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2017-CAFR COMPREHENSIVE ANNUAL FINANCIAL REPORT ' scat Year Ended June 30 , 2017 ,n Cas NC1N[TAS a f ��Ored 19$b City of Encinitas Encinitas, California Comprehensive Annual Financial Report and Independent Auditors' Reports For the Year Ended June 30, 2017 Supported by the Finance Department James R. Riley Interim Director of Finance Tom Gallup Finance Manager - Budget Stella Huang Finance Manager - Reporting Marta Lundgren Finance Manager - Operating Tanya Allsup Finance Analyst Monica Attili Finance Analyst Nancy Rau Finance Analyst Kelly Sanderson Finance Analyst Sandy Ekstrom Accountant Cindy Dabney Finance Technician Alyce Gonzalez Finance Technician Joey Pennell Finance Technician Katie Schroeder Finance Technician City of Encinitas Comprehensive Annual Financial Report For the Year Ended June 30, 2017 Table of Contents Page INTRODUCTORY SECTION (Unaudited) Table of Contents TransmittalLetter ............................................................................................................................................ i Listof City Officials.........................................................................................................................................vi OrganizationChart........................................................................................................................................vii Certificate of Achievement for Excellence in Financial Reporting — GFOA..................................................viii FINANCIAL SECTION Independent Auditors' Report on Financial Statements .......................................................................... 1 Management's Discussion and Analysis (Required Supplementary Information — Unaudited)........... 5 Basic Financial Statements: Government-Wide Financial Statements: Statementof Net Position.................................................................................................................23 Statement of Activities and Changes in Net Position .......................................................................24 Fund Financial Statements: Governmental Fund Financial Statements: BalanceSheet ............................................................................................................................31 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position................................................................32 Statement of Revenues, Expenditures, and Changes in Fund Balances...................................33 Reconciliation of the Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Position...............................................................34 Proprietary Fund Financial Statements: Statementof Net Position...........................................................................................................36 Statement of Revenues, Expenses, and Changes in Net Position.............................................38 Statementof Cash Flows............................................................................................................40 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Position ...........................................................................................47 Notes to the Basic Financial Statements ...........................................................................................49 City of Encinitas Comprehensive Annual Financial Report For the Year Ended June 30, 2017 Table of Contents (Continued) Page FINANCIAL SECTION (Continued): Required Supplementary Information (Unaudited): BudgetaryInformation.......................................................................................................................... 121 Budgetary Comparison Schedule: GeneralFund.................................................................................................................................. 122 Schedule of Changes in the Net Pension Liability and Related Ratios................................................ 124 Schedule of the City's Proportionate Share of the Net Pension Liability.............................................. 125 Scheduleof Contributions .................................................................................................................... 127 Schedules of Funding Progress —Other Post Employment Benefits ................................................... 130 Supplementary Information: Non-Major Governmental Funds: CombiningBalance Sheet.............................................................................................................. 134 Combining Statement of Revenues, Expenditures and Changes in Fund Balances...................... 136 Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual: Infrastructure Improvements Special Revenue Fund ............................................................... 138 Grants and Housing Special Revenue Fund ............................................................................ 139 Development Impact Special Revenue Fund ........................................................................... 140 Lighting and Landscaping Special Revenue Fund ................................................................... 141 Internal Service Funds: Combining Statement of Net Position............................................................................................. 145 Combining Statement of Revenues, Expenses, and Changes in Net Position............................... 146 Combining Statement of Cash Flows ............................................................................................. 147 Fiduciary Funds: Statement of Changes in Assets and Liabilities—Agency Funds................................................... 151 STATISTICAL SECTION (Unaudited) Index........................................................................................................................................................... 153 Financial Trends: Net Position by Components — Last Ten Fiscal Years ......................................................................... 154 Changes in Net Position — Last Ten Fiscal Years................................................................................ 156 Fund Balances of Governmental Funds— Last Ten Fiscal Years........................................................ 160 Changes in Fund Balances of Governmental Fund — Last Ten Fiscal Years....................................... 162 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property— Last Ten Fiscal Years ............... 164 Principal Property Taxpayers— Last Ten Fiscal Years......................................................................... 165 Property Tax Levies and Collections — Last Ten Fiscal Years............................................................. 167 Direct and Overlapping Property Tax Ratios— Last Ten Fiscal Years ................................................. 168 City of Encinitas Comprehensive Annual Financial Report For the Year Ended June 30, 2017 Table of Contents (Continued) Page STATISTICAL SECTION (Continued): Debt Capacity: Ratios of Outstanding Debt by Type — Last Ten Fiscal Years.............................................................. 172 Ratios of General Bonded Debt Outstanding — Last Ten Fiscal Years ................................................ 174 Schedule of Direct and Overlapping Bonded Debt............................................................................... 175 Legal Debt Margin Information — Last Ten Fiscal Years ...................................................................... 176 Historical Debt Service Coverage— Last Ten Fiscal Years.................................................................. 178 Demographic and Economic Information: Demographic and Economic Statistics — Last Ten Fiscal Years .......................................................... 180 General Governmental Tax Revenue by Source.................................................................................. 181 Taxable Sales by Business Type— Last Ten Fiscal Years................................................................... 182 Operating Information: Full-Time and Part-Time Employees by Function — Last Ten Fiscal Years.......................................... 183 Operating Indicators by Function — Last Ten Fiscal Years................................................................... 184 Capital Asset Statistics by Function — Last Ten Fiscal Years............................................................... 186 Cardiff Sanitary Division: Rate Schedule for Annual Sewer Charges........................................................................................... 190 Historical Service Charges Billed ......................................................................................................... 191 TenLargest Customers........................................................................................................................ 192 Historical Service Connections............................................................................................................. 192 San Dieguito Water District: Scheduleof Water Rates...................................................................................................................... 194 Bi-Monthly Meter Service Availability Charges..................................................................................... 194 Historic Potable Water System Revenues — Last Ten Fiscal Years..................................................... 195 Historic Recycled Water System Revenues — Last Ten Fiscal Years .................................................. 195 Summary of Water Production by Source— Last Ten Fiscal Years ..................................................... 196 Summary of Water Deliveries by Source— Last Ten Fiscal Years....................................................... 196 Salesby Customer Class..................................................................................................................... 197 Total Service Connections by Category— Last Ten Fiscal Years ........................................................ 197 Independent Auditors' 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.................................................................... 199 This page intentionally left blank. TRANSMITTAL LETTER• INTRODUCTORY SECTION December 13, 2017 Honorable Mayor, City Council and Citizens of the City of Encinitas,California, We are pleased to present the fiscal year 2016-17 Comprehensive Annual Financial Report (CAFR) for the City of Encinitas and its related entities. This report was prepared by the City's Finance Department to assist those interested in understanding the financial condition and results of operations of the City for the fiscal year ended June 30, 2017 and includes financial information for the City of Encinitas, the San Dieguito Water District, the Encinitas Housing Authority, and the Encinitas Public Financing Authority. These financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards. Responsibility for the accuracy of the data,the completeness and reliability of the presentation, including all disclosures, rests with City management. To provide a reasonable basis for making the presentations shown in this report and to compile sufficient reliable information for the preparation of the City's financial statements, the management of the City has established a comprehensive internal control framework designed to protect the City's assets from loss, theft, or misuse. Because the cost of internal controls should not exceed their benefits, the City's internal controls have been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements. The City's financial statements have been audited by the Pun Group, certified public accountants. The independent auditor concluded based on the audit, that there was reasonable basis for rendering an unmodified opinion (or a "clean audit") on the City's financial statements for the fiscal year ended June 30, 2017, which means in the auditors' opinion, the financial statements accurately present the City's financial position. Management's Discussion & Analysis (MD&A) immediately follows the independent auditors report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. CITY PROFILE AND BACKGROUND The City of Encinitas was incorporated in October 1986 as a general law city, bringing together the communities of New and Old Encinitas, Cardiff-by-the-Sea, Leucadia, and Olivenhain. Encinitas is located in northern San Diego County approximately 25 miles north of downtown San Diego on the Southern California coast. The City with an estimated population of 61,000 i TRANSMITTAL LETTER• INTRODUCTORY SECTION covers approximately 21 square miles and is predominately residential with two major commercial corridors. GOVERNANCE The City is governed by a City Council consisting of a Mayor and four Council members under the Council-Manager form of government. The Council members are elected at large, on staggered four-year terms while the Mayor is elected at large every two years. In August 2017, the Council adopted a resolution to evaluate moving toward to district elections. The City Council appoints the City Manager and City Attorney. All other staff positions are appointed by the City Manager or her designee. The City Council acts as the Board of Directors for the San Dieguito Water District, the Encinitas Housing Authority, and the Encinitas Public Financing Authority. MUNICIPAL SERVICES The City provides a full range of municipal services such as: Fire and paramedic services Law enforcement(contract) Marine safety Parks and trails Planning and development services Recreation services Street maintenance and construction Traffic control Wastewater services Water services CITY FACILITIES City Hall is located on Vulcan Avenue between D and E Streets, adjacent to the Encinitas Train Station and downtown. The City maintains an active Community and Senior Center located at Encinitas Boulevard and Balour Drive, the 44-acre Encinitas Community Park located at 425 Santa Fe Drive along with 20 other park sites and Moonlight Beach located at 400 B Street which attracts an estimated 3 million visitors annually. There are six fire stations located throughout the city, as well as one sheriff substation which is owned and operated by the County of San Diego. The corporate yard for both the City of Encinitas and San Dieguito Water District is located near Encinitas Boulevard and Calle Magdalena. BUDGETING OVERVIEW The City develops and adopts both an operating and a capital budget on a two-year budget cycle. Amounts are appropriated for the first year only, with the amounts for the second-year subject to revision before appropriation. Any changes to the operating or capital budgets must be approved by the City Council. The City also publishes a six-year capital improvement program and financial plan which is updated as part of the two-year budget cycle. This document provides management and the City Council with long-term financial planning information and tools. Online access to detailed City financial information is available on the City's website. This web- based tool allows the user to sort and filter City financial information to obtain the specific financial information desired. This tool may be found by selecting the "Open Finance" page on the City's website https:Hencinitasca.opengov.com/transparency. ii TRANSMITTAL LETTER• INTRODUCTORY SECTION FACTORS AFFECTING FINANCIAL CONDITION OF THE CITY Local Economy — Encinitas enjoys a strong and well diversified tax base. Over the years, the property values and personal income levels within the City have generated tax revenues sufficient to support the level of municipal services and facilities for the community to enjoy. The tax base has performed well in good economic times and it has also been able to weather the financial impacts during slower economic times. The net taxable assessed value of property in the City has grown 45% since Fiscal Year 2006-07 (ten years ago). Throughout the recession the City maintained slight increases each year in net taxable assessed value. For Fiscal Years 2015-16 and 2016-17 taxable values increased 6.5%and 5.6%respectively. According to information provided by the Bureau of Labor Statistics, employment in Encinitas is strong with the unemployment rate just 3.0% as of April 2017. The unemployment rate for all of San Diego County was 3.8% while statewide the rate was 4.8%. Encinitas also has over 3,300 businesses reporting retail sales within the City. The top 100 sales tax producers include a wide variety of businesses such as car dealers, home improvement stores, big box retail, gas stations, grocery stores and restaurants. Property and Sales Tax Revenue - Property tax and sales tax revenue represent approximately 80% of the City's total General fund revenue. Property tax revenue in FY 2016-17 totaled $43.5 million which was an increase of$2.3 million or 6% over FY 2015-16. Sales tax revenue in FY 2016-17 was $12.5 million, a decrease of$1.7 million or 12.0% below FY 2015-16 revenue of $14.2 million. The decrease in sales tax revenue was anticipated because FY 2015-16 sales tax revenue included a one-time "true up" payment of $1.6 million which marked the end of the property tax in lieu of sales tax program in California that was commonly known as the "Triple Flip". Other revenue sources remained relatively stable, although revenues from the State of California are still considered to be vulnerable to State actions. Financial Strength and Sustainability - The City of Encinitas is well positioned to weather economic fluctuations and has been evaluated and rated by internationally recognized third party reviewers. On January 26, 2017, Standard & Poor's Rating Services (S&P) affirmed its `AAA' issuer credit rating(ICR)for the City of Encinitas. The City had approximately $51.2 million of general fund bonded debt and capital leases outstanding at June 30, 2017, with scheduled payments of principal and interest of$4.9 million in FY 2016-17. This debt service as a percentage of general fund revenue is 7.0%, which is far below the City's goal to maintain a debt service coverage ratio of less than 10%. Development and Maintenance of Financial Reserves — The City has an established financial policy regarding maintenance of adequate financial reserves. The City sets aside 20% of General Fund operating expenses for contingencies (unanticipated events that could negatively impact the City's financial condition.) The City has never had occasion to draw on this reserve, since its inception in the early 1990's. The City also maintains a General Fund budget stabilization reserve, established in 2007 in anticipation of the ensuing recession. This reserve is funded at a minimum of 2% of operating revenues. The City has not had any need to draw on this reserve, despite the decline in operating revenues experienced during the recession. Any amounts remaining after these two reserves are fully funded are considered available for City Council iii TRANSMITTAL LETTER• INTRODUCTORY SECTION directed use, primarily for future funding of capital improvements. General Fund reserves for contingencies and budget stabilization total $13.9 million and funding available for capital improvements was$18.4 million as of June 30,2017. Major Initiatives and Projects—Pacific View-The City purchased the Pacific View Elementary School site in December 2014. Proposals were solicited for an operating partner for use of the site and the City Council selected the Encinitas Arts, Culture and Ecology Alliance in September 2015. The Alliance proposes to use the site for a self-sustaining non-profit arts, culture, and ecology center utilizing the buildings and grounds, and incorporating the historic schoolhouse into the broader site to increase its visibility and significance. Coastal Rail Trail - The Coastal Rail Trail (CRT) is a 44-mile long system of pedestrian and bicycle trails generally along the coastal rail corridor between the cities of Oceanside and San Diego. For construction purposes, the CRT is broken into many segments along its length, four of which are within the City of Encinitas. SANDAG is the agency responsible for the design and construction of the Coastal Rail Trail. Polystyrene Ban - On November 16, 2016, the City Council adopted Ordinance 2016-12, an ordinance of the City of Encinitas, California, adding Encinitas Municipal Code chapter 11.27 - Expanded Polystyrene Disposable Food Service Ware Prohibition Ordinance. Under the ordinance, food providers are prohibited from providing prepared food in disposable food service ware made of Expanded Polystyrene (EPS). All City facilities, City-managed concessions, City- sponsored or co-sponsored events, City permitted events and all franchisees, contractors, and vendors doing business with the City are prohibited from using disposable food service ware made of EPS within the City. Coastal Mobility and Livability Working Group - On May 18, 2016, the City Council authorized the City Manager to refine the scope of work to achieve the project goals and provide for coordinated public engagement between three mobility studies: the Rail Corridor Vision Study, Active Transportation Plan and the Coastal Business Districts Parking Study. With adoption of Resolution No. 2016-54 on July 13, 2016, the Council approved the formation of a Coastal Mobility and Livability Work Group (CMLWG). The Working Group will support all three mobility studies. The primary function of the group will be for members to help shape the direction of a number of upcoming projects located in the rail corridor and build community consensus for the final corridor vision; members of the Working Group will also be directly responsible to inform their respective stakeholders, which would allow for consistent, regular communication between all.interested parties. Standard Pacific Park- In 2001 as part of the Maravu Development,the Standard Pacific parcel was conveyed to the City for parkland mitigation. On October 26, 2016, the Parks, Beaches, Trails and Open Space Master Plan was approved by City Council. The plan identified the neighborhood around the Standard Pacific park site as an area that offered low service for recreational opportunities. A park in this area would afford the residents more opportunity to participate in park and recreation activities. On June 28, 2017 City Council awarded a contract to design Standard Pacific Park. The scope of work in the contract includes development of plans, specifications, permits, and environmental documentation for the Standard Pacific park site. Construction on the park is expected to begin in the summer of 2018. Leucadia 101 Streetscape — This project provides streetscape improvements along N. Coast Highway 101 from A Street to La Costa Avenue. Phase I includes design of the entire Leucadia iv TRANSMITTAL LETTER• INTRODUCTORY SECTION 101 Streetscape project and construction of improvements from A Street to Basil Street and extend other elements such as road diet and tree plantings throughout the entire corridor. Moonlight Beach Marine Safety Center - Construction of the $3.7 million Moonlight Beach Marine Safety Center began in October 2016 and is scheduled to be completed in November 2017. The new Moonlight Beach Marine Safety Center will replace the existing Lifeguard Tower which has been deemed functionally obsolete. AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association(GFOA)awarded their Certificate of Achievement for Excellence in Financial Reporting to the City of Encinitas for its Comprehensive Annual Financial Report for the fiscal year ended June 30, 2016. The City feels the FY 2016-17 Comprehensive Annual Financial Report continues to meet the GFOA criteria for the award. Lastly, we deeply appreciate the dedication and leadership of the Mayor and Council Members who have consistently supported our goal of excellence in all aspects of financial management. The completion of this report could not have been accomplished without the dedication and hard work of the staff in the Finance Department. Special recognition goes to Finance Reporting team, Stella Huang, Monica Attili and Sandy Ekstrom for their work with the auditors and the coordination of the preparation of this report. R pectfull s mitt R, O-V Karen P. Brust es R. Riley City Manager Interim Director of Finance v LIST OF CITY OFFICIALS As of June 30, 2017 CITY COUNCIL Mayor Catherine S. Blakespear Deputy Mayor Tony Kranz Council Member Tasha Boerner Horvath Council Member Joe Mosca Council Member Mark Muir EXECUTIVE TEAM MEMBERS City Manager Karen P. Brust Assistant City Manager Mark Delin City Clerk/Legislative Services Director Kathy Hollywood Public Works Director (Interim) Dennis Lamb Finance Director (Interim) James R. Riley Fire Chief Michael Stein Human Resources Director Tom Bokosky IT Manager Wendy Flynn Development Services Director Brenda Wisneski Risk Manager Jace Schwarm Parks & Recreation Director Jennifer Campbell Vi § � � k c � 0 0 Ln / . . e c _ § � g � � k § 2 U � � ■ k 2 � / � J 2 & . — § 2 sm rm Ln ai Owl- *1 0 ro LU vii - u � 2 _ Q O . . - � § & I � � ■ o � � � Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Encinitas California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2016 Executive Director/CEO Viii THE PUN GROUP ACCOUNTANTS&ADVISORS INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Members of the City Council of the City of Encinitas Encinitas, California Report on Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Encinitas, California (the "City"), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the Investment in Joint Ventures of the R.E. Badger Joint Powers Authority, R.E. Badger Financing Authority, and Encina Wastewater Authority, which collectively represent the following percentages of assets, net position, and expenses of the following opinion units: Opinion Unit Assets Net Position Expenses Business-type Activities 10.20% 14.12% 3.65% Each Major Enterprise Fund: San Dieguito Water District 36.42% 49.30% 10.95% Encinitas Sanitary Division 13.10% 13.28% 27.76% Those statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for investment in joint ventures, are based solely on the reports 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 of material misstatement. 4365 Executive Drive, Suite 710,San Diego,California 92121 Tel:858-242-5100• Fax:858-242-5150 www.pungroup.com To the Honorable Mayor and Members of the City Council of the City of Encinitas Encinitas, California Page 2 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 City'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 City'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 opinions. Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, Budgetary Comparison Schedules, Schedules of Changes in Net Pension Liability and Related Ratios, Schedules of the Proportionate Share of the Net Pension Liability, Schedules of Contributions, and Schedules of Funding Progress on pages 5 through 17 and 123 through 132 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 and other auditors 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 that collectively comprise the City's basic financial statements. The Introductory Section, Combining and Individual Nonmajor Fund Financial Statements and Budgetary Comparison Schedules, and Statistical Section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. 