$2.00 1month +$1.00 1month +$3.00/mo
Laundromats $1.15/HCF $0.33/HCF $1.48/HCF
+$2.00/month +$1.00/month +$3.00/mo
Hospitals,convalescent homes $0.841HCF $0.33 1HCF $1.17/HCF
+$2.00 1month +$1.00/month +$3.00 1mo
Schools,churches,nursery schools, $0.62/HCF $0.33/HCF $0.95/HCF
daycares +$2.00 1month +$1.00/month +$3.001mo
Industry $816.10 1MG OF $0.33/HCF
$264.91/1,000 LBS BOO +$1.001month
5577.4111,000 LBS SS
HCF=100 cubic feet of water usage
MG=Million gallons
BOD=Biological oxygen demand
SS=Suspended solids
The last rate change prior to July 1,2004 occurred in June 1995. (Continued)
57
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Schedule of Sewer Rates and Statistics(Continued)
June 30,2007 June 30,2006
Residential Nonresidential Total Residential Nonresidential Total
Number of connections
City of San Bernardino 32,367 5,528 37,895 31,523 5,401 36,924
East Valley Water District 18,085 1,160 19,245 18,005 1,160 19,165
City of Lama Linda 4,567 584 5,151 4,493 584 5,077
55,019 7,272 62,291 54,021 7,145 61,166
Annual billings
City of San Bernardino $6,238,570 $6,654,231 $12,892,801 $6,021,449 $6,448,117 $12,469,566
East Valley Water District 3,231,282 2,252,260 5,483,542 3,184,223 2,171.095 5,355,318
City of Loma Linda 728,111 950,227 1,678,338 728,713 910.116 1,638,829
$10,197,963 $9,856,718 $20,054,681 $9,934,385 $9,529,328 $19,463,713
58
June 30,2005 June 30,2004
Residential Nonresidential Total Residential Nonresidential Total
32,027 5,635 37,662 31,553 5,240 36,793
17,684 1,160 M844 17,265 1,128 18,393
4,370 569 4,939 4,061 566 4,627
54,081 7,364 61,445 52,879 6,934 59,813
$6,141,646 $6,671,493 $12,813,139 $5,526,450 $5,247,261 $10,773,711
3,224,702 1.946,936 5,171,638 2,970,140 1,694,656 4,664,796
691.920 840,248 1,532,168 617,813 726,191 1,344,004
$10,058,268 $9,458,677 $19,516,945 $9,114,403 $7,668,108 $16,782,511
59
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule - 1992 Certificates of Participation
San Bernardino Public Safety Authority
June 30, 2007
EARLY PAY OFF
During Fiscal Year 2001, the 1992 Certificates of Participation were retired by an early call and payoff.
The total principal amount of$34,805,000 was paid off February 1, 2001.
An early call premium of$674,000 was incurred due to this transaction. This amount will be amortized
annually in the amount of$42,125 over a sixteen year period.
The unamortized discount balance of$158,361 will continue to be amortized annually in the amount of
$16,520 with the final payment of$9,681 due February 1, 2017,
Funds used.for the Primary Hydraulic Reliability Project, remodel of the administration laboratory
building and design of 3A secondary treatment.
60
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule-1998 Refunding Sewer Revenue Certificates of Participation
San Bernardino Public Safety Authority
June 30, 2007
Principal
Principal Unamortized Payments Interest
Date Due Payments Discounts (Net) Interest Total Rate
08(01/07 - - - 637,528 637,528 5.00%
02/01/08 2,010,000 6,760 2,003,240 637,528 2,640,768 5.00%
08/01/08 - - - 587,278 587,278 4.50%
02/01/09 2;125,000 6,238 2,118,762 587,278 2,706,040 4.50%
08/01!09 - - - 539,465 539,465 4.70%
02/01/10 2,240,000 5,687 2,234,313 539,465 2,773,778 4.70%
08/01/10 - - - 486,825 486,825 5.00%
02/01/11 2,365,000 5,105 2,359,895 486,825 2,846,720 5.00%
08/01111 - - - 427,700 427,700 4.75%
02/01/12 2,510,000 4,492 2,505,508 427,700 2,933.208 4.75%
08/01/12 - - - 368,088 368,088 4.85%
02/01/13 2,650,000 3,840 2,646,160 368,088 3,014,248 4.85%
08101/13 - - - 303,825 303,825 4.75%
02/01/'14 2,805,000 3.152 2,801,848 303,825 3,105,673 4.75%
08/01/14 - - - 237,206 237,206 5.25%
02/01/15 2,965,000 2,424 2,962,576 237,206 3,199,782 5.25%
08/01/15 - - - 159,375 159,375 5.00%
02/01/16 3,155,000 1,655 3,153,345 159,375 3,312,720 5.00%
08/01/16 - - - 80,500 80,500 5.00%
02101/17 3,220,000 836 3,219,164 80,500 3,299,664 5.00%
$ 26,045,000 40,189 26,004,811 7,655,580 33,660,391
62
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Bond Schedule- General Obligation Waterworks Bonds, Series C
June 30, 2007
Principal Interest
Date Due Payments Interest Total Rate
09/01/07 - 2,519 2,519 7.75%
03/01/08 10,000 2,519 12,519 7.75%
09/01/08 - 2,131 2,131 7.75%
03/01/09 10,000 2,131 12,131 7.75%
09/D1/09 - 1,744 1,744 7.75%
03/01 110 10,000 1,744 11,744 7.75%
09/01/10 - 1,356 1,356 7.75%
03/01/11 10,000 1,356 11,356 7.75%
09/01/11 - 969 969 7.75%
03/01/12 10,000 969 10,969 7.75%
09,01112 - 580 580 7.75%
03/01/13 15,000 580 15,580 -7.75%
$ 65,000 18,598 83,598
Bonds related to water system improvements for South San Bernardino Water District,
which was acquired by the Department in 9991.
62
Mti.yeit Hoffman N cCS'.snioni P31
An Independent CPA Firm
2301 Dupont Drive, Suite 200
Irvine, California 92612
949 474-2020 ph
1 949-263-5520 fx
www.mhm-pc.com
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
REPORT ON COMPLIANCE AND OTHER MATTERS AND ON
INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the Municipal Water Department of the City of San
Bernardino ("Department"), as of and for the year ended June 30, 2007, which collectively
comprise the Department's basic financial statements and have issued our report thereon dated
January 4, 2008. 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.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Department's financial statements
are free of material misstatement, we performed tests of its compliance with certain provisions
of laws, regulations, contracts and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit and,
accordingly, we do not express such an opinion. The results of our tests disclosed no instances
of noncompliance or other matters that are required to be reported under Government Auditing
Standards,
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Department's internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of
expressing our opinions on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the Department's internal control over financial reporting.
Accordingly, we do not express an opinion on the effectiveness of the Department's internal
control over financial reporting.
A control deficiency exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent or detect misstatements on a timely basis. A significant deficiency is a control
63
Board of Water Commissioners
Municipal Water Department of the City of San Bernardino, California
Page Two
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the Department's internal control.
Our consideration of the internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily disclose all
deficiencies in internal control that might be significant deficiencies or material weaknesses.
We did not identify any deficiencies in internal control over financial reporting that we consider
to be material weaknesses, as defined above.
This report is intended solely for the information and use of the Board of Water Commissioners,
and manager-�ent of the :"z,-.partment and is not intended to be and should not be used by
anyone other;:'ran these ;:,"acified parties.
Irvine, California
January 4, 2008
64
I Mayer Haffirnan NN`kw-%C`a-nY-; ,, w
An Independent CPA Firm
$•, ormnad '43osJ#:l�mimom,- So "rlf,'Q'`°.:
2301 Dupont Drive, Suite 200
I Irvine,California 92612
949-474-2020 ph
949-263.5520 fx
www.mhm-pc.com
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying financial statements of each major fund of the Municipal
Water Department of the City of San Bernardino ("Department"), as of and for the year ended
June 30, 2007, which collectively comprise the Department's basic financial statements, as
listed in the table of contents. These financial statements are the responsibility of the
management of the Department. Our responsibility is to express opinions on these financial
statements based on our audit. The prior year summarized partial comparative information has
been derived from the financial statements of the Department for the year ended June 30, 2006
and, in our report dated October 25, 2006, we expressed an unqualified opinion on those
financial statements.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements present only the financial activities of the
Department and are not intended to present fairly, in all material respects, the financial position
of the City of San Bernardino, California, and the results of its operations and cash flows of its
proprietary fund types, in conformity with accounting principles generally accepted in the United
States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of of the Department, as of June 30, 2007, and the respective changes in
financial position and cash flow of the Department for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
log
1
wra, o�p�
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
Page Two
The information identified in the accompanying table of contents as management's discussion
and analysis is not a required part of the basic financial statements, but is supplementary
information required by accounting principles generally accepted in the United States of
America. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion
on it.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Department's basic financial statements. The schedules listed in the
table of contents as supplementary information are presented for purposes of additional
analysis and are not a required part of the basic financial statements. These schedules have
not been subjected to the auditing procedures applied in the audit of the basic financial
statements and, accordingly, we express no opinion on them.
In accordance with Government Auditing Standards, we have also issued a report dated
January 4, 2008 on our consideration of the Department's internal control over financial
reporting and our tests of its compliance with certain provisions of laws, regulations, contracts,
grant agreements, and other matters. The purpose of that report is to describe the scope of
our testing of internal control over financial reporting and compliance and the results of that
testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards and should be considered in assessing the results of our audit.
Irvine, California
January 4, 2008
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
3
(This page intentionally left blank.)
Jc
-.
4
I
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
Year ended June 30, 2007
As management of the San Bernardino Municipal Water Department ("Department"), a
department of the City of San Bernardino, California ("City"), we offer the readers of these
financial statements a narrative overview and analysis of the financial statements for the fiscal
year ended June 30, 2007. We encourage the readers to consider the information presented
here in conjunction with the accompanying financial statements. All amounts, unless otherwise
indicated, are expressed in thousands of dollars.
Overview of the Financial Statements:
This discussion and analysis is intended to serve as an introduction to the Department's
financial statements. Because the utility is a business-type activity of the City, an enterprise
fund is used to account for the Department and its operations. These financial statements
include only activities for the Water fund ("water fund") and Sewer fund ("sewer fund").
Information on Citywide financial results is available in the City's Comprehensive Annual
Financial Report as of June 30, 2007.
The Department's financial statements are comprised of two components: 1) financial
statements and 2) notes to financial statements. Included as part of the financial statements
are the Balance Sheets, Statement of Revenues, Expenses and Changes in Net Assets and
Statement of Cash Flows.
The Balance Sheets present the assets and liabilities with the difference between the two
reported as net assets. Over time, increases or decreases in net assets may serve as a useful
indicator of whether the financial condition of the Department is improving or deteriorating.
The Statement of Revenues, Expenses and Changes in Net Assets present information
showing how the Department's net assets have changed during the most recent fiscal year.
Results of operations are recorded using the accrual basis of accounting, whereby transactions
are reported as underlying events occur, regardless of the timing of the cash flows. Thus,
revenues and expenses are reported in these statements for some items that will result in cash
flows in future fiscal periods, such as accounts receivable and accounts payable.
The Statements of Cash Flows present the flows of cash and cash equivalents during the last
two fiscal years, including certain restricted amounts.
The Notes to the Financial Statements provide additional information that is essential to the full
understanding of the data provide in the financial statements.
5
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Financial Highlights:
Water fund:
The net assets of the water fund increased $15,582 during the fiscal year ended June 30, 2007.
