Loading...
2015 SDWD Annual Financial Report San Dieguito Water District Annual Financial Report For the Year Ended June 30, 2015 San Dieguito Water District A Component Unitof the City of Encinitas San Dieguito Water District Encinitas, California Annual Financial Report and Independent Auditors’ Reports For the Years Ended June 30, 2015 and 2014 San Dieguito Water District Table of Contents Page FINANCIAL SECTION Independent Auditors’ Report on Financial Statements ............................................................................ 1 Report on Internal Control over Financial Reporting And on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ...................................................... 5 Management’s Discussion and Analysis (Required Supplementary Information – Unaudited) ............. 7 Basic Financial Statements: Statements of Net Position .......................................................................................................................... 15 Statements of Revenues, Expenses and Changes in Net Position ............................................................. 16 Statements of Cash Flows ............................................................................................................................ 17 Notes to the Financial Statements ............................................................................................................... 19 Required Supplementary Information (Unaudited): Other Postemployment Employee Benefits Schedule of Funding Progress ........................................... 49 Schedule of Proportionate Share of the Net Pension Liability ................................................................ 50 Schedule of Contributions ....................................................................................................................... 53 SELECTED STATISTICAL INFORMATION SECTION (UNAUDITED) Historical Debt Service Coverage ........................................................................................................... 60 Schedule of Water Rates ........................................................................................................................ 60 Bi-Monthly Meter Service Availability Charges ....................................................................................... 61 Historic Potable Water System Revenues .............................................................................................. 61 Historic Recycled Water System Revenues ........................................................................................... 62 Summary of Water Production by Source ............................................................................................... 62 Summary of Water Deliveries by Source ................................................................................................ 63 Ten Largest Customers .......................................................................................................................... 63 Total Service Connections by Category .................................................................................................. 64 This page intentionally left blank FINANCIAL SECTION San Dieguito Water District, 505 S Vulcan Ave., Encinitas, CA. 92024www.encinitasca.gov This page intentionally left blank Phone: Fax: INDEPENDENT AUDITORS’ REPORT To the Board of Directors of the San Dieguito Water District Encinitas, California Report on Financial Statements We have audited the accompanying financial statements of the San Dieguito Water District (the “District”), a component unit of the City of Encinitas, California (the “City”), which comprise the statement of net position as of June 30, 2015 and June 30, 2014 and the related statements of revenues, expenses, and changes in net position, and cash flows for the years then ended, and the related notes to financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audits. Investment in R.E. Badger Filtration Plant We did not audit the financial statements of the R.E. Badger Filtration Plant which represents the following percentages of the assets, net position, and expenses of the District as of June 30, 2015 and June 30, 2014: % of TotalJune 30, 2015June 30, 2014 Assets29%28% Net Position41%39% Expenses10%11% Those statements were audited by other auditors whose report has been furnished to us, and our opinion, in so far as it relates to the amounts included for the Investments in R.E. Filtration Plant, is based solely on the report of the other auditors. To the Board of Directors of the San Dieguito Water District Encinitas, California Page 2 Investment in R.E. Badger Water Facilities Financing Authority We did not audit the financial statements of the R.E. Badger Water Facilities Financing Authority which represents the following percentages of the assets, net position, and expenses of the District as of June 30, 2015 and June 30, 2014: % of TotalJune 30, 2015June 30, 2014 Assets1%1% Net Position2%2% Expenses5%5% Those statements were audited by other auditors whose report has been furnished to us, and our opinion, in so far as it relates to the amounts included for the Investments in R.E. Filtration Plant, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our audit and the report of others auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the District as of June 30, 2015 and June 30, 2014, and the changes in financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. 2 To the Board of Directors of the San Dieguito Water District Encinitas, California Page 3 Emphasis of Matter Implementation of GASB Statements Nos. 68 and 71 As discussed in Note 9 to the basic financial statements, the District implemented Governmental Accounting Standards Board (“GASB”) Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27) and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. The adoption of these standards required retrospective application of previously reported net position and reclassification of certain accounts as of July 1, 2014 as described in Note 12 to the basic financial statements. In addition, net pension liability is reported in the Statement of Net Position in the amount of $3,779,285 as of the measurement date. Net pension liability is calculated by actuaries using estimates and actuarial techniques from an actuarial valuation as of June 30, 2013 which was then rolled-forward by the actuaries to June 30, 2014, the measurement date for California Public Employee Retirement System (“CalPERS”). Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the schedule of changes in net pension liability and related ratios, schedule of contributions, and schedule of funding progress on pages 7-11 and 49-55, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements. The statistical section is presented for purposes of additional analysis and is not a required part of the basic financial statements. The statistical section has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 3 To the Board of Directors of the San Dieguito Water District Encinitas, California Page 4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 9, 2015, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering District’s internal control over financial reporting and compliance. San Diego, California December 9, 2015 4 Phone: Fax: REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Independent Auditors’ Report To the Board of Directors of the San Dieguito Water District Encinitas, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the San Dieguito Water District (the “District”), a component unit of the City of Encinitas, California (the “City”), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated December 9, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (“internal control”) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control. Adeficiencyin internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. To the Board of Directors of the San Dieguito Water District Encinitas, California Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Diego, California December 9, 2015 6 San Dieguito Water District Management Discussion & Analysis (Unaudited) This section of the San Dieguito Water District (the “District”) Annual Financial Report presents Management’s Discussion and Analysis of the District’s financial position and performance for fiscal year 2014-15. Please read it in conjunction with the District’s Basic Financial Statements, which include explanatory footnotes and required supplementary information. FINANCIAL HIGHLIGHTS Table 1 Summarized Statement of Net Position (Millions of Dollars) Fiscal Fiscal Dollar Percent Fiscal Dollar Percent Year 2015Year 2014ChangeChangeYear 2013ChangeChange Current assets18.6$ 20.1$ (1.5)$ -7.5%17.4$ 2.7$ 15.5% Restricted assets0.01.0(1.0)-100.0%1.00.00.0% Other noncurrent assets0.20.3(0.1)-34.7%0.4(0.1)-25.0% Investments in joint ventures17.718.3(0.6)-3.3%18.6(0.3)-1.6% Capital assets (net)22.522.00.52.3%21.60.41.9% Total Assets59.061.7(2.7)-4.4%59.02.74.6% Current liabilities1.92.9(1.0)-35.2%1.81.161.1% Current portion of long-term debt1.01.1(0.1)-10.5%1.00.110.0% Net pension liability3.80.03.8100.0%0.00.00.0% Long-term debt10.712.6(1.9)-15.2%13.6(1.0)-7.4% Total Liabilities17.316.60.74.4%16.40.21.2% Total Deferred Outflows-Inflows(0.7)0.0(0.7)100.0%0.00.00.0% Net Position: Net investment in capital assets10.88.32.530.1%25.5(17.2)-67.5% Restricted0.01.0(1.0)-100.0%1.00.0100.0% Unrestricted30.235.8(5.6)-15.6%16.119.7122.4% Total Net Position $ 45.141.0$ (4.1)$ -9.1%$ 2.542.6$ 5.9% The District’s net position decreased by $4.1 million, or 9.0%, from 2014 to 2015 and $2.5 million from 2013 to 2014. The majority of the 2015 decrease from 2014 is the result of the implementation of GASB 68 “Accounting and Financial Reporting for Pensions”. As a result, prior year Net Position was restated and reduced by $4.6 million in order to reflect the Net Pension Liability as of 7/1/14 (See Note 12). The Investment in Joint Ventures decreased by $0.6 million primarily due to the implementation of GASB 68 reported by Santa Fe Irrigation District. The District had positive cash flows from operations in 2015, after factoring in debt service payments of $0.9 million. Water rates increased by an average of 4.5%, effective July 1, 2014. 