2 To the Honorable Mayor and Members of the City Council of the City of Encinitas Encinitas, California Page 3 The Combining and Individual Nonmajor Fund Financial Statements and Budgetary Comparison Schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Combining and Individual Nonmajor Fund Financial Statements and Budgetary Comparison Schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The Introductory and Statistical Sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 13, 2017, on our consideration of the City'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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. cG� ' San Diego, California December 13, 2017 3 qb This page intentionally left blank. 4 City of Encinitas law Management's Discussion and Analysis For the Year Ended June 30, 2017 This discussion and analysis of the City of Encinitas' financial performance provides an overview of the fiscal year ended June 30, 2017. The City's financial statements include the accounts of the City, the Encinitas Public Financing Authority (EPFA), the Encinitas Housing Authority (EHA), and the San Dieguito Water District (SDWD). Please read it in conjunction with the accompanying transmittal letter, the basic financial statements and the accompanying notes to those financial statements. FINANCIAL HIGHLIGHTS • The City's total assets increased overall by $3.1 million. This is composed of a $1.0 million increase in Governmental activities and $2.1 million increase in Business-Type activities. • The City's total net position increased overall by $6.7 million. Total assets increased $3.1 million; total liabilities increased $4.9 million, deferred outflows increased $7.1 million but deferred inflows decreased $1.4 million. • The City's total revenues decreased $1.8 million from 2016. • Governmental activities revenues decreased $2.2 million • Business-type activities revenues increased $0.4 million • The City's total expenses increased $3.3 million from 2016. • Governmental activities expenses increased $3.6 million • Business-type activities expenses decreased $0.3 million THE FINANCIAL STATEMENTS The financial statements presented herein include all the activities of the City of Encinitas (City) and the component unit of San Dieguito Water District (SDWD) using the integrated approach as prescribed by GASB Statement No. 34. The City includes accounts for the Encinitas Public Financing Authority (EPFA) and the Encinitas Housing Authority (EHA). The Government-Wide Financial Statements present the financial picture of the City from the economic resources measurement focus using the accrual basis of accounting. They present Governmental activities and Business-type activities separately. These statements include all assets of the City (including infrastructure) as well as all liabilities (including long-term debt). Certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables and receivables. 5 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 The Fund Financial Statements include statements for each of the three categories of activities: Governmental, Business-Type (proprietary) and Fiduciary. The Governmental activities (other than internal service activities) are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Business-Type activities are prepared using the economic resources management focus and the accrual basis of accounting. The Fiduciary activities include agency funds that only report a balance sheet and do not have a measurement focus. Reconciliations of the Fund Financial Statements to the Government-Wide Financial Statements are included in order to explain the differences created by the integrated approach (please see pages 32 and 34). Reporting the City as a Whole The Statement of Net Position and the Statement of Activities The Government-Wide Financial Statements consist of two financial statements. The Statement of Net Position and the Statement of Activities and Changes in Net Position report information about the City as a whole and its activities. These statements include all assets and liabilities of the City using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. Revenues and expenses for the current fiscal year are recorded, regardless of when cash is received or paid. One of the most important questions asked about the City's finances is "Are the City's finances better or worse off as a result of this year's activities?" These statements can help answer this question and provide an analysis of the City's financial position. The Statement of Net Position presents information on all of the City's assets, deferred outflows-inflows and liabilities, with the difference between the four reported as Net Position, which is one way to measure the City's financial health. Over time, increases or decreases in the City's Net Position is one indicator of whether its financial health is improving or deteriorating. The Statement of Activities presents information showing how the City's Net Position changed during the most recent fiscal year. All changes in Net Position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (i.e. uncollected taxes and earned but unused vacation leave). In both the Statement of Net Position and the Statement of Activities and Changes in Net Position, the City activities are separated as follows: Governmental activities - Most of the City's basic services are reported in this category, including General Government, Public Safety, Public Works, Building and Planning, Engineering Services, and Parks and Recreation. Property and sales taxes, user fees, franchise fees, investment earnings and state and federal grants finance these activities. Business-Type activities — The City charges a fee to customers to cover all or most of the cost of certain services it provides. These activities include the water and wastewater operations and a portion of the City's affordable housing program. 6 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Reporting the City's Most Significant Funds Fund Financial Statements — The City's Fund Financial Statements provide a greater level of detail regarding the City's Governmental Activities, which include the General fund, Capital Improvements, and other Nonmajor Governmental funds. The City reports the General fund and the Capital Improvements fund as major funds, under the guidance provided by GASB No. 34. All other governmental funds are considered nonmajor funds, and are reported as one group. The General Fund is the largest and most discretionary source of funding for operations, debt service and capital improvements, via both direct expenditures and transfers to other City funds. The Capital Improvements Capital Projects Funds account for all governmentally funded capital improvements, as well as a number of work projects such as long-term consultant studies. All of these expenses appear as capital outlay expenditures. Capital spending totaled $12.2 million this fiscal year, an increase of approximately $1.4 million from the prior year. Further discussion of the City's capital program is included in the section below entitled CAPITAL ASSETS AND CAPITAL IMPROVEMENT PROGRAM. The other Nonmajor Governmental Funds are primarily Special Revenue funds, where monies are collected and held, but are restricted to the specific purpose for which they are collected. The City's Debt Service funds are included in this group. Discussion of the City's debt service program is included in the section below entitled DEBT ISSUANCE AND ADMINISTRATION. The City's Major Funds include: Type of Activity • General Fund Governmental Activities • Capital Improvements Capital Projects Funds Governmental Activities • City's Water and Wastewater Enterprises Business-Type Activities • San Dieguito Water District • Cardiff Sanitary Division • Encinitas Sanitary Division Governmental funds — Most of the City's basic services are reported in Governmental Funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported by using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The Governmental fund statements provide a detailed short-term view of the City's general governmental operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be used in the near future to finance the City's programs. Proprietary funds - When the City charges customers for the services it provides (whether to outside customers or to other units of the City), these services are generally reported in proprietary funds. Proprietary funds are reported in the same manner as the governmental activities are reported in Statement of Net Position and the Statement of Activities and Changes in Net Position. The City's enterprise funds (one component of the proprietary funds) are the same as the business-type activities reported in the government-wide financial statements, but provide more detail and additional information such as cash flows for proprietary funds. Internal service funds (the other component of the proprietary funds) report activities that provide supplies and services to other City's programs and activities. The Internal Service funds are reported with Governmental activities in the Government-Wide financial statements. 7 City of Encinitas . Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Fiduciary funds - The City is the trustee, or fiduciary, for certain funds held on behalf of the Community Facilities District No. 1 (the Encinitas Ranch Development) and Requeza Street Assessment District No. 93-1. The City's fiduciary activities are reported in a separate Statement of Fiduciary Net Position and Liabilities. We exclude these activities from the City's other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. Net Position - The City of Encinitas' combined Net Position (i.e. inclusive of all City funds) for the fiscal year ended June 30, 2017 is compared to results for 2016 in Table 1. Table 1 Statement of Net Position (in millions of dollars) Governmental Business-type Total Primary Activities Activities Government 2017 2018 2017 2018 2017 2016 Current assets $ 80.5 $ 74.8 $ 41.4 $ 42.7 $ 121.9 $ 117.5 Capital assets(net) 216.5 217.9 57.6 55.6 274.1 273.5 Other noncurrent assets 1.0 4.3 45.0 43.6 46.0 47.9 Total assets 298.0 297.0 144.0 141.9 442.0 438.9 Deferred outflows 11.3 4.9 1.5 0.8 12.8 5.7 Current liabilities 17.6 18.5 4.1 4.1 21.7 20.6 Long-term liabilities 92.5 86.7 16.8 18.8 109.3 105.5 Total Liabilities 110.1 103.2 20.9 22.9 131.0 126.1 Deferred inflows 4.1 5.4 0.3 0.4 4.4 5.8 Net Position: Net investment in capital assets 185.7 182.9 45.0 42.5 210.7 205.4 Restricted 19.9 31.0 - 1.4 19.9 32.4 Unrestricted 9.5 (0.6) 79.3 75 5 88.8 74.9 Total Net Position $ 195.1 $ 193.3 $ 124.3 S 119 4 S 319 4 $ 312.7 8 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Net Position represents the most simple test of financial health for the City, indicating the excess (or deficit) of assets and deferred outflows of resources over liabilities. Net Position for the City as a whole increased 2.1% from $312.7 million at June 30, 2016, to $319.4 million at June 30, 2017. • The overall increase in total assets is $3.1 million. The Governmental activities total assets increased $1.0 million with an increase in cash/investments but a decrease in receivables and capital assets. The business-type activities total assets increased $2.1 million with increases in both investment in joint ventures and capital assets. In summary, the governmental increase of $1.0 million plus the business-type increase of $2.1 million results in an overall increase to the City's total assets of$3.1 million. • The overall increase in total liabilities is $4.9 million. This is the net change attributable to $5.3 million decrease in the long-term liabilities but $10.3 million increase in net pension liability in the governmental and business activities. The $10.3 million of the overall increase in net pension liabilities is from governmental activities total $ 9.0 million and business-type activities total $1.3 million. • The increase of total assets of $3.1 million along with an increase of total liabilities of $4.9 million, a decrease in deferred inflows of $1.4 million and an increase in deferred outflows of $7.1 million has increased the City's total net position by $6.7 million or approximately 2.1% increase from 2016. (Remainder of page left intentionally blank) 9 City of Encinitas C Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Tasle 2 Statement of Activities and Changes in Net Position fin millions of dollars) Governmental Business-type Total Primary Activities Activities Government 2017 2016 2017 2016 2017 2016 Program Revenues: Charges for services $ 8.8 8.6 22.7 22.5 ► 31.5 $ 31.1 Operating grants 3.4 3.3 1.1 1.1 4.5 4.4 Capital grants 4.4 5.4 0.7 0.7 5.1 6.1 General Revenues: Property taxes 43.5 41.2 1.0 0.9 44.5 42.1 Sales and use taxes 12.5 14.2 - - 12.5 14.2 Other taxes 4.7 4.8 - - 4.7 4.8 Intergovernmental - 0.4 - - - 0.4 Other general revenue - 1.6 0.2 0.1 0.2 1.7 Total Revenues 77.3 79.5 25.7 25.3 103.0 104.8 Program Expenses: General government 11.7 11.7 - - 11.7 11.7 Public safety 29.5 27.3 - - 29.5 27.3 Public works 9.2 11.7 - - 9.2 11.7 Planning and building 6.9 7.3 - - 6.9 7.3 Engineering services 8.9 4.6 - - 8.9 4.6 Parks and recreation 7.1 6.8 - - 7.1 6.8 Interest on long-term debt 2.2 2.5 - - 2.2 2.5 Cardiff Sanitary Division - - 3.3 3.9 3.3 3.9 San Dieguito Water District - - 14.0 13.5 14.0 13.5 Encinitas Sanitary Division - - 2.0 2.3 2.0 2.3 Affordable Housing - - 1.5 1.4 1.5 1.4 Recreation - - - - - - Total Expenses 75.5 71.9 20.8 21.1 96.3 93.0 Change in Net Position 1.8 7.6 4.9 4.2 6.7 11.8 Transfers in (out) 0.4 (0.4) - - Increase in Net Position 1.8 8.0 4.9 3.8 6.7 11.8 Net Position - beginning * 193.3 185.3 119.4 115.6 312.7 300.9 Net Position - ending $ 195.1 S 193.3 124.3 $ 119.4 $ 319.4 $ 312.7 10 r City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Chart 1 shows the financial impact of the various City programs, or the extent to which these programs generate revenue from fees and grants. The City's programs include General Government, Public Safety (Fire and Law Enforcement), Public Works, Planning and Building, Engineering Services, and Parks and Recreation. Each program's net cost (total cost less revenues generated by the activities) is presented in the Statement of Activities and Changes in Net Position. Char i Expenses vs. Program Revenue (Governmental Activities) $35,000,000 $30,000,000 $25.000.000 — $20,000,000 $15,000,000 $101 000,000 $5,000 General Pubic Safety Public Works Planning & Engineering Parks& interest on Government Building Services Recreation long-term De bt ■Program Revenue ■Expenses Chart 2 shows that Property Tax, Sales Tax, Charges for Services, Capital Grants and Contributions, and Other Taxes, which are the top five categories of revenue and comprise 94% of funding for Governmental activities. The Other category includes Operating Grants and Contributions, Use of Money and Property, and miscellaneous revenues. Chart 2 Governmental Revenues Use of Money& Other Chargesfor ;35 Intergovernmental Property ervices 0% 196 � 11% Other Taxe Operating Grants& Contributions 6 4% Sales Taxes Capital Grants& 16% Contributions 6% Properry'raxes 55% 11 r City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Business-Type Activities for the City of Encinitas include water and wastewater operations and a portion of the City's affordable housing program. These activities increased Net Position by $4.9 million from the last fiscal year as noted in in Table 2. Overall revenues increased $0.4 million while overall expenses decreased $0.3 million from 2016. The Statement of Activities and Changes in Net Position for Business-type activities indicates an increase of $0.2 million in program revenues and an increase of $0.2 million in general revenues from the previous year. The primary reason for the increase in operating revenue in 2017 is attributable to water sales up 5.0%. The Cardiff Sanitary Division and Encinitas Sanitary Division decreased $0.6 million in program expenses; on the other hand, the San Dieguito Water District and Affordable Housing increased $0.6 million in program expenses. Overall, program revenues and general revenues exceeded program expenses in 2017 resulting in a total net change of$0.7 million. Chart 3 below compares program revenue from Business-Type activities to program expenses. Water and wastewater operations operated at a surplus, as referenced in the Statement of Activities and Changes in Net Position. Chart 3 Expenses vs. Program Revenue (Business-type Activities) $18,0G0,000 $16,000,DOo $14,ODD,OW $12,00O,DD0 $1Q 000,000 Sa.DOO.000 $6,DDD,000 $4,000,000 S2,OOD,000 S- Cardiff Sanitary Division San Dieguito water Encinitas Sanitary Division Affordable Housing District n Program Revenue ■EKpenses 12 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 General Fund General Fund Budgetary Highlights General Fund Revenues $0.9 million above projections Property taxes made up 61% of the general fund revenue budget. The City of Encinitas receives approximately 24 cents of each dollar of property tax revenue generated in the City. Current secured property taxes, along with other property tax categories, exceeded projections by $526,362, a 1.3% increase over 2016. The City experienced a next taxable value increase of 5.6% for the FY2016-17 tax roll, which was slightly more than countywide at 5.4%. Documentary transfer tax exceeded projections by $9,777, which was related to the number of homes sold. Sales tax is the City's second largest revenue source and actual revenue received were under projections by $275,391, and 2.1% decrease over 2016. Sales in the fuel and service station category fell 14% from the previous year due to lower than anticipated fuel prices throughout the year, as well as a slight decline of 3% in the auto sales category, both of which mirror county and countywide trends. The 80% of the City's Transient Occupancy Tax (TOT) is deposited to the General Fund and 20% is deposited to the Coastal Zone Management Fund for sand replenishment. TOT revenue exceeded projections by $164,515, an increase of 10.2% from 2016. The City conducted an audit of rentals marketed through various marketplace and hospitality service websites that resulted in additional units enrolled in the program and TOT collections for these rentals. Overall, franchise taxes were under projections by $67,799, which was a result of a reduction in taxes collected due to a declining number of cable television subscribers. Licenses and permits were over projections by $1,749, which was similar to TOT revenue increase. The City issued additional STVR permits for online rental services. Intergovernmental revenue was over the projected by $60,212. Additional revenue was received from agencies participating in the Carlsbad Watershed Water Quality Improvement Program cost sharing agreement. Overall Charges for Services revenue exceeded projections by $62,109, primarily from planning fees. Fines and Penalties, which include vehicle code and red light violations, also exceeded projections by $60,850. Use of money and property which include investment earnings exceeded projections by $340,904. Income from City property rentals was 7.4% higher than projected due to a large number of facility rentals than anticipated at the Community Center. Miscellaneous revenue was projected at $80,800; the City only received $18,110. The short fall was the result of revenue from County Service Area (CSA) 17 benefit fees, which were recorded in CSA Fund but budgeted in the General Fund revenue account. The revenue from cost recovery collections exceeded projects by $20,202. Overall, the City's revenues exceeded projections by $0.9 million. General Fund Expenditures $3.4 million under budget All general fund functional areas, including general government/administration, experienced savings in the current fiscal year, with total savings (budget vs. actual) of over$3.4 million. This represents savings of approximately 6.0%. The saving was primarily from personnel costs resulting from vacancies and reorganizations across City departments and savings in the contract/services category. Departments also saved in materials and supplies expenses. Overall, all departments were below budget between 1% to 24% saving, except non- departmental. Actual general fund expenditures were $56.8 million compared to prior year actual of$54.9 million. 13 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Excess of Revenues over Expenditures $4.3 million above projections Actual revenues over expenditures were approximately $12.6 million, compared to a budget of $8.3 million. NOTE: This does not take into account the Other Financing Sources (Uses) discussed below. This result is a combination of revenues being above projections and expenditures being under budget, as discussed above. Other Financing Sources and Uses— General Fund Other Financing Sources and Uses consisted of Transfers-in and Transfers-(out) this fiscal year. Scheduled transfers-in included: (a) monies from the Gasoline Taxes special revenue fund, which fund a portion of the City's street maintenance program, and (b) monies for impact fees collected for community facilities and fire mitigation. The impact fees are transferred at year- end to reimburse the General Fund for amounts expended in prior years for the Public Library and Fire Station Rehabilitation projects. Transfers in for operating were lower than budgeted by $133,758 primarily due to the Gasoline Taxes received were lower than budgeted. Transfers-out to internal service funds includes the General Fund's contribution to the Self- Insurance fund. The contribution was set and funded at approximately $900,000. Appropriations for capital projects from the general fund totaled $15.2 million in 2017. Transfers-out for debt service totaled $4.3 million, which was the same as the $4.3 million budgeted Analysis of Fund Balance and Changes in Fund Balance Fund balance projected to be $21.1 million as of June 30, 2017, a scheduled decrease of about $11.8 million. Actual fund balance was $25.7 million, or$4.6 million higher than projected. There was an excess of revenues over expenditures of $12.6 million. Factoring in transfers for debt service payments of $4.3 million, capital expenditures of $15.2 million and other transfer activity of $0.3 million, the net result is a decrease in total fund balance of $7.2 million at year- end. CAPITAL ASSETS AND THE CAPITAL IMPROVEMENT PROGRAM As of June 30, 2017, the City had approximately $319.2 million invested in a broad range of capital assets including road and drainage systems, parks and beach facilities, public buildings, water and wastewater treatment facilities, collection and distribution systems and affordable housing stock. Of that amount, $216.5 million is classified as capital assets under the category of Governmental Activities, and $57.6 million is classified as capital assets of Business-Type Activities. In addition, there are $45.0 million of assets under Business-Type Activities classified as Investment in Joint Ventures. This investment consists mainly of capital assets belonging to related governmental agencies where the City holds an equity interest in the joint venture. The assets are principally water and wastewater treatment facilities. 14 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Governmental Activities $216.5 million The City has three Capital Projects Improvement Funds for the capital improvements for governmental activities. These include public facilities, acquisition of parkland and park improvements, infrastructure, and certain City "work projects" such as multi-year consultant studies that meet the criteria for inclusion as capital projects for budgeting purposes. The City uses a dollar threshold of $100,000 and a useful life of five years or more in its evaluation for capitalizing a capital expenditure. Eligible project costs are additions to construction in progress (CIP) at fiscal year-end. Costs for completed projects recorded as additions to the appropriate capital asset category at year-end. . The City spent approximately $12.2 million this fiscal year on capital improvement projects. These capital expenditures consisted of a variety of different projects that were either in development or construction phase. The primary emphasis this fiscal year were Moonlight Beach Marine Safety Headquarters rebuild, Leo Mullen artificial turf, Leucadia Boulevard and El Camino Real traffic signals upgrade, Paul Ecke-Central Elementary School improvements, the North Coast Highway 101 Streetscape, and on-going pavement overlay project. Business-Type Activities Capital Assets: $57.6 million The City accounts for the acquisition and construction of capital assets for its Water and Wastewater operations under its Proprietary-Type funds and as enterprise activities. Capital spending is recorded as expenses in the appropriate capital fund under each separate activity during the fiscal year. At the end of the fiscal year, the expenses are analyzed to determine if they meet the criteria to be capitalized as long-term fixed assets. The criteria are the same as the City criteria ($100,000 threshold and a minimum five-year life.) Eligible capital expenses are then capitalized to the construction-in-progress account(s), while non-eligible expenses are reclassified as operating expenses. Total amounts expended on completed projects are then transferred to the appropriate capital asset class. The City's affordable housing fund carries its investment of about $2.7 million in affordable housing stock under the classification of utility, plant, vehicles and equipment. There has not been any capital spending activity in this fund since its original purchase of 16 housing units in 2004. Investment in Joint Ventures: $45.0 million The City's water and wastewater enterprises each hold equity interests in joint ventures with other local agencies. SDWD holds an equity interest, along with Santa Fe Irrigation District, in the R.E. Badger Joint Facilities. SDWD makes capital contributions each year for the replacement and improvement of the Joint Facilities, which then is added to the Investment account at the end of the fiscal year. SDWD also makes monthly payments to cover its ratable share of annual operating costs. 