A net profit of$3,651 combined with an increase in contributed capital of$11,931 account for
the increase in net assets. Net profit increased $3,472 when compared to the prior fiscal year.
Operating revenues increased $6,472 as a result of implementation of the first of a three-year
rate increase in August 2006 and a 15% increase in water sales during the current fiscal year.
Operating expenses increased $3,236 due to increases in administration, customer service,
plant operations, distribution, engineering and overhead.
Net non-operating revenue increased $301 due to increases in interest income offset by losses
on the disposition of salvage assets.
Sewer fund:
The net assets of the sewer fund increased $554 during the fiscal year ended June 30, 2007. A
net loss of$2,420 combined with an increase in contributed capital of$2,974 account for the
increase in net assets. Net loss increased $191 when compared to the prior fiscal year. The
sewer fund incurred a non-recurring one-time expense in the amount of$1,200 for the Agua
Manza road. Excluding that extraordinary item, the amount of the next loss would have been
reduced by $1,009 from last year.
Operating revenues increased $639 on slightly higher usage during the current fiscal year.
Operating expenses increased $1,523 largely due to increases in plant administration,
operations and maintenance costs.
Net non-operating expenses were reduced by$693 largely due to $1,244 in additional interest
income and $472 less loss on the disposal of assets offset by the $1,200 non-recurring one-
time expense for the Agua Manza road.
6
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Financial Analysis:
Assets, liabilities and net assets:
Water Sewer
Description 2007 2006 Variance 2007 2006 Variance
Current and other assets 91,461 91,573 (112) 41,564 41,007 557
Net capital assets 130,861 115,269 15,592 105,396 109,126 (3,730)
Total assets 222,322 206,842 15,480 146,960 150,133 (3,173)
Long-term liabilities 75,269 76,040 (771) 39,154 43,036 (3,882)
Current liabilities 8,750 8,087 663 7,741 7,587 154
Total liabilities 84,019 84,127 (108) 46,895 50,623 (3,728)
Invested in capital assets,
net of related debt 122,081 106,036 16,045 66,116 66,080 36
Restricted 11,294 8,720 2,574 15,896 16,138 (242)
Unrestricted 4,928 7,959 (3,037) 17,963 17,292 671
Total net assets 138,303 122,715 15,588 100,065 99,510 555
As noted earlier net assets may serve over time as a useful indicator of the Department's
financial position. At June 30, 2007, the water and sewer utilities had assets that exceeded
liabilities by$138,303 and $100,065, respectively.
A majority of the Department's net assets represent investment in capital assets; such as
production, transmission and distribution facilities. The assets represent 88% and 66% of the
net assets for the water and sewer utilities, respectively.
A portion of the Department's net asset represents resources that are subject to external
restrictions on usage. These restrictions are for items such as debt repayment or other legally
restricted purposes. The assets represent 8% and 16% of the net assets for the water and
sewer utilities, respectively.
The final portion of the Department's net assets represents resources that may be used to meet
the ongoing obligations to creditors and customers. These unrestricted assets amount to 6%
and 18% of the net assets for the water and sewer utilities.
7
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Revenues, expense and net equity:
Water Sewer
Description 2007 2006 Variance 2007 2006 Variance
Operating revenues 28,232 21,760 6,472 22,002 20,363 1,639
Operating expenses (28,069) (24,833) (3,236) (22,041) (20,518) (1,523)
Operating Income 163 (3,073) 3,236 (39) (155) 116
I nvestment income 1,181 401 780 1,906 662 1,244
Interest expense (313) (366) 53 (2,021) (2,164) 143
Miscellaneous non-operating
income(expense) 2,620 3,152 (532) (2,266) (572) (1,694)
Net profit 3,651 114 3,537 (2,420) (2,229) (191)
Contributed capital 11,931 13,766 (1,835) 2,975 4,664 (1,689)
Increase in equity 15,582 13,880 1,702 555 2,435 (1,880)
Beginning assets, July 1 122,721 108,841 13,880 99,510 97,075 2,435
Ending assets, June 30 138,303 122,721 15,582 100,065 99,510 555
ITotal water utility sales for fiscal year 2007 were $28,232. Most of this increase was due to a
water rate increase implemented in August 2006. Actual water sales increased 15% adding to
the increase. Sewer sales of$22,002 were up almost 8% based on higher usage.
Operating expensed increased for both utilities9.9%.
Investment income was substantially increased for both utilities. This is based largely on the
annual GASB 31 adjustment to current market valuations.
Interest expense was slightly lower for both utilities as principal on older debt continues to be
paid off.
Non-operating income decreased in Water primarily due to $656 less from the disposal of
capital assets from the prior year. That was partially offset by an increase in non-capital grant
funding. Sewer's decrease was primarily a result of the one-time extraordinary expense of$1.2
million related to Agua Manza road and the City of Colton. Additionally, there was less loss in
the disposal of capital assets verses the prior year.
Net profit for water improved dramatically due to an increase in water rates, restrictions on
budgeted operating expenditures and a slight increase in volume. Sewer net profit was
approximately the same, despite supporting the extraordinary expense.
8
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Capital assets:
Water Sewer
Description 2007 2006 Variance 2007 2006 Variance
Land and easements 2,945 2,945 -0- 12,741 12,471 -0-
Wells and pumping plant 48,220 47,194 1,026 3,192 3,192 -0-
Distribution 73,377 65,938 7,439 -0- -0- -0-
Plant and facilities 1,930 1,627 303 151,901 150,874 1,027
Other capital 12,261 11,821 440 6,451 6,190 261
C W I P 41,651 34,368 7,283 5,340 5,048 292
Total capital assets 180,384 163,893 16,491 179,355 177,775 1,580
Accumulated depreciation (49,523) (48,624) (899) (73,959) (68,649) (5,310)
Net capital assets 130,861 115,269 15,592 105,396 109,126 (3,730)
The Department is involved in an aggressive expansion effort in capital improvements in the
developing "Verdemont" area. In addition, the replacement of century old infrastructure
continues. The sewer utility capital expenditures were moderate. The expected increase due
to the expansion at RIX has been delayed, however is expected to occur in the next 18 months.
Long-term debt and debt service coverage:
Water Sewer
Description 2007 2006 2007 2006
Net Profit 3,650 114 (2,420) (2,229)
Depreciation 4,065 3,482 5,338 5,331
Amortization 28 37 44 46
Interest Expense 1,181 366 2,021 2164
Other fees -0- -0- 2,974 4664
Gain or(loss)on asset (37) (694) 2 475
Cash available 8,887 3,305 7,959 10,451
Senior debt
CIEDB 777 777 -0- -0-
COPS -0- -0- 3,285 3,249
Senior debt service 777 777 3,285 3,249
Senior debt coverage 11.4 x 4.3 x 2.4 x 3.2 x
Subordinate debt 79 79 2,494 2,494
Aggregate P&I 856 856 5,779 5,743
Aggregate coverage 10.4x 3.9 x 1.4 x 1.8 x
9
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
As of June 30, 2007, the water utility had $10,446 in long-term obligations; including $8,716 in
notes payable; $1,495 in compensated balances; $170 in leases payable and $65 in bonds
payable. Of that amount, $1,534 is due during fiscal 2008.
Subsequent to the end of the fiscal year, on August 1, 2007, the water utility issued a second
note payable to CIEDB in the amount of$10 million. That loan will fund capital improvements in
the 1720 pressure zone, the Palm and Magnolia booster stations and a transmission main
connecting for the Verdemont expansion.
As of June 30, 2007, the sewer utility had $43,464 in long-term obligations; including $25,846 in
certificates of participation (net unamortized discounts of$199); $17,012 in notes payable, $606
in compensated absences. Of that among $4,311 is due during fiscal 2008.
Additional details regarding debt may be found by reviewing Note 5 of the Notes to Basic
Financial statements provided in this document.
Requests for information:
This financial report is designed to provide.a general overview of the Department's financial
condition. Questions concerning any information provided in this report or requests for
additional financial information should be addressed to the Finance Director, City of San
Bernardino Municipal Water Department, P.O. box 710, San Bernardino, CA 92402.