7 San Dieguito Water District Management Discussion & Analysis (Continued) (Unaudited) Table 2 Changes in Net Position are affected by revenues and operating expenses as summarized in . Table 2 Summarized Statement of Revenues, Expenses and Changes in Net Position (Millions of Dollars) Fiscal Fiscal Dollar Percent Fiscal Dollar Percent Year 2015Year 2014ChangeChangeYear 2013ChangeChange Operating revenues14.9$ 15.4$ (0.5)$ -3.4%13.7$ 0.8$ 5.8% Operating expenses: Source of supply6.8 6.4 0.4 5.8%3.8 - 0.0% General operations & maintenance4.42.32.1 89.6%2.4(0.1) -4.2% Facility operations & maintenance1.71.50.2 15.2%2.1(0.2) -9.5% General and administrative(0.1)1.8(1.9) -107.1%1.7(0.1) -5.9% Depreciation and amortization2.31.50.8 51.4%1.50.2 13.3% Total operating expenses15.013.51.511.1%11.5(0.2)-1.7% Operating income(0.1)1.8(1.9)-106.7%2.2(0.4)-18.2% Nonoperating revenues0.90.80.1 15.9%0.90.1 11.1% Nonoperating (expenses)(0.5)(0.6)0.1 -20.8%(0.7)- 0.0% Income before transfers and capital contributions0.32.0(1.7)-83.4%2.4(0.3)-12.5% Transfers in from City of Encinitas0.00.00.00.0%0.0(0.5) #DIV/0! Capital contributions0.30.5(0.2) -46.3%0.90.5 55.6% 0.62.5(1.9)-76.0%3.30.13.0% Change in net position 40.442.6(2.2)-5.1%39.32.25.6% Net position, beginning Net position, ending41.0$ 45.1$ (4.1)$ -9.0%42.6$ 2.5$ 5.9% Revenues – Operating revenues decreased $0.5 million from 2014 to 2015 and increased $1.7 million from 2013 to 2014. The 2015 decrease was mainly due to customer demand for potable water was 6% lower than 2014 due to mandatory water-use restrictions in response to the statewide drought situation. The 2014 increase was mainly due to a September 2013 rate increase and slightly higher sales volume over 2013. Non-operating revenues were essentially flat from both 2014 to 2015 and 2013 to 2014. Expenses – Operating expenses increased by $1.5 million from 2014 to 2015 and increased $2 million from 2013 to 2014. The 2015 increase in source of supply (water purchases) of $0.4 million was primarily driven by the ratio of water purchased from the San Diego County Water Authority (imported water) compared to the amount of local water utilized. Due to a lack of local water availability, the District purchased a higher percentage of imported water this fiscal year, which is significantly more expensive than local water. However, since less local water was utilized, the costs for treatment (“facility operations & maintenance”) were lower in 2015. Other operating expenses were comparable to prior year amounts in both 2014 and 2015. 8 San Dieguito Water District Management Discussion & Analysis (Continued) (Unaudited) Capital contributions were lower in 2015, mainly due to the level of development activity and the timing of donated infrastructure. Other donated assets (easements) exhibited lower levels of activity this year, as well. Connection fees paid by applicants were higher due to an increase in the number of hookups, year- over-year. CAPITAL ASSETS AND CAPITAL IMPROVEMENT PROGRAMS The District has an ongoing capital improvement program and publishes a capital budget every year. The District’s capital budget includes funding for both infrastructure and various large consulting projects, such as capital master plans and water rate studies. The District generally capitalizes infrastructure and expenses consulting studies in the accompanying Basic Financial Statements. Capital expenditures for infrastructure are accounted for in the accompanying financial statements either as: (1) additions to Capital Assets, or (2) additions to Investments in Joint Ventures. Additions to Capital Assets totaled approximately $1.2 million, which is primarily replacement or improvements to the water distribution system and purchases of vehicles and equipment. The District also capitalized approximately $841,000 of capital improvement costs paid for the R.E. Badger Joint Facilities. The overall budget of the District for capital improvements averages about $3.1 million per year over the next seven years. Table 3 Capital Assets, Net of Accumulated Depreciation (Millions of Dollars) 201520142013 Land easements3.0$ 3.0$ 2.9$ Public works facility right-of-use3.4 3.4 3.4 Construction in progress1.3 0.8 0.9 Capacity rights0.2 0.2 0.2 Utility, plant and equipment14.6 14.6 14.2 Total22.5$ 22.0$ 21.6$ 9 San Dieguito Water District Management Discussion & Analysis (Continued) (Unaudited) DEBT ADMINISTRATION Table 4 Long-Term Debt The District’s total long-term debt outstanding at June 30 consisted of: On September 18, 2014, the District issued $5,870,000 of Water Revenue Refunding Bonds, Series 2014, The Series 2014 bonds redeemed all of the District’s outstanding 2004 Water Revenue Refunding Bonds remaining of $8,110,000, which were themselves a refunding of the District’s original 1993 Water Revenue Bonds. The 2014 refunding resulted in saving the District approximately $250,000 annually in debt service costs, due to lower market interest rates and the elimination of a reserve previously required on the 2004 bonds. Interest is due and payable semi-annually at rates ranging from 3.0% to 4.0%. On November 20, 2007, the Authority issued $20,685,000 of 2007 Water Refunding Bonds while concurrently redeeming all of its outstanding 1999 Water Revenue Bonds, on behalf of its member agencies, the Santa Fe Irrigation District and the San Dieguito Water District. The transaction was a current refunding intended to save the member agencies future interest costs due to lower market interest rates. No new funds were raised by either agency. New Installation Purchase Agreements were executed, which save the District approximately $60,000 per year on debt service. The debt service payments on these two obligations will total approximately $1.4 million annually, going forward. The District has covenanted to maintain debt service coverage of at least 115% of net revenues available for debt service each fiscal year. The District was in compliance with its debt service coverage requirement for the fiscal year 2014-15, and is projected to be in compliance in fiscal year 2015-16. The District does not currently have plans to issue additional debt. 10 San Dieguito Water District Management Discussion & Analysis (Continued) (Unaudited) ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The District adopted its two-year operating budget and capital budget in June of 2015. Under this system, funds are only appropriated for the first fiscal year. The District returns to the Board one year later to present its “second-year revise” budget, which revises based on changed assumptions the originally published figures for the second year. The operating budget anticipates total revenues of $16.0 million, which is consistent with the prior year. While water rates and meter service charges were increased an average of 4.5% on July 1, 2014, following an increase of 8.5% on September 1, 2013, water sales projections have been reduced due to mandatory water-use restrictions in response to the statewide drought situation. Operating expenses for FY 2015-16 are budgeted at approximately $1.6 Million less than prior year. The reduction is mainly due to lower water purchase and water treatment costs projections with the District anticipating to sell less water to customers due to the drought situation The capital budget anticipates capital costs at $2.9 million, which is below the average for the next seven years. This includes $1.0 million for District capital improvements and $1.9 million for capital contributions to the R.E. Badger Joint Facilities. Overall, the District expects to end Fiscal Year 2015-16 with an available fund balance of $12.2 million, based on its internal projections. CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT If you have questions about this report or need additional information, please contact the City of Encinitas Finance Department or the San Dieguito Water District General Manager’s office. 11 This page intentionally left blank. 12 BASIC FINANCIAL STATEMENTS San Dieguito Water District, 505 S Vulcan Ave., Encinitas, CA. 92024www.encinitasca.gov 13 This page intentionally left blank. 14 San Dieguito Water District Statements of Net Position June 30, 2015 and 2014 20152014 ASSETS Current assets: Cash and investments16,451,873$ 17,152,589$ ccounts receivables, ne 2,790,2442,041,686 At Inventories 143,164147,643 Total current assets 20,085,99718,641,202 Noncurrent assets: Cash and investments with fiscal agents- 1,039,739 Other assets 294,459196,307 Investments in joint ventures17,652,230 18,321,553 Capital assets, ne 21,946,66022,508,723 t Total noncurrent assets 41,602,41140,357,260 Total assets 61,688,40858,998,462 DEFERRED OUTFLOWS OF RESOURCES Pension contributions after the measurement date510,957 - Deferred positive change in pension plan proportion126,588 - Total deferred outflows of resources -637,545 LIABILITIES Current liabilities: counts payable and accrued liabiliite 2,309,5541,318,361 As ccrued interest payabl 150,371108,275 Ae Deposits 352,400312,155 Compensated absences - due within one yea 140,665148,064 r Long-term debt - due within one yea 1,070,000985,000 r Total current liabilities 4,022,9902,871,855 Noncurrent liabilities: Long-term debt - due in more than one yea 12,575,00010,684,345 r ggregate net pension liability (Note 9 -3,779,285 A) Total noncurrent liabilities 12,575,00014,463,630 Total liabilities 16,597,99017,335,485 DEFERRED INFLOWS OF RESOURCES Deferred pension investment earnings1,270,015 - Deferred negative change in pension plan proportion5,551 - Total deferred inflows of resources -1,275,566 NET POSITION Net investment in capital assets10,839,378 8,301,660 Restricted 1,039,739- Unrestricted 35,749,01930,185,578 45,090,41841,024,956 Total net osition p$$ See accompanying Notes to the Financial Statements 15 San Dieguito Water District Statements of Revenues, Expenses, and Changes in Net Position For the Years Ended June 30, 2015 and 2014 20152014 OPERATING REVENUES Charges for services14,737,409$ 15,166,038$ Interfund revenues 41,44440,949 Other revenue 180,733105,455 Total operating revenues 15,388,21514,883,813 OPERATING EXPENSES Source of supply6,772,402 6,403,037 General operations and maintenance4,361,762 2,342,857 Facility operations and maintenance1,728,398 1,489,420 General and administrative(128,702) 1,820,835 Depreciation of capital assets663,043 622,435 Amortization of other assets98,152 98,152 Amortization of investment in joint ventures1,510,712 770,219 Other 5,907- Total operating expenses 13,552,86215,005,767 NET OPERATING INCOME (LOSS) 1,835,353(121,954) NONOPERATING REVENUES (EXPENSES ) Property taxes 787,242834,994 Investment earnings74,447 32,789 Gain on sale of capital assets18,085 7,645 Interest