15 City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 SDWD also holds an equity interest in the R.E. Badger Water Facilities Financing Authority. The primary content of this investment consists of a ratable share of certain debt service reserve fund assets and capitalized financing costs. Therefore, these resources are not available to SDWD for the funding of its operations. Cardiff Sanitary Division (CSD) holds an equity interest, along with the City of Solana Beach, in the San Elijo Joint Powers Authority Joint Facilities. CSD makes capital contributions each year for the replacement and improvement of the Joint Facilities, which gets added to its Investment account at the end of the fiscal year. CSD also makes quarterly payments to cover its ratable share of annual operating costs. The treatment facilities, also serving other local agencies, bill quarterly for their ratable share of operations costs and capital improvements. Encinitas Sanitary Division (ESD) holds an equity interest, along with five other local agencies, in the Encina Wastewater Authority Joint Facilities. ESD makes capital contributions each year for the replacement and improvement of the Joint Facilities. These capital contributions are additions to the Investment account at the end of the fiscal year. The Division also makes quarterly payments to cover its ratable share of annual operating costs. DEBT ISSUANCE AND ADMINISTRATION The City has a total of$67.7 million of long-term debt for both Governmental and Business-type activities as shown in Note 9 — Long-Term Obligations schedule on page 76 of this report. The Governmental Activities debt totaling $55.2 million include $2.2 million in capital leases, $49.0 million in bonded debt and $4.0 million in claims payable and compensated absences. The capital leases consist of the Civic Center Roof Replacement and fire apparatus vehicles. The Business-type Activities debt totals $12.5 million and includes $12.3 million in bonded debt and $0.2 million in compensated absences. $7.0 million of the total $67.7 million is due within one year. Governmental Activities $55.2 million The majority of the City's long-term debt is bonded debt issued in order to acquire and/or construct public facilities including City Hall, the Public Library, the Encinitas Community Park and the Pacific View land acquisition. On September 23, 2015, the Encinitas Public Financing Authority (on behalf of the City) refunded its 2006 Public Library bonds with the principal balance of $16,975,000 with the 2015 Lease Revenue Refunding Bonds for $15,645,000. The issuance of the new debt and refunding of the old debt resulted in an economic gain of approximately $3.2 million and the final maturity is the same. Debt payments for all of these bonds are due semi-annually at fixed amounts, and the debt matures at various times through 2036. Annual debt service averages approximately $1.1 million. The City has a policy of utilizing lease/purchase financing for the acquisition of equipment costing more than $100,000. The City is obligated under a lease/purchase agreement (a private placement with a financial institution) for improvements made to City Hall in 2008. Annual payments on that lease are $180,000. The City's total annual debt service of approximately $4.9 million represents approximately 7.1% of annual general fund operating revenues. The City currently leases four Fire Engines and the average annual leases are $422,965. 16 _ City of Encinitas Management's Discussion and Analysis (Continued) For the Year Ended June 30, 2017 Business-Type Activities $12.5 million SDWD and CSD carry long-term debt issued to construct capital improvements to both their distribution and collection systems and their Joint Facilities. The Encinitas Housing Authority has a mortgage loan with a financial institution that partially funded the acquisition of the City's affordable housing units (Pacific Pines). The City is not obligated in any way for repayment of these debt issues. General Information on City debt The City of Encinitas obtained and affirmed in 2015 an upgrade to its issuer credit rating to AAA by Standard & Poor's (S & P). The City's credit rating affirmed recently by S & P issued a credit rating of AA+ on the City's 2015 Lease Revenue bonds. Ratings for lease revenue bond issues are typically one notch lower than the issuers' rating, due to the structure of the bond issue. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS The City's elected and appointed officials consider many economic factors when setting budgets, including national, state and local economic conditions, trends in residential housing, and the unique needs of the community. The Finance Department coordinates the development of the operating and capital budgets presented by the City Manager to the City Council for consideration. The City adopts its operating budget in a two-year cycle, with legal appropriations set for the first year only. The operating and capital budgets for Fiscal Year 2017-18 were appropriated by the City Council in June 2017. Through the City Council's approval in March 2017, the engineering division and storm water functions will be moved out of the City's Public Works Department and into the Planning & Building Department, which will be renamed as Development Services Department for Fiscal Year 2017-18. The fiscal year 2016-17 actual results, when compared to the adopted projections and appropriations, showed revenues slightly above forecasts and expenditures significantly under budget. Fiscal year 2017-18 revenues expect to increase modestly above 2016-17 actual levels. Expenditures expect to decrease greatly below 2016-17 levels. Next year's budget includes a 2% adjustment to employee compensation, which is the largest portion of the general fund budget. Debt service costs will remain consistent with 2017- 18. CONTACTING THE CITY'S FINANCIAL MANAGEMENT The financial report's intention is to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the monies it receives and manages. If you have questions about this report or need additional information, please contact the Finance Department of the City of Encinitas, 505 South Vulcan Ave, Encinitas, CA 92024, telephone (760) 633- 2600, or visit our website at www.encinitasca.gov and review the Finance Department webpage. 17 FA Ar This page intentionally left blank. 18 BASIC FINANCIAL STATEMENTS 19 This page intentionally left blank. 20 GOVERNMENT-WIDE FINANCIAL STATEMENTS 21 , .0 This page intentionally left blank. 22 City of Encinitas Statement of Net Position June 30, 2017 Primary Government Governmental Business-Type Activities Activities Total ASSETS Current assets: Cash and investments(Note 3) $ 72,486,110 $ 38,718,713 $ 111,204,823 Restricted cash and investments with fiscal agent 2,266,016 20,237 2,286,253 Receivables (Note 4) 4,752,985 2,344,846 7,097,831 Inventory and prepaid items 1,047,191 307,949 1,355,140 Total current assets 80,552,302 41,391,745 121,944,047 Noncurrent assets: Restricted cash and investments with fiscal agent - - - Internal balances 71,443 (71,443) - Long-term receivable (Note 6) 836,493 - 836,493 Investments in joint ventures (Note 5) - 45,099,620 45,099,620 Other assets(Note 7) - - - Capital assets(Note 8): Non-depreciable 79,859,572 14,374,609 94,234,181 Depreciable, net 136,695,056 43,140,741 179,835,797 Total capital assets, net 216,554,628 57,515,350 274,069,978 Total noncurrent assets 217,462,564 102,543,527 320,006,091 Total assets 298,014,866 143,935,272 441,950,138 DEFERRED OUTFLOWS OF RESOURCES Deferred loss on bond refunding 364,068 - 364,068 Pension related deferred outflows of resources(Note 14) 10,972,822 1,540,047 12,512,869 Total deferred outflows of resources 11,336,890 1,540,047 12,876,937 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 6,465,189 1,686,671 8,151,860 Interest payable 506,565 115,727 622,292 Unearned revenue 741,421 233 741,654 Deposits and other liabilities 3,263,843 316,515 3,580,358 Long-term liabilities-due within one year(Note 9) 5,050,915 1,954,418 7,005,333 Total current liabilities 16,027,933 4,073,564 20,101,497 Noncurrent liabilities: Long-term liabilities-due in more than one year(Note 9) 50,158,464 10,542,608 60,701,072 Aggregate net pension liability(Note 14) 43,869,887 6,288,631 50,158,518 Total noncurrent liabilities 94,028,351 16,831,239 110,859,590 Total liabilities 110,056,284 20,904,803 130,961,087 DEFERRED INFLOWS OF RESOURCES Deferred gain on refunding - 117,468 117,468 Pension related deferred inflows of resources(Note 14) 4,158,094 168,372 4,326,466 Total deferred inflows of resources 4,158,094 285,840 4,443,934 NET POSITION Net investment in capital assets 165,759,601 44,977,544 210,737,145 Restricted: Community development 1,329,540 - 1,329,540 Debt service 1,994,813 65 1,994,878 Housing - 20,172 20,172 Capital projects 16,543,189 - 16,543,189 Total restricted 19,867,542 20,237 19,887,779 Unrestricted (deficit) 9,510,235 79,286,895 88,797,130 Total Net Position $ 195,137,378 $ 124,284,676 $ 319,422,054 See accompanying Notes to the Basic Financial Statements. 23 City of Encinitas Statement of Activities and Changes in Net Position For the Year Ended June 30, 2017 Program Revenues Operating Capital Total Charges for Grants and Grants and Program Functions/Programs Expenses Services Contributions Contributions Revenues Primary government: Governmental activities: General government $ 11,737,634 $ 1,675,799 $ - $ - $ 1,675,799 Public safety 29,437,181 1,148,567 139,488 - 1,288,055 Public works 9,205,570 65,746 2,875,910 3,634,388 6,576,044 Planning and building 6,935,754 2,954,523 370,642 329,128 3,654,293 Engineering services 8,918,281 1,143,830 7,500 - 1,151,330 Parks and recreation 7,046,255 1,796,918 26,190 444,447 2,267,555 Interest on long-term debt 2,237,069 - - - - Total governmental activities 75,517,744 8,785,383 3,419,730 4,407,963 16,613,076 Business-type activities: Cardiff Sanitary Division 3,308,454 4,788,884 - 177,454 4,966,338 San Dieguito Water District 13,970,919 14,851,977 - 464,017 15,315,994 Encinitas Sanitary Division 2,037,116 2,819,006 - 94,899 2,913,905 Affordable Housing 1,449,917 213,124 1,099,366 - 1,312,490 Total business-type activities 20,766,406 22,672,991 1,099,366 736,370 24,508,727 Total primary government $ 96,284,150 $ 31,458,374 $ 4,519,096 $ 5,144,333 $ 41,121,803 See accompanying Notes to the Basic Financial Statements. 24 City of Encinitas Statement of Activities and Changes in Net Position (Continued) For the Year Ended June 30, 2017 Net(Expense) Revenue and Changes in Net Position Primary Government Governmental Business-type Functions/Programs Activities Activities Total Primary government: Governmental activities: General government $ (10,061,835) $ - $ (10,061,835) Public safety (28,149,126) - (28,149,126) Public works (2,629,526) - (2,629,526) Planning and building (3,281,461) - (3,281,461) Engineering services (7,766,951) - (7,766,951) Parks and recreation (4,778,700) - (4,778,700) Interest on long-term debt (2,237,069) - (2,237,069) Total governmental activities (58,904,668) - (58,904,668) Business-type activities: Cardiff Sanitary Division - 1,657,884 1,657,884 San Dieguito Water District - 1,345,075 1,345,075 Encinitas Sanitary Division - 876,789 876,789 Affordable Housing - (137,427) (137,427) Total business-type activities - 3,742,321 3,742,321 (58,904,668) 3,742,321 (55,162,347) General revenues: Taxes: Property taxes and documentary transfer taxes 43,494,220 959,873 44,454,093 Sales tax 12,549,609 - 12,549,609 Transient occupancy taxes 2,216,145 - 2,216,145 Franchise taxes 2,545,854 - 2,545,854 Total taxes 60,805,828 959,873 61,765,701 Intergovernmental-unrestricted 251,919 - 251,919 Use of money and property 770,634 (31,828) 738,806 Gain on disposal of capital assets 1,937 6,925 8,862 Impairment loss on capital assets(note 8) (2,088,668) - (2,088,668) Other 961,475 216,146 1,177,621 Total general revenues and transfers 60,703,125 1,151,116 61,854,241 Changes in net position 1,798,457 4,893,437 6,691,894 Net Position: Beginning of year 193,338,921 119,391,239 312,730,160 End of year $ 195,137,378 $ 124,284,676 $ 319,422,054 See accompanying Notes to the Basic Financial Statements. 25 , .0 This page intentionally left blank. 26 FUND FINANCIAL STATEMENTS 27 , .0 This page intentionally left blank. 28 GOVERNMENTAL FUND FINANCIAL STATEMENTS 29 , .0 This page intentionally left blank. 30 City of Encinitas Balance Sheet Governmental Funds June 30, 2017 Major Funds Capital Improvements Other Total General Capital Projects Governmental Governmental Fund Fund Funds Funds ASSETS Cash and investments $ 27,033,981 $ 28,450,188 $ 9,361,249 $ 64,845,418 Receivables 4,305,095 - 447,890 4,752,985 Due from other funds 223,443 13,260,720 - 13,484,163 Inventory and prepaid items 302,034 - 296,234 598,268 Other assets - - - - Long-term receivable 425,060 - 411,433 836,493 Restricted cash and investments 1,472,372 - 793,644 2,266,016 Total assets $ 33,761,985 $ 41,710,908 $ 11,310,450 $ 86,783,343 LIABILITIES, DEFERRED INFLOWS OF RESOURCES,AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ 4,226,315 $ 723,908 $ 958,726 $ 5,908,949 Interest payable - - - - Unearned revenue 636,577 - 104,844 741,421 Due to other funds - - 13,412,720 13,412,720 Deposits and other liabilities 3,247,501 - 16,342 3,263,843 Total liabilities 8,110,393 723,908 14,492,632 23,326,933 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - - 411,433 411,433 Total deferred inflows of resources - - 411,433 411,433 Fund Balances: Nonspendable 727,094 - 296,234 1,023,328 Restricted 1,472,372 21,988,785 8,293,740 31,754,897 Committed 13,937,399 18,998,215 - 32,935,614 Unassigned 9,514,727 - (12,183,589) (2,668,862) Total fund balances 25,651,592 40,987,000 (3,593,615) 63,044,977 Total liabilities,deferred inflows of resources, and fund balances $ 33,761,985 $ 41,710,908 $ 11,310,450 $ 86,783,343 See accompanying Notes to the Basic Financial Statements. 31 City of Encinitas Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position June 30, 2017 Total Fund Balances -Total Governmental Funds $ 63,044,977 Amounts reported for governmental activities in the Statement of Net Position were different because: Capital assets used in governmental activities were not financial resources and therefore were not reported in governmental funds(net of$3,326,817 reported in internal service funds). Land 61,862,474 Land easements 2,286,158 Construction in progress 15,710,940 Public facilities 102,560,379 Vehicles, equipment and machinery 1,996,509 Infrastructure 111,550,194 Less: Accumulated depreciation (82,738,843) Total capital assets 213,227,811 Deferred loss on refunding in the governmental activities were not financial resources and therefore were not reported in governmental funds. 364,068 Interest payable on long-term debt did not require current financial resources. Therefore, interest payable was not reported as a liability in Governmental Funds Balance Sheet. (506,565) Long-term liabilities applicable to the City's governmental activities were not due and payable in the current period and therefore were not reported in the governmental funds (net of$1,225,391 reported in internal service funds): Amount reported in Government-Wide Statement of Net Position: 2008 Civic Center roof replacement lease (979,891) 2002 ABAG financing (290,000) 2013 Community Park Bonds, net of unamortized premium of$96,360 (6,686,360) 2014 Moonlight Beach Tower Series A Bonds, net of unamortized discount of$27,438 (2,937,562) 2014 Pacific View Series B Bonds, net of unamortized discount of$140,834 (9,824,166) 2015 Library Refunding Bonds, net of unamortized premium of$735,441 (15,900,441) 2017 Park Refunding Bonds, net of unamortized premium of$1,360,284 (13,315,284) Claims payable (2,113,535) Compensated absences (1,936,749) Total long-term liabilities (53,983,988) Aggregate net pension liability is not due and payable in the current period and therefore is not required to be reported in the governmental funds. (43,869,887) Actuarially determined pension deferred outflows of resources are reported in the government-wide statements but are not reported in the governmental funds. 10,972,822 Actuarially determined pension deferred inflows of resources are reported in the government-wide statements but are not reported in the governmental funds. (4,158,094) Unavailable revenue deferred inflows of resources are not available for the current period and, therefore, are deferred in the governmental funds or not recorded in the governmental funds. 411,433 Internal service funds were used by management to charge the costs of risk management, personnel support, fleet maintenance and vehicle replacement to individual funds. The assets and liabilities of the internal service funds were included in governmental activities in the Government-Wide Statement of Net Position. 9,634,801 Net Position of Governmental Activities $ 195,137,378 See accompanying Notes to the Basic Financial Statements. 32 City of Encinitas Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds For the Year Ended June 30, 2017 Major Funds Capital Improvements Other Total General Capital Projects Governmental Governmental Fund Fund Funds Funds REVENUES: Taxes and assessments $ 59,039,035 $ - $ 2,895,386 $ 61,934,421 Licenses and permits 250,749 - - 250,749 Intergovernmental 655,906 329,128 5,451,565 6,436,599 Development impact fees - - 800,370 800,370 Charges for services 6,688,958 - - 6,688,958 Fines, forfeitures and penalties 850,153 - - 850,153 Use of money and property 1,047,909 - 237,140 1,285,049 Other 889,150 34,089 241,094 1,164,333 Total revenues 69,421,860 363,217 9,625,555 79,410,632 EXPENDITURES: Current: General government 9,873,643 - 143,787 10,017,430 Public safety 27,499,669 - 225,290 27,724,959 Public works 4,256,600 - 2,094,937 6,351,537 Planning and building 4,662,871 - 447,427 5,110,298 Engineering services 4,147,138 - 221,463 4,368,601 Parks and recreation 6,375,653 - 234,655 6,610,308 Capital outlay - 12,230,552 - 12,230,552 Debt service: Principal - - 2,853,417 2,853,417 Interest and fiscal charges - - 2,077,770 2,077,770 Total expenditures 56,815,574 12,230,552 8,298,746 77,344,872 REVENUES OVER (UNDER) EXPENDITURES 12,606,286 (11,867,335) 1,326,809 2,065,760 OTHER FINANCING SOURCES (USES): Issuance of debt - - 11,955,000 11,955,000 Premium on bond issuance - - 1,360,284 1,360,284 Deposit to escrow for bond refunding - - (14,725,914) (14,725,914) Transfers in 2,317,535 28,072,797 4,769,507 35,159,839 Transfers out (22,156,773) (1,621,363) (12,872,709) (36,650,845) Total other financing sources(uses) (19,839,238) 26,451,434 (9,513,832) (2,901,636) NET CHANGE IN FUND BALANCES (7,232,952) 14,584,099 (8,187,023) (835,876) FUND BALANCES: Beginning of year 32,884,544 26,402,901 4,593,408 63,880,853 End of year $ 25,651,592 $ 40,987,000 $ (3,593,615) $ 63,044,977 See accompanying Notes to the Basic Financial Statements. 33 City of Encinitas Reconciliation of the Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Position For the Year Ended June 30, 2017 Net Change in Fund Balances-Total Governmental Funds $ (835,876) Amounts reported for governmental activities in the Statement of Activities were different because: Governmental funds reported capital outlay as expenditures. However, in the Government-Wide Statement of Activities and Changes in Net Position, the cost of those assets was allocated over their estimated useful lives as depreciation expense. This was the amount of capital assets recorded in the current period. 6,492,650 Contributions of capital assets were reported in the Government-Wide Statement of Activities and Changes in Net Position, but they did not provide current financial resources. Therefore, contribution revenue was not reported as revenue in the Governmental Funds. 9,500 Depreciation expense on capital assets was reported in the Government-Wide Statement of Activities and Changes in Net Position, but it did not require the use of current financial resources. Therefore, depreciation expense was not reported as expenditures in the Governmental Funds(net of$531,073 recorded in internal service funds). (5,898,726) Impairment loss on disposal of capital assets is reported in the Statement of Activities but did not require the use of current financial resources and,therefore,was not reported as an expenditure in the governmental funds. (2,088,668) The issuance of long-term liabilities provided current financial resources to governmental funds, but issuing debt increased long-term liabilities in the Government-Wide Statement of Net Position. Repayment of long-term liabilities was an expenditure in governmental funds, but the repayment reduced long-term liabilities in the Government-Wide Statement of Net Position. Issuance of long-term debt (11,955,000) Premium on issuance of long-term debt (1,360,284) Refunding of long-term debt 14,725,914 Principal payment of long-term debt 2,853,417 Interest payment on long-term debt (78,258) Amortization expenses were reported in the Government-Wide Statement of Activities and Changes in Net Position, but they did not require the use of current financial resources. Therefore, amortization expenses were not reported as expenditures in the Governmental Funds. Bond premium and discount (62,303) Deferred amounts on refunding (19,161) Certain long-term liabilities were reported in the Government-Wide Statement of Activities and Changes in Net Position, but they did not require the use of current financial resources. Therefore, long-term liabilities were not reported as expenditures in governmental funds. These amounts represented the changes in long-term liabilities from prior year. Changes in compensated absences 170,940 Changes in claims payable (524,315) Changes in the net pension liability reported in the Statement of Activities did not require the use of current financial resources and,therefore,were not reported as an expenditure in the governmental funds. (8,993,255) Changes in deferred outflows of resources in the Government-Wide Statement of Net Position but is reported as pension expense in governmental funds. 6,435,792 Changes in deferred inflows of resources in the Government-Wide Statement of Net Position but is reported as pension expense in governmental funds. 1,286,168 Interest expense on long-term debt was reported in the Government-Wide Statement of Activities and Changes in Net Position, but it did not require the use of current financial resources. This amount represented the change in accrued interest from prior year. 19,285 Issuances of loans receivable were recorded as expenditures in the governmental funds but not on the Government- Wide Statement of Activities and Changes in Net Position. (17,200) Internal service funds were used by management to charge the costs of certain activities to individual funds. The net revenue of internal service funds was reported with governmental activities. 1,637,837 Change in Net Position of Governmental Activities $ 1,798,457 See accompanying Notes to the Basic Financial Statements. 34 PROPRIETARY FUND FINANCIAL STATEMENTS 35 City of Encinitas Statement of Net Position Proprietary Funds June 30, 2017 Major Enterprise Funds Cardiff San Dieguito Encinitas Sanitary Water Sanitary Division District Division ASSETS Current assets: Cash and investments $ 12,969,322 $ 13,671,646 $ 11,611,467 Restricted cash and investments with fiscal agent - 65 - Accounts and taxes receivable 53,999 2,243,159 37,613 Inventory and prepaid items 2,219 221,388 1,742 Total current assets 13,025,540 16,136,258 11,650,822 Noncurrent assets: Investment in joint ventures 18,530,234 22,547,246 4,022,140 Capital assets: Land easements - 3,262,678 - Public works facility right-of-use - 3,378,700 - Construction in progress 3,452,586 1,914,409 2,366,236 Capacity rights, net - 184,757 - Utility, plant, vehicles, and equipment, net 13,112,809 14,482,013 12,655,020 Total capital assets, net 16,565,395 23,222,557 15,021,256 Total noncurrent assets 35,095,629 45,769,803 19,043,396 Total assets 48,121,169 61,906,061 30,694,218 DEFERRED OUTFLOWS OF RESOURCES Deferred pension related items - 1,540,047 - Total deferred outflows of resources - 1,540,047 - LIABILITIES Current liabilities: Accounts payable and accrued liabilities 84,671 1,189,620 405,056 Due to other funds - - - Accrued interest payable 18,468 97,259 - Unearned revenue - - - Deposits 1,250 298,195 - Current portion of long-term debt 640,352 1,222,845 - Total current liabilities 744,741 2,807,919 405,056 Noncurrent liabilities: Capital leases payable - - - Revenue bonds payable, due in more than one year - 4,630,602 - Notes and mortgages payable, due in more than one year 918,948 3,820,000 - Aggregate net pension liability(Note 14) - 6,288,631 - Total noncurrent liabilities 918,948 14,739,233 - Totalliabilities 1,663,689 17,547,152 405,056 DEFERRED INFLOWS OF RESOURCES Deferred amount on refunding 117,468 - - Deferred pension related items(Note 14) - 168,372 - Total deferred inflows of resources 117,468 168,372 - NET POSITION Net investment in capital assets 14,888,627 13,614,696 15,021,256 Restricted: Debt service - 65 - Housing - - - Unrestricted 31,451,385 32,115,823 15,267,906 Total net position $ 46,340,012 $ 45,730,584 $ 30,289,162 See accompanying Notes to the Basic Financial Statements. 36 City of Encinitas Statement of Net Position (Continued) Proprietary Funds June 30, 2017 Nonmajor Enterprise Fund Governmental Activities Affordable Internal Housing Total Service Funds ASSETS Current assets: Cash and investments $ 466,278 $ 38,718,713 $ 7,640,692 Restricted cash and investments with fiscal agent 20,172 20,237 - Accounts and taxes receivable 10,075 2,344,846 - Inventory and prepaid items 82,600 307,949 448,923 Total current assets 579,125 41,391,745 8,089,615 Noncurrent assets: Investment in joint ventures - 45,099,620 - Capital assets: Land easements - 3,262,678 - Public works facility right-of-use - 3,378,700 - Construction in progress - 7,733,231 - Capacity rights, net - 184,757 - Utility, plant, vehicles, and equipment, net 2,706,142 42,955,984 3,326,817 Total capital assets, net 2,706,142 57,515,350 3,326,817 Total noncurrent assets 2,706,142 102,614,970 3,326,817 Total assets 3,285,267 144,006,715 11,416,432 DEFERRED OUTFLOWS OF RESOURCES Deferred pension related items - 1,540,047 - Total deferred outflows - 1,540,047 - LIABILITIES Current liabilities: Accounts payable and accrued liabilities 7,324 1,686,671 556,240 Due to other funds 71,443 71,443 - Accrued interest payable - 115,727 - Unearned revenue 233 233 - Deposits 17,070 316,515 - Current portion of long-term debt 91,221 1,954,418 422,965 Total current liabilities 187,291 4,145,007 979,205 Noncurrent liabilities: Capital leases payable - - 802,426 Revenue bonds payable, due in more than one year - 4,630,602 - Notes and mortgages payable, due in more than one year 1,173,058 5,912,006 - Aggregate net pension liability(Note 14) - 6,288,631 - Total noncurrent liabilities 1,173,058 16,831,239 802,426 Total liabilities 1,360,349 20,976,246 1,781,631 DEFERRED INFLOWS OF RESOURCES Deferred amount on refunding - 117,468 - Deferred pension related items(Note 14) - 168,372 - Total deferred inflows - 285,840 - NET POSITION Net investment in capital assets 1,452,965 44,977,544 2,101,426 Restricted: Debt service - 65 - Housing 20,172 20,172 - Unrestricted 451,781 79,286,895 7,533,375 Total net position $ 1,924,918 $ 124,284,676 $ 9,634,801 See accompanying Notes to the Basic Financial Statements. 37 City of Encinitas Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds For the Year Ended June 30, 2017 Major Enterprise Funds Cardiff San Dieguito Encinitas Sanitary Water Sanitary Division District Division OPERATING REVENUES: Charges for services $ 4,788,884 $ 14,788,114 $ 2,819,006 Rental income - 91,247 - Interfund revenues - 63,863 - Intergovernmental - - - Other revenues 40,237 37,620 - Total operating revenues 4,829,121 14,980,844 2,819,006 OPERATING EXPENSES: Housing assistance payments - - - Source of supply - 5,888,028 - General operations and maintenance 923,801 4,982,370 514,407 Facility operations and maintenance 1,381,047 1,570,463 565,412 General and administrative 227,958 551,431 110,966 Depreciation of capital assets 386,191 694,595 369,669 Amortization of investment in joint ventures 368,209 284,032 458,370 Administrative support - - - Operational support services - - - Insurance and claims 21,248 - 18,292 Total operating expenses 3,308,454 13,970,919 2,037,116 OPERATING INCOME(LOSS) 1,520,667 1,009,925 781,890 NONOPERATING REVENUES (EXPENSES): Use of money and property 76,327 81,966 62,244 Property taxes - 959,873 - Operating grants - - - Gain on disposal of capital assets - 6,925 - Accretion of bond premium 63,768 74,372 - Interest expense (71,726) (366,740) - Total nonoperating revenues(expenses) 68,369 756,396 62,244 INCOME (LOSS)BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 1,589,036 1,766,321 844,134 Capital contributions 177,454 464,017 94,899 Transfers in - - - Transfers out - - - Total capital contributions and transfers 177,454 464,017 94,899 CHANGES IN NET POSITION 1,766,490 2,230,338 939,033 NET POSITION: Beginning of year 44,573,522 43,500,246 29,350,129 End of year $ 46,340,012 $ 45,730,584 $ 30,289,162 See accompanying Notes to the Basic Financial Statements. 