10
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11
BASIC FINANCIAL STATEMENTS
14
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Net Assets
June 30,2007
(With comparative totals for 2006)
Water Sewer Interfund Totals
Utility Utility Eliminations 2007 2006
Asse s
Current assets:
Cash and investments(note 2) 5,112,337 16,626,905 21,739,242 23,256,980
Accounts receivable,net 4,248,299 2,574,210 6,822,509 6,324,087
Due from other entities 650,991 368,822 1,019,813 1,797,017
Interfund receivable 144,327 - (144,327) - -
Related parties receivable(note 8) 355,126 612,899 968,025 674,240 32612798
Inventory 1,637,686 - 1,637,686 1,709,910 -33917690
Prepaid expenses 14,523 1,070,662 1,085,185 1,168,987
Total current assets 12,163,289 21,253,498 (144,327) 33,272,460 34,931,221
Noncurrent assets:
Restricted assets:
Cash and investments(note 2):
Restricted for debt service 22,870 3,578,642 3,601,512 3,570,921
Restricted for capital-related fees 11,294,440 15,985,893 27,280,333 24,859,169
Restricted for consumer deposits 2,393,628 - 2,393,628 2,128,718
Restricted for consent decree(note 12) 2,109,594 2,109,594 1,279,867
Guaranteed investment contract(note 12) 16,717,733 - 16,717,733 16,482,039
Interest receivable 865,695 80,765 946,460 298,949
Prepaid insurance-consent decree(note 12) 44,173,868 - 44,173,868 46,477,019
Note proceeds held by state 934,000 934,000 934,000
Total restricted assets 78,511,828 19,645,300 98,157,128 96,030,682
Notes receivable 785,250 - - 785,250 785,250
Capital assets(note 3):
Land and easements 2,944,972 12,470,740 15,415,712 15,415,712
Construction in progress 41,651,088 5,339,508 46,990,596 39,416,027
Water rights,wells and pumping plants 48,220,266 3,192,218 51,412,484 50,386,639
Distribution systems 73,376,986 - 73,376,986 65,937,908
Building,plants and store yards 1,929,705 151,900,811 153,830,516 152,501,308
Tools and equipment 2,623,794 3,155,109 5,778,903 5,238,910
Fleet and rolling stock 3,462,846 1,204,374 4,667,220 4,572,905
Office leasehold improvements 1,919,987 - 1,919,987 1,919,987
Office,computer,engineering
equipment 3,097,961 1,171,328 4,269,289 4,236,683
Radio and interoffice communication
equipment 283,802 99,138 382,940 382,940
Telemetry systems and equipment 639,670 628,699 1,268,369 1,231,464
Miscellaneous 233,534 193,015 426,549 426,549
Less accumulated depreciation and
amortization (49,523,290) (73,958,939) X123,482,229) (117,272,343}
Total capital assets(net of
accumulated depreciation
and amortization) 130,861,321 105,396,001 236,257,322 224,394,689
Other assets:
Debt issue costs,net - 261,344 261,344 301,725
Deferred call premium 403;698 403,698 445,823
Total other assets 665,042 665,042 747,548
Total noncurrent assets 210,158,399 125,706,343 335,864.742 321,958,169
Total assets 222,321,688 146,959,841 (144,327) 369,137,202 356,889,390
(Continued)
12
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Net Assets
(Continued)
Water Sewer Interfund Totals
Utility Utility Eliminations 2007 2006
Liabilities and net assets
Liabilities:
Current liabilities:
Accounts payable 3,524,219 2,078,805 - 5,603,024 4,880,067
Interfund payable - 144,327 (144,327) - -
Related parties payable(note 8) 675,355 180,992 - 856,347 691,894
Accrued expenses 1,298 38,850 - 40,148 13,564
Accrued compensation 805,141 326,433 - 1,131,574 1,280,763
Claims payable(note 10) 411,449 25,640 - 437,089 359,251
Consumer deposits 1,677,234 570 - 1,677,804 1,917,890
Current portion of compensated
absences (note 5) 993,075 407,053 - 1,400,128 1,376,609
Current portion of leases payable(note 5) 73,843 - - 73,843 71,805
Current portion of notes payable(note 5) 457,056 1,917,200 - 2,374,256 2,294,001
Current portion of certificates of
participation(note 5) - 1,986,720 - 1,986,720 1,885,753
Current portion of bonds payable(note 5) 10,000 - - 10,000 10,000
Accrued interest payable 121,292 634,723 - 756,015 806,932
Total current liabilities 8,749,962 7,741,313 (144,327) 16,346,948 15,588,529
Noncurrent liabilities:
Consumer deposits 2,454,703 - - 2,454,703 2,219,862
Compensated absences(note 5) 502,135 199,071 - 701,206 596,909
Deferred revenue-consent decree(note 12) 63,901,948 - - 63,901,948 64,442,890
Leases payable(note 5) 96,626 - - 96,626 170,033
Notes payable(note 5) 8,258,542 15,095,221 - 23,353,763 25,727,735
Certificates of participation (note 5) - 23,859,730 - 23,859,730 25,846,920
Bonds payable(note 5) 55,000 - - 55,000 65,000
Total noncurrent liabilities 75,268,954 39,154,022 - 114,422,976 119,069,349
Total liabilities 84,018,916 46,895,335 (144,327) 130,769,924 134,657,878
Net assets(note 13):
Invested in capital assets, net of related
debt 122,080,723 66,115,772 - 188,196,495 172,115,812
Restricted for:
Capital-related fees 11,294;440 15,985,893 - 27,280,333 24,859,169
Unrestricted 4,927,609 17,962,841 - 22,890,450 25,256,531
Total net assets $ 138,302,772 $ 100,064,506 238,367,278 222,231,512
See accompanying notes to basic financial statements,
13
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14
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Revenues, Expenses,and Changes in Net Assets
Year ended June 30, 2007
(With comparative totals for the year ended June 30, 2006)
Water Sewer Interfund Totals
Utility Utility Eliminations 2007 2006
Operating revenues:
Charges for services $ 26,244,574 20,083,001 (37,578) 46,289,997 39,169,974
Other operating revenues 1,987,792 919,483 (1,282,273) 1,625,002 1,993,387
Total operating revenues 28,232,366 21,002,484 (1,319,851) 47,914,999 41,163,361
Operating expenses:
Administration and customer service 6,757,263 - - 6,757,263 5,968,830
Engineering,operations, and distribution
administration 851,721 1,639,517 (1,216,524) 1,274,714 1,489,748
Plant operations 6,887,003 9,755,331 (24,129) 16,618,205 14,719,038
Maintenance 1,994,341 3,088,137 (45,622) 5,036,856 4,493,649
Environmental control - 633,141 - 633,141 532,086
Distribution 3,645,736 - (215) 3,645,521 3,479,031
Engineering 2,334,538 45,794 - 2,380,332 1,873,653
General, administration, and overhead 1,533,762 1,541,193 (33,361) 3,041,594 3,021,322
Depreciation and amortization(note 3) 4,065,028 5,338,372 - 9,403,400 8,814,163
Total operating expenses 28,069,392 22,041,485 (1,319,851) 48,791,026 44,391,520
Operating income(loss) 162,974 (1,039,001) - (876,027) (3,228,159)
Non-operating revenues(expenses):
Investment income 1,180,789 1,906,369 - 3,087,158 1,063,829
Rental income 82,944 29,101 - 112,045 118,942
Noncapital grant funds 2,300,151 - - 2;300,151 1,983,509
Gain (loss)on asset disposition 37,377 (2,037) - 35,340 218,843
Interest expense and fiscal charges (313,450) (2,021,326) - (2,334,776) (2,529,786)
Colton road improvements (1,200,000) (1,200,000) -
Amortization of issuance costs (27,692) (43,838) - (71,530) (82,676)
Other 227,509 (48,934) - 178,575 340,259
Total non-operating revenues (expenses) 3,487,628 (1,380,665) - 2,106,963 1,112,920
Net profit(loss) 3,650,602 (2,419,666) - 1,230,936 (21115,239)
Capital contributions:
Capital grants 38,723 - - 38,723 4,378,687
Acquisition fees 3,564,083 - - 3,564,083 2,205,524
Capacity fees 2;421,081 2,814,738 - 5,235,819 11,680,278
Contributed capital assets 5,907,230 - 5,907,230 -
Other capital restricted fees - 158,975 - 158,975 165,657
Total capital contributions 11,931,117 2,973,713 - 14,904,830 18,430,146
Net assets:
Balance at beginning of year 122,721,053 99,510,459 - 222,231,512 205,916,605
Balance at end of year $ 138,302,772 100,064,506 - 238,367,278 222,231,512
See accompanying notes to basic financial statements.
15
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Cash Flows
Year Ended June 30,2007
(With comparative totals for 2006)
Totals
Water Sewer 2007 2006
Cash flows from operating activities:
Cash received from customers $ 28,238,484 20,741,277 48,979,761 45,099,203
Rental income 82,944 29,101 112,045 118,942
Nonoperating miscellaneous revenue(expenses) 264,886 (50,968) 213,918 3,812,857
Settlement 900,000 - 900,000 -
Cash paid to employees for services (7,999,404) (11,431,818) (19,431,222) (18,244,189)
Cash paid to suppliers of goods and services (12,112,439) (5,634,001) (17,746,440} (21,810,930)
Net cash provided by operating activities 9,374,471 3,653,591 13,028,062 8,975,883
Cash flows from noncapital financing activities:
Purchase of insurance policy to fund future capital projects - - - 1,983,509
Construction of road to rix facility - (1,200,000) (1,200,000) -
Net cash provided by noncapital financing activities - (1,200,000) (1,200,000} 1,983,509
Cash flows from capital and related financing activities:
Capital fees received 5,985,164 2,973,713 8,958,877 14,051,459
Grant proceeds received 38,723 - 38,723 4,378,687
Cash paid to acquire fixed assets (13,828,657) (1,288,680) (15,117,337) (24,738,963)
Principal paid on capital-related debt (523,644) (3,761,442) (4,285,086) (5,369,602)
Interest paid on capital-related debt (582,772) (2,003,864} (2,586,636) (2,540,012)
Net cash provided by(used for)capital and related
financing activities (8,911,186} (4,080,273) (12,991,459} (14,218,431}
Cash flows from investing activities:
Purchase of investments - - - (16,482,039)
Interest received 1,180,790 1,906,369 3,087,159 1,038,449
Net cash provided by investing activities 1,180,790 1,906,369 3,087,159 (15,443 590}
Net increase in cash 1,644,075 279,687 1,923,762 (18,702,629)
Cash and cash equivalents at beginning of year 19,288,794 32,333,111 51,621,905 70,324,534
Cash and cash equivalents at end of year $ 20,932,869 32,612,798 53,545,667 51,621,905
16
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Statement of Cash Flows
(Continued)
Totals Totals
Water Sewer 2007 2006
Reconciliation of cash and cash equivalents to amounts
reported on the balance sheet:
Reported on the balance sheet:
Cash and investments $ 5,112,337 16,626,905 21,739,242 23,256,980
Restricted assets 78,511,828 19,645,300 98,157,128 96,030,682
Less restricted assets not meeting the definition of
cash equivalents:
Investment agreements - (3,578,642) (3,578,642) (3,473,750)
Government investment contract (16,717,733) - (16,717,733) (16,482,039)
Interest receivable (865,695) (80,765) (946,460) (298,949)
Prepaid insurance-consent decree (44,173,868) - (44,173,868) (46,477,019)
Note proceeds held by state (934,000) - (934,000) (934,000)
Cash and cash equivalents at end of year $ 20,932,869 32,612,798 53,545,667 51,621,905
Reconciliation of operating income to net cash
provided by(used for)operating activities:
Operating income $ 162,974 (1,039,001) (876,027) (3,228,159)
Depreciation and amortization 4,065,028 5,338,372 9,403,400 8,814,163
Nonoperating miscellaneous revenue(expenses) 227,509 (48,931) 178,578 340,259
GIC interest earned 856,960 - 856,960 -
Rental income 82,944 29,101 112,045 118,942
Settlement 900,000 - 900,000 -
Gain(loss)on asset disposition 37,377 (2,037) 35,340 218,843
Adjustments:
(Increase)decrease in accounts receivable (413,025) (85,397) (498,422) 5,679,167
(Increase)decrease in due from other entities 831,132 (53,928) 777,204 2,155,636
(Increase)decrease in interfund receivable (58,192) - (58,192) (56,333)
(Increase)decrease in related parties receivable (113,711) (180,074) (293,785) 42,486
(Increase)decrease in inventory 72,224 - 72,224 (221,864)
(increase)decrease in prepaid expenses 18,261 65,541 83,802 86,955
(Increase)decrease in note proceeds held by state - - - 3,439,005
(Increase)decrease in notes receivable - - - (185,250)
(Increase)decrease in other assets 78,472 (313,297) (234,825) (1,218,919)
Increase(decrease)in accounts payable 753,954 (155,530) 598,424 (1,770,351)
Increase(decrease)in interfund payable - 58,192 58,192 56,333
Increase(decrease)in related parties payable 137,001 27,452 164,453 67,506
Increase(decrease)in accrued expenses (1,648) 28,232 26,584 (10,615)
Increase(decrease)in accrued compensation (30,197) 8,824 (21,373) (275,429)
Increase(decrease)in claims payable 101,766 (23,928) 77,838 (146,452)
Increase(decrease)in consumer deposits (5,245) - (5,245) (4,930,040)
(Increase)decrease in prepaid insurance-consent decree 2,303,152 - 2,303,152 -
Increase(decrease)in deferred revenue (632,265) - (632,265) -
Net cash provided by operating activities $ 9,374,471 3,653,591 13,028,062 8,975,883
Noncash Investing Capital and Financiang Activities
Developers contributed$5,907,230 in capital assets to the system for the year ended June 30,2007.
See accompanying notes to basic financial statements.
17
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
Year ended June 30, 2007
(1) Summary of Significant Accounting Policies
Reporting Entity
The Municipal Water Department of the City of San Bernardino, California ("the
Department") is governed under the Charter of the City of San Bernardino. A Board of
Water Commissioners who is appointed by the Mayor of the City of San Bernardino has
certain limited powers with respect to the Department. The Department has no separate
organizing document and is a part of the legal entity of the City of San Bernardino. The
Department of the City of San Bernardino operates two enterprise funds: the Water
Utility Enterprise Fund (Water Utility) and the Sewer Utility Enterprise Fund (Sewer
Utility). The Water Utility also provides administrative services and contracted services
to the Sewer Utility. The accounting policies of the Department conform to generally
accepted accounting principles (GAAP)as applicable to governments.