expense (611,775)(475,776) Total nonoperating revenues (expenses) 215,901451,750 INCOME BEFORE CAPITAL CONTRIBUTIONS 2,051,254329,796 CAPITAL CONTRIBUTIONS Contribution of capital assets: Donation 22,971- Easements 121,471- Connection fees 327,360268,620 Total capital contributions 471,802268,620 CHANGES IN NET POSITION 2,523,056598,416 NET POSITION: Beginning of year45,090,418 42,567,362 Prior period adjustment (Note 12)(4,663,878) - End of yea$ 45,090,41841,024,956$ r See accompanying Notes to the Financial Statements 16 San Dieguito Water District Statements of Cash Flows For the Years Ended June 30, 2015 and 2014 20152014 Cash flows from operating activities: Receipts from users15,583,922$ 15,032,766$ Receipts from interfund charges40,949 41,444 Payments to employees and suppliers for goods and services(14,008,950) (10,908,188) Other operating revenues7,500 16,469 Net cash provided by operating activities 4,182,4911,623,421 Cash flows from noncapital financing activities: Receipts from property taxes834,994 787,242 Net cash provided by noncapital and related financing activities 787,242834,994 Cash flows from capital and related financing activities: Acquisition of capital assets(1,225,106) (834,187) Capital contributions - connection fees268,620 327,360 Proceeds from debt issuance6,539,345 - Principal payments on bonds and note payable(8,515,000) (1,025,000) Interest payments on bonds and note payable(517,872) (622,073) Capital related payments to R.E. Badger Filtration Plant(841,389) (497,359) Proceeds from sale of capital assets18,085 7,645 Net cash (used in) capital and related financing activities (2,643,614)(4,273,317) Cash flows from investing activities: Investment income received74,447 32,789 Net cash provided by investing activities 32,78974,447 Net increase (decrease) in cash and cash equivalents 2,358,908(1,740,455) Cash and cash equivalents, beginning of year 15,833,42018,192,328 Cash and cash equivalents, end of year $ 18,192,32816,451,873$ Reconciliation of cash and cash equivalents to the Statements of Net Position: Current assets: Cash and investments16,451,873 17,152,589 Noncurrent restricted assets: Cash and investments with fiscal agents- 1,039,739 Total cash and cash equivalents 16,451,873$ 18,192,328$ See accompanying Notes to the Financial Statements 17 San Dieguito Water District Statements of Cash Flows (Continued) For the Years Ended June 30, 2015 and 2014 20152014 Reconciliation of operating income to net cash provided by operating activities: Operating income (loss)(121,954)$ 1,835,353$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization2,271,907 1,490,806 Changes in operating assets, deferred outflows of resources, liabilities, and deferred inflows of resources: Accounts receivable748,558 (297,536) Inventory and prepaid items(4,479) (587) Pension contributions after the measurement date(10,972) - Deferred positive change in pension plan proportion(126,588) - Accounts payable and accrued liabilities(991,193) 1,246,218 Deposits (78,209)(40,245) Compensated absences7,399 (13,554) Net pension liability(1,384,578) - Deferred pension investment earnings1,270,015 - Deferred negative change in plan proportion5,551 - Net cash provided by operating activitie$ 4,182,4911,623,421$ s Noncash capital and related financing activities: Contribution of capital assets-$ 144,442$ See accompanying Notes to the Financial Statements 18 San Dieguito Water District Notes to the Financial Statements For the Years Ended June 30, 2015 and 2014 Note 1 – Reporting Entity San Dieguito Water District (the “District”) was formed in 1922 under the laws of the State of California to supply irrigation and potable water services to the central western portion of San Diego County. The District became a subsidiary district of the City of Encinitas, California (the “City”) on October 1, 1986, pursuant to an election approving the San Dieguito Reorganization and the incorporation of the City. The District is considered a component unit on the City, based on the provisions of Governmental Accounting Standards Board (“GASB”) Statement No. 61, The Financial Reporting Entity: Omnibus - An Amendment of GASB Statement No. 14 and No. 34. Note 2 – Summary of Significant Accounting Policies Basis of Presentation Financial statement presentation follows the recommendations promulgated by the Governmental Accounting Standards Board (“GASB”) commonly referred to as accounting principles generally accepted in the United States of America (“U.S. GAAP”). GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting standards. Measurement Focus, Basis of Accounting and Financial Statements Presentation The Financial Statements (i.e., the statement of net position, the statement of revenues, expenses and changes in net position, and statement of cash flows) report information on all of the activities of the District. The Financial Statements are reported using the “economic resources” measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Interest associated with the current fiscal period is considered to be susceptible to accrual and so has been recognized as revenue of the current fiscal period. In accordance with GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, the Statement of Net Position reports separate sections for Deferred Outflows of Resources, and Deferred Inflows of Resources, when applicable. Deferred Outflows of Resources represent outflows of resources (consumption of net position) that apply to future periods and that, therefore, will not be recognized as an expense until that time. Deferred Inflows of Resources represent inflows of resources (acquisition of net position) that apply to future periods and that, therefore, are not recognized as revenue until that time. Operating revenues are those revenues that are generated from the primary operations of the District. The District reports a measure of operations by presenting the change in net position from operations as "operating income" in the statement of revenues, expenses, and changes in net position. Operating activities are defined by the District as all activities other than financing and investing activities (interest expense and investment income), and other infrequently occurring transaction of a non-operating nature. Operating expenses are those expenses that are essential to the primary operations of the District. All other expenses are reported as non-operating expenses. 19 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 2 – Summary of Significant Accounting Policies (Continued) Cash and Investments Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less and are carried at cost, which approximates fair value. The majority of the District’s cash and investments is invested in the City’s pooled investment fund (the “City Pool”). The District does not own any specifically identifiable securities or investments in the City Pool. As a participant in the City Pool, the District has rights to its ratable share of the pooled cash and investments in the City Pool, on a dollar-for-dollar basis. The District’s ratable share of investment income from the City Pool is calculated and distributed on a monthly basis. Investment income is reported as non-operating revenue in the Statement of Revenues, Expenses and Changes in Net Position. Since all amounts invested in the City Pool are available upon demand, the District considers all amounts invested in the City Pool to be cash equivalents. Certain disclosure requirements, if applicable for deposit and investment risk, are specified for the following areas: Interest Rate Risk Credit Risk Overall Custodial Credit Risk Concentration of Credit Risk Foreign Currency Risk Restricted Cash and Investments Cash and investments with fiscal agents are restricted due to limitations on their use by bond covenants or donor limitations. Fiscal agents acting on behalf of the District hold investment funds arising from the proceeds of long-term debt issuances. The funds may be used for specific capital outlays or for the payment of certain bonds, and have been invested only as permitted by specific State statutes or applicable District ordinance, resolution or bond indenture. Receivables and Unbilled Revenues Customer accounts receivable consist of amounts owed by private individuals and organizations for services rendered in the regular course of business operations. Receivables are shown net of allowances for doubtful accounts, if any. The District also accrues an estimated amount for services that have been provided, but not yet billed. Federal and State grants accrued as revenue when all eligibility requirements have been met. Amount earned but outstanding at year end are reported as accounts receivable. Inventory of Materials Inventories consist primarily of materials used in the construction and repair of the District’s plant and equipment and on-site supplies such as water meters. Inventory is stated at cost using average-cost basis. Other Assets The District’s defined-benefit pension plan, which has less than 100 active members, was required to enroll in a CalPERS risk-sharing pool in 2003. As part of that enrollment process, CalPERS calculated the funded status of the Plan and compared that amount to the funded status of the risk pool at inception, and a “side fund liability” was created. The difference was being financed by CalPERS over a 17 year period at the assumed rate of return of the CalPERS pooled investment fund (7.75%). The District elected to prepay the full amount of $981,523 in fiscal year 2007 and has capitalized this amount in the Statement of Net Position. This amount is being amortized over ten (10) years on a straight-line basis. 