38 City of Encinitas Statement of Revenues, Expenses, and Changes in Net Position (Continued) Proprietary Funds For the Year Ended June 30, 2017 Nonmajor Enterprise Fund Governmental Activities Affordable Internal Housing Total Service Funds OPERATING REVENUES: Charges for services $ - $ 22,396,004 $ - Rental income 112,770 204,017 - Interfund revenues 107,135 170,998 2,483,801 Intergovernmental 105,989 105,989 - Other revenues 149 78,006 1,501,830 Total operating revenues 326,043 22,955,014 3,985,631 OPERATING EXPENSES: Housing assistance payments 1,095,791 1,095,791 - Source of supply - 5,888,028 - General operations and maintenance 102,527 6,523,105 - Facility operations and maintenance - 3,516,922 - General and administrative 147,821 1,038,176 - Depreciation of capital assets 100,538 1,550,993 531,073 Amortization of investment in joint ventures - 1,110,611 - Administrative support - - 1,426,121 Operational support services - - 768,326 Insurance and claims 3,240 42,780 1,096,356 Total operating expenses 1,449,917 20,766,406 3,821,876 OPERATING INCOME(LOSS) (1,123,874) 2,188,608 163,755 NONOPERATING REVENUES (EXPENSES): Use of money and property 3,730 224,267 - Property taxes - 959,873 - Operating grants 1,099,366 1,099,366 - Gain (loss)on disposal of capital assets - 6,925 1,937 Accretion of bond premium - 138,140 - Interest expense (21,646) (460,112) (18,861) Total nonoperating revenues(expenses) 1,081,450 1,968,459 (16,924) INCOME (LOSS)BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS (42,424) 4,157,067 146,831 Capital contributions - 736,370 - Transfers in - - 1,604,006 Transfers out - - (113,000) Total capital contributions and transfers - 736,370 1,491,006 CHANGES IN NET POSITION (42,424) 4,893,437 1,637,837 NET POSITION: Beginning of year 1,967,342 119,391,239 7,996,964 End of year $ 1,924,918 $ 124,284,676 $ 9,634,801 See accompanying Notes to the Basic Financial Statements. 39 City of Encinitas Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2017 Major Enterprise Funds Cardiff San Dieguito Encinitas Sanitary Water Sanitary Division District Division CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users $ 4,823,129 $ 15,118,189 $ 2,824,836 Cash received from other funds - 63,863 - Cash payments to suppliers and employees for goods and services (2,496,408) (12,765,157) (1,157,492) Other operating revenues 40,237 37,620 - Net cash provided by(used in)operating activities 2,366,958 2,454,515 1,667,344 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (1,956,962) (1,433,511) (105,013) Capital contributions received-connection/capacity fees 177,454 464,017 94,899 Principal payments on long-term debt (612,192) (1,025,000) - Proceeds from issuance of debt - - - Interest payments on long-term debt (79,888) (276,628) - Capital related payments to other agencies (451,816) (3,051,139) (543,080) Proceeds received from disposal of capital assets - 6,925 Net cash (used in)capital and related financing activities (2,923,404) (5,315,336) (553,194) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Operating grants - - - Proceeds from property taxes - 959,873 - Transfers in - - - Transfers(out) - - Net cash provided by noncapital financing activities - 959,873 - CASH FLOWS FROM INVESTING ACTIVITIES: Interest income 76,327 81,966 62,244 Net cash provided by investing activities 76,327 81,966 62,244 Net increase(decrease)in cash and cash equivalents (480,119) (1,818,982) 1,176,394 CASH AND CASH EQUIVALENTS: Beginning of year, as restated(Note 18) 13,449,441 15,490,693 10,435,073 End of year $ 12,969,322 $ 13,671,711 $ 11,611,467 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO STATEMENT OF NET POSITION: Cash and investments $ 12,969,322 $ 13,671,646 $ 11,611,467 Restricted cash and investments with fiscal agent - 65 - Total cash and cash equivalents $ 12,969,322 $ 13,671,711 $ 11,611,467 See accompanying Notes to the Basic Financial Statements. 40 City of Encinitas Statement of Cash Flows (Continued) Proprietary Funds For the Year Ended June 30, 2017 Governmental Nonmajor Activities Affordable Internal Housing Total Service Funds CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users $ 220,070 $ 22,986,224 $ 4,020,350 Cash received from(paid to)other funds 112,968 176,831 (629,851) Cash payments to suppliers and employees for goods and services (1,344,918) (17,763,975) (2,729,838) Other operating revenues 149 78,006 - Net cash provided by(used in)operating activities (1,011,731) 5,477,086 660,661 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets - (3,495,486) (662,875) Capital contributions received-connection/capacity fees - 736,370 - Principal payments on long-term debt (77,819) (1,715,011) (331,993) Proceeds from issuance of debt - - 629,851 Interest payments on long-term debt (21,646) (378,162) (18,861) Capital related payments to other agencies - (4,046,035) - Proceeds received from disposal of capital assets - 6,925 1,937 Net cash (used in)capital and related financing activities (99,465) (8,891,399) (381,941) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Operating grants 1,099,366 1,099,366 - Proceeds from property taxes - 959,873 - Transfers in - - 1,604,006 Transfers(out) - - (113,000) Net cash provided by noncapital financing activities 1,099,366 2,059,239 1,491,006 CASH FLOWS FROM INVESTING ACTIVITIES: Interest income 3,730 224,267 - Net cash provided by investing activities 3,730 224,267 - Net increase(decrease)in cash and cash equivalents (8,100) (1,130,807) 1,769,726 CASH AND CASH EQUIVALENTS: Beginning of year, as restated(Note 18) 494,550 39,869,757 5,870,966 End of year $ 486,450 $ 38,738,950 $ 7,640,692 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO STATEMENT OF NET POSITION: Cash and investments $ 466,278 $ 38,718,713 $ 7,640,692 Restricted cash and investments with fiscal agent-current 20,172 20,237 - Total cash and cash equivalents $ 486,450 $ 38,738,950 $ 7,640,692 See accompanying Notes to the Basic Financial Statements. 41 City of Encinitas Statement of Cash Flows (Continued) Proprietary Funds For the Year Ended June 30, 2017 Major Enterprise Funds Cardiff San Dieguito Encinitas Sanitary Water Sanitary Division District Division RECONCILIATION OF OPERATING INCOME(LOSS)TO NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES: Operating income(loss) $ 1,520,667 $ 1,009,925 $ 781,890 Adjustments to reconcile operating income to net cash provided(used)by operating activities: Depreciation 386,191 694,595 369,669 Amortization of other assets - - - Amortization of investment in joint ventures 368,209 284,032 458,370 Changes in operating assets, deferred outflows of resources, liabilities, and deferred inflows of resources: Accounts and taxes receivable 34,245 238,828 5,830 Inventory and prepaid items (2,219) (39,995) (1,742) Pension-related deferred outflows - (699,416) - Accounts payable and accrued liabilities 59,865 (127,094) 53,327 Due to other funds - - - Unearned revenue - - - Deposits - (56,433) - Aggregate net pension liability - 1,269,138 - Pension-related deferred inflows - (119,065) - Total adjustments 846,291 1,444,590 885,454 Net cash provided by(used in)operating activities $ 2,366,958 $ 2,454,515 $ 1,667,344 NON-CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Amortization of original issue premium $ 34,401 $ 74,371 $ - Contributions of capital assets - 302,317 - $ 34,401 $ 376,688 $ - See accompanying Notes to the Basic Financial Statements. 42 City of Encinitas Statement of Cash Flows (Continued) Proprietary Funds For the Year Ended June 30, 2017 Governmental Nonmajor Activities Affordable Internal Housing Total Service Funds RECONCILIATION OF OPERATING INCOME(LOSS)TO NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES: Operating income(loss) $ (1,123,874) $ 2,188,608 $ 163,755 Adjustments to reconcile operating income to net cash provided(used)by operating activities: Depreciation 100,538 1,550,993 531,073 Amortization of other assets - - - Amortization of investment in joint ventures - 1,110,611 - Changes in operating assets, deferred outflows of resources, liabilities, and deferred inflows of resources: Accounts and taxes receivable 1,311 280,214 34,719 Inventory and prepaid items (2,115) (46,071) 180,928 Pension-related deferred outflows - (699,416) - Accounts payable and accrued liabilities 7,175 (6,727) 380,037 Due to other funds 5,833 5,833 (629,851) Unearned revenue (659) (659) - Deposits 60 (56,373) - Aggregate net pension liability - 1,269,138 - Pension-related deferred inflows - (119,065) - Total adjustments 112,143 3,288,478 496,906 Net cash provided by(used in)operating activities $ (1,011,731) $ 5,477,086 $ 660,661 NON-CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Amortization of original issue premium $ - $ 108,772 $ - Contributions of capital assets - 302,317 - $ - $ 411,089 $ - See accompanying Notes to the Basic Financial Statements. 43 SOL This page intentionally left blank. 44 FIDUCIARY FUND FINANCIAL STATEMENTS Agency Funds — These funds are used to account for money and property held by the City as trustee or custodian. They are custodial in nature (assets equal liabilities). These funds include one Assessment District and one Community Facilities (Mello-Roos) District. 45 SOL This page intentionally left blank. 46 City of Encinitas Statement of Fiduciary Net Position Fiduciary Funds June 30, 2017 Agency Funds ASSETS Cash and investments $ 2,139,194 Restricted cash and investments with fiscal agent 1,979,042 Special assessments receivable 26,925,000 Current assessments receivable 11,833 Total assets $ 31,055,069 LIABILITIES Due to bondholders $ 31,055,069 Total liabilities $ 31,055,069 See accompanying Notes to the Basic Financial Statements. 47 , .0 This page intentionally left blank. 48 City of Encinitas Notes to the Basic Financial Statements For the Year Ended June 30, 2017 Note 1 — Reporting Entity The City of Encinitas (the "City") was incorporated on October 1, 1986, pursuant to an election approving the San Dieguito Reorganization Plan, which consisted primarily of the detachment of territory from the Cardiff area and the annexation of the same territory to the City of Solana Beach. The City is governed by a City Council consisting of a mayor and four council members under the Council- Manager form of government. In evaluating how to define the City for financial reporting purposes, management has considered all potential component units. The primary criteria for including a potential component unit within the reporting entity are the governing body's financial accountability and a financial benefit or burden relationship and whether it is misleading to exclude. A primary government is financially accountable and shares a financial benefit or burden relationship if it appoints a voting majority of an organization's governing body and it is able to impose its will on the organization, or if there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the primary government. A primary government may also be financially accountable if an organization is fiscally dependent on the primary government regardless of whether the organization has a separately elected governing board, a governing board appointed by a higher level of government, or a jointly appointed board, and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the primary government. Blended Component Units Although the following are legally separate from the City, they have been "blended" as though they are part of the City because the component unit's governing body is substantially the same as the City's and there is a financial benefit or burden relationship between the City and the component unit; management of the City has operational responsibilities for the component units; and/or the component units provide services entirely, or almost entirely, to the City or otherwise exclusively, or almost exclusively, benefits the City, even though it does not provide services directly to it. The Encinitas Housing Authority (the "EHA") was formed on January 26, 1994, under the laws of the State of California to provide housing assistance to citizens of the City. The Encinitas Public Financing Authority (the "EPFA") was formed on November 6, 1991, by the City and SDWD as a Joint Powers Authority under the laws of the State of California to purchase, finance, and lease certain real property to the members. The member agencies are the City and the SDWD. The San Dieguito Water District ("SDWD") was formed in 1922 under the laws of the State of California to supply water services to the central western portion of San Diego County. Certain management, maintenance, and operating functions are the responsibility of the City, which bills periodically for these services. 49 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 1 — Reporting Entity (Continued) Blended Component Units (Continued) The following specific criteria were used in determining the status of these component units: • Members of the City Council also act as the governing body of the EHA, the EPFA, and SDWD. • The City, the EHA, the EPFA, and SDWD are financially interdependent. • The EHA, the EPFA, and SDWD are managed, at least in part, by employees of the City, who provide various support functions including financial reporting and investment decisions. Separate financial statements for SDWD are available at the City's administrative office. Separate financial statements are not required or prepared for the EHA and the EPFA. Note 2—Summary of Significant Accounting Policies A. 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. B. Measurement Focus, Basis of Accounting and Financial Statements Presentation The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self- balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds is maintained in accordance with legal and managerial requirements. The Statement of Net Position/Balance Sheet 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, 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, therefore, are not recognized as a revenue until that time. Government-Wide Financial Statements The City's Government-Wide Financial Statements include a Statement of Net Position and a Statement of Activities and Changes in Net Position. These statements present summaries of governmental and business-type activities for the City accompanied by a total column. Fiduciary activities of the City are not included in these statements. 50 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) B. Measurement Focus, Basis of Accounting and Financial Statements Presentation (Continued) Government-Wide Financial Statements (Continued) These financial statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the City's assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in Net Position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Certain types of transactions are reported as program revenues for the City in three categories: Charges for services Operating grants and contributions Capital grants and contributions Certain eliminations have been made in regards to interfund activities, payables and receivables. All internal balances in the Statement of Net Position have been eliminated except those representing balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities and Changes in Net Position, internal service fund transactions have been eliminated; however, those transactions between governmental and business-type activities have not been eliminated. The following interfund activities have been eliminated: Due to/from other funds Transfers in/out Government Fund Financial Statements Governmental Fund Financial Statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major governmental funds and non-major funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in Net Position as presented in these statements to the Net Position presented in the Government-Wide Financial Statements. The City has presented all major funds that met the applicable criteria. All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. 51 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) B. Measurement Focus, Basis of Accounting and Financial Statements Presentation (Continued) Government Fund Financial Statements (Continued) Revenues are recorded when received in cash, except for that revenues subject to accrual (generally 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property taxes, transient occupancy taxes, franchise taxes, sales tax, licenses, intergovernmental revenues and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. The Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences. The City reports the following major Governmental Funds: The General Fund is used to account for resources which are not required to be accounted for in another fund. The fund includes the general activities of the City and other administrative functions. The Capital Improvements Capital Projects Fund is used to account for financial resources to be used for the acquisition or construction of major property, equipment, or facilities which are generally financed by governmental funds. Proprietary Fund Financial Statements Proprietary Fund Financial Statements include a Statement of Net Position, a Statement of Revenues, Expenses and Changes in Net Position, and a Statement of Cash Flows for each major Proprietary Fund. A separate column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the Government-Wide Financial Statements. The City's internal service funds include four individual funds which provide services directly to other City funds. These areas of service include Risk Management, Wastewater Support, Vehicle Maintenance, and Vehicle Replacement. Proprietary funds are accounted for using the "economic resources"measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Net Position presents increases (revenues) and decreases (expenses) in total Net Position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. In these funds, receivables have been recorded as revenue and provisions have been made for uncollectible amounts. 52 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) B. Measurement Focus, Basis of Accounting and Financial Statements Presentation (Continued) Proprietary Fund Financial Statements (Continued) Operating revenues in the proprietary funds are those revenues that are generated from the primary operations of the fund. All other revenues are reported as non-operating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as non-operating expenses. The City reports the following major proprietary funds: The Cardiff Sanitary Division ("CSD") Enterprise Fund provides wastewater collection and treatment services to approximately 6,000 customers in the southern portion of the City. The San Dieguito Water District ("SDWD") Enterprise Fund provides potable and reclaimed water services to approximately 11,000 customers in Encinitas. The Encinitas Sanitary Division ("ESD") Enterprise Fund provides wastewater collection and treatment services to approximately 5,000 customers in the northern portion of the City. Fiduciary Fund Financial Statements Fiduciary fund financial statements are accounted for according to the nature of the fund. The City has only Agency funds, which are purely custodial in nature (assets equal liabilities) and thus, do not involve the measurement of the results of operations. These funds are accounted for on the accrual basis of accounting. The Agency Fund accounts for one Assessment District and one Community Facilities (Mello-Roos) District for which the City acts as an agent for debt service activities. 53 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) C. Cash, Cash Equivalents, and Investments The City pools its available cash for investment purposes. The City considers pooled cash and investment amounts, with original maturities of three months or less, to be cash equivalents. Highly liquid market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. The statement of cash flows requires presentation of "cash and cash equivalents". For the purposes of the statement of cash flows, the City considers all proprietary fund pooled cash and investments as "cash and cash equivalents," as such funds are available to the various funds as needed. Certain disclosure requirements, if applicable, for deposits and investment risks in the following areas: Interest rate risk Credit risk - Overall - Custodial credit risk - Concentration of credit risk Foreign currency risk In addition, other disclosures are specified including use of certain methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures. D. Restricted Cash and Investments with Fiscal Agents Cash and investments with fiscal agents are restricted due to limitations on their use by bond covenants. Fiscal agents acting on behalf of the City 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 City ordinance, resolution or bond indenture. E. Fair Value Measurement U.S. GAAP defines fair value, establishes a framework for measuring fair value and establishes disclosures about fair value measurement. Investments, unless otherwise specified, recorded at fair value in the Statements of Net Position, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Levels of inputs are as follows: Level 1 — Inputs are unadjusted, quoted prices for identical assets and liabilities in active markets at the measurement date. Level 2 — Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date. Level 3 — Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. 54 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) F. Receivables Receivables include such items as taxes, intergovernmental revenues, charges for services, miscellaneous accounts receivable, and interest receivable. No allowance for doubtful accounts has been established, as the City believes all amounts are considered to be collectible in the normal course of business. G. Investments in Other Agencies The City's Cardiff Sanitary Division, San Dieguito Water District, and Encinitas Sanitary Division (the "City agencies") participate in joint ventures with other local agencies, generally to more efficiently provide water and wastewater treatment. Each entity has an ownership interest in the respective joint facilities, which are accounted for under the equity method of accounting. The City agencies pay for the fair share of operating costs, and make capital contributions for major maintenance and the upgrade or construction of facilities. The City agencies also record their share of the results of operations for these joint ventures. See Note 5, Investment in Joint Ventures. H. Inventory and Prepaid Items Inventory applies only to SDWD and consists of water meters and other material used in the repair of capital facilities. Inventory is valued at average-cost using first-in first-out basis. Prepaid items are payments made to vendors for services that will benefit periods beyond the fiscal year ended, such as prepaid pension costs for the City and SDWD. I. Other Assets Other assets include prepaid pension costs for the City and SDWD. J. Capital Assets 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 acquisition value on the date donated. City policy has set the capitalization threshold for reporting capital assets at $5,000 for non-infrastructure assets and $100,000 for infrastructure assets. 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 Infrastructure 20-50 years Collection and distribution systems 50 years The City defines infrastructure as the basic physical assets that allow the City to function. Governmental fund capital assets include land, land easements, construction in progress, public facilities (buildings and building improvements), vehicles, equipment and machinery, and infrastructure assets (e.g., roads, streets and sidewalks, bridges, curbs and gutters, drainage systems, lighting systems and similar assets). 55 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) J. Capital Assets (Continued) Proprietary fund capital assets include, land easements, public works facility right of use, construction in progress, structures and improvements, collection and distribution systems, machinery and equipment, and capacity rights, which are stated at cost. Contributed assets, which are principally collection and distribution lines, are stated at cost or estimated acquisition value on the date of donation. K. Deposit Liabilities The City collects deposits from homeowners and commercial enterprises as surety for the payment of fees and other costs related to planning and engineering services provided by the City. The City collects two types of deposits: (1) Application Deposits and (2) Security Deposits. Application deposits are collected on certain projects for which a fee for services has not been established. As costs for these projects are incurred by the City, the applicant's deposit balance is adjusted and revenue (including applicable overhead charges) is recognized. Expenses incurred in excess of the deposit amounts are billed to the applicant. Any surplus at project completion is returned to the applicant. Security deposits are collected from the applicant to guarantee required performance. These may either be in cash or in the form of non-cash, such as performance bonds or letters of credit. The amount of cash deposits on hand as of June 30, 2017 is reported as a current liability in the Statement of Net Position and Balance Sheets. Noncash security deposits are not reported as liabilities, as the corresponding surety is not an asset of the City. L. Unearned Revenue Unearned revenue recorded in the government-wide statement of net position for governmental activities and the governmental fund financial statements consist of federal and state capital grants, representing voluntary nonexchange transactions, for which advance payments have been received from the provider for which eligibility requirements, other than timing requirements, have not been satisfied. Unearned revenue recorded in the government-wide statement of net position for business-type activities and the proprietary fund financial statements generally consist of program fees collected from customers prior to the statement of net position date for recreation programs that begin in the next fiscal year or donations for capital or work projects, for which the related expenses have not yet been incurred. M. Long-Term Debt For the government-wide financial statements and proprietary fund financial statements, long-term debt and other financial obligations are reported as liabilities, net of bond premiums or discounts. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Issuance costs are reported as expense when incurred. Governmental fund financial statements do not present long-term debt but are shown in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position. 