The preparation of these financial statements requires management to make estimates
and assumptions. Those estimates and assumptions affect the reported amounts of
assets, Liabilities, revenues, and expenses, as well as the disclosure of contingent
assets and liabilities. Actual results could differ from those estimates. Management
also determines the accounting principles to be used in the preparation of the financial
statements. A description of the significant accounting policies employed in the
preparation of these financial statements follows:
Fund Accounting
The accounts of the Department are organized and operated on the basis of funds. A
fund is an independent fiscal and accounting entity with a self-balancing set of accounts.
Fund accounting segregates funds according to their intended purpose and uses them
to aid management in demonstrating compliance with finance-related legal and
contractual provisions. The Department's financial statements include only enterprise
funds, which are a proprietary fund type. Enterprise funds are used to account for those
operations that are financed and operated in a manner similar to private business or
where the Board of Water Commissioners has decided that the determination of
revenues earned, costs incurred and/or net income is necessary for management
accountability.
Basis of Accounting
Proprietary funds are accounted for on the flow of economic resources measurement
focus and use the accrual basis of accounting. Under this method, revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred.
The Department applies all applicable GASB pronouncements in accounting and
reporting for its proprietary operations and applicable FASBs that occurred prior to
November 30, 1989.
18
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
{1) Summary of Significant Accounting Policies (Continued)
Cash and Investments
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 because
they are not transferable and they 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 or sale of
investments.
Cash for the Department is pooled with the City of San Bernardino for investment
purposes in order to maximize interest earnings. Such earnings are credited to the
various funds within the City of San Bernardino based upon average monthly cash
balances. The investment policies and the associated risk factors as they relate to the
Department are included in the City's Comprehensive Annual Financial Report.
For the purpose of the statement of cash flows, cash and cash equivalents include all
highly liquid investments (including restricted assets) with maturity of three months or
less when purchased.
Receivables
Trade receivables are shown net of an allowance for uncollectibie accounts based on
management's estimate.
Interfund Receivables and Pavables
Transactions between funds that are representative of lending/borrowing arrangements
outstanding at the end of the fiscal year are referred to as either "interfund
receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from
other funds" (i.e., the non-current portion of interfund loans). All interfund transactions
are eliminated for financial reporting purposes.
Inventories
Inventories are valued at the lower of cost, using the average-cost method, or market.
19
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Restricted Assets
Various resources of the Department are limited as to their use by law or by certificates
of participation and bond covenants and are classified on the balance sheet as
restricted assets. Proceeds of the certificates of participation and bonds are restricted
for the construction of water and sewer system improvements and for repayments.
Assessments collected from property owners are restricted for the payment of bond
principal and interest. Also, fees imposed on new real estate development are restricted
by law for the construction of capital improvements that benefit the development
projects.
issuance Costs and Discount
Issuance costs, discounts, and deferred funding charges for certificates of participation
and bonds payable are being amortized using the effective interest rate method over the
term of the related certificate or bond or the straight-line method which approximates the
effective interest method.
Capital Assets
Property, plant, equipment and water rights are recorded at cost. The Department's
policy is to capitalize all property having a value of$5,000 or more and a life expectancy
of 3 years or more. Major outlays for capital assets and improvements are capitalized
as projects are constructed. Material interest incurred during the construction phase is
reflected in the capitalized value of the asset constructed, net of interest earned on the
II invested proceeds over the same period, if any. Overhead costs are capitalized at the
rate of 28.9% for labor/benefits, 10% for materials/supplies, 2% for significant contracts
and are reflected in the capitalized value of the asset constructed. Depreciation has
I been provided for using the straight-line method over the estimated useful lives of the
related assets. Useful lives for depreciation purposes are as follows:
Wells, pumping plants, reservoirs, and distribution system 8 to 50 years
Interceptor lines 50 years
Disposal plant 35 to 50 years
Leasehold improvements 5 to 25 years
Shops, offices, stores, and yards 10 to 20 years
Tools and equipment 4 to 20 years
Office equipment 5 to 20 years
Communication equipment 8 to 10 years
Computer equipment 3 to 5 years
Automotive equipment 3 to 15 years
20
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Capital Assets (Continued)
Equipment leased under capital leases is recorded at cost, and amortization has been
provided for using the straight-line method over the estimated useful life. Amortization is
included in depreciation expense.
Compensated Absences
Employees gain a vested right to accumulated unpaid vacation based on years of
service but cannot accumulate more than two years of accrued vacation. Once each
fiscal year, employees with at least three weeks of accrued vacation have the option of
receiving payment at their regular rate of pay for up to two weeks of regular paid
vacation. Employees'vacation benefits are recognized as a liability of the Department.
Sick leave is accumulated without limit for each employee at the rate of 3.7 hours per
pay period. Leave with pay is provided when employees are absent for health reasons.
Upon termination employees are entitled to 25 percent of accumulated sick leave with
five years of service and a minimum of 480 hours of accumulated sick leave. Upon
retirement or death, employees are entitled to 50 percent of accumulated sick leave up
to a maximum of 1,152 hours. Accrued sick leave benefits are recognized as a liability
of the Department.
Classification of Revenues and Expenses
Proprietary funds distinguish operating revenues and expenses from non-operating
items. Operating revenues and expenses generally result from providing services and
producing and delivering goods in connection with a proprietary fund's principal ongoing
operations. The principal operating revenues of the Department's enterprise funds are
charges to customers for services. The Department recognizes the collection of fees to
connect new customers to the system as operating revenues. Operating expenses for
the enterprise funds include the cost of services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition
are reported as non-operating revenues and expenses.
Capital contributions consist of contributed capital assets and special charges that are
legally restricted for capital expenditures by state law or by the Board of Water
Commissioners action that established those charges.
Interfund Eliminations
The interfund eliminations column represents entries made to eliminate interfund income
and expenditure transactions between the water and sewer funds for the purposes of
consolidated financial statements.
21
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Comparative Data
Prior year data has been included where practical for comparison purposes only. The
prior year data does not represent a complete presentation in accordance with
accounting principles in the United States of America.
Certain minor reclassifications of prior year data have been made in order to enhance
their comparability with current year figures.
(2) Cash and Investments
Cash and investments as of June 30, 2007 are classified in the accompanying financial
statements as follows:
Statement of net assets:
Cash and investments $21,739,242
Cash and investments for debt service 3,601,512
Cash and investments for capital-related fees 27,280,333
Cash and investments for consumer deposits 2,393,628
Cash and investments for consent decree 2,109,594
Guaranteed investment contract 16,717,733
Total cash and investments l73 842 042
Cash and investments as of June 30, 2007 consist of the following:
Cash on hand $ 5,700
Deposits with financial institutions 3,319,872
Investments 70,516,470
Total cash and investments S73 842.042
22
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Investments Authorized by the California Government Code and the Entity's Investment
Policy
The table below identifies the investment types that are authorized for the Department
by the California Government Code (or the Department's investment policy, where more
restrictive). The table also identifies certain provisions of the California Government
Code (or the Department's investment policy, where more restrictive) that address
interest rate risk, credit risk, and concentration of credit risk. This table does not
address investments of debt proceeds held by bond trustee that are governed by the
provisions of debt agreements of the Department, rather than the general provisions of
the California Government Code or the Department's investment policy.
Authorized by Maximum Maximum
Investment Types Investment Maximum Percentage Investment
Authorized by State Law Policy Maturity* of Portfolio* In One Issuer*
Local Agency Bonds No 5 years None None
U.S. Treasury Obligations Yes 5 years None None
U.S. Agency Securities Yes 5 years None None
Banker's Acceptances Yes 180 days 40% 30%
Commercial Paper Yes 270 days 25% 10%
Negotiable Certificates of Deposit Yes 5 years 30% None
Repurchase Agreements No 1 year None None
Reverse Repurchase Agreements No 92 days 20% of base value None
Medium-Term Notes Yes 5 years 30% None
Mutual Funds No N/A 20% 10%
Money Market Mutual Funds Yes N/A 20% 10%
Mortgage Pass-Through Securities Yes 5 years 20% None
County Pooled Investment Funds No N/A None None
Local Agency Investment Fund Yes N/A None None
JPA Pools (other investment pools) No N/A None None
Guaranteed Investment Contract Yes N/A None None
* Based on state law requirements or investment policy requirements, whichever is more
restrictive.
The Board of Water Commissioners has also authorized the investment of Consent
Decree (see note 12) funds in the state Local Agency Investment Fund (LAIF) and in
guaranteed investment contracts (GICs)with maturities in excess of five years.
23
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Investments Authorized by Debt Agreements
Investment 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 Department's investment policy. The table below identifies the investment types
that are authorized for investments held by bond trustee. The table also identifies certain
provisions of these debt agreements that address interest rate risk, credit risk, and
concentration of credit risk.
Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity Allowed In One Issuer
U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Banker's Acceptances 180 days None None
Commercial Paper 270 days None None
Money Market Mutual Funds N/A None None
Repurchase Agreements 270 days None None
Investment Contracts 30 years None None
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the
fair value of an investment. Generally, the longer the maturity of an investment, the
greater the sensitivity of its fair value to changes in market interest rates. One of the
ways that the Department manages 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 is maturing or coming close to maturity evenly
over time as necessary to provide the cash flow and liquidity needed for operations.
24
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Disclosures Relating to Interest Rate Risk (Continued)
Information about the sensitivity of the fair values of the Department's investments
(including investments held by bond trustee) to market interest rate fluctuations is
provided by the following table that shows the distribution of the Department's
investments by maturity:
Remaining Maturing (in Months)
12 Months 13 to 24 25 to 60 More Than
Investment Type Total Or Less Months Months 60 Months
Equity in City
investment pool(') $51,587,823 51,587,823 - - -
State investment pool 2,109,594 2,109,594 - - -
Guaranteed
investment contract 16,717,733 - - - 16,717,733
Held by bond trustee:
Federal agency
securities 101,320 101,320 - - -
Total $70 516.470 53 798.737 - - 16,717,733
(*)—The pool typically includes a composition of short term and long term investments.
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation
to the holder of the investment. This is measured by the assignment of a rating by a
nationally recognized statistical rating organization. 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 Rating as of Year End
Legal Not
Investment Type Total Rating AAA AA Rated
Equity in City
investment pool $51,587,823 N/A - - 51,587,823
State investment pool 2,109,594 N/A - - 2,109,594
Guaranteed
investment contract 16,717,733 NIA - - 16,717,733
Held by bond trustee:
Federal agency
securities 101,320 AAA 101,320 - -
Total $70,516,470 101,320 - 70 415.150
25
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Concentration of Credit Risk
The investment policy of the Department contains no limitations on the amount that can
be invested in any one issuer beyond that stipulated by the California Government
Code. Investments in any one issuer (other than U.S. Treasury securities, mutual funds,
and investment pools) that represent 5% or more of total Department investments are
as follows:
Investment Reported
Issuer Type Amount
AIG Match Funding Corporation Guaranteed Investment Contract $16,717,733
Custodial Credit Risk
Custodial credit risk for deposits (including bank investment contracts) 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 (e.g., broker-dealer) 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 and the
Department's investment policy do not contain legal or policy requirements that would
limit the exposure to custodial credit risk for deposits or investments, other than the
following provision for deposits: The California Government Code requires that a
financial institution secure deposits made by state or local governmental units by
pledging securities in an undivided collateral pool held by a depository regulated under
state law (unless so waived by the governmental unit).
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 nntag having a vale ie of 150% of the geri ired rni�blic deposits_
For investments 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.
26
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
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.