20 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 2 – Summary of Significant Accounting Policies (Continued) Investment in R.E. Badger Filtration Plant (the “Joint Facilities”) The District’s investment in the Joint Facilities is accounted for using the equity method of accounting. The District makes periodic contributions to cover its share of capital and operating costs. Contributions for capital are accounted for as an increase in the District’s investment account. Contributions for operations are accounted for as operating expenses under the classification: facility operations and maintenance. Depreciation expense on plant operations that is charged to the District is accounted for as an operating expense. Investment in R.E. Badger Water Facilities Financing Authority (the “Financing Authority”) The District’s investment in the Financing Authority is accounted for using the equity method of accounting. The equity interest is comprised primarily of bond reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. Changes in the investment account result primarily from interest revenues on reserve funds and amortization expense on the bond discounts and issuance costs. These items are classified as non-operating revenues and expenses in the accompanying Statement of Revenues, Expenses and Changes in Net Position. Capital Assets Capital assets consist of land easements, the perpetual right-of-use of the City’s Public Works facility, structure and improvements, machinery and equipment, distribution system, and capacity rights. Capital assets are valued at historical cost, or estimated historical cost, if actual historical cost was not available. Donated capital assets are valued at their estimated fair market value on the date donated. The District policy has set the capitalization threshold for reporting capital assets at $5,000 for non-infrastructure assets and $100,000 for infrastructure assets, all of which must have an estimated useful life in excess of one year. Depreciation is recorded on a straight-line basis over estimated useful lives of the assets as follows: Structures and improvements 20-45 years Equipment, machinery and vehicles 5-20 years Collection and distribution system 50 years Capacity rights 50 years Major outlays for capital assets are capitalized as projects, once constructed, and repairs and maintenance costs are expensed. Interest accrued during capital assets construction, if any, is capitalized as part of the asset cost, net of interest income on construction bond proceeds. Deposits Deposits consist of cash amounts that the District has collected from customers related to on-going construction work being performed by the applicant. It can either be a “job deposit,” which is an amount collected to cover the expected costs to the District related to the project, or a “security deposit” which is meant to help guarantee that the work required of the applicant will be completed to the satisfaction of the District. 21 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 2 – Summary of Significant Accounting Policies (Continued) Compensated Absences The District’s policy permits its employees to accumulate not more than one and one half of their current annual vacation. The District participates in the City’s IPP Program which provides employees with protection against loss of income due to illness or disability. Employees do not earn any number of hours of sick leave and thus, no provision has been made for sick leave liability under the account for compensated absences. The unused vacation pay will be paid to employee or his/her beneficiary upon leaving the District’s employment. The amount due will be determined using salary/wage rate in effect at the time of separation. Long-Term Debt Debt premiums and discounts are deferred and amortized over the life of the debt using the straight-line method. Long-term debt is reported net of the applicable bond premium or discount. Debt issuance costs are expensed when incurred. Pensions For purposes of measuring the net pension liability at June 30, 2015, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the plans and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans (Note 9). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value. The following timeframes are used for pension reporting: CalPERS Valuation dateJune 30, 2013 Measurement DateJune 30, 2014 Measurement PeriodJuly 1, 2013 to June 30, 2014 Arbitrage Rebate Requirement The District is subject to the Internal Revenue Code (“IRC”) Section 148(f), related to its tax exempt revenue bonds. The IRC requires that investment earnings on gross proceeds of any revenue bonds that are in excess of the amount prescribed will be surrendered to the Internal Revenue Service. The District had no rebate liability for arbitrage as of June 30, 2015 and 2014. Net Position Net position represents the difference between all other elements in the statement of net position and should be displayed in the following three components: Net Investment in Capital Assets – This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets. Restricted – This component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. 22 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 2 – Summary of Significant Accounting Policies (Continued) Net Position (Continued) Unrestricted – This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. Property Taxes Property taxes are levied on March 1 and are payable in two installments: November 1 and February 1 of each year. Property taxes become delinquent on December 10 and April 10, for the first and second installments, respectively. The lien date is March 1. The County of San Diego, California (“County”) bills and collects property taxes and remits them to the District according to a payment schedule established by the County. The County is permitted by State law to levy on properties at 1% of full market value (at time of purchase) and can increase the property tax rate at no more than 2% per year. The District receives a share of this basic tax levy proportionate to what it received during the years 1976-1978. Property taxes are recognized in the fiscal year for which the taxes have been levied. No allowance for doubtful accounts was considered necessary. Use of Restricted/Unrestricted Assets When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 23 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 3 – Cash and Investments At June 30, cash and investments are reported in the accompanying statement of net position as follows: At June 30, cash and investments consisted of the following: Authorized Investments The District’s investments are managed by the City. All of the District’s cash, except investments held by fiscal agents, are invested in the City Pool. The District has an equity interest in the City Pool equal to its proportionate share of invested cash. The District does not have a separate investment policy; its cash are invested according to the City of Encinitas’ adopted investment policy. The table below identifies the allowable investment types authorized by the California Government Code (the “Gov’t Code”) and the City’s adopted Investment Policy (the “Investment Policy”). The table also identifies certain restrictions related to interest rate risk and concentration of credit risk. The Investment Policy restricts the City Treasurer to investing in only the types of investments listed herein, which is more restrictive than the Gov’t Code, as the City’s policy does not allow certain investments to be purchased which are permitted under the Gov’t Code. 24 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 3 – Cash and Investments (Continued) Investments Authorized and Utilized under Debt Agreements The investment of the proceeds of debt issues (the 2004 Revenue Bond debt reserve fund) is governed by the provisions of the 2004 Bond Indenture. Although there are several authorized investment instruments, the District’s reserve fund is currently invested 100% in a Money Market Mutual Fund. Disclosures Related to Interest Rate Risk The District invests all of its excess cash in the City Pool. As a participant, the District has immediate access to its funds on a dollar-for-dollar basis. The allocation of investment income is made to the District based on the book value of its investment (which approximates fair market value). As a result, the District is not exposed to interest rate risk, as it would be if it owned direct securities for its own account. The District’s investment with fiscal agents consists of an institutional money market mutual fund. This Fund has a stable net asset value of $1.00 and the funds can be withdrawn at any time without prior notice. Any changes to the fair value of this money market mutual fund are allocated on a monthly basis to each participant, as a part of their monthly distribution. Disclosures Relating to Credit Risk Credit risk is defined as 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 organization. Presented below is the minimum rating required by (where applicable) the Gov’t Code, the Investment Policy, or the debt agreements, and the actual rating as of year-end for each investment type. Credit ratings as of June, 30, 2015 were as follows: Credit ratings as of June, 30, 2014 were as follows: 25 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 3 – Cash and Investments (Continued) Disclosures Relating to Credit Risk (Continued) The investment policy contains no limitations on the amount that can be invested in any one issuer beyond that stipulated in the Gov’t Code. GASB Statement No. 40 requires disclosure by amount and issuer, of investments in any one issuer that represent 5% or more of total investments. As of June 30, 2015, the investment in the City Pool exceeded 5% of the District’s total cash and investments. As of June 30, 2014, both the investment in the City Pool and the Money Market Fund exceeded 5% of the District’s total cash and investments. Disclosures Relating to Custodial Credit Risk The District is exposed to custodial credit risk indirectly via its investment in the City Pool. Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, an entity may 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, an entity may not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Government Code and the 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 provisions for deposits: The Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging qualifying securities in an undivided collateral pool held by a depository regulated under State Law. The market value of the qualifying pledged securities must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. At June 30, 2015 and 2014 the District had no deposits with financial institutions or any other parties that would subject the District to custodial credit risk. 26 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 4 – Investment Other Agencies At June 30, investment in other agencies consisted of the following: R.E. Badger Filtration Plant In 1967, the District entered into an agreement with the Santa Fe Irrigation District (Santa Fe) for the joint ownership, maintenance, operation, and use of a water treatment plant and various facilities for the storage and delivery of potable water. During the ensuing years, the parties have added various facilities and improvements, which are owned in different percentages depending on the type of facility and the agreements in place. The ownership percentages of the Joint Facilities are described below: Santa Fe is responsible for the operations, maintenance, and construction of capital improvements of the Joint Facilities, as well as the related administration. For the years ended June 30, 2015 and 2014, the District made capital contributions of $841,389 and $497,359, respectively and recorded its share of depreciation and other allocated charges, as well as a true-up charge affecting the prior fiscal year. The investment balance at June 30, 2015 and 2014 was $16,888,038 and $17,557,363, respectively. Operations and maintenance costs are allocated monthly on the basis of the water used by each district, and administrative costs are allocated based on an agreed-upon cost allocation plan. For the years ended June 30, 2015 and 2014, the District’s share of operations and maintenance costs for the Joint Facilities . was $1,728,398 and $1,489,420, respectively R.E Badger Water Facilities Financing Authority In 1999, the District and Santa Fe entered into a joint exercise of powers agreement and formed the Financing Authority, to provide financing for the acquisition and construction of capital improvements related to the Joint Facilities. The Financing Authority subsequently issued revenue bonds for the purpose of funding those capital improvements. Each district is obligated under an Installment Purchase Agreement to repay their proportionate share of the costs of the long-term financing. The investment in the Financing Authority consists primarily of a share of the debt reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. The investment balance at June 30, 2015 and 2014 was $764,192 and $764,190, respectively. 27 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 5 – Capital Assets Summary of changes in capital assets for the year ended June 30, 2015 is as follows: 28 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 5 – Capital Assets (Continued) Summary of changes in capital assets for the year ended June 30, 2014 is as follows: Note 6 – Compensated Absences Summary of changes in compensated absences for the years ended June 30, 2015 and 2014 is as follows: Compensated absences represent the dollar value of employee vacation leave earned (up to the specified maximum amount of hours) but unused as of June 30, 2015 and 2014. The balance outstanding of $148,064 and $140,665 at June 30, 2015 and 2014, respectively, are classified as a current liability because there are no restrictions on when employees may make use of their accrued vacation. 29 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 7 – Long-Term Debt Summary of changes in long-term debt for the year ended June 30, 2015, is as follows: Summary of changes in long-term debt for the year ended June 30, 2014, is as follows: 2004 Water Revenue Refunding Bonds On January 22, 2004, the District issued $13,845,000 of Water Revenue Refunding Bonds, Series 2004, to redeem all of the outstanding 1993 Water Revenue Refunding Bonds. The bonds consist of $10,170,000 of serial bonds maturing from 2004 through 2019 in annual installments of $505,000 to $820,000 and one term bond of $3,675,000 maturing on October 1, 2023. The term bond is subject to sinking fund requirements. Interest is payable semi-annually at rates ranging from 2.5% to 5.0%. The bonds maturing on or after October 1, 2015 are subject to optional redemption at a redemption price equal to the principal amount of the bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. The 2004 Bonds were fully refunded during the year via issuance of the Water Revenue Refunding Bonds, Series 2014. 30 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 7 – Long-Term Debt (Continued) 2007 Note Payable to the R.E. Badger Water Facilities Financing Authority On November 20, 2007, the R.E. Badger Water Facilities Financing Authority issued $20,685,000 of 2007 Water Revenue Refunding Bonds while concurrently redeeming all of its outstanding 1999 Water Revenue Bonds, on behalf of its member agencies, the Santa Fe Irrigation District and the San Dieguito Water District. The transaction was a current refunding intended to save the member agencies future interest costs due to lower market interest rates. New Installment Purchase Agreements were executed. The overall bond issue consists of $20,685,000 of serial bonds maturing from 2008 through 2024. The District’s portion of the refinancing totaled $7,705,000. Principal is due and payable annually in amounts ranging from $335,000 to $620,000. Interest is due and payable semi-annually at rates ranging from 3.5% to 4.5%. The District accounts for its share of the bonds as a note payable to the Financing Authority. Annual debt service requirements for the 2007 Note Payable to the R.E. Badger Water Facilities Financing Authority outstanding at June 30, 2014 are as follows: 2014 Water Revenue Refunding Bonds On September 18, 2014, the District issued $5,870,000 of Water Revenue Refunding Bonds, Series 2014, to defease and refund on a current basis, all of the outstanding 2004 Water Revenue Refunding Bonds. The Bonds consist of serial bonds maturing from 2016 through 2024 in annual installments of $570,000 to $755,000. Interest is due and payable semi-annually at rates ranging from 3.0% to 4.0%. Annual debt service is approximately $780,000 through 2024. The bonds are subject to federal arbitrage requirements. The aggregate debt service payments of the new debt are $2,012,280 less than the old debt. The issuance of the new debt and refunding of the old debt resulted in an economic gain (the difference between the net present value of the old debt and new debt service payments) of approximately $780,873. 31 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 7 – Long-Term Debt (Continued) 2014 Water Revenue Refunding Bonds (Continued) The annual debt service requirements for the 2014 Water Revenue Refunding Bonds outstanding at June 30, 2015 are as follows: Pledged Revenues The District has pledged its net revenues (as defined) to pay the annual debt service on the Bonds and Note described above. The District has covenanted to set rates and charges in order to produce net revenues of at least 115% of annual debt service. During the years ended June 30, 2015 and June, 30, 2014, principal and interest paid were $1,545,775 and $1,647,075, respectively, net revenues available for debt service were $3,332,134 and $4,625,639, respectively, resulting in debt service coverage ratios of 215% and 279%, respectively. Note 8 – Risk Management Risk management programs and support for the District are provided by the City risk management department. The District is a member of the Association of California Water Agencies - Joint Powers Insurance Authority (JPIA), which provides coverage for general liability, property and casualty, and workers’ compensation. Self-insured retention levels ranges from $10,000 to $25,000. As of June 30, 2015 and 2014, in the opinion of the District’s management and general counsel, there were no material claims which would require accrual in the accompanying financial statements. Management has determined, based on modest self-insurance retention levels and favorable claims experience, that no self-insurance reserve is required. 32 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS A. GASB 68 Disclosures Applicable to Fiscal Year 2015 Summary Net Pension Liability Net pension liability is reported in the Statement of Net Position as follows at June 30, 2015: Deferred Outflows of Resources Deferred outflows of resources are reported in the accompanying Statement of Net Position as follows at June 30, 2015: Deferred Pension Contributions After the Measurement Date Deferred Positive Change in Plan Proportion CalPERS SDWD Tier 1 Plan - 686126,588$ CalPERS SDWD Tier 2 Plan - 30022- CalPERS SDWD PEPRA Plan - 21217- Total126,588$ 33 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Summary (Continued) Deferred Inflows of Resources Deferred inflows of resources are reported in the accompanying Statement of Net Position as follows at June 30, 2015: Difference between Projected and Actual Earnings on Pension Plan Investments Deferred Negative Change in Plan Proportion Pension Expense Pension expense is included in the accompanying Statement of Revenues, Expenses, and Changes in Net Position as follows for the year ended June 30, 2015: 34 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Plan Description TheSDWD Plan is a cost-sharing multiple employer defined benefit plan that provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to members and beneficiaries, in which the District participates with other public agencies that each have fewer than 100 active members and share the same benefit formula. The Plan is administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statutes within the Public Employee’s Retirement Law. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office – 400 P Street, Sacramento, CA 95814. Benefits Provided TheSDWD Plan provides employees hired before October 13, 2012 with a Tier 1 benefit equal to 2.7% at 55years of age, calculated based on the single highest year of qualifying compensation. As of October 13, 2012, the Board of Directors imposed new terms and conditions which created a new benefit formula for employees hired after the effective date of the change (the "Tier 2 Plan"). Employees hired under the Tier 2 Plan receive a lower benefit formula, referred to as the 2% at 60 years of age formula. In addition, PEPRA created yet another benefit formula for new hires with no experience or prior service credit with CalPERS. In the case of the District, this will constitute a "Tier 3 Plan" which provides a retirement benefit, referred to as the 2% at 62 years of age formula. The actual retirement benefit for Tier 2 and Tier 3 employees will be calculated using the average of the highest 36 consecutive months of qualifying compensation. Employees Covered by Benefit Terms At June 30, 2015, the following employees were covered by the benefit terms for each SDWD plan: Contributions Active members in the Tier 1 Plan are required to contribute 8% of their annual covered salary (the "employee contribution"). Effective October 13, 2012, all Tier 1 members contribute the full 8%, which is credited to their individual accounts. Members receiving the Tier 2 or Tier 3 benefits are required to contribute 7% of their annual covered salary. The employee contribution requirements are established by State statute. 