56 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) N. Arbitrage Rebate Requirement The City 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 be surrendered to the Internal Revenue Service. The City had a rebate liability for arbitrage of$86,943 as of June 30, 2017. O. Claims Liabilities The City accounts for material claims and judgments outstanding at year-end. When it is probable that a claim liability has been incurred at year-end, and the amount of the loss can be reasonably estimated, the City records the estimated loss. P. Compensated Absences The City's policy permits its non-fire employees to accumulate not more than two times their current annual vacation allotment. Fire employees can accrue up to a maximum of 720 hours of vacation, depending on length of employment with the City. Non-fire employees are compensated five days of sick leave per year with no balances accruing upon separation of employment. Fire employees may accrue up to 240 hours of sick leave. The combined unused vacation and sick pay will be paid to the employee or his/her beneficiary upon leaving the City's employment. The amount due will be determined using salary/wage rate in effect at the time of separation. Government-Wide Financial Statements — For governmental and business-type activities, compensated absences are recorded as expenses and liabilities as incurred. Fund Financial Statements — In governmental funds, compensated absences are recorded as expenditures in the years paid, as it is the City's policy to liquidate any unpaid compensated absences at June 30 from future resources, rather than currently available financial resources. The General Fund is typically used to liquidate compensated absences. In proprietary funds, compensated absences are expensed to the various funds in the period they are earned, and such fund's share of the unpaid liability is recorded as a long-term liability of the fund. Q. Pensions For purposes of measuring the net pension liability, 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 14). 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 date June 30, 2015 Measurement Date June 30, 2016 Measurement Period July 1, 2015 to June 30, 2016 57 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) Q. Pensions (Continued) Gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss. The difference between projected and actual earnings is amortized straight-line over 5 years. All other amounts are amortized straight-line over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period. R. Net Position For government-wide and proprietary fund financial statements, 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, plus deferred outflows of resources attributed to their acquisition, reduced by the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets and deferred inflows of resources attributable to their acquisition. Restricted — This component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. 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. When an expense is incurred for purposes for which both restricted and unrestricted Net Position are available, the City's policy is to apply restricted Net Position first. S. Fund Balances In governmental fund financial statements, fund balances are categorized as follows: Non-spendable — Items that cannot be spent because they are not in spendable form, such as prepaid items and inventories, and items that are legally or contractually required to be maintained intact, such as principal of an endowment or revolving loan funds. Restricted — Restricted fund balances encompass the portion of net fund resources subject to externally enforceable legal restrictions. This includes externally imposed restrictions by creditors, such as through debt covenants, grantors, contributors, laws or regulations of other governments, as well as restrictions imposed by law through constitutional provisions or enabling legislation. 58 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) S. Fund Balances (Continued) Committed — Committed fund balances encompass the portion of net fund resources, the use of which is constrained by limitations that the government imposes upon itself at its highest level of decision making, normally the governing body, and that remain binding unless removed in the same manner. Adoption of a resolution by the City Council is required to commit resources or rescind the commitment. Assigned —Assigned fund balances encompass the portion of net fund resources reflecting the government's intended use of resources. Assignment of resources can be done by the highest level of decision making or by a committee or official designated for that purpose. The City Council adopts a resolution contained within the annual budget that delegates the authority to the Finance Director to assign fund balance amounts in the annual financial statements. Unassigned —This amount is for any portion of the fund balances that do not fall into one of the above categories. The General Fund is the only fund that reports a positive unassigned fund balance amount. In other governmental funds, it is not appropriate to report a positive unassigned fund balance amount. However, in governmental funds other than the General Fund, if expenditures incurred for specific purposes exceed the amounts that are restricted, committed or assigned to those purposes, it may be necessary to report a negative unassigned fund balance in that particular fund. When expenditures are incurred for purposes where only unrestricted fund balances are available, the City uses the unrestricted resources in the following order: committed, assigned, and unassigned. T. Property Taxes Property taxes are levied on July 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 January 1. The County of San Diego, California (County) bills and collects property taxes and remits them to the City according to a payment schedule established by the County. The County is permitted by State law to levy taxes at 1% of full market value (at time of purchase) and can increase the property tax rate no more than 2% per year or the current CPI, whichever is less. The City receives a share of this basic tax levy proportionate to what it received during the years 1980-1981. Property tax revenue is recognized in the fiscal year for which the taxes have been levied, provided the taxes are received within 60 days after the end of the fiscal year. Property taxes received after this date are not considered available as a resource that can be used to finance the current year operations of the City and therefore, are not recorded as revenue until collected. No allowance for doubtful accounts was considered necessary. 59 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) U. 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. V. Accounting Changes New Governmental Accounting Standards Implemented for the Year Ended June 30, 2017 GASB Statement No. 73 In June 2015, GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement 68 for pension plans and pensions that are within their respective scopes. This implementation did not have an effect on the City's financial statements. GASB Statement No. 74 In June 2015, GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which addresses reporting by postemployment benefits other than pensions (OPEB) plans that administer benefits on behalf of governments. This statement basically parallels GASB Statement 67 and replaces GASB Statement 43. Application of this statement is effective for the City's fiscal year ending June 30, 2017. This implementation did not have an effect on the City's financial statements. This implementation did not have an effect on the City's financial statements. GASB Statement No. 77 In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. This statement establishes financial reporting standards for tax abatement agreements entered into by state and local governments. This implementation did not have an effect on the City's financial statements. 60 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) V. Accounting Changes (Continued) New Governmental Accounting Standards Implemented for the Year Ended June 30, 2017 (Continued) GASB Statement No. 78 In December 2015, GASB issued Statement No. 78, Pensions Provided Through Certain Multiple- Employer Defined Benefit Pension Plans. This Statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. This implementation did not have an effect on the City's financial statements. GASB Statement No. 79 In December 2015, GASB issued Statement No. 79, Certain External Investment Pools and Pool Participants. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. This implementation did not have an effect on the City's financial statements. GASB Statement No. 80 In December 2015, GASB issued Statement No. 80, Blending Requirements for Certain Component Units — An Amendment of GASB Statement No. 14. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not- for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. This implementation did not have an effect on the City's financial statements. 61 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) W. Accounting Changes (Continued) New Governmental Accounting Standards Implemented for the Year Ended June 30, 2017 (Continued) GASB Statement No. 82 In March 2016, GASB issued Statement No 82, Pension Issues — An Amendment of GASB Statements No. 67, No. 68, and No. 73. This statement addresses certain issues that were raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. This implementation did not have an effect on the City's financial statements. Upcoming Governmental Accounting Standards Implementation The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following GASB statements: GASB Statement No. 75 In June 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This statement applies to government employers who provide OPEB to their employees and for governments that finance OPEB for employees of other governments. This statement basically parallels GASB Statement 68 and replaces GASB Statement 45. Application of this statement is effective for the City's fiscal year ending June 30, 2018. GASB Statement No. 81 In December 2015, GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. This Statement requires that a government that receives resources pursuant to an irrevocable split- interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. Application of this statement is effective for the City's fiscal year ending June 30, 2018. 62 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2–Summary of Significant Accounting Policies (Continued) V. Accounting Changes (Continued) Upcoming Governmental Accounting Standards Implementation (Continued) GASB Statement No. 83 In November 2016, GASB issued Statement No. 83, Certain Asset Retirement Obligations. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for asset retirement obligations (ARO). This Statement requires that recognition occur when the liability is both incurred and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a government to perform asset retirement activities. Laws and regulations may require governments to take specific actions to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing ARO. Application of this statement is effective for the City's fiscal year ending June 30, 2019. GASB Statement No. 84 In January 2017, GASB issued Statement No. 84, Fiduciary Activities. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. Application of this statement is effective for the City's fiscal year ending June 30, 2020. GASB Statement No. 85 In March 2017, GASB issued Statement No. 85, Omnibus 2017. This Statement addresses practice issues that have been identified during implementation and application of certain GASB Statements. This Statement also addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits [OPEB]). Application of this statement is effective for the City's fiscal year ending June 30, 2018. GASB Statement No. 86 In April 2017, GASB issued Statement No. 86, Certain Debt Extinguishment Issues. This Statement improves consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources—resources other than the proceeds of refunding debt—are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. Application of this statement is effective for the City's fiscal year ending June 30, 2018. 63 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 2—Summary of Significant Accounting Policies (Continued) V. Accounting Changes (Continued) Upcoming Governmental Accounting Standards Implementation (Continued) GASB Statement No. 87 In June 2017, GASB issued Statement No. 87, Leases. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. Application of this statement is effective for the City's fiscal year ending June 30, 2020. Note 3—Cash and Investments Cash and investments are classified in the accompanying financial statements as follows: Government-Wide Statement of Position Fiduciary Funds Governmental Business-type Statement of Activities Activities Net Position Total Current assets: Cash and investments $ 72,486,110 $ 38,718,713 $ 2,139,194 $ 113,344,017 Restricted cash and investments with fiscal agent 2,266,016 20,237 1,979,042 4,265,295 Total cash and investments $ 74,752,126 $ 38,738,950 $ 4,118,236 $ 117,609,312 Cash and investments at June 30, 2017, consisted of the following: Fair Value Cash on hand $ 3,655 Deposits with financial institutions 386,635 Investments 117,218,957 Total cash and investments $ 117,609,247 64 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 3—Cash and Investments (Continued) At June 30, 2017, cash and investments, excluding restricted cash and investments held by fiscal agent, are reported at fair value based on quoted market prices. The following table represents the fair value measurements of investments recognized in the accompanying Statement of Net Position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2017: Percentage Fair of Measurement Investment Type Value Investments Input Investments: LAIF $ 30,366,384 25.91% Uncategorized California Asset Management Program 1,004,966 0.86% Uncategorized Money Market Mutual Funds 4,327,401 3.69% Uncategorized Certificates of Deposit 3,920,747 3.34% Uncategorized Corporate Medium Term Notes 243,570 0.21% Level 2 US Treasury Securities 33,601,981 28.67% Level 2 U.S. Government Sponsored Enterprise Securities 43,753,908 37.33% Level 2 Total Investments $ 117,218,957 A. Demand Deposits The carrying amounts of the City's demand deposits were $386,635 at June 30, 2017. Bank balances were $2,615,796 at that date, the total amount of which was collateralized or insured with securities held by the pledging financial institutions in the City's name as discussed below. The California Government Code requires California banks and savings and loan associations to secure the City's cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name. The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also allows institutions to secure City's deposits by pledging first trust deed mortgage notes having a value of 150% of the City's total cash deposits. The City may waive collateral requirements for cash deposits, which are fully insured up to $250,000 by the Federal Deposit Insurance Corporation ("FDIC"). The City, however, has not waived the collateral ization requirements. B. Investments Authorized by the California Government Code and the City's Adopted Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code (or the City's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City's investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustees that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. 65 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 3—Cash and Investments (Continued) B. Investments Authorized by the California Government Code and the City's Adopted Investment Policy (Continued) Authorized Maximum Maximum Authorized by Investment Maximum Percentage of Investment in Investment Type Policy Maturity Portfolio" One Issuer Repurchase Agreements-Overnight"Sweep" Yes 1 year 20% No Limit Local Agency Investement Fund (LAIF) Yes N/A 30% No Limit Local Agency Bonds No 5 years N/A N/A Other Governmental Managed Investment Pools Yes N/A 30% 10% Money Market Mutual Funds Yes N/A 20% 10% Certificates of Deposit Yes 5 years 10% $1 M Negotiable Certificates of Deposit Yes 5 years 10% $1 M Banker's Acceptances Yes 180 days 10% $1 M U.S. Treasury Bills, Notes and Bonds Yes 5 years 50% No Limit U.S. Gov't Sponsored Enterprises Yes 5 years 60% 15% Commercial Paper Yes 270 days 25% $5M Commercial Medium-Term Notes Yes 5 years 15% $1 M Excluding amounts held by bond trustee that are not subject to California Government Code restriction. Maximum is$50 million per account. C. Investments Authorized by Debt Agreements The investment of the proceeds from debt issuances, held by a third-party trustee, is governed by the provisions of the specific debt agreement rather than by the Gov't Code or the Investment Policy. The investment types that are authorized and currently utilized by the City are Guaranteed Investment Contracts and Money Market Mutual Funds. D. Risk Disclosures Disclosures Related to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity, the greater the sensitivity its fair value is to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City's investments to interest rate risk is provided in the table that shows the distribution by maturity is as follows: 66 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 3—Cash and Investments (Continued) D. Risk Disclosures (Continued) Disclosures Related to Interest Rate Risk(Continued) Remaining Maturity(in Months) Less than 12 to 60 Investment Type Total 12 Months Months Investments: Local Agency Investement Fund(LAIF) $ 30,366,384 $ 30,366,384 $ - California Asset Management Program 1,004,966 1,004,966 - Money Market Mutual Funds 62,106 62,106 - Certificates of Deposit 3,920,747 496,360 3,424,387 Negotiable Certificates of Deposit 243,570 - 243,570 US Treasury Securities 33,601,981 3,995,420 29,606,561 U.S. Government Sponsored Enterprise Securities 43,753,908 11,984,350 31,769,558 Total Investments 112,953,662 47,909,586 65,044,076 Investment with Fiscal Agents: Money Market Mutual Funds 4,265,295 4,265,295 - Total Investment with Fiscal Agents 4,265,295 4,265,295 - Total $ 117,218,957 $ 52,174,881 $ 65,044,076 Disclosures Related to Credit Risk Credit risk is defined as the risk that an issuer of an investment will not fulfill its obligation to repay the holder at the maturity date. This is generally measured by the assignment of a rating by a nationally recognized statistical organization. However, some issuers do not seek a credit rating. For instance, the California Local Agency Investment Fund (LAIF) has not sought or received a credit rating. In these cases, the purchaser is solely responsible for performing their own due diligence before purchasing an investment or participating in an external investment pool. Certificates of deposit of$250,000 or less are fully insured by the Federal Deposit Insurance Corporation (FDIC), and therefore, do not seek a credit rating. Presented on the following is the minimum rating required by (where applicable) the Government Code, the Investment Policy, or the debt agreements, and the actual rating as of year-end for each investment type. 67 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 3—Cash and Investments (Continued) D. Risk Disclosures (Continued) Disclosures Related to Credit Risk(Continued) Minimum Rating as of Year End Fair Legal AAA/ Investment Type Value Rating AA+ Not Rated Investments: Local Agency Investment Fund(LAIF) $ 30,366,384 N/A $ - $ 30,366,384 California Asset Management Program 1,004,966 N/A 1,004,966 - Money Market Mutual Funds 62,106 AAA 62,106 - Certificates of Deposit 3,920,747 N/A - 3,920,747 Negotiable Certificates of Deposit 243,570 N/A - 243,570 US Treasury Securities 33,601,981 N/A 33,601,981 - U.S. Government Sponsored Enterprise Securities 43,753,908 N/A 43,753,908 - Total Investments 112,953,662 78,422,961 34,530,701 Investments with Fiscal Agents: Money Market Mutual Funds 4,265,295 AAA - 4,265,295 Total Investments with Fiscal Agents 4,265,295 - 4,265,295 Total $ 117,218,957 $ 78,422,961 $ 38,795,996 Disclosures Relating to Concentration of Credit Risk The investment policy of the City 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. Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represents 5% or more of the City's total investments are as follows: Issuer Investment Type Fair Value Federal National Mortgage Association U.S. Government Sponsored $ 16,949,584 Enterprise Securities Federal Home Loan Mortgage Corporation U.S. Government Sponsored 5,967,690 Enterprise Securities Federal Home Loan Bank U.S. Government Sponsored 13,869,040 Enterprise Securities Federal Farm Credit U.S. Government Sponsored 6,966,798 Enterprise Securities Local Agency Investment Fund(LAIF) California Pooled 30,366,384 Investment Fund 68 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 3—Cash and Investments (Continued) D. Risk Disclosures (Continued) Disclosures Relating to Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. E. Investments in State Investment Pool — Local Agency Investment Fund The City's investments with the Local Agency Investment Fund (LAIF) include a portion of the pool funds invested in Structured Notes and Asset-Backed Securities. These investments include the following: • Structured Notes - debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. • Asset-Backed Securities - the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as CMO's) or credit card receivables. LAIF is overseen by the Local Investment Advisory Board, which consists of five members, in accordance with State statute. The fair value of our position in the pool is the same as the value of the pool shares. As of June 30, 2017, the City had $30,366,383 invested in LAIF, which had invested 2.89% of the pool investment funds in Structured Notes and Asset-Backed Securities. F. Investment in California Asset Management Program (CAMP) The City is a voluntary participant in CAMP, a California Joint Powers Authority that falls under California Government Code Section 53601(p), which is directed by a Board of Trustees that is made up of experienced local government finance directors and treasurers. The Pool is required to maintain an average maturity of less than 60 days, and is rated AAAm by Standard & Poor's national rating agency. As of June 30, 2017, the City had $1,004,966 invested in CAMP. 69 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 4— Receivables At June 30, 2017, receivables consisted of the following: Governmental Business-Type Activities Activities Total Accounts receivable $ 1,243,694 $ 2,225,024 $ 3,468,718 Taxes and assessments receivable 424,589 119,822 544,411 Accrued revenues 3,084,702 - 3,084,702 Total $ 4,752,985 $ 2,344,846 $ 7,097,831 Note 5— Investment in Joint Ventures Investment in joint ventures (See Note 2G) consists of the following as of June 30, 2017: Cardiff Sanitary Division San Elijo Joint Facilities $ 18,530,234 San Dieguito Water District R.E. Badger Joint Facilities 21,786,539 San Dieguito Water District R.E. Badger Financing Authority 760,707 22,547,246 Encinitas Sanitary Division Encina Joint Facilities 4,022,140 Total Investment in Joint Ventures $ 45,099,620 A. Cardiff Sanitary Division Investment in San Elijo Joint Powers Authority(CITY) In 1964, Cardiff Sanitary Division ("CSD") entered into an agreement with Solana Beach Sanitation District ("Solana Beach") for the joint ownership, maintenance, operation, and use of a Wastewater Treatment Plant and Ocean Outfall (collectively, the "Joint Facilities"). In 1987, CSD and Solana Beach agreed to establish the San Elijo Joint Powers Authority ("SEJPA"), a separate legal entity whose function it is to manage and operate the Joint Facilities and to determine the joint and separate obligations of the members concerning the transmission, treatment, disposal, and reclamation of wastewater within the respective service territories. On June 30, 1988, CSD and Solana Beach each transferred all of their assets related to the Facilities in exchange for a 50% interest in SEJPA. The Ocean Outfall is jointly owned by SEJPA (21% interest) and the City of Escondido (79% interest). SEJPA is responsible for the operations and maintenance of the Joint Facilities as well as the related administration. The operations and maintenance costs are allocated monthly and billed quarterly, based on the relative volume of flows after taking into account charges to other agencies that lease certain capacity rights and share in the costs of operations and maintenance. For the year ended June 30, 2017, CSD's share of those costs was $1,381,047, which is reported as a component of "facility operations and maintenance" in the accompanying financial statements. 70 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 5— Investment in Joint Ventures (Continued) B. San Dieguito Water District Investment in R.E. Badger Filtration Plant and related Facilities (the "Joint Facilities') In 1967, SDWD entered into an agreement with 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 SDWD and Santa Fe 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 these Joint Facilities are described below: San Dieguito Water District Santa Fe Facilities 45% 55% Filtration Plant 31% 69% Filtered Water Reservoir 39% 61% Joint Pipeline 42% 58% San Dieguito Water Reservoir Santa Fe is responsible for the operations and maintenance of the Joint Facilities as well as the related administration. The 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 year ended June 30, 2017, SDWD's share of those was $1,570,463, which is shown as "facility operations and maintenance" in the accompanying financial statements. Investment in R.E. Badger Water Facilities Financing Authority(the "Financing Authority') In 1999, SDWD 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. SDWD and Santa Fe are obligated under Installment Purchase Agreements to repay their proportionate shares of the long-term financing. The investment in the Financing Authority consists primarily of SDWD's share of the debt reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. 71 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 5— Investments in Joint Ventures (Continued) C. Encinitas Sanitary Division Investment in Encina Water Pollution Control Facility(the "Joint Facilities') ESD is one of six member agencies with an ownership interest in the Joint Facilities. ESD owns approximately 2.7% of the Joint Facilities, after adjusting for the construction and upgrades to the Joint Facilities, referred to a "Phase V improvements." This ownership percentage affords ESD treatment capacity rights of approximately 2.0 million gallons/day, which is in excess of current needs and sufficient to meet all projected future needs. The Encina Wastewater Authority (Encina) is responsible for the operations and maintenance of the Joint Facilities, as well as the related administration. The operations, maintenance, and administrative costs are allocated monthly on the basis of the relative flows of each member agency. For the year ended June 30, 2017, ESD's share of those costs was $565,412, which is shown as "facility operations and maintenance" in the accompanying financial statements. Note 6— Long-Term Receivables Long-term receivables consist of loans to developers and loans to employees for the purchase of computer equipment, a program approved by the City Council to promote more efficient use of technology. At June 30, 2017, loans receivable consisted of the following: Encinitas Ranch Town Center $ 390,000 Iris Apartments 411,433 Employee computer loans 35,060 Total $ 836,493 A. Encinitas Ranch Town Center At June 30, 2017, the outstanding balance of the long-term receivable was $390,000. This receivable is one of the results of the Encinitas Ranch Development Agreement that was executed between the City and the developer of the Encinitas Ranch planned community in 1994. Part of that agreement allowed the developer to apply up to 50% of the sales tax proceeds generated by the Encinitas Ranch Town Center towards the payment of CFD assessments during its first five years of operation. The funds were applied to CFD payments pursuant to this loan agreement for approximately two years, and then discontinued. The original loan amount was about $1.3 million. The developer has been making interest and certain principal repayments, consistent with the contract terms, in the ensuing years. In 2011, the City Council approved an extension to the final maturity of the note by five years, to June 15, 2018. The balance at that time was approximately $650,000. Simple interest is payable annually, with principal payments commencing in June 2016 and continuing through until June 2018 when the remaining balance is due and payable. The note is secured by the developer's share of the future net revenues of the Encinitas Ranch Golf Course, which substantially exceed the face value of the note. The outstanding principal at June 30, 2017 was $390,000. 