1
27
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(3) Capital Assets
Capital asset activity for the year ended June 30, 2007 is as follows:
Balance at Balance at
July 1,2006 Additions Deletions June 30,2007
Capital projects,not being depreciated:
Land and easements $ 15,415,712 - - 15,415,712
Construction in progress 39,416,027 15,644,857 (8,070,288) _46,990,596
Total capital assets,not being depreciated 54,831,739 15,644,857 (8,070,288) 62,406.308
Capital assets,being depreciated:
Water rights,wells and pumping plants 50,386,639 1,025,845 - 51,412,484
Distribution systems 65,937,908 10,468,037 (3,028,959) 73,376,986
Building,plants and store yards 152,501,308 1,338,321 (9,113) 153,830,516
Tools and equipment 5,238,910 663,221 (123,228) 5,778,903
Fleet and rolling Stock 4,572,905 216,151 (121,836) 4,667,220
Office leasehold improvements 1,919,987 - 1,919,987
Office,computer,engineering equipment 4,236,683 32,606 4,269,289
Radio and interoffice communication equip 382,940 - - 382,940
Telemetry system and equipment 1,231,464 36,905 - 1,268,369
Miscellaneous 426,549 426.549
Total capital assets,being depreciated 286,835.293 13,781,086 (3,283,136) 297,333.243
Less accumulated depreciation for:
Water rights,welts and pumping plants (20,420,474) (1,703,821) - (22,124,295)
Distribution systems (23,455,344) (1,497,656) 2,965,961 (21,987,039)
Building,plants and store yards (63,888,210) (4,782,878) 6,408 (68,664,680)
Tools and equipment (3,397,412) (282,243) 109,881 (3,569,774)
Autos (2,491,472) (366,307) 110,831 (2,746,948)
Office leasehold improvements (82,913) (125,580) - (208,493)
Office,computer and engineering equipment (2,723,970) (414,550) 433 (3,138,087)
Radio and interoffice computer equipment (269,127) (14,519) - (283,646)
Telemetry system and equipment (302,481) (203,5241 - (506,005)
Miscellaneous (240,940) (12,322) (253,262)
Total accumulated depreciation (117,272,343) (9,403,400) 3,193,514 (123.482.229)
Total capital assets, being depreciated,net 169.562,950 4,377,686 (89,622) 173,851,014
Net property,plant and equipment $224,324.589 ZD,t (8,159=910) 236 ,2 7X2
28
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(3) Capital Assets (Continued)
Significant project commitments as of June 30, 2007 are as follows:
Cumulative
Amount Expenditures Unexpended
Project Description Authorized June 30, 2007 Commitments
Sewer Fund:
RIX Facility Expansion $7,222,743 852,436 6,370,307
(4) Operating Leases
The Department leases office space from the City of San Bernardino under a non-
cancellable operating lease that terminates on March 31, 2012. The following is a
schedule of minimum lease payments as of June 30, 2007:
Office Space
For the year ending June 30 Water Sewer Total
2008 156,347 21,479 177,826
2009 156,347 21,479 177,826
2010 156,347 21,479 177,826
2011 156,347 21,479 177,826
2012 117,365 16,004 133,369
7 2 753 101 920 48 4.673
Rent expense was $177,826 for the periods ending June 30, 2007 and 2006.
29
�rrrrr.rr
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt
The following is a summary of changes in long-term debt obligations for the year ended
June 30, 2007:
Amounts Amounts Due
Balance at Balance at Due Within Beyond
July 1,2006 Additions Reductions June 30,2007 One Year One Year
Compensated absences $1,973,518 127,816 - 2,101,334 1,400,128 701,206
Lease payable 241,838 - (71,369) 170,469 73,843 96,626
Notes payable 28,021,736 - (2,293,717) 25,728,019 2,374,256 23,353,763
Certificates of
Participation 27,955,000 - (1,910,000) 26,045,000 2,010,000 24,035,000
Less deferred amounts:
Unamortized discounts (222,327) - 23,777 (198,550) (23,280) (175,270)
Bonds payable 75,000 (10,000) 65.000 10,000 55,000
$58,044.765 127- 1 (4.261.0 53.911,272 5-844-947 48 06_ 6.3.25
Lease/Purchase Payable
California First Leasing Corporation
Maturity date: 2009
Interest rate: 3.68%
Repayment provisions: Quarterly principal and interest
Payments of$19,772.00
Balance $170,469
Less current portion (73,843)
Long-term portion 10-026
On December 28, 2004, the Department entered into a master equipment
lease/purchase agreement with California First Leasing Corporation for furniture and
equipment for the 5`" Floor Remodeling Project, in the amount of $363,000. The
furniture and equipment are pledged as collateral for the term of lease/purchase
agreement.
30
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt(Continued}
Notes Payable
California Infrastructure and Economic Development Bank
Maturity date: 2022
Interest rate: 3.34%
Repayment provisions: Annual principal and interest
payments of $738,147
Balance $8,715,598
San Bernardino Valley Municipal Water District
Original amount: $5,084,729
Maturity date: 2013
Interest rate: 7.25%
Repayment provisions: Annual principal and interest
payments of$456,250
Balance 2,158,050
State Water Resources Control Board (SWRCB)
Original amount: $4,015,216
Maturity date: 2011
Interest rate: 3.3%
Repayment provisions: Annual principal and interest
payments of$279,293
Balance 1,030,755
State Water Resources Control Board (SWRCB)
Original amount: $25,978,599
Maturity date: 2016
Interest rate: 2.8%
Repayment provisions: Annual principal and interest
payments of$1,758,901
Balance 13,823,616
Total notes payable 25,728,019
Less current portion (2,374,256)
Long-term portion $23.353.763
31
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt (Continued)
On March 18, 2004, the California Infrastructure and Economic Development Bank
(CIEDB) issued its Infrastructure State Revolving Fund Revenue Bonds to provide
funding for a portion of the costs of Phases I and II of the Water System Reliability
Schedule of Improvements including transmission mains, booster stations, and a
reservoir. Installment Sale Agreement No. 02-027 between the Department and the
CIEDB was pledged as security for the bonds. The Department sets aside water
revenues to make installment payments on the bonds as due.
The State Revolving Fund loans between the State Water Resources Control Board and
the Santa Ana Watershed Authority provided funding for the construction of the San
Bernardino/Colton Rapid Infiltration Extraction (RIX) Project. The loan agreements were
amended in April 2001 to transfer the loan obligations to the successors in interest,
being the City of San Bernardino Board of Water Commissioners, and the City of.
Colton. The loans require the Department to establish a Wastewater Capital Reserve
Sinking Fund (WCRF) for expansion, major repair or replacement of wastewater
treatment works at one-half of one percent of the total loan amount over a period of ten
years. The Department has decided to use the revenues of the Sewer Utility Fund
towards repayment of the loans.
Certificates of Participation
Annual
Interest Issue Maturity Original Principal
Rates Date Date Amount Installments Balance
1998 Refinancing Sewer 3.95% 1998 2017 $36,230,000 $1,505,000
to to
5.00% $3,220,000 $26,045,000
Less current portion
payable from restricted assets (2,010,000)
deferred unamortized discount 23,280
(1,986.720)
Long-term portion
payable from restricted assets 24,035,000
deferred unamortized discount (175.270)
Long-term portion, net of unamortized
discount $2a.=Z3Q
It has been determined that the amount of $102,310 was due under Internal Revenue
Code Section 148(f)(4)(B) for the temporary investments of the 1998 Refinancing Sewer
Revenue Certificates of Participation and for arbitrage rebate.
32
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt(Continued)
In 1998, the Department refinanced the acquisition and construction of certain capital
improvements which were originally financed by the 1992 Sewer Certificates of
Participation, dated February 1, 1992. The refinancing was accomplished by issue of
I the 1998 Refunding Sewer Revenue Certificates of Participation in the amount of
$36,230,000. The proceeds of the 1998 Certificates were invested and used to pay
interest on the 1998 issue until February 1, 2001. The 1992 Certificates were called on
February 1, 2001 at a prepayment premium of two percent. The funds from the 1998
issue were used to pay off the 1992 Certificates. The Department will now begin paying
the installment payments on the 1998 Certificates from the net revenues on the Sewer
System.
The Department has covenanted that it will budget amounts sufficient to make all
installment payments due.
The required reserve for the 1998 Refunding Sewer Revenue Certificates of Participation
is $2,010,000, As of June 30, 2007, the reserve was fully funded.
Costs related to the issuance of the 1998 Certificates have been paid out of the proceeds
of the issue.
Bonds Pam
Annual
Interest Issue Maturity Original Principal
Rates Date Date Amount Installments Balance
Waterworks Bonds, 7.75% 1988 2013 $150,000 $ 5,000
Series C to
$15,000 $65,000
Less current portion payable from
restricted assets 1( 0,000)
Long-tern portion S-910-0Q
The Department has covenanted to set aside Water revenues to make installment
payments on the Bonds as due. A financial guaranty insurance policy has been issued,
and accordingly, no cash reserve balance is required to be established.
33
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt (Continued)
The annual requirements to amortize long-term debt subsequent to June 30, 2007 are
as follows:
June 30 Principal Interest Total
Lease payable 2008 73,843 5,246 79,089
2009 77,034 2,055 79,089
2010 19,592 180 19,772
170,469 7,481 177,950
Notes payable 2008 2,374,256 894,482 3,268,738
2009 2,457,461 809,906 3,267,367
2010 2,544,396 721,554 3,265,950
2011 2,634,928 629,558 3,264,485
2012 2,449,946 533,733 2,983,679
2013-2017 9,874,047 1,435,923 11,309,969
2018-2021 3,393,285 378,659 3,771,945
25,728,019 5,404,115 31,132,135
Certificates of participation 2008 2,010,000 1,275,055 3,285,055
2009 2,125,000 1,174,555 3,299,555
2010 2,240,000 1,078,930 3,318,930
2011 2,365,000 973,650 3,338,650
2012 2,510,000 855,400 3,365,400
2013-2016 14,795,000 2,297,988 17,092,988
26,045,000 7,655,578 33,700,578
Bonds payable 2008 10,000 5,038 15,038
2009 10,000 4,263 14,263
2010 10,000 3,488 13,488
2011 10,000 2,713 12,713
2012 10,000 1,938 11,938
2013-2016 15,000 1,163 16,163
65.000 18,603 83,600
$52.008,487 13.186,214 64,094.7Q1
34
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Long-Term Debt(Continued)
Compensated Absences
The Department's policies relating to compensated absences are described in note 1.
This liability, amounting to $2,101,334 and $1,973,518 at June 30, 2007 and June 30,
2006, respectively, will be paid in future years from future resources from the water and
sewer funds.
(6) Defined Benefit Pension Plan
Qualified employees are covered under a multiple-employer contributory retirement plan
maintained by an agency of the State of California, California Public Employees'
retirement System (PERS).
Plan Description
The Department is a part of the City of San Bernardino. The City contributes to PERS,
an agent multiple-employer public employee retirement system defined benefit pension
plan administered by PERS. All employees who work 1,000 hours or more are eligible
to participate. The plan provides retirement and disability benefits, annual cost-of-living
adjustments, and death benefits to plan members and beneficiaries. Benefit provisions
are established by state statutes, as legislatively amended, within the Public Employees'
Retirement Law. PERS issues a separate comprehensive annual financial report that
includes financial statements and required supplementary information. Copies of the
PERS annual financial report may be obtained from the PERS Executive Office, 400 "P"
Street, Sacramento, California 95814. PERS also issues a separate report on the
actuarial valuation of the plan of the City of San Bernardino, which is available at the
Department. Additional information regarding the City's participation in PERS can be
found in the City's financial statements.