35 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Contributions (Continued) SDWD is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members (the "employer contributions"). The employer contribution rate for the years ended June 30, 2015 and June 30, 2014 were 16.691% and 15.69%, respectively. The employer contribution rates are calculated and established annually by CalPERS, based on the actuarial methods and assumptions as adopted by the CalPERS Board of Administration. For the measurement period ended June 30, 2014, the SDWD Plan’s proportionate share of aggregate employer contributions made for each plan was as follows: Pension Liabilities, Pension Expenses and Deferred Outlows/Inflows of Resources to Pensions As of June 30, 2015, the District reported net pension liabilities for its proportionate shares of the net pension liability of each SDWD Plan as follows: The District’s net pension liability for each SDWD Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plans is measured as of June 30, 2014, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The District’s proportion of the net pension liability was based on a projection of the District’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The following is the approach established by the plan actuary to allocate the net pension liability and pension expense to the individual employers within the risk pool. (1) In determining a cost-sharing plan’s proportionate share, total amounts of liabilities and assets are first calculated for the risk pool as a whole on the valuation date (June 30, 2013). The risk pool’s fiduciary net position (“FNP”) subtracted from its total pension liability (“TPL”) determines the net pension liability (“NPL”) at the valuation date. (2) Using standard actuarial roll forward methods, the risk pool TPL is then computed at the measurement date (June 30, 2014). Risk pool FNP at the measurement date is then subtracted from this number to compute the NPL for the risk pool at the measurement date. For purposes of FNP in this step and any later reference thereto, the risk pool’s FNP at the measurement date denotes the aggregate risk pool’s FNP at June 30, 2014 less the sum of all additional side fund (or unfunded liability) contributions made by all employers during the measurement period (2013-14). 36 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Pension Liabilities, Pension Expenses and Deferred Outlows/Inflows of Resources to Pensions (Continued) (3) The individual plan’s TPL, FNP and NPL are also calculated at the valuation date. (4) Two ratios are created by dividing the plan’s individual TPL and FNP as of the valuation date from (3) by the amounts in step (1), the risk pool’s total TPL and FNP, respectively. (5) The plan’s TPL as of the Measurement Date is equal to the risk pool TPL generated in (2) multiplied by the TPL ratio generated in (4). The plan’s FNP as of the Measurement Date is equal to the FNP generated in (2) multiplied by the FNP ratio generated in (4) plus any additional side fund (or unfunded liability) contributions made by the employer on behalf of the plan during the measurement period. (6) The plan’s NPL at the Measurement Date is the difference between the TPL and FNP calculated in (5). The District’s proportionate share of the net pension liability for each SDWD Plan as of June 30, 2014 was as follows: For the year ended June 30, 2015, the District recognized pension expense of $264,385 for the SDWD Plan. At June 30, 2015 the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: 37 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Pension Liabilities, Pension Expenses and Deferred Outlows/Inflows of Resources to Pensions (Continued) The $510,957 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: 38 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2014, the total pension liability was determined by rolling forward the June 30, 2013 total pension liability. The June 30, 2013 and June 30, 2014 total pension liabilities were based on the following actuarial methods and assumptions: All other actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS’ website under “Forms and Publications.” Discount Rate The discount rate used to measure the total pension liability was 7.50 percent, which is net of administrative expenses. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.50 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website under the GASB 68 section. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. 39 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Discount Rate (Continued) CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. Discount Rate (Continued) The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, staff took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11- 60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses. 1 2 40 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) A. GASB 68 Disclosures Applicable to Fiscal Year 2015 (Continued) Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the District’s proportionate share of the net pension liability for each SDWD Plan, calculated using the discount rate for each SDWD Plan, as well as what the District’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.50%) or one percentage point higher (8.50%) than the current rate: Pension Plan Fiduciary Net Position Detailed information about the plan’s fiduciary net position is available in the separately issued CalPERS financial report. B. GASBs 27 and 50 Disclosures Applicable to Fiscal Year 2014 Plan Description The San Dieguito Water District has entered into a contract for a defined benefit pension plan for miscellaneous employees with CalPERS (the “Plan”). The Plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to members and beneficiaries and is administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements is established by State statutes within the Public Employees’ Retirement Law. The District selects optional benefit provisions from the benefit menu by contract and adopts those benefits through local ordinances. CalPERS issues a separate comprehensive annual financial report, which can be obtained from the CalPERS Executive Office, Lincoln Plaza North – 400 Q Street – Sacramento, CA 95811. ThePlan is a cost-sharing multiple employer defined benefit plan, in which the District participates with other public agencies that share the same benefit formula and have less than 100 active members. ThePlanprovides employees hired before October 13, 2012 with a Tier 1 benefit equal to 2.7% at 55 years of age, calculated based on the single highest year of qualifying compensation. As of October 13, 2012, the Board of Directors imposed new terms and conditions which created a new benefit formula for employees hired after the effective date of the change (the “Tier 2 Plan.”) Employees hired under the Tier 2 Plan receive a lower benefit formula, referred to as the 2% at 60 year of age formula. In addition, legislation enacted by the State of California applying to all local units of government, which became effective on January 1, 2013, created yet another benefit formula for new hires with no experience or prior service credit with CalPERS. In the case of SDWD, this will constitute a “Tier 3 Plan” which provides a retirement benefit, referred to as the 2% at 62 years of age formula. The actual retirement benefit for Tier 2 and Tier 3 employees will be calculated using the average of the highest 36 consecutive months of qualifying compensation. 41 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) B. GASBs 27 and 50 Disclosures Applicable to Fiscal Year 2014 (Continued) Funding Policy Employee contributions: Active members in the Tier 1 Plan are required to contribute 8% of their annual covered salary (the “employee contribution”). Effective October 13, 2012, all Tier 1 members contribute the full 8%, which is credited to their individual accounts. Members receiving the Tier 2 or Tier 3 benefits are required to contribute 7% of their annual covered salary. The employee contribution requirements are established by State statute. Employer contributions: The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members (the “employer contributions”). The employer contribution rate for fiscal year 2013-2014 was approximately 15.69%. The employer contribution rates are calculated and established annually by CalPERS, based on the actuarial methods and assumptions as adopted by the CalPERS Board of Administration. Annual Pension Costs For the year ended June 30, 2014, which was still subject to GASB 27 pension reporting (superseded by GASB 68 in fiscal year 2015), the District’s Miscellaneous Plan annual pension costs were $252,831, which was equivalent to the actual employer contributions made to CalPERS, based on the actuarially determined rates in effect for that fiscal year. That amount did not include any payments by the employer of behalf of the employees for employee contributions. The required contribution rate for the fiscal year ended June 30, 2014 was determined as part of the June 30, 2011 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percentage of pay. The actuarial assumptions included (a) 7.50% investment rate of return (net of administrative expenses); (b) projected salary increases that vary depending on age, service, and type of employment from 3.00% to 14.20%; (c) inflation of 2.75%; and (d) payroll growth of 3.00%. The actuarial value of the Plan’s assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a fifteen-year period (smoothed market value). CalPERS’ unfunded actuarial accrued liabilities (or excess assets) were being amortized as a level percentage of projected payroll on a closed basis, depending on the size of investment gains and/or losses. Based on the actuarial valuation dated June 30, 2012, the remaining average amortization period was 30 years for the Miscellaneous Plan. A summary of the annual pension costs and the percentage of the required APC contributed for the last three fiscal years where GASB 27 reporting was applicable is presented below: 42 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 9 – Public Employees Retirement System – CalPERS (Continued) B. GASBs 27 and 50 Disclosures Applicable to Fiscal Year 2014 (Continued) Three-Year Trend Information Annual PensionPercentage ofNet Pension Fiscal YearCost (APC)APC ContributedObligation June 30, 2012202,637$ 100%-$ June 30, 2013252,408 100%- June 30, 2014252,831 100%- Note 10 – Other Postemployment Benefits The District maintains a separate plan to provide for post-retirement health care benefits. An actuarial report is prepared every two years to update plan information and assumptions (when required). The latest actuarial valuation was prepared as of June 30, 2013, and applies to fiscal years 2013-14 and 2014- 15. Plan Description The District provides OPEB benefits (postretirement health care) through the CalPERS healthcare program (PEMHCA), to eligible employees who retire directly from the District. Retirees receive the PEMHCA minimum benefit as determined by CalPERS. The District does not provide any retiree benefits for dental, vision, or life insurance. The District’s OPEB plan does not issue a separate stand-alone report. The District has elected to join the California Employers’ Retiree Benefit Trust (the “Trust”), which provides a means to fully fund the annual OPEB cost, referred to as the Annual Required Contribution (ARC). The District makes its annual contribution to the Trust, pays benefits either directly to retirees or through PEMHCA during the year, and then seeks reimbursement for these “pay-as-you-go expenses” from the Trust. Funding Policy and Actuarial Methods and Assumption It is the District’s Policy to fully fund the ARC each fiscal year. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. 43 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 10 – Other Postemployment Benefits (Continued) Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood between the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and the plan members at that point. The actuarial methods and assumptions used include techniques designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of plan assets, consistent with the long–term perspective of the calculations. The following key assumptions were utilized in developing the June 30, 2013 actuarial valuation: 1) The actuarial cost method used to determine the benefit obligations is the Entry Age Normal cost method. 2) The ARC is comprised of the present value of benefits in the current fiscal year (normal cost with interest) plus a 26-year amortization (on a level-percentage of basis) of the unfunded actuarial accrued liability. 3) The valuation reflects updated census and premium information, as well as changes to the demographic tables, reflecting the recent experience study published by CalPERS. 4) The investment return assumption by the Trust is 7.61%. 5) The expected future medical price inflation trend ranges from 5.0 to 7.5%. 6) Core inflation rate of 3.0%. 7) Payroll increases of 3.0% per annum, in aggregate. 8) Projected salary increase is based on merit increase data from the most recent CalPERS Pension Plan Study. 9) Levels of Participation – participation levels for safety personnel eligible of lifetime medical benefits is assumed to be 100%, while participation levels for miscellaneous employees who receive the CalPERS minimum required contribution is 50%, based on experience. Annual Required Contribution (ARC) and OPEB Cost Summary The ARC for fiscal years June 30, 2015 and 2014 of $29,000 and $31,000, respectively, represents a level of funding that, if paid on an on-going basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liability over a maximum of 30 years. The annual OPEB costs, the percentage of annual OPEB cost contributed, and the resulting net OPEB obligation for the preceding three years were as follows: 44 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 10 – Other Postemployment Benefits (Continued) Annual Required Contribution (ARC) and OPEB Cost Summary (Continued) Funding Status and Funding Progress As of June 30, 2013, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $332,472, and the actuarial value of assets was $68,176, resulting in an unfunded actuarial liability (“UAAL”) of $264,296 and a funded ratio (actuarial value of assets as a percentage of the actuarial liability) of 20.51%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about the future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress for the Plan is presented as Required Supplementary Information following the Notes to the Financial Statements. These schedules show multiyear trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Note 11 – Commitments and Contingencies Risk management programs and support for the District are provided by the City of Encinitas Risk Management Department, for which the District pays the City an annual fee (charge for those services.) The District is a member of the Association of California Water Agencies - Joint Powers Insurance Authority (JPIA), which provides coverage for general liability, property and casualty, and workers' compensation. Self-insured retention levels ranges from $10,000 to $25,000. As of June 30, 2015, in the opinion of the District's management and general counsel, there were no material claims which would require accrual in the accompanying financial statements. Management has determined, based on modest self-insurance retention levels and favorable claims experience, that no self-insurance liabilities were necessary. The District has no outstanding claims as of June 30, 2015, and did not pay any claims during the fiscal year. 45 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2015 and 2014 Note 12 – Prior Period Adjustments The beginning net position at July 1, 2014 was restated as follows: Net Position at July 1, 2014 $ 45,090,418 (1) CalPERS SDWD Tier 1 Plan: Net Pension Liabilities (Note 14)(5,160,460) Deferred outflows of resources499,656 (2) CalPERS SDWD Tier 2 Plan: Net Pension Liabilities (Note 14)(3,317) Deferred outflows of resources321 (3) CalPERS SDWD PEPRA Plan: Net Pension Liabilities (Note 14)(86) Deferred outflows of resources8 Subtotal (4,663,878) Net Position at July 1, 2014, as Restated $ 40,426,540 The District implemented GASB Statements No. 68 and No. 71 during the year ended June 30, 2015. The restatement to the beginning net position is to report the net pension liabilities for the District’s CalPERS plans in accordance with GASB Statements No. 68 and No. 71 based on the measurement date of June 30, 2014. 46 REQUIRED SUPPLEMENTARY INFORMATION www.encinitasca.gov San Dieguito Water District, 505 So. Vulcan Ave., Encinitas, CA. 92024 47 This page intentionally left blank 48 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 1 – Schedule of Funding Progress A. Defined Benefits Pension Plans As of the actuarial valuation date of June 30, 2013, the District’s miscellaneous plans became part of a CalPERS Risk Pool for employers with less than 100 active plan members. As part of a cost-sharing multiple-employer defined benefit plan, disclosure of the schedule of funding progress is not required. B. Other Postemployment Employee Benefits Schedule of Funding Progress 49 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 2 – Schedule of Proportionate Share of the Net Pension Liability and Related Ratios SDWD Tier 1 Plan 1 6/30/2014 Plan's proportion of the net pension liabliity0.06070% Plan's proportionate share of the net pension liability3,776,795$ 2 Plan's covered-employee payroll $ 1,612,561 Plan's proportionate share of the net pension liability as a percentage of covered-employee payroll234.21% Plan's fiduciary net position$ 18,477,276 Plan's fiduciary net position as a percentage of the total pension liability83.03% 3, 4 Plan's proportionate share of aggregate employer contributions $ 499,656 Notes to Schedule: Benefit changes . In 2015, benefit terms were modified to base miscellaneous employee pensions on a final three-year average salary instead of a final five-year average salary. Changes in assumptions . In 2015, amounts reported as changes in assumptions resulted primarily from adjustments to expected retirement ages of miscellaneous employees. * - Fiscal year 2015 was the first year of implementation, therefore only one year is shown. 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Covered-Employee Payroll represented above is based on pensionable earnings provided by the employer. However, GASB 68 defines covered-employee payroll as the total payroll of employees that are provided pensions through the pension plan. Accordingly, if pensionable earnings are different than total earnings for covered-employees, the employer should display in the disclosure footnotes the payroll based on total earnings for the covered group and recalculate the required payroll-related ratios. 3 The plan’s proportionate share of aggregate contributions may not match the actual contributions made by the employer during the measurement period. The plan’s proportionate share of aggregate contributions is based on the plan’s proportion of fiduciary net position shown on line 5 of the table above as well as any additional side fund (or 4 This data is not required to be displayed by GASB 68 for employers participating in cost-sharing plans, but it is being shown here because it is used in the calculation of the Plan’s pension expense. 50 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 2 – Schedule of Proportionate Share of the Net Pension Liability and Related Ratios (Continued) SDWD Tier 2 Plan 1 6/30/2014 Plan's proportion of the net pension liabliity0.00004% Plan's proportionate share of the net pension liability2,427$ 2 Plan's covered-employee payroll $ 123,658 Plan's proportionate share of the net pension liability as a percentage of covered-employee payroll1.96% Plan's fiduciary net position$ 11,875 Plan's fiduciary net position as a percentage of the total pension liability83.03% 3, 4 Plan's proportionate share of aggregate employer contributions $ 321 Notes to Schedule: Benefit changes . In 2015, benefit terms were modified to base miscellaneous employee pensions on a final three-year average salary instead of a final five-year average salary. Changes in assumptions . In 2015, amounts reported as changes in assumptions resulted primarily from adjustments to expected retirement ages of miscellaneous employees. * - Fiscal year 2015 was the first year of implementation, therefore only one year is shown. 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Covered-Employee Payroll represented above is based on pensionable earnings provided by the employer. However, GASB 68 defines covered-employee payroll as the total payroll of employees that are provided pensions through the pension plan. Accordingly, if pensionable earnings are different than total earnings for covered-employees, the employer should display in the disclosure footnotes the payroll based on total earnings for the covered group and recalculate the required payroll-related ratios. 