72 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 6— Long-Term Receivables (Continued) B. Iris Apartments On April 20, 2012, the City entered into a promissory note agreement with Iris Apartments in the amount of $350,000, secured by a Deed of Trust on the project. The outstanding principal balance due the City bears simple interest at a rate of 6% per annum, commencing on the date of fund disbursement which was May 2012. Under the terms of the agreement, Iris Apartments is obligated to make annual payments of principal and interest in the amount equal to 50% of residual receipts, as defined in the promissory note agreement. All principal and unpaid interest will be due and payable on April 20, 2067. The outstanding principal and interest receivable at June 30, 2017 was $411,433. Note 7—Other Assets At June 30, 2017, the City has recorded other assets consisting of the following: Governmental Business-type Activities Activities Total Other Assets: Prepaid pension side funds $ 3,325,189 $ 981,523 $ 4,306,712 Less: accumulated amortization (3,325,189) (981,523) (4,306,712) Total other assets $ - $ - $ - These amounts represent the related unamortized prepayment of its pension side fund obligations in 2007. The City elected to amortize over a 10-year period. For the year ended June 30, 2017, the amortization expense was $332,519 for the governmental activities and $98,155 for the business-type activities. 73 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 8—Capital Assets A. Governmental Activities During the year, the City evaluated its construction in progress projects and determined that $2,088,668 of expenditures on capital projects would not be capitalized as depreciable assets. An impairment loss of$2,088,668 is reported on the Government-Wide Statement of Activities and Changes in Net Position. The summary of changes in governmental activities capital assets for the year ended June 30, 2017 is as follows: Balance Impairment Transfers/ Balance July 1,2016 Loss Additions Deletions Reclassification June 30,2017 Capital assets,not being depreciated: Land $ 61,862,474 $ $ - $ $ $ 61,862,474 Land easements 2,114,042 172,116 2,286,158 Construction in progress 14,236,480 (2,088,668) 6,259,212 (2,696,084) 15,710,940 Total capital assets,not being depreciated 78,212,996 (2,088,668) 6,431,328 (2,696,084) 79,859,572 Capital assets,being depreciated: Public facilities 100,389,962 - 2,170,417 102,560,379 Vehicles,equipment and machinery 9,279,951 733,695 (34,873) 19,299 9,998,072 Infrastructure 111,024,528 - 525,666 111,550,194 Total capital assets,being depreciated 220,694,441 733,695 (34,873) 2,715,382 224,108,645 Less accumulated depreciation Public facilities (28,925,213) (3,220,978) - 16,580 (32,129,611) Vehicles,equipment and machinery (5,678,912) (661,704) 34,873 (35,878) (6,341,621) Infrastructure (46,395,240) (2,547,117) - - (48,942,357) Total accumulated depreciation (80,999,365) (6,429,799) 34,873 (19,298) (87,413,589) Total capital assets being depreciated,net 139,695,076 (5,696,104) - 2,696,084 136,695,056 Governmental activities capital assets,net $ 217,908,072 $ (2,088,668) $ 735,224 $ - $ - $ 216,554,628 Depreciation expense was charged to the functions/programs of the governmental activities as follows: General government $ 1,220,793 Public safety 369,945 Public works 2,769,664 Parks and recreation 1,538,324 Internal service funds 531,073 Total depreciation expense $ 6,429,799 74 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 8—Capital Assets (Continued) B. Business-type Activities The summary of changes in business-type activities capital assets for the year ended June 30, 2017 is as follows: Balance Transfers/ Balance July 1,2016 Additions Deletions Reclassification June 30,2017 Capital assets,not being depreciated: Land easements $ 3,219,301 $ 43,377 $ $ $ 3,262,678 Public works facility right of use 3,378,700 - 3,378,700 Construction in progress 4,694,596 3,118,824 (80,189) 7,733,231 Total capital assets,not being depreciated 11,292,597 3,162,201 (80,189) 14,374,609 Capital assets, being depreciated: Structures and improvements 19,147,575 - - 19,147,575 Collection and distribution 61,325,186 258,940 80,189 61,664,315 Machinery and equipment 2,428,212 74,345 (98,737) (19,299) 2,384,521 Capacity Rights 323,190 - - 323,190 Total capital assets, being depreciated 83,224,163 333,285 (98,737) 60,890 83,519,601 Less accumulated depreciation Structures and improvements (5,404,962) (417,973) - (5,822,935) Collection and distribution (31,712,172) (953,792) - - (32,665,964) Machinery and equipment (1,696,800) (172,764) 98,737 19,299 (1,751,528) Capacity rights (131,969) (6,464) - - (138,433) Total accumulated depreciation (38,945,903) (1,550,993) 98,737 19,299 (40,378,860) Total capital assets being depreciated,net 44,278,260 (1,217,708) - 80,189 43,140,741 Business-type activities capital assets,net $ 55,570,857 $ 1,944,493 $ $ - $ 57,515,350 Depreciation expense was charged to the functions/programs of the business-type activities as follows: Cardiff Sanitary Division $ 386,191 San Dieguito Water District 694,595 Encinitas Sanitary Division 369,669 Non-major Affordable Housing 100,538 Total $ 1,550,993 75 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9- Long-Term Obligations A summary of changes in long-term liabilities for the year ended June 30, 2017 is as follows: Classification Balance Balance Due Within Due in More July 1,2016 Additions Deletion June 30,2017 One Year Than One Year Governmental Activities: Capital Leases: 2008 Civic Center Roof Replacement $ 1,123,307 $ $ (143,416) $ 979,891 $ 148,758 $ 831,133 2011 Fire Apparatus 336,172 (166,015) 170,157 170,157 - 2012 Fire Apparatus 268,168 (87,458) 180,710 89,375 91,335 2013 Fire Apparatus 323,193 (78,520) 244,673 80,020 164,653 2017 Fire Apparatus - 629,851 629,851 83,413 546,438 Bonded Debt: 1997 Civic Center COPS 590,000 - (590,000) - - - 2002 ABAG Financing 565,000 (275,000) 290,000 290,000 2010 Community Park Bonds 15,265,000 (15,265,000) - - add:original issue premium 152,656 (152,656) - - - 2013 Community Park Bonds 6,920,000 (330,000) 6,590,000 335,000 6,255,000 add:original issue premium 105,120 (8,760) 96,360 - 96,360 2014 Moonlight Beach Tower(Series A) 3,030,000 (65,000) 2,965,000 65,000 2,900,000 less:original issue discount (53,303) 25,865 (27,438) - (27,438) 2014 Pacific View(Series B) 10,165,000 (200,000) 9,965,000 205,000 9,760,000 less:original issue discount (222,803) 81,969 (140,834) - (140,834) 2015 Library Refunding Bonds 15,645,000 (480,000) 15,165,000 505,000 14,660,000 add:original issue premium 772,212 - (36,771) 735,441 - 735,441 2017 Park Refunding Bonds - 11,955,000 11,955,000 580,000 11,375,000 add:original issue premium - 1,360,284 1,360,284 - 1,360,284 Subtotal of governmental capital leases and bonded debt 54,984,722 13,945,135 (17,770,762) 51,159,095 2,551,723 48,607,372 Claims payable 1,589,220 1,131,053 (606,738) 2,113,535 562,443 1,551,092 Compensated absences 2,107,689 1,708,191 (1,879,131) 1,936,749 1,936,749 - Total governmental activities 58,681,631 16,784,379 (20,256,631) 55,209,379 5,050,915 50,158,464 Business-type Activities: 2011 CSD Note Payable to SEJPA 2,033,889 - (612,192) 1,421,697 640,352 781,345 add:original issue premium 172,004 (34,401) 137,603 - 137,603 2007 SDWD Note Payable Badger 4,715,000 (440,000) 4,275,000 455,000 3,820,000 2004 EHA Housing Note Payable 1,331,409 (78,232) 1,253,177 80,119 1,173,058 2014 SDWD Water Revenue Bonds 5,300,000 (585,000) 4,715,000 605,000 4,110,000 add:original issue premium 594,973 (74,371) 520,602 - 520,602 Subtotal of business-type bonded debt 14,147,275 - (1,824,196) 12,323,079 1,780,471 10,542,608 Compensated absences(SDWD) 161,310 131,111 (129,576) 162,845 162,845 - Compensated absences(Affordable Housing) 10,688 9,240 (8,826) 11,102 11,102 - Total business-type activities 14,319,273 140,351 (1,962,598) 12,497,026 1,954,418 10,542,608 Total long-term obligations $ 73,000,904 $ 16,924,730 $ (22,219,229) $ 67,706,405 $ 7,005,333 $ 60,701,072 76 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities 2008 Civic Center Roof Replacement and Energy Optimization Project On February 27, 2008, the City entered into a long-term lease arrangement with a financial institution to finance $2,100,000 of the 2008 improvements to the Encinitas Civic Center. The lease has a term of fifteen (15) years, an interest rate of 3.69%, and semi-annual payments of $91,778. The project was completed during fiscal year 2008-2009, and the final payment is due in fiscal year 2023. The total cost of the project was $3,543,258. The annual debt service requirements for the lease outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 148,758 $ 34,798 $ 183,556 2019 154,298 29,258 183,556 2020 160,045 23,511 183,556 2021 166,005 17,552 183,557 2022 172,186 11,370 183,556 2023 178,599 4,957 183,556 Total $ 979,891 $ 121,446 $ 1,101,337 2011 Fire Apparatus Lease The City entered into a long-term lease arrangement in fiscal year 2010-11 to finance the purchase of a 2011 Pierce Arrow XT Aerial Tiller Truck for $1,124,003. The lease has a term of seven years, an interest rate of 2.48%, and semi-annual payments of $86,665. The lease is accounted for as a capital lease, as the City will be purchasing the unit for$1.00 at the maturity of the lease in fiscal year 2018. The annual debt service requirements for the lease outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 170,157 $ 3,171 $ 173,328 Total $ 170,157 $ 3,171 $ 173,328 77 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2012 Fire Apparatus Lease The City entered into a long-term lease arrangement in fiscal year 2011-12 to finance the purchase of a 2012 Pierce Arrow XT Pumper Truck for $603,397. The lease has a term of seven (7) years with an interest rate of 2.18% and semi-annual payments of $46,415. The lease is accounted for as a capital lease, as the City has the option to purchase the unit for $1 at the maturity of the lease term in fiscal year 2019. The annual debt service requirements for the lease outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 89,375 $ 3,455 $ 92,830 2019 91,335 1,495 92,830 Total $ 180,710 $ 4,950 $ 185,660 2013 Fire Apparatus Lease The City entered into a long-term lease arrangement in fiscal year 2012-13 to finance the purchase of a 2012 Pierce Arrow XT Pumper Truck for $559,653. The lease has a term of seven years, an interest rate of 1.91%, and annual payments of $84,693. The lease is accounted for as a capital lease, as the City will be purchasing the unit for$1.00 at the maturity of the lease in fiscal year 2020. The annual debt service requirements for the lease outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 80,020 $ 4,673 $ 84,693 2019 81,548 3,145 84,693 2020 83,105 1,587 84,692 Total $ 244,673 $ 9,405 $ 254,078 78 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2017 Fire Apparatus Lease The City entered into a long-term lease arrangement in fiscal year 2016-17 to finance the purchase of a 2017 Pierce Arrow XT Pumper Truck for $629,851. The lease has a term of seven years, an interest rate of 2.50%, and annual payments of $98,641. The lease is accounted for as a capital lease, as the City will be purchasing the unit for$1.00 at the maturity of the lease in fiscal year 2024. The annual debt service requirements for the lease outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 83,413 $ 15,228 $ 98,641 2019 85,511 13,130 98,641 2020 87,663 10,978 98,641 2021 89,868 8,773 98,641 2022 92,129 6,512 98,641 2023-2024 191,267 6,015 197,282 Total $ 629,851 $ 60,636 $ 690,487 Capital assets and accumulated depreciation for assets held under capital leases are as follows: Accumulated Net Capital Cost Depreciation Assets Public facilities $ 3,543,258 $ (1,145,652) $ 2,397,606 Fire apparatus and equipment 2,916,904 (867,435) 2,049,469 1997 Refunding Certificates of Participation (COPs)-Series A (Encinitas Civic Center) In December 1991, the Encinitas Public Financing Authority (on behalf of the City of Encinitas) issued its 1991 Certificates of Participation-Series A totaling $7,635,000, to purchase the site and existing improvements for the Encinitas Civic Center. In December 1997, the EPFA issued the 1997 Refunding Certificates of Participation-Series A totaling $7,550,000, to refund all of the 1991 Certificates. The refunding qualified as an in-substance defeasance. Principal is due and payable annually in amounts ranging from $505,000 to $590,000. Interest is due and payable semi-annually with rates ranging from 3.70% to 5.05%. The final maturity of the issue is due and payable in fiscal year 2017. These certificates are subject to federal arbitrage requirements. The certificates are not subject to optional redemption prior to maturity. The bonds were paid in full as of June 30, 2017. 79 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2002 Association of Bay Area Governments (ABAG) Lease Revenue Bonds In July 2002, the City issued $6,590,000 of Lease Revenue Bonds, Series 2002-1 through ABAG, a California Joint Powers Authority. The proceeds were utilized to retire the 1992 Certificates of Participation-Series B (Encinitas Civic Center) and four existing debt obligations (including one of the Encinitas Sanitary Division) and to provide funding for improvements to the Civic Center and the SDWD Water Utility meter exchange and automation program. The Bonds mature annually in amounts ranging from $240,000 to $290,000. Interest is due and payable semiannually at rates ranging from 3.00% to 4.65%. The final maturity of the issue is due and payable in fiscal year 2018. The bonds are subject to federal arbitrage requirements. The Encinitas Sanitary Division and the San Dieguito Water District have repaid all of their obligations to the City under the agreement to advance funds. The remaining amounts payable are all attributable to the Civic Center funding. The annual debt service requirements for the 2002 ABAG Lease Revenue Bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 290,000 $ 6,743 $ 296,743 Total $ 290,000 $ 6,743 $ 296,743 The bonds are subject to optional redemption beginning in 2013 at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed). Redemption Redemption Period Price July 1, 2014 and thereafter 100% 2010 Lease Revenue Refunding Bonds (Park Project) On September 1, 2010, the Encinitas Public Financing Authority (on behalf of the City of Encinitas) issued its 2010 Lease Revenue Refunding Bonds, Series A (Park Project) in the amount of$19,530,000 to provide funds for the refinancing of its 2001 Lease Revenue Bonds, Series A. The bonds consist of $15,675,000 of serial bonds and $3,855,000 of term bonds. The serial bonds mature from 2011 to 2028 in annual installments ranging from $625,000 to $1,175,000. The term bond matures on April 1, 2031 and is subject to mandatory sinking fund requirements. Interest is due and payable semi-annually at rates ranging from 2.00% to 4.85%. The bonds were issued at a premium, which is being amortized over the life of the bonds on a straight-line basis in the government-wide financial statements. The bonds are subject to federal arbitrage requirements. The 2010 Lease Revenue Refunding Bonds (Park Project) were refunded in fiscal year 2017 via the issuance of the 2017 Park Refunding Bonds. The outstanding balance at June 30, 2017 is $0. 80 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2013 Lease Revenue Refunding Bonds (Public Park Construction Project) On March 20, 2013, the Encinitas Public Financing Authority (on behalf of the City of Encinitas) issued its 2013 Lease Revenue Bonds, Series A (Public Park Construction Project) in the amount of $7,865,000 to provide funds for the construction of capital improvements to the Encinitas Community Park. The bonds consist of $7,865,000 of serial bonds, which mature annually through 2033 in installments ranging from $305,000 to $510,000. Interest is due and payable semi-annually at rates ranging from 2.00% to 3.00%. The bonds were issued at a premium, which is being amortized over the life of the bonds on a straight-line basis in the government-wide financial statements. The bonds are subject to federal arbitrage requirements. The annual debt service requirements for the 2013 Lease Revenue Refunding Bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 335,000 $ 178,994 $ 513,994 2019 345,000 172,194 517,194 2020 350,000 164,806 514,806 2021 360,000 156,818 516,818 2022 365,000 148,206 513,206 2023-2027 2,000,000 578,147 2,578,147 2028-2032 2,325,000 255,375 2,580,375 2033-2034 510,000 7,650 517,650 Total $ 6,590,000 $ 1,662,190 $ 8,252,190 The bonds maturing on or after October 1, 2023 are subject to optional redemption on any date on or after October 1, 2022, without premium. 81 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9- Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2014 Lease Revenue Bonds (Pacific View Property and Moonlight Beach Lifeguard Tower) On November 26, 2014, the Encinitas Public Financing Authority (on behalf of the City of Encinitas) issued its 2014 Lease Revenue Bonds, Series A tax-exempt (Pacific View Property) and Series B taxable (Moonlight Beach Lifeguard Tower) in the amounts of $3,095,000 and $10,365,000, respectively, to provide funds for the purpose of financing the acquisition of a property known as the Pacific View Property and for improving the Moonlight Beach Lifeguard Tower. The bonds consist of $3,350,000 of serial bonds and $10,110,000 of term bonds. The serial bonds mature annually through 2030 in installments ranging from $65,000 to $245,000. The term bonds mature through 2045 and are subject to mandatory sinking requirements. Interest is due and payable semi-annually at rates ranging from 2.00% to 3.50%. The bonds were issued at a discount, which is being amortized over the life of the bonds on a straight-line basis in the government-wide financial statements. The bonds are subject to federal arbitrage requirements. The annual debt service requirements for the 2014 Lease Revenue Bonds, Series A Pacific View Property bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 65,000 $ 99,881 $ 164,881 2019 70,000 98,531 168,531 2020 70,000 97,131 167,131 2021 70,000 95,381 165,381 2022 75,000 92,831 167,831 2023-2027 415,000 422,219 837,219 2028-2032 480,000 355,484 835,484 2033-2037 570,000 265,663 835,663 2038-2042 675,000 153,475 828,475 2043-2045 475,000 27,281 502,281 Total $ 2,965,000 $ 1,707,877 $ 4,672,877 82 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2014 Lease Revenue Bonds (Pacific View Property and Moonlight Beach Lifeguard Tower) (Continued) The annual debt service requirements for the 2014 Lease Revenue Bonds, Series B Moonlight Beach Lifeguard Tower bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 205,000 $ 440,190 $ 645,190 2019 205,000 436,603 641,603 2020 210,000 432,033 642,033 2021 215,000 426,556 641,556 2022 225,000 420,225 645,225 2023-2027 1,235,000 1,980,631 3,215,631 2028-2032 1,515,000 1,702,688 3,217,688 2033-2037 1,910,000 1,305,075 3,215,075 2038-2042 2,450,000 767,500 3,217,500 2043-2045 1,795,000 137,625 1,932,625 Total $ 9,965,000 $ 8,049,126 $ 18,014,126 2015 Library Refunding Bonds On September 1, 2015, the Encinitas Public Financing Authority issued $15,645,000 of 2015 Lease Revenue Refunding Bonds to defease and refund on a current basis, all of the outstanding 2006 Library Bonds. The Bonds consist of serial bonds maturing from 2016 through 2036 in annual installments of $480,000 to $1,025,000. Interest is due and payable semi-annually at rates ranging from 2.5% to 5.0%. Annual debt service is approximately $1,065,000 through 2036. The bonds are subject to federal arbitrage requirements. The aggregate debt service payments of the new debt are $3,252,589 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 $1,547,162. The annual debt service requirements for the 2015 Library Refunding Bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 505,000 $ 557,706 $ 1,062,706 2019 530,000 531,831 1,061,831 2020 555,000 504,706 1,059,706 2021 580,000 476,331 1,056,331 2022 610,000 446,581 1,056,581 2023-2027 3,495,000 1,771,356 5,266,356 2028-2032 4,095,000 1,147,691 5,242,691 2033-2037 4,795,000 433,494 5,228,494 Total $ 15,165,000 $ 5,869,696 $ 21,034,696 83 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) A. Governmental Activities (Continued) 2017 Park Refunding Bonds On February 7, 2017, the Encinitas Public Financing Authority issued $11,955,000 of 2017 Lease Revenue Refunding Bonds to defease and refund on a current basis, all of the outstanding 2010 Park Bonds. The Bonds consist of serial bonds maturing from 2018 through 2031 in annual installments of $580,000 to $1,110,000 and term bonds maturing April 1, 2030 in the amount of $2,125,000. Interest is due and payable semi-annually at rates ranging from 3.0% to 5.0%. Annual debt service is approximately $1,140,000 through 2031. The bonds are subject to federal arbitrage requirements. The aggregate debt service payments of the new debt are $3,725,644 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 $1,691,810. The annual debt service requirements for the 2017 Park Refunding Bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 580,000 $ 565,131 $ 1,145,131 2019 645,000 494,000 1,139,000 2020 680,000 461,750 1,141,750 2021 715,000 427,750 1,142,750 2022 750,000 392,000 1,142,000 2023-2027 4,345,000 1,359,250 5,704,250 2028-2031 4,240,000 333,300 4,573,300 Total $ 11,955,000 $ 4,033,181 $ 15,988,181 B. Business-Type Activities 2011 CSD Note Payable to San Elijo Joint Powers Authority(SEJPA) On December 1, 2011, the City, on behalf of its members (the Cardiff Sanitary Division and the City of Solana Beach) refinanced all of its outstanding debt, including its 2003 refunding revenue bonds and a loan from the State of California. Information on the bond issuance itself is available through the SEJPA administrative offices. CSD is responsible, via a Third Amended and Restated Loan Agreement, for the repayment of $4,341,362 of the total borrowing amount of $9,235,000 (or approximately 47%.) Annual debt service is approximately $690,000 through fiscal year 2019, with smaller repayments due in 2020 and 2021. The average rate on the borrowing is approximately 2.0%. The bonds were issued at a premium, which is being amortized over the life of the bonds on a straight-line basis. The issue also resulted in deferred refunding costs, which are also being amortized over the life of the bonds on a straight-line basis. 84 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) B. Business-Type Activities (Continued) 2011 CSD Note Payable to San Elijo Joint Powers Authority(SEJPA) (Continued) CSD has pledged its net revenues to pay for this outstanding obligation. Net revenues are defined as gross revenues less operations and maintenance costs, excluding depreciation, amortization and other non-cash type charges. CSD has covenanted to budget for net revenues each fiscal year of at least 110% of annual debt service. Total principal and interest remaining to be paid on the 2011 Note Payable as of June 30, 2017 is $1,511,831. During the year ended June 30, 2016, principal and interest paid on the 2011 Note Payable was $692,081 and net revenue was $2,592,616, or 374% of annual debt service. Management of CSD believes it is in compliance with these covenants for fiscal year 2017. The annual debt service requirements for the 2011 CSD Note Payable to San Elijo Joint Powers Authority outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 640,352 $ 55,402 $ 695,754 2019 663,845 29,788 693,633 2020 57,500 3,234 60,734 2021 60,000 1,710 61,710 Total $ 1,421,697 $ 90,134 $ 1,511,831 2007 SDWD Note Payable to R.E. Badger Water Facilities Financing Authority(WFFA) On November 20, 2007, the WFFA, on behalf of its members (the Santa Fe Irrigation District and the San Dieguito Water District) issued $20,685,000 of 2007 Water Revenue Refunding Bonds while concurrently redeeming all of its outstanding 1999 Water Revenue Bonds. Information on the bond issuance itself is available through the WFFA administrative offices. SDWD is responsible, via an Amended and Restated Loan Agreement, for the repayment of $7,705,000 of the total borrowing. 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%. Annual debt service is approximately $630,000 through fiscal year 2028. 85 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9- Long-Term Obligations (Continued) B. Business-Type Activities (Continued) 2007 SDWD Note Payable to R.E. Badger Water Facilities Financing Authority (WFFA) (Continued) The annual debt service requirements for the 2007 SDWD Note Payable to R.E. Badger Water Facilities Financing Authority outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 455,000 $ 171,619 $ 626,619 2019 475,000 152,919 627,919 2020 490,000 133,619 623,619 2021 525,000 111,465 636,465 2022 545,000 89,396 634,396 2023-2025 1,785,000 120,908 1,905,908 Total $ 4,275,000 $ 779,926 $ 5,054,926 2014 SDWD Water Revenue Refunding Bonds On September 18, 2014, SDWD 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. The annual debt service requirements for the 2014 SDWD Water Refunding Bonds outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 605,000 $ 167,225 $ 772,225 2019 625,000 148,775 773,775 2020 645,000 126,500 771,500 2021 665,000 100,300 765,300 2022 695,000 73,100 768,100 2023-2025 1,480,000 59,800 1,539,800 Total $ 4,715,000 $ 675,700 $ 5,390,700 86 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 9— Long-Term Obligations (Continued) B. Business-Type Activities (Continued) Pledged Revenues SDWD has pledged its net revenues to pay the debt service on these two obligations. Net revenues are defined as gross revenues less operations and maintenance costs, excluding depreciation, amortization and other non-cash type charges. Total principal and interest outstanding of the above mentioned debt as of June 30, 2017, is $10,445,626. During the year ended June 30, 2017 principal and interest paid was $1,401,319 and net revenue was $3,273,387, or 234% of annual debt service. SDWD has covenanted to budget for net revenues each fiscal year of at least 115% of combined annual debt service. SDWD's management believes it is in compliance with these covenants for fiscal year 2017. 