(7) Post-Retirement Health Care Benefits
In addition to the pension benefits described in note 6, the Department provides the
minimum monthly premium for post-retirement medical-health care benefits to each
retiree that meets the eligibility criteria for coverage under a department group health
insurance plan. The retirees may continue to participate in the health care plan provided
the retirees make the arrangements for premiums to be paid with the group plan
administrator. This benefit is dependent upon the continued approval of the insurance
carriers.
35
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(7) Post-Retirement Health Care Benefits (Continued)
For those retirees who retired on or after attaining age 55 with a minimum of 15 years of
service, the Department's contribution is paid directly to the group plan administrator for
a portion of the premium up to $591 per month. Premium amounts in excess of the
contribution are paid by the retirees. Currently, forty-four Water Utility retirees and four
Sewer Utility retirees are receiving the benefit. For those retirees who are not eligible to
receive the monthly contribution and currently enrolled in the Department health group
insurance plan, the Department pays to the group plan administrator the amount
equivalent to the then current minimum eligibility amount from the previous health plan
coverage with PERS. This amount is currently $80.80 per month effective April 1, 2007
and is anticipated to escalate annually. Currently, sixteen retirees are receiving this
benefit. During the year ended June 30, 2007, and June 30, 2006, expenses of
$270,956 and $184,913, respectively, were recognized for post-retirement health care
benefits and administrative costs for the Water and Sewer Utilities.
(8) Related Party Transactions
Following is a summary of transactions and balances with the City of San Bernardino
and its various departments as of and for the years ended June 30, 2007 and 2006:
Receipts 2007 2006
City of San Bernardino
Revenue from water charges $ 206,809 45,301
Revenue from sewer charges 70,201 54,874
Revenue from geothermal charges 12,142 16,326
Billing and collection charges—refuse 197,570 192,699
Billing and collection charges—storm drain 5,469 5,168
Cost reimbursement 1,000 3,000
Reimbursement—sale of land 58,894 253,656
Interest income 1,995,670 1,634,912
Economic Development Agency
Revenue from geothermal charges 483 763
Total receipts from related parties $2.548.238 2.206.699
36
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(8) Related Party Transactions (Continued)
Payments 2007 2006
City of San Bernardino
10% water revenue $2,373,013 1,933,876
Sewer collection system maintenance 3,073,405 3,019,146
Worker's compensation-administration charges 172,961 136,238
Printing services 5,396 9,583
Postage 10,500 7,403
City Hall rent 177,826 177,826
Phone charges 130,774 126,929
Refuse disposal service 73,081 65,202
Civil service 156,000 113,000
Legal services/affirmative action 170,890 197,750
Rideshare coordination 0 5,000
Employee Assistance 0 9,400
Data processing services 510,499 433,873
Police & Fire Protection 500,000 500,000
Revenue transfer-land sale 3,090 60,000
Facilities Management-new construction 0 10,000
Fuel charges 40,859 26,594
Other services 5,722 964
Miscellaneous charges 233 984
Total payments to related parties $7.404,249 6,833.768
Receivables
The receivables to the City of San Bernardino are classified within the Statement of Net
Assets as follows:
Related party receivable $ 968,025 674,240
Accounts receivable, net 51,601 33,890
Due from other entities 37,674 34,557
Total receivables from related parties $ 1,057,300 _ 742,687
Payables
The payables to the City of San Bernardino are classified within the Statement of Net
Assets as follows:
Related party payable $ 856,347 691,894
Accounts payable 1,231,869 888,770
Claims payable (note 10) 437,089 359,251
Total payables to related parties $2.525.305 1,939,915
37
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(8) Related Party Transactions (Continued)
The Department collects and transmits to the City of San Bernardino ten percent of
collections on gross water revenue and one hundred percent of collections on sewer
collection system maintenance charges from Sewer Utility customers. These
remittances are included in the related party payments shown above.
(9) 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 separate three-member Board
consisting of one representative from each agency's governing body governs the
WEJPA. The Departments' investment in the joint venture is included in the property,
plant, and equipment of the Department. The financial statements of WEJPA are
available at West Valley Water District, 855 West Base Line, Rialto, California 92736.
The joint venture is not experiencing fiscal stress.
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 (1) public safety buildings and (2) improvements to the
wastewater treatment plant.
According to the original joint powers agreement, title to the PSA-constructed
wastewater treatment facility will automatically vest in the City with the residual cash
being transferred to the City after the bonds are repaid. A separate Board consisting of
three members, one appointed by the San Bernardino City Council and two members
appointed by the San Bernardino County Board of Supervisors, governs PSA. Effective
with the transfer of the Sewer Utility to the Department, all the assets and activities of
PSA related to the wastewater treatment plant were also transferred to the Department
pursuant to the enabling resolution of October 1973 and are included in the property,
plant, and equipment of the Sewer Utility. The financial statements of PSA are available
at the Clerk of the Board of Supervisors, County of San Bernardino, 385 N. Arrowhead
Avenue, 2nd Floor, San Bernardino, California 92402. The joint venture is not
experiencing fiscal stress.
38
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(9) Joint Venture(Continued)
Calton/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 reclamation systems, including the Regional
Rapid Infiltration and Extraction Facility (RIX). The Colton/San Bernardino Regional
Tertiary Treatment and Water Reclamation Authority is governed by a separate Board
consisting of four members, two of whom are appointed by the City of San Bernardino
through the Department's Board of Water Commissioners and two appointed by the City
Council of the City of Colton. Construction of the project was administered by the Santa
Ana Watershed Project Authority (SAWPA) and was substantially completed during
1996. Administration and operation of the project was turned over to the Colton/San
Bernardino Regional Tertiary Treatment and Water Reclamation Authority at that time.
Each of the cities, San Bernardino and Colton, has an undivided interest in the real
property and any related debt of the RIX project based on a split of 80 percent and 20
percent, respectively. The Departments' investment in the joint venture is included in
the property, plant, and equipment of the Department. The financial statements are
available at the Department. The joint venture is not experiencing fiscal stress.
(10) Construction and Other Significant Commitments
Commitments
Commitments in the form of signed contracts for costs to complete construction projects
or other improvements amounted to $6,370,307 and $7,397,958 at June 30, 2007 and
June 30, 2006, respectively.
Risk Management
The Department's risk management activities are recorded in both of the utility funds.
Significant losses are covered by commercial 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. For
insured events, there have been no significant reductions in insurance coverage.
Settlement amounts have not exceeded insurance coverage for the current year or the
three prior years.
39
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(10) Construction and Other Significant Commitments (Continued)
Workers' Compensation Claims Liabilities
The Department records an estimated liability for workers' compensation. Claims
liabilities are based on estimates of the ultimate cost of reported claims (including future
claim adjustment expenses) and an estimate for claims incurred but not reported based
on historical experience. Workers' compensation unpaid claims liabilities are not
discounted.
The following represents the changes in approximate aggregate liabilities for the
Department for the year ended June 30, 2007:
Total
Liability balance, July 1, 2006 $359,251
Claims and changes in estimates 101,766
Claim payments (23,928)
Claims payable, June 30, 2007 $437,089
The following represents the changes in approximate aggregate liabilities for the
Department for the year ended June 30, 2006:
Total
Liability balance, July 1, 2005 $505,703
Claims and changes in estimates (21,468)
Claim payments (124,984)
Claims payable, June 30, 2006 3 251
(11) Contingencies
Federal and State Grants
Amounts received or receivable from grant agencies are subject to audit and adjustment
by grantor agencies, principally the federal and state governments. Any disallowed
claims, including amounts already collected, may constitute a liability of the Department.
The amount, if any, of expenditures which may be disallowed by the grantor cannot be
determined at this time although the Department expects such amounts, if any, to be
immaterial.
40
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree
In 1996, the City of San Bernardino ("City")filed a complaint against the United States of
America, Department of the Army ("Army") to recover damages, response costs and
other available remedies relating to contamination alleged to have originated at a World
War II Army installation known as Camp Ono. In March 2005, the United States District
Court, Central District, entered judgment, in the form of a consent decree (Consent
Decree), in the matter of City of San Bernardino v. United States of America. The
consent decree settles the City's and the State's claims arising from the groundwater
contamination allegedly caused by the Army. The Consent Decree contains a number
of provisions obligating the City (through the Municipal Water Department) to operate
and maintain the Newmark Groundwater Superfund site ("Site"). The Site consists of
two operable units, the Newmark Operable Unit and the Muscoy Operable Unit. The
Newmark Operable Unit was declared operational and functional in 1998.
The Consent Decree provided for a payment of$69 million from the Army to the City for
performance of the work outlined in the consent decree. Upon entry of the Consent
Decree, the City, through the Department, received title to all facilities constructed by
the United States Environmental Protection Agency (EPA) for the Site and agreed to
operate and maintain the groundwater extraction and treatment system for a period of
50 years. The $69 million dollar payment consisted of $59 million for operation and
maintenance and $10 million for the construction of certain capital facilities that would
be required in the future. The funds are subject to strict limitations, contained in the
Consent Decree, as to how the may be spent.
Pursuant to the Consent Decree, $10 million, including interest earned, has been set
aside to be used only for (i) funding construction of treatment and directly related
transmission systems that expanded the Department's capacity to deliver potable water,
and (ii) funding work performed by the Department to complete construction of the
Muscoy Operable Unit extraction system. These "capital facility" funds may not be used
for costs incurred to operate, maintain, repair or retrofit components of the Site
extraction or treatment systems constructed by EPA. In September 2007, the Muscoy
Operable Unit was declared operational and functional.
When settlement funds were received, the Department recorded the proceeds as
deferred revenue. Revenue associated with the consent decree is recognized at the
time that eligible expenses are incurred.
41
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree (Continued)
The Department invested approximately $50 million to purchase a blended insurance
policy from AIG Insurance. This policy provides both pollution legal liability coverage
and a finite risk policy blend that provides cost cap coverage for the first 30 years of the
Department's 50-year obligations. This policy pays the Department back for itemized
expenses and, when appropriate, for the capital expenses that will be incurred. The
payment made to purchase this insurance has been recorded as prepaid insurance on
the balance sheet of the Department's Water Fund. This asset is amortized over the
period of benefit as costs are incurred.
In March 2006, the Department invested the remaining settlement funds into a
Guaranteed Investment Contract (GIC) with AIG Match Funding Corporation (AIGMFC).
This investment is at an interest rate of 4.95% per annum and is calculated based on
the average balance of the amount outstanding of the investment. AIGMFC will pay out
to the Department years 31-50 of the Consent Decree obligations, based on the
calculated repayment of principal and interest schedule of the GIC. The repayments
begin quarterly from April 2035 through January 2056.
Additionally, the County of San Bernardino paid to the Department a sum of $1,000,000,
which the Department must use solely to perform obligations under the Consent Decree
42
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
1
(13) Net Assets
The following is a detailed breakdown of net assets.
Water Sewer
Total capital assets (net of accumulated
depreciation and accumulated amortization) $130,861,321 105,396,001
Less related debt:
Notes payable (8,715,598) (17,012,421)
Water bonds payable (65,000) -
Certificates of participation - (25,846,450)
Add back:
Portion of debt offsetting debt service reserves - 3,578,642
Total invested in capital assets, net of related
debt 122,080,723 66,115,762
Restricted Net Assets - Capital related fees 11,294,440 15,985,893
Unrestricted Net Assets 4,927,609 17,962,841
Total Net Assets $138.302.772 10-M4,5_06
Amounts restricted for debt service is calculated as follows:
Water Sewer
Cash and investments with fiscal agent restricted
for debt service $ - 3,578,642
Less portion of debt offsetting unexpended debt
proceeds held in the debt service amounts - (3,578,642)
43
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(14) Subsequent Events
August 1, 2007, the Department entered into an Installment Sales Agreement with the
CIEDB for$10,000,000.