3 The plan’s proportionate share of aggregate contributions may not match the actual contributions made by the employer during the measurement period. The plan’s proportionate share of aggregate contributions is based on the plan’s proportion of fiduciary net position shown on line 5 of the table above as well as any additional side fund (or 4 This data is not required to be displayed by GASB 68 for employers participating in cost-sharing plans, but it is being shown here because it is used in the calculation of the Plan’s pension expense. 51 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 2 – Schedule of Proportionate Share of the Net Pension Liability and Related Ratios (Continued) SDWD PEPRA Plan 1 6/30/2014 Plan's proportion of the net pension liabliity0.00000% Plan's proportionate share of the net pension liability63$ 2 Plan's covered-employee payroll $ 58,551 Plan's proportionate share of the net pension liability as a percentage of covered-employee payroll0.11% Plan's fiduciary net position$ 307 Plan's fiduciary net position as a percentage of the total pension liability82.97% 3, 4 Plan's proportionate share of aggregate employer contributions $ 8 Notes to Schedule: Benefit changes . In 2015, benefit terms were modified to base miscellaneous employee pensions on a final three-year average salary instead of a final five-year average salary. Changes in assumptions . In 2015, amounts reported as changes in assumptions resulted primarily from adjustments to expected retirement ages of miscellaneous employees. * - Fiscal year 2015 was the first year of implementation, therefore only one year is shown. 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Covered-Employee Payroll represented above is based on pensionable earnings provided by the employer. However, GASB 68 defines covered-employee payroll as the total payroll of employees that are provided pensions through the pension plan. Accordingly, if pensionable earnings are different than total earnings for covered-employees, the employer should display in the disclosure footnotes the payroll based on total earnings for the covered group and recalculate the required payroll-related ratios. 3 The plan’s proportionate share of aggregate contributions may not match the actual contributions made by the employer during the measurement period. The plan’s proportionate share of aggregate contributions is based on the plan’s proportion of fiduciary net position shown on line 5 of the table above as well as any additional side fund (or 4 This data is not required to be displayed by GASB 68 for employers participating in cost-sharing plans, but it is being shown here because it is used in the calculation of the Plan’s pension expense. 52 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 3 – Schedule of Contributions SDWD Tier 1 Plan 53 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 3 – Schedule of Contributions (Continued) SDWD Tier 2 Plan 11 2 3, 4 3 1 2 3 4 54 San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2015 and 2014 Note 3 – Schedule of Contributions (Continued) SDWD Tier PEPRA Plan 55 This page intentionally left blank 56 STATISTICAL SECTION www.encinitasca.gov San Dieguito Water District, 505 So. Vulcan Ave., Encinitas, CA. 92024 57 This page intentionally left blank 58 Summary of Operational Data The following tables are being presented as supplementary information based on requirements for bonds issued by SDWD for continuing bond disclosure certificate. 59 TABLE 1 San Dieguito Water District Schedule of Water Rates s of June 30, 2015 A Rate (footnote 1) Customer Class Residential Rate TiePotableRecycled r Single-family residential 0-12 units$2.63 13-20 units$3.93 21-40 units$4.64 41+ units$5.87 0-8 units$2.63 Multi-family residential (per dwelling ) 9-12 units$3.93 13-16 units$4.64 17+ units$5.87 Agriculture $3.27$2.78 Commercial $3.69$3.14 Government / Public$3.69$3.14 Landscaping $4.64$3.94 Construction $4.64$3.94 Source: San Dieguito Water District (1) Per Unit (one hundred cubic feet or 748 gallons) TABLE 2 San Dieguito Water District Bi-Monthly Meter Service Availability Charge s s of June 30, 2015 A Water Meter ServiceInfrastructureFire Meter Service AccessAvailabilit Availabilit yy Meter SizeChargeChargeCharge 5/8" & 3/4"35.05$ 5.52$ N/A 1"55.73 8.83 7.37$ 1-1/2"107.45 16.56 13.74 2"169.50 28.70 24.72 3"314.30 52.99 64.17 4"521.14 90.52 132.20 6"1,038.27 165.60 376.37 8"1,658.82 287.04 797.51 Source: San Dieguito Water District (2) San Dieguito charges a bi-monthly service availability charge, which covers the costs for the maintenance of meters, water lines, and storage facilities, to ensure that water is available upon demand. This charge also covers customer service costs for meter reading and billing. The infrastructure access charge is levied by the San Diego County Water Authority and is collected from the customer by the District. 60 TABLE 3 San Dieguito Water District Historic Potable Water System Revenues Last Ten Fiscal Years Mete r FiscalPotablePercentageAvailabilitPercent y YeaWater SalesChange (2)ChargeChange (2) r 20066,465,975$ 23.1%2,061,454$ 9.8% 20077,579,205 17.2%2,251,011 9.2% 20087,717,818 1.8%2,404,547 6.8% 20097,525,927 -2.5%2,453,075 2.0% 20107,146,854 -5.0%2,501,264 2.0% 20118,205,876 14.8%3,007,127 20.2% 20128,528,418 3.9%3,196,605 6.3% 20139,236,462 8.3%3,087,794 -3.4% 201410,649,157 15.3%3,227,823 4.5% 20159,728,434 -8.6%3,415,227 5.8% Source: San Dieguito Water District (3) Due to the varying number of billing cycles in a fiscal year, changes year-over-year may ot be exactly comparable. TABLE 4 San Dieguito Water District Historic Potable Water System Revenues Last Ten Fiscal Years Mete r FiscalRecyclePercentAvailabilitPercent y YeaWater SalesChangeCharges (4)Change r 2006454,145$ 17.2%-$ N/ A 2007596,299 31.3%- N/ A 2008600,401 0.7%- N/ A 2009663,036 10.4%- N/ A 2010537,654 -18.9%- N/ A 2011523,397 -2.7%- N/ A 2012422,925 -19.2%- N/ A 2013400,244 -5.4%- N/ A 2014460,383 15.0%60,048 N/ A 2015648,398 40.8%80,585 N/ A Source: San Dieguito Water District (4) The District first implemented a meter availability charge for recycled customers on September 1, 2013. 61 TABLE 5 San Dieguito Water District Summary of Water Production by Source Last Ten Fiscal Years Potable Production (5) Fiscal LocalImportedTotalRecycled Total YeaWaterWaterPotableWaterProduction r 20062,765 5,093 7,858 600 8,458 20072,706 5,692 8,398 708 9,106 20083,539 3,753 7,292 676 7,968 20093,869 3,369 7,237 694 7,931 20104,399 2,156 6,555 498 7,053 20114,434 1,901 6,335 511 6,846 20123,719 2,663 6,382 5786,960 (6) 20134,200 2,395 6,595 6787,273 (6) 20141,136 5,593 6,729 692 7,421 2015603 5,726 6,329 736 7,065 Source: San Dieguito Water District (5) Water Production is defined as water either produced locally or purchased expressed in acre-feet). TABLE 6 San Dieguito Water District Summary of Water Deliveries by Source Last Ten Fiscal Years FiscalPercent Percent YeaPotableIncreaseRecycledIncrease r 20067,2818.4%6000.8% 20077,5924.3%70818.0% 20086,753-11.1%676-4.5% 20096,463-4.3%6942.7% 20105,649-12.6%498-28.2% 20115,425-4.0%5112.6% 20125,9579.8%57813.1% (6) 20136,2845.5%67817.3% (6) 20146,4492.6%6922.1% 20156,134-4.9%7366.4% Source: San Dieguito Water District (6) 2012 and 2013 Recycled Water Production and Delivery figures revised to now include wate r provided to the Encinitas Ranch Golf Authority (ERGA). Beginning in 2012, the San Elijo Joint Powers Authority (SEJPA) began directly providing recycled water to ERGA and the Distric t ceased selling recycled water to ERGA. The recycled water provided to ERGA credits towards the Districts production and delivery figures as ERGA falls within the District's sphere of influence. The differences between potable water production and deliveries represents water loss in the distribution system and/or water pumped or used through the fire distribution system. 62 TABLE 7 San Dieguito Water District Sales by Customer Class As of June 30, 2015 Acre-FeetPercent of Customer DescriptionSoldWater Sold Agriculture981.6% Commercial5158.4% Construction320.5% Government310.5% Landscaping3756.1% Multi-Family Residential1,15718.9% Pooled4186.8% Publi971.6% c Single-Family Residential3,41155.6% Subtotal - Top 10 Customers6,134100.0% Source: San Dieguito Water District TABLE 8 San Dieguito Water District Total Service Connections by Categor y Last Ten Fiscal Years FiscalPercent Percent YearPotableIncreaseRecycledIncrease 200611,2750.1%5512.2% 200711,3380.6%561.8% 200811,3640.2%595.4% 200911,3700.1%6815.3% 201011,3880.2%737.4% 201111,3970.1%72-1.4% 201211,4760.7%742.8% 201311,5020.2%774.1% 201411,6100.9%770.0% 201511,6440.3%815.2% Source: San Dieguito Water District (8) The decline of one connection in 2011 reflects the change in the contract arrangement with the Encinitas Ranch Golf Course. 63 San Dieguito Water District Historical Debt Service Coverage Last Five Fiscal Years 20112012201320142015 Revenues: Operating revenues - including connection fees12,574,450$ 13,170,422$ 13,789,636$ 15,715,575$ 15,841,022$ Non-operating revenues817,872 813,610 869,568 827,676 238,936 Gross Revenues13,392,322 13,984,032 14,659,204 16,543,251 16,079,958 Total Operating & Non-Operating Expenses11,614,631 12,448,911 12,198,228 14,066,485 14,512,293 Net Income1,777,691 1,535,121 2,460,976 2,476,766 1,567,665 Add back…….. Interest expense 725,936 698,908 657,963 622,075 475,775 Depreciation and amortization expense1,196,007 1,294,904 1,476,044 1,490,806 1,288,694 Net Revenues Available for Debt Service3,699,634 3,528,933 4,594,983 4,589,647 3,332,134 Less: Debt Service Paid 2004 Water Revenue Refunding Bonds - Interest Charges452,244 433,950 408,906 380,731 144,720 2004 Water Revenue Refunding Bonds - Principal Payments575,000 595,000 615,000 640,000 665,000 2007 Note Payble to Financing Authority - Interest Charges281,494 270,352 256,744 241,344 224,994 2007 Note Payble to Financing Authority - Principal Payments350,000 365,000 375,000 385,000 405,000 2014 Water Revenue Refunding Bonds - Interest Charges- - - - 106,061 2014 Water Revenue Refunding Bonds - Principal Payments- - - - - Total Debt Service1,658,738$ 1,664,302$ 1,655,650$ 1,647,075$ 1,545,775$ Coverage by Net Revenues Available for Debt Service223%212%278%279%215% Debt service coverage requirement is minimum 115% incl connection fees. The above schedules include connection fees in operating revenues. 64 Source: City of Encinitas Finance Department