2004 Encinitas Housing Authority(EHA) Note Payable In 2004, the EHA secured a note payable with a financial institution of $1,905,338 to partially fund the acquisition of 16 affordable housing units. The note is secured only by the rental income generated by the housing units. Principal and interest is due and payable monthly. Annual principal installments range from $52,417 in 2014 to $98,938 in 2031. The note bears interest at 90% of the ten-year US Treasury note, adjustable every six years. The EHA is solely responsible for repayment on this note. The annual debt service requirements for the 2004 Encinitas Housing Authority Note Payable outstanding at June 30, 2017 are as follows: Year Ending June 30 Principal Interest Total 2018 $ 80,119 $ 19,760 $ 99,879 2019 81,429 18,450 99,879 2020 82,715 17,164 99,879 2021 84,115 15,764 99,879 2022 85,492 14,388 99,880 2023-2027 448,874 50,523 499,397 2028-2032 390,433 13,235 403,668 Total $ 1,253,177 $ 149,284 $ 1,402,461 87 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 10— Interfund Receivables, Payable and Transfers A. Due To and From Other Funds Individual interfund receivables and payables at June 30, 2017, were as follows: Due from Due to Other Funds Other Funds Govermental Funds: General Fund $ 223,443 $ - Capital Improvements Capital Projects Fund 13,260,720 - Nonmajor Governmental Funds - 13,412,720 Internal Service Funds - - Enterprise Funds: Nonmajor Affordable Housing Enterprise Fund - 71,443 Total $ 13,484,163 $ 13,484,163 The amounts due to the General Fund are all short-term borrowings in anticipation of grant revenue not yet received or for debt service payments. The amounts due to the Capital Improvements Capital Projects fund represent grant revenues due from other funds for capital projects. B. Transfers In and Out Transfers in and out between funds for the year ended June 30, 2017, were as follows: Transfers Out Capital Nonmajor General Improvement Governmental Internal Total Fund Capital Projects Funds Service Funds All Funds Transfers In Major Governmental Funds: General Fund $ - $ 1,621,363 $ 583,172 $ 113,000 $ 2,317,535 Capital Improvement Capital Project Fund 22,156,773 - 5,916,024 - 28,072,797 Nonmajor Governmental Funds - 4,769,507 4,769,507 Internal Service Funds - 1,604,006 1,604,006 Total $ 22,156,773 $ 1,621,363 $ 12,872,709 $ 113,000 $ 36,763,845 Transfers in to the General Fund consist of funds from two of the City's development impact fee funds for qualified costs incurred, or to be incurred in the future years, by the General Fund for the construction of public facilities. In addition, the City now accounts for all street maintenance expenditures in the Streets Division budget unit within the General Fund, and transfers all State Gasoline Tax operating revenues from the Infrastructure Improvements special revenue fund to the General Fund. 88 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 10— InterFund Receivables, Payable and Transfers (Continued) B. Transfers In and Out (Continued) Transfers in to the Capital Improvement Capital Projects Fund represent funds from other governmental funds for capital expenditures. Transfers in to the Nonmajor Governmental funds represent General Fund subsidies for the Senior Nutrition Program, the Community Development Block Grant (CDBG), Home Program entitlement, the Mizel Donation General Fund match, and the taro Park M.I.D. In 1998, the Council increased the transient occupancy tax from eight percent to ten percent. The additional two percent increase is transferred to the Coastal Zone Management fund for beach and sand replenishment and stabilization projects. The transfers in to the Nonmajor Governmental funds also include transfers to the City's Debt Service Fund and the Encinitas Public Financing Authority Debt Service Fund to pay for the City's various debt service obligations. Transfers in to the internal service funds represent the City's annual contribution from the General Fund to the Self Insurance Fund (Risk Management) Fund. The contribution is not mandated and is established by the City Council during the annual budget process. 89 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 11 — Fund Balance and Net Position Classifications The City classifies fund balances, as shown on the Balance Sheet - Governmental Funds as of June 30, 2017 as follows: Major Funds Capital Improvements Other General Capital Projects Governmental Fund Fund Funds Totals Nonspendable: Inventory and prepaid items $ 302,034 $ - $ 296,234 $ 598,268 Long-term receivable 425,060 - - 425,060 Total nonspendable 727,094 - 296,234 1,023,328 Restricted: Capital projects 1,469,071 21,988,785 - 23,457,856 Street maintenance and improvements - - 791,458 791,458 Cable Franchise PEG funds - - 101,181 101,181 Environmental initiatives - - 1,289,631 1,289,631 Affordable housing - - 1,148,097 1,148,097 Parkland and open space - - 709,883 709,883 Traffic mitigation - - 1,270,907 1,270,907 Flood control - - 88,084 88,084 Lighting and landscaping assessments - - 2,181,437 2,181,437 Law enforcement - - 124,209 124,209 Debt service 3,301 - 226,208 229,509 Other - - 362,645 362,645 Total restricted 1,472,372 21,988,785 8,293,740 31,754,897 Committed: Capital projects - 18,998,215 - 18,998,215 Budget stabilization 1,417,046 - - 1,417,046 Operating reserve 12,520,353 - - 12,520,353 Total committed 13,937,399 18,998,215 - 32,935,614 Unassigned 9,514,727 - (12,183,589) (2,668,862) Total Fund Balances $ 25,651,592 $ 40,987,000 $ (3,593,615) $ 63,044,977 90 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 11 — Fund Balance and Net Position Classifications (Continued) Categorization of Reserves under Adopted City Policies All unassigned amounts in the City's General Fund are considered reserves under internal City policies. The City maintains three separate and distinct reserves: 1) Contingency Reserve — represents funds that are set-aside for use only in exceptional circumstances such as catastrophic events that could negatively impact the financial condition of the City. Funding represents 20% of the next year's operating expenditures, and no drawdowns have ever been executed on this reserve. City Policy requires a 4/5 vote of the City Council to authorize draws on this reserve. The amount of the contingency reserve as of June 30, 2017 was $12,520,353. 2) Budget Stabilization Reserve — was established in 2007 to help mitigate potential fluctuations in operating revenues, or to fund unanticipated operating expenditures. Funding levels are mandated at 2% to 5% of the next year's budgeted operating revenues. Any changes to the level of funding for this reserve also require a 4/5 vote of the City Council. In practice, this reserve has been funded within the established range since 2007, and changes are made during the annual budget process. The amount of the budget stabilization reserve as of June 30, 2017 was $1,417,046. 3) General Undesignated Reserve— this reserve represents any remaining unassigned fund balance after funding levels have been established for (1) and (2) above. These funds may be allocated in any manner the City Council designates. The amount of the general undesignated reserve as of June 30, 2017 was $9,514,727. 91 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 12 — Risk Management A. City of Encinitas - Risk Management and Insurance Programs The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City has a proactive in- house risk management program, which combines risk mitigation initiatives with a self-insurance program and excess coverage policies with outside providers. The City maintains a self-insurance fund to finance and account for its self-insured risks of loss. The Risk Management fund is accounted for as an Internal Service fund. It is supported by interfund charges for workers compensation coverage, unemployment insurance, and contributions from CSD, ESD and the City. The Risk Management fund strives to maintain an adequate net position, over time, to cover all known and reported claims, as well as an adequate reserve for incurred but not reported (IBNR)claims. The City is self-insured for liability claims and losses up to $250,000 per occurrence, and for worker's compensation claims and losses up to $350,000 per occurrence. The City is a member of the California State Association of Counties, Excess Insurance Authority (CSAC, EIA), a joint risk sharing pool which covers liability claims or losses above the City's $250,000 self-insured level. CSAC, EIA is a separate legal entity formed by the participating municipalities and counties to provide pooled excess liability insurance coverage to its members. The members do not hold any ownership stake in CSAC, EIA and have no claims to revenue or assets upon withdrawal, at which time the purchase of tail coverage is required. CSAC, EIA is governed by a Board of Directors, who determines policy and necessary funding levels, including retroactive adjustments for over-or under- funding, which is reflected as adjustments to current year premiums. The City is covered for losses above $250,000 with excess coverage through CSAC, EIA and excess carriers up to $60 million dollars. All members joint risk share liability exposures in excess of each member's self-insured retention. The City is a member of the Local Agency Workers Compensation Excess (LAWCX), a California Joint Powers Insurance Authority. LAWCX provides coverage for claims between $350,000 and $5,000,000. Excess worker's compensation coverage between $5,000,000 and statutory limits is provided through contract reinsurance. City departments contribute premiums to the self-insurance fund based on annual rates set for each work class. 92 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 12— Risk Management (Continued) A. City of Encinitas - Risk Management and Insurance Programs (Continued) Changes in the balances of claims payable for liability and workers compensation during the past two years are as follows: Year Ended Year Ended June 30, 2017 June 30, 2016 Claims payable, beginning of year $ 1,589,220 $ 1,193,289 Estimated incurred claims, net 1,131,053 1,430,314 Claims payments or closures (606,738) (1,034,383) Claim payable, end of year $ 2,113,535 $ 1,589,220 B. San Dieguito Water District (SDWD) - Risk Management and Insurance Programs Risk management programs and support for SDWD are provided by the City of Encinitas Risk Management Department, for which SDWD pays the City an annual fee (charge for those services.) SDWD paid the City $108,232 for the year ended June 30, 2017. SDWD 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. As of June 30, 2017, 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. SDWD has no outstanding claims as of June 30, 2017, and did not pay any claims during the fiscal year. Note 13— Commitments and Contingencies A. Lawsuits Numerous claims and suits have been filed against the City in the normal course of conducting City business. Based upon information received from the City Attorney and the self-insurance administrator, the estimated liability under such claims would be adequately covered by the deposits paid to SANDPIPA or LAWCX for self-insurance and insurance coverage (See Note 12). B. Grants Amounts received or receivable from federal and state granting agencies are subject to audit and adjustment by grantor agencies. While no matters of noncompliance were disclosed by the audit of the financial statements or Single Audit of the Federal grant programs, grantor agencies may subject grant programs to additional compliance tests, which may result in disallowed costs. In the opinion of management, future disallowances of current or prior grant expenditures, if any, would not have a material adverse effect on the financial position of the City. 93 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 13— Commitments and Contingencies (Continued) C. Construction Commitments As of June 30, 2017, the City had remaining contractual commitments totaling approximately $3.9 million for capital projects related to its governmental and business-type activities. The more significant capital commitments include approximately $1.4 million for street and pedestrian projects, approximately $1.1 million related to the Moonlight Beach Tower rebuild, and approximately $560,000 for storm water capture and reuse studies, amongst other projects. Note 14— California Public Employees' Retirement System A. Summary Aggregate Net Pension Liability Aggregate net pension liability is reported in the accompanying Statement of Net Position as follows: Governmental Business-Type Activities Activities CalPERS Miscellaneous Plan-City $ 24,043,443 $ - CalPERS Miscellaneous Plan-SDWD - 6,288,631 CalPERS Safety Plan 19,826,444 - Total $ 43,869,887 $ 6,288,631 94 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) A. Summary (Continued) Deferred Outflows of Resources Deferred outflows of resources are reported in the accompanying Statement of Net Position as follows: Governmental Business-Type Activities Activities Total Deferred outflows of resources: Pension contribution made after measurement date: CalPERS Miscellaneous Plan -City $ 2,723,629 $ - $ 2,723,629 CalPERS Miscellaneous Plan -SDWD - 472,819 472,819 CalPERS Safety Plan 1,108,343 - 1,108,343 Difference between expected and actual experience: CalPERS Miscellaneous Plan -City - - - CalPERS Miscellaneous Plan -SDWD - 11,600 11,600 CalPERS Safety Plan - - - Difference between projected and actual earnings on pension plan investments: CalPERS Miscellaneous Plan -City 3,829,079 - 3,829,079 CalPERS Miscellaneous Plan -SDWD - 740,965 740,965 CalPERS Safety Plan 2,715,426 - 2,715,426 Difference between employer contribution and proportionate share of contributions CalPERS Miscellaneous Plan -City - - - CalPERS Miscellaneous Plan -SDWD - 13,320 13,320 CalPERS Safety Plan - - - Adjustments due to differences in proportions: CalPERS Miscellaneous Plan -City - - - CalPERS Miscellaneous Plan -SDWD - 301,343 301,343 CalPERS Safety Plan 596,345 - 596,345 Total deferred outflows of resources $ 10,972,822 $ 1,540,047 $ 12,512,869 95 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) A. Summary (Continued) Deferred Inflows of Resources Deferred inflows of resources are reported in the accompanying Statement of Net Position as follows: Governmental Business-Type Activities Activities Total Deferred inflows of resources: Difference between projected and actual earnings on pension plan investments: CalPERS Miscellaneous Plan -City $ - $ - $ - CalPERS Miscellaneous Plan -SDWD - - - CalPERS Safety Plan - - - Difference between projected and actual experience CalPERS Miscellaneous Plan-City 626,898 - 626,898 CalPERS Miscellaneous Plan -SDWD - - - CalPERS Safety Plan 126,766 - 126,766 Change in plan proportion CalPERS Miscellaneous Plan -City - - - CalPERS Miscellaneous Plan -SDWD - - - CalPERS Safety Plan 1,257,541 - 1,257,541 Difference between employer contribution and proportionate share of contributions CalPERS Miscellaneous Plan -City - - - CalPERS Miscellaneous Plan -SDWD - 26,007 26,007 CalPERS Safety Plan 892,287 - 892,287 Change in assumptions CalPERS Miscellaneous Plan-City 701,895 - 701,895 CalPERS Miscellaneous Plan -SDWD - 142,365 142,365 CalPERS Safety Plan 552,707 - 552,707 Total deferred inflows of resources $ 4,158,094 $ 168,372 $ 4,326,466 96 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) A. Summary (Continued) Pension Expense Pension expenses are included in the accompanying Statement of Revenues, Expenses, and Changes in Net Position as follows: Governmental Business-Type Activities Activities CalPERS Miscellaneous Plan-City $ 2,549,792 $ - CalPERS Miscellaneous Plan-SDWD - 923,486 CalPERS Safety Plan 2,553,477 - Total $ 5,103,269 $ 923,486 B. City of Encinitas (not including the San Dieguito Water District) The City has the following California Public Employees' Retirement Plans: 1. The Miscellaneous Plan of the City of Encinitas (Miscellaneous Plan) 2. The Safety Plan of the City of Encinitas (Safety Plan) a. Fire Plan of the City of Encinitas b. Lifeguard Plan of the City of Encinitas Plan Descriptions Miscellaneous Plan The City of Encinitas has entered into separate defined benefit pension plans covering miscellaneous and safety employees with the California Public Employees' Retirement System (CalPERS). CalPERS is an agent multiple-employer public employee defined benefit pension plan. The plans provide retirement and disability benefits, annual cost-of-living adjustments, and death benefits to Plan members and beneficiaries. The Plans are 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 City selects optional benefit provisions from the benefit menu by contract and adopts those benefits through local ordinances. A full description of the pension plans regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the June 30, 2015 Annual Actuarial Valuation Report. This report and CalPERS' audited financial statements are publicly available reports that can be obtained at CaIPERS' website under"Forms and Publications." Safety Plan The Safety Plan is a cost-sharing multiple employer defined benefit plan in which the City participates with other public agencies that each have fewer than 100 active members and share the same benefit formula and includes both fire and lifeguard employees and retirees. The Safety 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 Safety 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. 97 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Benefits Provided The City's Miscellaneous Plan is an agent multiple-employer Plan that is part of the Public Agency's portion of CalPERS. The Miscellaneous Plan provides 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 City Council imposed new terms and conditions on the miscellaneous employees which created a new benefit formula for employees hired after the effective date of the change (the "Tier 2 miscellaneous plan".) Employees hired under the Tier 2 miscellaneous 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, referred to as the Public Employees' Pension Reform Act (PEPRA) 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 the City, this will constitute a "Tier 3 miscellaneous 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 miscellaneous employees will be calculated using the average of the highest 36 consecutive months of qualifying compensation. The City's Safety Plan provides Fire Department employees hired before June 23, 2012 with a Tier 1 benefit equal to 3.0% at 55 years of age, calculated based on the single highest year of qualifying compensation. Effective June 23, 2012, the Encinitas Firefighters Association executed a new four year Memorandum of Understanding (MOU) with the City that provides for modifications to the pension benefit formula for employees hired on or after the effective date (the "Tier 2 fire safety plan".) The 3.0% at 55 year of age formula is maintained, but the actual retirement benefit will be calculated using the average of the highest 36 consecutive months of qualifying compensation. In addition, the PEPRA legislation, created yet another benefit formula for new hires with no experience or prior service credit with CalPERS. In the case of the City, this will constitute a "Tier 3 fire safety plan" which provides a retirement benefit, referred to as the 2.7% at 57 years of age formula. This plan also utilizes the mandated method of calculation based on the average of the highest 36 consecutive months of qualifying compensation. The City's Safety Plan also provides lifeguard employees hired before October 13, 2012 with a Tier 1 benefit equal to 3.0% at 55 years of age, calculated based on the single highest year of qualifying compensation. The lifeguards have Tier 2 and Tier 3 (PEPRA) plans which are identical to the Fire Plan described above. 98 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Employees Covered by Benefit Terms At June 30, 2017, the following employees were covered by the benefit terms for the City's plans: City city Miscellaneous Safety Active employees 159 58 Inactive employees or beneficiaries currently receiving benefits 128 42 Inactive employees entitled to, but not yet receiving benefits 137 85 Total 424 185 Contributions City Miscellaneous Plan Employee Contributions Active City Tier 1 miscellaneous members are required to contribute 8% of their annual covered salary (the "employee contribution"). Effective October 13, 2012, all City Tier 1 miscellaneous 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 City 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 2016-2017 was 21.231% for miscellaneous members. 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 year ended June 30, 2016, contributions were: Contributions- employees $ 1,004,970 Contributions- employer 2,927,539 City Safety Plan Active fire and lifeguard members are required to contribute 9% of their annual covered salary (the "employee contribution"). The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members (the "employer contributions"). The employer contribution rates for fiscal year 2016-2017 ranged from 12.821% to 19.334% for fire members and from 12.082% to 17.689% for lifeguard members. The employer contribution rates are calculated and established annually by CalPERS, based on the actuarial methods and assumptions adopted by the CalPERS Board of Administration. 99 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Contributions (Continued) City Safety Plan (Continued) For the year ended June 30, 2016, the plan's proportionate share of aggregate employer contributions made for the Safety Plan was as follows: Safety Plan Contributions-employer $ 1,609,491 Net Pension Liability Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2016, the total pension liability was determined by rolling forward the June 30, 2015 total pension liability. The June 30, 2015 and June 30, 2016 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Entry Age Normal Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 7.65% Net of Pension Plan Investment and Administrative Expenses; includes inflation. Mortality Rate Table Derived using CaIPERS' Membership Data for all Funds. The mortality table used was developed based on CalPERS'specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter. All other actuarial assumptions used in the June 30, 2015 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." Change of Assumption In accordance with GASB 68, the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense. The discount rate was changed from 7.5% (net of administrative expense in 2014) to 7.65% as of the June 30, 2015 measurement date to correct the adjustment which previously reduced the discount rate for administrative expenses. 100 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Discount Rate The discount rate used to measure the total pension liability was 7.65 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 7.65 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65 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 CaIPERS' 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 7.65 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 7.50 percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. 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. 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. 101 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Discount Rate (Continued) New Strategic Real Return Real Return Years Asset Class Allocation Years 1 -10 11 + 2 Global equity 47.00% 5.25% 5.71% Global fixed income 19.00% 0.99% 2.43% Inflation sensitive 6.00% 0.45% 3.36% Private equity 12.00% 6.83% 6.95% Real estate 11.00% 4.50% 5.13% Infrastructure and forestland 3.00% 4.50% 5.09% Liquidity 2.00% -0.55% -1.05% 1 An expected inflation of 2.5%was used for this period. 2 An expected inflation of 3.0%was used for this period. Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Miscellaneous Plan as of the measurement date, calculated using the discount rate of 7.65%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.65%) or 1 percentage point higher (8.65%) than the current rate: Plan's Net Pension Liability/(Asset) Discount Rate-1% Current Discount Discount Rate+ 1% (6.65%) Rate(7.65%) (8.65%) City Miscellaneous $ 37,212,670 $ 24,043,443 $ 13,189,715 City Safety 31,149,939 19,826,444 10,531,016 102 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Changes in the Net Pension Liability The following tables show the changes in the net pension liability recognized over the measurement period for the City Miscellaneous Plan: Miscellaneous Plan Increase(Decrease) Total Pension Plan Fiduciary Net Net Pension Liability Position Liability/(Asset) (a) (b) (c)_ (a) -(b) Balance at June 30, 2015(Valuation Date) $ 88,752,036 7­68,451,820 $ 20,300,216 Changes Recognized for the Measurement Period: Service Cost 2,192,399 - 2,192,399 Interest on the total pension liability 6,690,503 - 6,690,503 Changes of benefit terms - - - Difference between expected and actual experience (801,667) - (801,667) Changes of assumptions - - - Plan to plan resource movement - - - Contributions from the employer - 2,927,539 (2,927,539) Contributions from employees - 1,004,970 (1,004,970) Net investment income, net of administrative expense - 447,217 (447,217) Benefit payments, including refunds of employee contributions (3,178,023) (3,178,023) - Administrative expense - (41,718) 41,718 Net Changes during July 1, 2015 to June 30, 2016 $ 4,903,212 $ 1,159,985 $ 3,743,227 Balance at June 30, 2016(Measurement Date) $ 93,655,248 $ 69,611,805 $ 24,043,443 As of June 30, 2017, the City reported net pension liabilities for its proportionate shares of the net pension liability of the Safety Plan is as follows: Plan Total Plan Plan Net Pension Fiduciary Pension Liability Net Position Liability/(Asset) Balance at: 6/30/15 (Valuation date) $ 80,116,793 $ 65,540,377 $ 14,576,416 Balance at: 6/30/16(Measurement date) 83,418,229 63,591,785 19,826,444 Net changes during 2015-2016 $ 3,301,436 $ (1,948,592) $ 5,250,028 The City's net pension liability for the Safety 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, 2016, 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, 2015 rolled forward to June 30, 2016 using standard update procedures. The City's proportion of the net pension liability was based on a projection of the City's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. 103 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Changes in the Net Pension Liability(Continued) 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, 2015). 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, 2016). 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, 2016 less the sum of all additional side fund (or unfunded liability) contributions made by all employers during the measurement period (2015-16). (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 City's proportionate share of the net pension liability for the Safety Plan as of June 30, 2016 was as follows: Safety Plan Proportion June 30, 2015 0.35376% Proportion June 30, 2016 0.38281% Change- Increase/(Decrease) -0.02905% Pension Plan Fiduciary Net Position Detailed information about the Miscellaneous and Safety Plans' fiduciary net position is available in the separately issued CalPERS financial report. 