January 1, 2008, Department employees will receive an increase in their PERS plan
from 2.0 to 2.7 at age 55.
The Department has completed construction of the Muscoy Operable Unit ("Muscoy")
extraction system and it has been declared operable.
I
I
44
SUPPLEMENTARY INFORMATION
45
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-46
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Board of Water Commissioners and Organization
As of June 30, 2007
MAYOR OF THE CITY OF SAN BERNARDINO
Patrick J. Morris
BOARD OF WATER COMMISSIONERS
Name Office
B. Warren Cocke President
Toni Callicott Commissioner
Louis A. Fernandez Commissioner
Judith W. Battey Commissioner
Norine I. Miller Commissioner
ADMINISTRATION
Stacey R. Aldstadt
General Manager
Robin L. Ohama
Deputy General Manager
Matthew H. Litchfield, P.E.
Director, Water Utility
John A. Perry, P.E.
Director, Water Reclamation
Don Shackelford
Director, Finance
Valerie K. Housel
Director, Environmental
And Regulatory Compliance
ORGANIZATION
The City of San Bernardino Municipal Water Department was formed in 1904 under the Charter
of the City of San Bernardino. The Department is governed by the Board of Water
Commissioners who are appointed by the Mayor of the City of San Bernardino. The Charter
gives the Board of Water Commissioners semi-autonomous authority to govern the Department
independent of the City Council. 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, East Valley Water District, City of
Loma Linda, the former Norton Air Force Base and Patton State Hospital.
47
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Insurance Coverage
As of June 30, 2007
Insurance coverage for the Department at June 30, 2007 is summarized below:
Multiple insurance companies and policies; all-risk property coverage, including
Earthquake and flood —July 1, 2006, to July 1, 2007
Primary limit:
Commonwealth Insurance Company, Policy#US6416 $10,000,000
Excess limits:
Landmark American Insurance Co., Policy#NHD412827 2,500,000
Newmarket Underwriters Ins. Co., Policy#NU1181183 2,500,000
Landmark American Insurance Co., Policy#LHD4142828 1,000,000
Underwriter At Lloyds, Policy#06PYOM0176 5,250,000
Commonwealth Insurance Company, Policy#US64171 1,250,000
Underwriter At Lloyds, Policy#GEP7339 2,500,000
RSUI, Policy#NHD412829 100,000,000
Pacific Indemnity Company, Policy#78357989; boiler and machinery
Coverage—July 1, 2006 to July 1, 2007
Per occurrence limit 10,000,000
American Alternative Insurance Co., Policy#SDISSK9100525-2; general
Liability, including bodily injury and property damage, personal injury and
Advertising injury, professional liability and wrong acts —
June 30, 2006 to June 30, 2007
Bodily injury and property damage
Per occurrence 1,000,000
Aggregate 3,000,000
Damages to premises rented to you
Any one premises 1,000,000
Personal injury and advertising injury
Per person 1,000,000
Aggregate 3,000,000
Employee benefits liability
Per person 1,000,000
Aggregate 3,000,000
Professional liability
Per claim 1,000,000
Aggregate 3,000,000
Wrongful acts
Per claim 1,000,000
Aggregate 3,000,000
American Alternative Insurance Co., Policy#SDSA900485-2/00; business
Automobile coverage—June 30, 2006 to June 30, 2007
Owned automobile liability limit 1,000,000
Hired/non-owned automobile liability 1,000,000
Hired car physical damage 50,000
Uninsured motorist liability 1,000,000
Medical 5,000
48
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Insurance Coverage (Continued)
As of June 30, 2007
Multiple insurance companies and policies; excess liability coverage—
June 30, 2006 to June 30, 2007
Primary limit:
American Alternative Ins. Co., Policy#SDISSX9200151-4 10,000,000
Excess limits:
St. Paul Surplus Lines Co., Policy#QY01225346 10,000,000
American International Specialty Lines, Policy#26738997; pollution
Liability—October 30, 2004 to October 30, 2009 (each incident/aggregate)
Third-Party Claims, On-site Bodily Injury and Property Damage 5,000,000
Third-Party Claims, Off-site Clean-Up Resulting from New Conditions 5,000,000
Third-Party Claims, Off-site Bodily Injury and Property Damage 5,000,000
Third-Party Claims, Resulting from Transported Cargo 5,000,000
National Union, Policy#9653120; employment practices liability—
October 30, 2006 to October 30, 2007 2,000,000
Hartford Fire Insurance Company, Policy#83BPEEG2769; crime
coverage's; — March 15, 2007 to March 15,2008
Employee theft (each incident) 500,000
Theft, disappearance and destruction 500,000
American International Specialty Lines, Policy#7783901; pollution
Legal liability clean-up cost cap—September 28, 2004 to March 23, 2035
Coverage A— Legal liability for pollution conditions 25,000,000
Coverage B—Consent decree required clean-up 150,000,000
The Department is self-insured through the City of San Bernardino for workers' compensation
liability and material damage to rolling stock.
49
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50
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Water System Demographics
Water Production/Utilization (Cubic Feet)
2006-2007 2005-2006 2004-2005
Water utilization (shown in cubic feet)
Water sold to direct customers 1,979,377,300 1,891,121,000 1,783,045,900
Water sold to other agencies 424,271,042 208,657,743 56,760,218
Water sold to or used by City 90,022,904 75,753,797 70,903,097
2,493,671,246 2,175,532,540 1,910,709,215
Loss and other factors 240,610,084 153,875,410 182,631,975
Total water sold, used or lost 2,734,281,330 2,329,407,950 2,093,341,190
Loss and other factors percentage 8.800% 6.606% 8.724%
51
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
SCHEDULE OF WATER PRODUCTION
June 30,2007
2006-2007 2005-2006 2004-2005
Total Water Total Water Total Water
Per 1,000 Per 1,000 Per 1,000
Amount Cubic Feet Amount Cubic Feet Amount Cubic Feet
Summary of total water
production and purchased cost
Total production,purchases,and - 2,734,281 - 2,329,408 - 2,093,341
supplemental
Production and pumping expenses $ 6,617,137 - $ 5,408,474 - 4,919,498 -
Total expense before depreciation 6,617,137 $2.42006 5,408,474 $2.32182 4,919,498 $2.35007
Depreciation of plant facilities 31016,156 1.10309 2,536,417 1.08887 2,324,233 1.11030
Totals $ 9,633,293 $ 3.52315 $ 7,944,891 $ 3.41069 $ 7,243,731 $ 3.46037
Summary of costs per acre foot
Acre feet - 62,770.455 - 53,475.849 - 48,056.497
Cost per acre feet before
depreciation $105.42 - $101.14 - $102.37 -
Cost per acre feet including
depreciation of plant facilities $153.47 - $148.57 $150.73
Includes direct pumping and production expenses,and operations administration expenses.
(Dept.3040-3041)
52
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
SCHEDULE OF WATER RATES
Rates effective July 1,2006,are summarized as follows:
Single and Multiple Family Dwelling Units, Commercial, Landscape and Industrial Use
Minimum Monthly Charge
Meter Effective Dates
Size July 1, 2006 July 1,2007
518" $8.32 $8.59
314" $11.10 $11.47
1" $13.27 $13.71
1-1/2" $23.81 $24.60
2" $33.26 $34.36
3" $56.56 $58.43
4" $96.02 $99.19
6" $172.87 $178.57
8" $259.28 $267.84
10" $324.10 $334.80
12" $388.98 $401.82
All water usage, except municipal,will be billed at the rate of$0.91 and$0.94 per 100 cubic feet effective July 1, 2006,
and July 1,2007, respectively with no minimum allowance
Elevation Zone Charge
Zone Charge per 100 cubic feet
1 $0.00 $0.00
2 $0.06 $0.06
3 $0.14 $0.14
4 $0.20 $0.21
5 $0.30 $0.12
6 $0.47 $0.12
This charge is base on the identified delivery costs associated with a specific elevation zone.
Assessment Districts
All water usage furnished for use by the City of San Bernardino for landscape assessment districts or funded
from other than the City's General Fund will be billed at the rate of$0.288 per 100 cubic feet.
Municipal Water Users
Water furnished for municipal use to the City of San Bernardino shall be exempt from all water service
charges as long as water usage does not exceed 110 percent of the fiscal year 1994/1995 water usage.
Water usage in excess of this amount is charged at$0.288 per 100 cubic foot.
Energy Surcharge
Effective July 5, 2001, all consumption, except municipal, shall be charged$0.05 per cubic foot to offset
the increased power costs to the entire service territory.
These rates were approved by the Board of Water Commissioners on June 20,2006.
53
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Sundry Water Statistical Data
2006-2007 2005-2006
Production Percent Production Percent
Pumping Plants in Cubic Feet Production in Cubic Feet Production
Antil Plant 3,228,400 0.12% 94,600 0.00%
Baseline &California Well 13,730,300 0.52% 4,058,500 0.18%
Cajon Boulevard Plant 183,006,100 6.90% 156,173,000 7.00%
Cajon Pass&Vincent Wells 10,725,600 0.41% 1,568,900 0.07%
Devil Canyon Plant 148,230,130 5.60% 87,633,950 3.93%
EPA Wells- Newmark OU 656,297,800 24.78% 670,111,400 30.06%
EPA Wells - Muscoy OU 533,951,600 20.17% 577;040,000 25.89%
40th Street Well 1,757,700 0.07% 1,311,500 0.06%
Gilbert Street Well 62,571,700 2.36% 12,634.000 0.57%
IVDA Well #1 1,985,500 0.07% - 0.00%
Kenwood Wells 144,349,100 5.45% 159,946,600 7.18%
LeRoy Street Well 45,795,300 1.73% 23,716,800 1.06%
Lynwood Well 61,583,900 2.33% 34,866,600 1.56%
Lytle Creek Plant 17,428,200 0.66% - 0.00%
Mallory Well 35,684,900 1.35% 35,182,700 1.58%
Mill&"D" Streets Well 19,501,400 0.74% 18,456,300 0.83%
Newmark Plant 168,064,900 6.35% 122,521,500 5.50%
19th Street Plant 71,438,800 2.70% 69,559,800 3.12%
Olive &Garner Well 63,649,600 2.40% 41,192,200 1.85%
Perris Hill Plant 5,858,600 0.22% 6,814,300 0.31%
7th Street Well 7,003,400 026% 3,916,700 0.18%
Sierra Way& 16th Street Wells 44,616,500 1.69% 210,000 0.01%
10th & "J" Street Well 91,265,200 3.45% 67,220,600 3.02%
30th &Mountain View Wells 130,756,000 4.94% 66,308,800 2.97%
27th Street Well 26,624,700 1.01% 14,396,300 0.65%
Waterman Avenue Plant 98,441,900 3.72% 54,028,000 2.42%
Total Water Produced 2,647,547,230 100.00% 2,228,963,050 100.00%
Purchased water-
East Valley Water District 86,734,100 100,444,900
Total Water Production 2,734,281,330 100.00% 2,329,407,950 100.00%
54
2004-2005 2003-2004 2002-2003
Production Percent Production Percent Production Percent
in Cubic Feet Production in Cubic Feet Production in Cubic Feet Production
33,443,800 1.63% 82,571,200 3.79% 55,968,400 2.70%
12,249,100 0.60% 20,784,900 0.95% 16,895,500 0.82%
114,021,100 5.54% 98,009,400 4.50% 94,775,100 4.58%
26,840,000 1.30% 38,443,100 1.76% 72,855,700 3.52%
94,388,390 4.59% 123,324,880 5.66% 117,012,030 5.65%
576,392,400 28.02% 565,447,170 25.93% 502,864,300 24.28%
133,156,900 6.47% - 0.00% - 0.00%
1,505,100 0.07% 1,676,100 0.08% 1,569,000 0.08%
43,913,100 2.14% 83,912,300 3.85% 34,258,200 1.65%
153,162,100 7.45% 166,971,400 7.66% 62,409,200 3.01%
59,151,700 2.88% 60,969,500 2.80% 101,743,600 4.91%
38,705,300 1.88% 53,509,860 2.45% 95,388,500 4.61%
5,509,700 0.27% 31,152,100 1.43% 53,527,500 2.58%
35,523,100 1.73% 21,317,100 0.98% 10,662,600 0.51%
20,305,400 0.99% 14,140,800 0.65% 16,517,300 0.80%
148,870,200 7.24% 158,321,800 7.26% 174,258,800 8.42%
129,585,600 6.30% 132,848,000 6.09% 182,126,500 8.80%
96,972,900 4.71% 115,058,398 5.28% 47,612,000 2.30%
17,526,200 0.85% 17,280,200 0.79% 18,211,200 0.88%
5,186,600 0.25% 37,796,200 1.73% 4,544,200 0.22%
166,100 0.01% 205,100 0.01% 422,900 0.02%
98,420,900 4.79% 129,074,500 5.92% 107,610,600 5.20%
116,906,300 5.68% 122,995,600 5.64% 187,466,000 9.05%
27,794,700 1.35% 31,616,500 1.45% 11,021,500 0.53%
67,056,200 3.26% 72,891,380 3.34% 101,031,700 4,88%
2,056,752,890 100.00% 2,180,317,488 100.00% 2,070,752,330 100.00%
36,588,300 73,492,900 55,962,500
2,093,341,190 100.00% 2,253,810,388 100.00% 2,126,714,830 100.00%
55
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
WATER UTILITY
Schedule of Service Area and Customers
Number of Active Connections by Classification of User
as of June 30, 2003 through June 30, 2007
User Type 2007 2006 2005 2004 2003
Single family residential 34,842 34,900 34,360 34,075 33,762
Multiple family residential 2,913 2,922 2,930 2,929 2,886
Commercial/institutional 3,954 3,847 3,812 3,761 3,752
Other 1,755 1,572 1,299 1,223 1,154
Total all users, active 43,464 43,241 42,401 41,988 41,554
Revenue by Class of User
Fiscal Year 2006-2007
Fiscal Year Percentage of
User Class Revenue Annual Revenue
Single family residential $ 13,794,954 55.32%
Multiple family residential 3,536,202 14.18%
Commercial/industrial 5,807,406 23.29%
Other and unmetered 1,795,878 7.20%
Total all users $ 24,934,440 100%
Largest users: The System had no Customer accounting for more than three percent of the
revenues for the fiscal year 2006-2007
56
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Schedule of Sewer Rates and Statistics
Regional Facilities Collection
and Treatment System Total monthly
Classification Charge Charge City Charge
Rates effective as of July 1,2004
Residential $14.50 per month $3.45 per month 17.95/
month/unit
Commercial:
Multi-family,mobile home parks $0.83/HCF $0.33/HCF $1.16/HCF
(4 or more units) +$2.00/month +$1.00/month +$3.00Imo
Retail,commercial,light industrial $1.70fHCF $0.33/HCF $2.03/HCF
(non-office,bakeries,markets,theaters,dry cleaners) +$2.00/month +$1.00 1month +$3.00/mo
Auto repair,car wash $1.171HCF $0.33/HCF $1.50/HCF
+$2.00/month +$1.00/month +$3.00/mo
Offices,motels(without restaurants) $1.32/HCF $0.33 1HCF $1.65/HCF
+$2.00/month +$1.00/month +$3.00/mo
Restaurants, hotels $1.84/HCF $0.33/HCF $2.17/HCF
(hotel/motels with restaurants) +$2.00/month +$1.00 1month +$3.00/mo
Laundromats $1.15/HCF $0.33 1HCF $1.48/HCF
+$2.00 1month +$1.00/month +$3.00 1mo
Hospitals,convalescent homes $0.84 1HCF $0.33/HCF $1.17/HCF
+$2.00/month +$1.00/month +$3.00/mo
Schools,churches,nursery schools, $0.62/HCF $0.33/HCF $0.95/HCF
daycares +$2.00/month +$1.00/month +$3.001mo
Industry $816.10/MG DF $0.33 1HCF
$264.91/1,000 LBS BOD +$1.00/month
$577.41/1,000 LBS SS
HCF=100 cubic feet of water usage
MG=Million gallons
BOD=Biological oxygen demand
SS=Suspended solids
The last rate change prior to July 1,2004 occurred in June 1995. (Continued)
57
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO,CALIFORNIA
Schedule of Sewer Rates and Statistics(Continued)
June 30,2007 June 30,2006
Residential Nonresidential Total Residential Nonresidential Total
Number of connections
City of San Bernardino 32,367 5,528 37,895 31,523 5,401 36,924
East Valley Water District 18,085 1,160 19,245 18,005 1,160 19,165
City of Loma Linda 4,567 584 5,151 4,493 584 5,077
55,019 7,272 62,291 54,021 7,145 61,166
Annual billings
City of San Bernardino $6,238,570 $6,654,231 $12,892,801 $6,021,449 $6,448,117 $12,469,566
East Valley Water District 3,231,282 2,252,260 5,483,542 3,184,223 2,171.095 5,355,318
City of Loma Linda 728,111 950,227 1,678,338 728,713 910.116 1,638 829
$10,197,963 $9,856,718 $20,054,681 $9,934,385 $9,529,328 $19,463,713
58
June 30,2005 June 30,2004
Residential Nonresidential Total Residential Nonresidential Total
32,027 5,635 37,662 31,553 5,240 36,793
17,684 1,160 18,844 17,265 1.128 18,393
4,370 569 4,939 4,061 566 4,627
54,081 7,364 61,445 52,879 6,934 59,813
$6,141,646 $6,671,493 $12,813,139 $5,526,450 $5,247,261 $10,773,711
3,224,702 1,946,936 5,171,638 2,970,140 1,694,656 4,664,796
691.920 840,248 1,532,168 617,813 726,191 1,344,004
$10,058,268 $9,458,677 $19,516,945 $9,114,403 $7,668,108 $16,782,511
59
Eamisawifil-
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule - 1992 Certificates of Participation
San Bernardino Public Safety Authority
June 30, 2007
EARLY PAY OFF
During Fiscal Year 2001, the 1992 Certificates of Participation were retired by an early call and payoff.
The total principal amount of$34,805,000 was paid off February 1, 2001.
An early call premium of$674,000 was incurred due to this transaction. This amount will be amortized
annually in the amount of$42,125 over a sixteen year period.
The unamortized discount balance of$158,361 will continue to be amortized annually in the amount of
$16,520 with the final payment of$9,681 due February 1, 2017.
Funds used,for the Primary Hydraulic Reliability Project, remodel of the administration laboratory
building and design of 3A secondary treatment.
60
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule-1998 Refunding Sewer Revenue Certificates of Participation
San Bernardino Public Safety Authority
June 30,2007
Principal
Principal Unamortized Payments Interest
Date Due Payments Discounts (Net) Interest Total Rate
08101/07 - - - 637,528 637,528 5.00%
02/01/08 2,010,000 6,760 2,003,240 637,528 2,640,768 5.00%
08/01/08 - - - 587,278 587,278 4.50%
02/01/09 2;125,000 6,238 2,118,762 587,278 2,706,040 4.50%
08/01/09 - - - 539,465 539,465 4.70%
02/01/10 2,240,000 5,687 2,234,313 539,465 2,773,778 4.70%
08/01/10 - - - 486,825 486,825 5.00%
02/01/11 2,365,000 5,105 2,359,895 486,825 2,846,720 5.00%
08/01/11 - - - 427,700 427,700 4.75%
02/01/12 2,510,000 4,492 2,505,508 427,700 2,933;208 4.75%
08/01/12 - - - 368,088 368,088 4.85%
02/01/13 2,650,000 3,840 2,646,160 368,088 3,014,248 4.85%
08/01/13 - - - 303,825 303,825 4.75%
02!01114 2,805,000 3,152 2,801,848 303,825 3,105,673 4.75%
08101/14 - - - 237,206 237,206 5.25%
02/01/15 2,965,000 2,424 2,962,576 237,206 3,199,782 5.25%
08/01/15 - - - 159,375 159,375 5.00%
02/01/16 3,155,000 1,655 3,153,345 159,375 3,312,720 5.00%
08/01/16 - - - 80,500 80,500 5.00%
02/01/17 3,220,000 836 3,219,164 80,500 3,299,664 5.00%
$ 26,045,000 40,189 _ 26,004,811 7,655,580 33,660,391
62
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Bond Schedule-General Obligation Waterworks Bonds, Series C
June 30, 2007
Principal Interest
Date Due Payments Interest Total Rate
09/01/07 - 2,519 2,519 7.75%
03/01/08 10,000 2,519 12,519 7.75%
09/01/08 - 2,131 2,131 7.75%
03/01/09 10,000 2,131 12,131 7.75%
09/01/09 - 1,744 1,744 7.75%
03/01/10 10,000 1,744 11,744 7.75%
09/01/10 - 1,356 1,356 7.75%
03/01/11 10,000 1,356 11,356 7.75%
09101/11 - 969 969 7.75%
03/01112 10,000 969 10,969 7.75%
09,01112 - 580 580 7.75%
03/01/13 15,000 580 15,580
$ 65,000 18,598 83,598
Bonds related to water system improvements for South San Bernardino Water District,
which was acquired by the Department in 1991.
62
ONE—
An Independent CPA Firm
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2301 Dupont Drive, Suite 200
Irvine, California 92612
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www.mhm-pc.com
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
REPORT ON COMPLIANCE AND OTHER MATTERS AND ON
INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the Municipal Water Department of the City of San
Bernardino ("Department"), as of and for the year ended June 30, 2007, which collectively
comprise the Department's basic financial statements and have issued our report thereon dated
January 4, 2008. 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.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Department's financial statements
are free of material misstatement, we performed tests of its compliance with certain provisions
of laws, regulations, contracts and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit and,
accordingly, we do not express such an opinion. The results of our tests disclosed no instances
of noncompliance or other matters that are required to be reported under Government Auditing
Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Department's internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of
expressing our opinions on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the Department's internal control over financial reporting.
Accordingly, we do not express an opinion on the effectiveness of the Department's internal
control over financial reporting.
A control deficiency exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent or detect misstatements on a timely basis. A significant deficiency is a control
63
Board of Water Commissioners
Municipal Water Department of the City of San Bernardino, California
Page Two
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the Department's internal control.
Our consideration of the internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily disclose all
deficiencies in internal control that might be significant deficiencies or material weaknesses.
We did not identify any deficiencies in internal control over financial reporting that we consider
to be material weaknesses, as defined above.
This report is intended solely for the information and use of the Board of Water Commissioners,
and manage—rent of the .',apartment and is not intended to be and should not be used by
anyone other "han these s:i.;ecified parties.
Irvine, California
January 4, 2008
64