104 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) B. City of Encinitas (not including the San Dieguito Water District) (Continued) Pension Expense and Deferred Outflows/Inflows of Resources Related to Pension For the year ended June 30, 2017, the City recognized pension expense of $2,549,792 for the Miscellaneous Plan and $2,553,477 for the Safety Plan. At June 30, 2017, the City reported deferred outflows resources and deferred inflows of resources related to pensions from the following sources: Miscellaneous Plan Safety Plan Total Deferred outflows Deferred inflows Deferred outflows Deferred inflows Deferred outflows Deferred inflows of Resources of Resources of Resources of Resources of Resources of Resources Difference between expected and actual experience $ $ (626,898) $ $ (126,766) $ $ (753,664) Changes of assumptions (701,895) (552,707) (1,254,602) Net difference between projected and actual earning on pension plan investments 3,829,079 2,715,426 6,544,505 Difference between employer's actual contributions and proportionate share of contributions - - (892,287) - (892,287) Adjustments due to difference in proportions - 596,345 (1,257,541) 596,345 (1,257,541) Total $ 3,829,079 $ (1,328,793) $ 3,311,771 $ (2,829,301) $ 7,140,850 $ (4,158,094) The $3,831,972 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, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Outflows/ Deferred Outflows/ (Inflows)of (Inflows)of Deferred Outflows/ Resources Resources (Inflows)of Measurement Period Miscellaneous Safety Resources Ended June 30 Plan Plan Total 2017 $ (146,765) $ (843,062) $ (989,827) 2018 105,292 (646,794) (541,502) 2019 1,586,583 1,265,420 2,852,003 2020 955,176 706,906 1,662,082 2021 - - - Thereafter - - - $ 2,500,286 $ 482,470 $ 2,982,756 105 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) Plan Description The SDWD 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 City 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 (CaIPERS), 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 The SDWD Plan provides 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 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, 2017, the following employees were covered by the benefit terms for the SDWD plan: SDWD Plan Active employees 25 Inactive employees or beneficiaries currently receiving benefits 32 Inactive employees entitled to, but not yet receiving benefits 7 Total 64 106 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) (Continued) 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% and 6.25% of their annual covered salary, respectively. The employee contribution requirements are established by State statute. 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 fiscal year 2016-2017 ranged from 6.555% to 11.634%. 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 year ended June 30, 2016, the SDWD Plan's proportionate share of aggregate employer contributions made for each plan was as follows: SDWD Plan Contributions-employer $ 356,509 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2017, the City reported net pension liabilities for its proportionate shares of the net pension liability of the SDWD Plan as follows: Plan Total Plan Plan Net Pension Fiduciary Pension Liability Net Position Liability/(Asset) Balance at: 6/30/15 (valuation date) $ 21,378,148 $ 16,358,655 $ 5,019,493 Balance at: 6/30/16 (measurement date) 21,875,339 15,586,708 6,288,631 Net changes during 2015-2016 $ 497,191 $ (771,947) $ 1,269,138 107 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) (Continued) Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) The City's net pension liability for the 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, 2016, 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, 2015 rolled forward to June 30, 2016 using standard update procedures. The City's proportion of the net pension liability was based on a projection of the City'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, 2015). 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, 2016). 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, 2015 less the sum of all additional side fund (or unfunded liability) contributions made by all employers during the measurement period (2015-16). (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). 108 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) (Continued) Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources to Pensions (Continued) The City's proportionate share of the net pension liability for the SDWD Plan as of June 30, 2016 was as follows: SDWD Plan Proportion June 30, 2015 0.0018296% Proportion June 30, 2016 0.0018103% Change-Increase/(Decrease) 0.0000193% For the year ended June 30, 2017, the City recognized pension expense of $923,486 for the SDWD Plan. At June 30, 2017 the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred outflows Deferred inflows of Resources of Resources Difference between expected and actual experience $ 11,600 $ - Changes of assumptions - (142,365) Net difference between projected and actual earnings on pension plan investments 740,965 - Difference between employer's actual contributions and proportionate share of contributions 13,320 (26,007) Adjustments due to difference in proportions 301,343 - Total $ 1,067,228 $ (168,372) The $472,819 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, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Measurement Period Ended June 30 2018 $ 176,947 2019 148,909 2020 381,091 2021 191,909 2022 - Thereafter - $ 898,856 109 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) (Continued) Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2016, the total pension liability was determined by rolling forward the June 30, 2015 total pension liability. The June 30, 2015 and June 30, 2016 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 7.65% Net of Pension Plan Investment and Administrative Expenses; includes inflation Mortality Rate Table Derived using CaIPERS' Membership Data for all Funds. The mortality table used was developed based on CaIPERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75%thereafter. All other actuarial assumptions used in the June 30, 2015 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." Change of Assumption In accordance with GASB 68, the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense. The discount rate was changed from 7.5% (net of administrative expense in 2014) to 7.65% as of the June 30, 2015 measurement date to correct the adjustment which previously reduced the discount rate for administrative expenses. 110 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) (Continued) Discount Rate The discount rate used to measure the total pension liability was 7.65 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 7.65 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65 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 CaIPERS' 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 7.65 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. CalPERS 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. 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. 111 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 14— California Public Employees' Retirement System (Continued) C. San Dieguito Water District Miscellaneous Plan (SDWD Plan) (Continued) Discount Rate (Continued) New Strategic Real Return Real Return Years Asset Class Allocation Years 1 -10 11 + 2 Global equity 47.00% 5.25% 5.71% Global fixed income 19.00% 0.99% 2.43% Inflation sensitive 6.00% 0.45% 3.36% Private equity 12.00% 6.83% 6.95% Real estate 11.00% 4.50% 5.13% Infrastructure and forestland 3.00% 4.50% 5.09% Liquidity 2.00% -0.55% -1.05% An expected inflation of 2.5%was used for this period. 2 An expected inflation of 3.0%was used for this period. Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the City'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 City's proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.65%) or one percentage point higher (8.65%) than the current rate: Plan's Net Pension Liability/(Asset) Discount Rate-1% Current Discount Discount Rate+ 1% (6.65%) Rate(7.65%) (8.65%) SDWD Plan $ 9,233,733 $ 6,288,631 $ 3,854,650 Pension Plan Fiduciary Net Position Detailed information about the plan's fiduciary net position is available in the separately issued CalPERS financial report. 112 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 15— Other Postemployment Benefits (OPEB) The City of Encinitas and the San Dieguito Water District maintain separate plans 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 for June 30, 2015, and applies to fiscal years 2015-16 and 2016-17. A. City of Encinitas Retiree Health Plan Plan Description The City provides postretirement health care benefits through the Public Employees Medical and Hospital Care Act (PEMHCA), which is a health benefit plan administered by CalPERS, to eligible employees who retire directly from the City. The City pays the cost for lifetime retiree and dependent medical benefits (average premium for CalPERS health plans available in San Diego County) for fire department employees hired before March 16, 1995. Other City retirees receive the PEMHCA minimum benefit, as determined by CalPERS. The City does not provide a retiree contribution for dental, vision, or life insurance benefits. The City's OPEB plan does not issue a separate stand-alone report. The City has elected to join the California Employers' Retiree Benefit Trust (the "Trust") in accordance with GASB Statement No. 45, which provides a means to fund the annual OPEB costs, referred to as the Annual Required Contribution (ARC). The City makes an 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 Assumptions It is the City's policy to fully fund the ARC each fiscal year. The actual contributions of the City to the Trust are established by action of the City Council. The contribution requirements were established via an actuarial valuation of the City's Retiree Healthcare Plan as of June 30, 2015, performed in conformity with the requirements of GASB Statement No. 45. The following key assumptions were utilized in developing the June 30, 2015 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 rate of return assumption is 7.28%. 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 increases are based on merit increase data from the most recent CalPERS Pension Plan Study using the average pay increase based on the employee's date of hire. 9. Participation levels for safety personnel eligible for 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. 113 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 15— Other Postemployment Benefits (OPEB) (Continued) A. City of Encinitas Retiree Health Plan (Continued) Annual Required Contribution (ARC) and OPEB Cost Summary The ARC for fiscal year 2017 of approximately $930,499 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 City contributed the ARC to the Trust and received reimbursement for actual pay-as-you-expenses incurred during the year. The City's annual OPEB costs, the percentage of annual OPEB cost contributed, and the resulting net OPEB obligation for the preceding three years were as follows: Percentage of Net Annual Annual OPEB OPEB Fiscal Year OPEB Cost Cost Contributed Obligation June 30, 2015 $ 544,000 100% $ - June 30, 2016 560,000 100% - June 30, 2017 930,499 100% - Funded Status and Funding Progress The following table summarizes the funding status of the City's Retiree Health Plan from most recent actuarial valuations: Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Estimated Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2015 $ 2,915,458 $ 12,060,155 $ 9,144,697 24.17% $ 18,533,738 49.34% B. San Dieguito Water District— Retiree Health Plan The San Dieguito Water 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 for June 30, 2015, and applies to fiscal years 2015-16 and 2016-17. Plan Description SDWD provides postretirement health care benefits through the Public Employees Medical and Hospital Care Act (PEMHCA), which is a health benefit plan administered by CalPERS, to eligible employees who retire directly from SDWD. Retirees receive the PEMHCA minimum benefit, as determined by CalPERS. SDWD does not provide a retiree contribution for dental, vision, or life insurance benefits. SDWD's OPEB plan does not issue a separate stand-alone report. 114 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 15— Other Postemployment Benefits (OPEB) (Continued) B. San Dieguito Water District— Retiree Health Plan (Continued) Plan Description (Continued) SDWD has elected to join the California Employers' Retiree Benefit Trust (the "Trust") in accordance with GASB Statement No. 45, which provides a means to fund the annual OPEB costs, referred to as the Annual Required Contribution (ARC). SDWD 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 SDWD's policy to fully fund the ARC each fiscal year. The actual contributions of SDWD to the Trust are established by action of the Board of Directors. The contribution requirements were established via an actuarial valuation of the SDWD's Retiree Healthcare Plan as of June 30, 2015, performed in conformity with the requirements of GASB Statement No. 45. 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 7.28%. 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 increases are based on merit increase data from the most recent CalPERS Pension Plan Study using the average pay increase based on the employee's date of hire. 9. Participation levels for safety personnel eligible for 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 year 2017 of $52,780 represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liability over a maximum of 30 years. SDWD contributed the ARC to the Trust and received reimbursement for actual pay-as-you-expenses incurred during the year. 115 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 15— Other Postemployment Benefits (OPEB) (Continued) B. San Dieguito Water District— Retiree Health Plan (Continued) Annual Required Contribution (ARC) and OPEB Cost Summary(Continued) SDWD's annual OPEB costs, the percentage of annual OPEB cost contributed, and the resulting net OPEB obligation for the preceding three years were as follows: Percentage of Net Annual Annual OPEB OPEB Fiscal Year OPEB Cost Cost Contributed Obligation June 30, 2015 $ 29,000 100% $ - June 30, 2016 28,794 100% - June 30, 2017 52,780 100% - Funded Status and Funding Progress The following table summarizes the funding status of SDWD's Retiree Health Plan from most recent actuarial valuations. The latest information available on the funding status comes from the actuarial valuation dated June 30, 2015, projected to June 30, 2017. Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Estimated Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2015 $ 111,363 $ 484,247 $ 372,884 23.00% $ 1,767,898 21.09% General Information regarding Actuarial Valuations Methods and Assumptions 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. 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 Schedule of Funding Progress for the City and SDWD retiree health care plans are presented as Required Supplementary Information following the Notes to the Basic Financial Statements. These schedules show multi-year 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. 116 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 16— Encinitas Ranch Golf Authority The Encinitas Ranch Golf Authority (the "Golf Authority") is a joint powers authority, formed by the City and SDWD in 1995 to finance, own, and operate an 18-hole golf course (the "Golf Course") within the City. The Golf Course was constructed in connection with the development of the Encinitas Ranch master-planned community (the "Ranch"). The Ranch is a mixed-use community of residential, commercial and agricultural development within the City. As a condition to the development of the Ranch, the Carltas Company (the "Developer'), agreed to dedicate land for and construct the Golf Course improvements. The Golf Course opened to the public on March 1, 1998, and is managed and operated under a contract arrangement with a private company. The Golf Authority is governed by a five-member Board of Directors, the membership of which is specified in the 1994 Encinitas Ranch Development Agreement. It is a self-sustaining golf course operation and receives no financial support from the City or SDWD. In future years, depending on the net revenues from golf operations, the City may benefit financially from the operations. However, this is unlikely until at least 2030, when the Golf Course bonded debt is expected to be paid off. The debts and obligations of the Golf Authority are not the debts and obligations of the City or SDWD. Separate audited financial statements of the Golf Authority are available at the City's administrative office. Note 17—Special Assessment Debt City of Encinitas - Community Facilities District (CFD) #1: Encinitas Ranch Community During fiscal year 2013-2014, the City, on behalf of the residents and businesses of the CFD #1, refunded all of the outstanding bonds of the 2004 Special Tax Bonds, Series A, via a current refunding transaction. The CFD #1 issued $32,265,000 par value of 2012 Special Tax Refunding Bonds (Encinitas Ranch Public Improvements), at lower interest rates, while maintaining the same general terms and conditions, including the final maturity date of September 1, 2030. The transaction will save the taxpayers an average of $170,000 in annual debt service, or about 6% of the average annual debt service of the prior bonds. As of June 30, 2017, the outstanding balance on the 2012 Special Tax Refunding Bonds was $26,925,000. The City acts solely as an agent for CFD #1. The City has no duty or obligation to pay any liabilities or potential liabilities of the district. Neither the full faith and credit, nor the taxing power of the City or any other City related agency, is pledged to the repayment of these 2012 Special Tax Refunding Bonds. Therefore, such bonds are not considered to be a liability of the City and are not included in the accompanying basic financial statements. City of Encinitas—Duties and Responsibilities The City acts as the agent for both of this Assessment District, collecting the assessments and paying the District's bills, as well as other administrative duties. The City has no duty or obligation to pay any liabilities or potential liabilities of the District. Neither the full faith and credit, nor the taxing power of the City or any other City related agency, is pledged in connection with this bond issue. Therefore, such bonds are not considered to be a liability of the City and are not included in the accompanying basic financial statements. 117 City of Encinitas Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2017 Note 18— Prior Period Adjustment The City recorded the following prior period adjustment to the beginning net position of the Business- Type Activities and the San Dieguito Water District ("SDWD") major enterprise fund in order to remove restricted cash and investments with fiscal agents and the Due to R.E. Badger liability in the same amount. Cash in the amount of $1,377,006 was originally thought to be held by the City, but in actuality was held by R.E. Badger Financing Authority. The amount previously reported is a reserve account for Santa Fe Irrigation District and is not associated with SDWD's portion of the reserve. SDWD's portion of the reserve is included and reported in Investment in Joint Ventures. San Dieguito Water District Business-Type Major Enterprise Activities Fund Net position at July 1, 2016, as previously reported $ 119,391,239 $ 43,500,246 To adjust restricted cash (1,377,006) (1,377,006) to adjust amount due to R.E. Badger 1,377,006 1,377,006 Net position at July 1, 2016, as restated $ 119,391,239 $ 43,500,246 118 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 119 This page intentionally left blank. 120 City of Encinitas Required Supplementary Information (Unaudited) For the Year Ended June 30, 2017 Note 1 — Budgetary Information Budget and Budgetary Accounting: The City follows these procedures in establishing the budgetary data reflected in the required supplementary information and other supplementary information budgetary comparison schedules: The City Council adopts a two-year operating budget, with appropriations for the first year only. The annual budget provides for the general operations of the City. It includes all proposed expenditures and inter-fund transfers, and the means of financing them. The Council also approves any amendments to appropriations throughout the year, generally at the mid-year budget review in February. This "appropriated budget" covers substantially all City expenditures, with the exception of capital improvement projects, which expenditures constitute a legally authorized "non-appropriated budget." The legal level of budgetary control is the fund level. The budget figures used in the required supplementary information are both original and final budgeted amounts. The final budget amount includes any amendments adopted during the year. Formal budgetary integration is employed as a management control device. Commitments for materials and services, such as purchase orders and contracts, are recorded during the year as encumbrances to assist in controlling expenditures. Appropriations which are unencumbered lapse at year end. City Council approval is required to include any unencumbered appropriations at year end in the following fiscal year's budget as continuing appropriations. Budget for the General and special revenue funds are adopted on a basis substantially consistent with accounting principles generally accepted in the United States of America. Accordingly, actual revenue and expenditures can be compared with related budgeted amounts without any significant reconciling items. No budgetary comparisons are presented for the debt service, capital projects, or proprietary funds, as the City is not legally required to adopt an annual budget for those types of funds. Under Article XIIIB of the California Constitution (the Gann Spending Limitation Initiative), the City is restricted as to the amount of annual appropriations from the proceeds of taxes, and if proceeds of taxes exceed allowed appropriations, the excess must either be refunded to the State Controller, returned to the taxpayers through revised tax rates or revised fee schedules, or an excess in one year may be offset against a deficit in the following year. Further, Section 5 of Article XIIIB allows the City to designate a portion of fund balance for general contingencies to be used in future years without limitation. 121 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 2- Budgetary Comparison Schedule General Fund Budgeted Amounts Variance with Original Final Actual Final Budget REVENUES: Taxes: Property $ 41,517,561 $ 41,517,561 $ 42,043,923 $ 526,362 Real property transfer 510,000 510,000 519,777 9,777 Sales 13,190,000 12,825,000 12,549,609 (275,391) Franchise 2,218,970 2,218,970 2,151,171 (67,799) Transient occupancy 1,610,040 1,610,040 1,774,555 164,515 Total taxes 59,046,571 58,681,571 59,039,035 357,464 Licenses and permits 249,000 249,000 250,749 1,749 Intergovernmental 510,693 595,694 655,906 60,212 Charges for services 6,138,225 6,626,849 6,688,958 62,109 Fines, forfeitures and penalties 679,303 789,303 850,153 60,850 Use of money and property 667,005 707,005 1,047,909 340,904 Other 602,835 916,190 889,150 (27,040) Total revenues 67,893,632 68,565,612 69,421,860 856,248 EXPENDITURES: General government: City Council 462,021 462,021 397,342 64,679 City Attorney 375,500 375,500 375,435 65 City Manager 4,634,450 4,468,250 4,098,908 369,342 City Clerk 685,914 824,795 740,927 83,868 Finance 1,877,388 1,877,388 1,787,102 90,286 Non-departmental 2,351,809 2,472,243 2,473,929 (1,686) Total general government 10,387,082 10,480,197 9,873,643 606,554 Public safety: Law enforcement 13,685,300 13,626,325 13,448,657 177,668 Fire and marine safety 14,431,586 14,627,906 14,051,012 576,894 Total public safety 28,116,886 28,254,231 27,499,669 754,562 Public works: Administration 219,707 219,707 162,597 57,110 Environmental programs 110,242 135,242 122,735 12,507 Street maintenance 1,944,777 2,053,777 1,977,975 75,802 Facility maintenance 1,251,681 1,270,159 1,253,330 16,829 Stormwater 858,592 858,592 739,963 118,629 Total public works $ 4,384,999 $ 4,537,477 $ 4,256,600 $ 280,877 122 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 2- Budgetary Comparison Schedule (Continued) General Fund (Continued) Budgeted Amounts Variance with Original Final Actual Final Budget Planning and building: Planning $ 1,619,250 $ 1,655,200 $ 1,538,234 $ 116,966 Code enforcement 705,188 666,225 479,463 186,762 Building services 3,090,291 3,186,929 2,645,174 541,755 Total planning and building 5,414,729 5,508,354 4,662,871 845,483 Engineering services: City engineering 2,815,042 3,063,739 2,839,568 224,171 Traffic engineering 713,085 708,085 666,300 41,785 Stormwater 760,101 710,154 641,270 68,884 Total engineering services 4,288,228 4,481,978 4,147,138 334,840 Parks and recreation: Administration 1,016,874 1,028,124 988,263 39,861 Park services 1,901,028 1,901,028 1,805,480 95,548 Beach services 540,078 591,053 464,395 126,658 Recreational trails 131,875 131,875 115,439 16,436 Recreational services 658,456 650,606 546,440 104,166 Community and senior center 2,272,211 2,678,678 2,455,636 223,042 Total parks and recreation 6,520,522 6,981,364 6,375,653 605,711 Total expenditures 59,112,446 60,243,601 56,815,574 3,428,027 EXCESS OF REVENUES OVER EXPENDITURES 8,781,186 8,322,011 12,606,286 4,284,275 OTHER FINANCING SOURCES (USES) Proceeds from sale of property - - - - Transfers in-operating 1,174,360 1,174,360 1,040,602 (133,758) Transfers in -capital - 913,715 1,276,933 363,218 Transfers out-operating (2,728,739) (2,736,589) (2,659,952) 76,637 Transfers out-capital (12,762,997) (15,235,405) (15,235,405) - Transfers out-debt service (4,250,552) (4,250,552) (4,261,416) (10,864) Total other financing sources(uses) (18,567,928) (20,134,471) (19,839,238) 295,233 NET CHANGE IN FUND BALANCE (9,786,742) (11,812,460) (7,232,952) 4,579,508 Fund balance-beginning of year 32,884,544 32,884,544 32,884,544 - Fund balance-end of year $ 23,097,802 $ 21,072,084 $ 25,651,592 $ 4,579,508 123 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 3—Schedule of Changes in the Net Pension Liability and Related Ratios Last Ten Fiscal Years* City Miscellaneous Plan Total Pension Liability 2015-16 2014-15 2013-14 Service cost $ 2,192,399 $ 2,261,277 $ 2,448,194 Interest on total pension liability 6,690,503 6,333,421 5,943,955 Differences between expected and actual experience (801,667) (126,649) - Changes in assumptions - (1,637,757) - Changes in benefit terms - - - Benefit payments, including refunds of employee contributions (3,178,023) (3,003,676) (2,990,732) Net change in total pension liability 4,903,212 3,826,616 5,401,417 Total pension liability-beginning 88,752,036 84,925,420 79,524,003 Total pension liability-ending (a) $ 93,655,248 $ 88,752,036 $ 84,925,420 Plan fiduciary net position Contributions-employer $ 2,927,539 $ 2,077,263 $ 2,278,140 Contributions-employee 1,004,970 776,061 1,043,925 Investment income(net of administrative expenses) 447,217 1,359,388 9,816,151 Benefit payments (3,178,023) (3,003,676) (2,990,732) Other (41,718) 49,406 - Net change in plan fiduciary net position 1,159,985 1,258,442 10,147,484 Plan fiduciary net position -beginning 68,451,820 67,193,378 57,045,894 Plan fiduciary net position -ending (b) $ 69,611,805 $ 68,451,820 $ 67,193,378 Net pension liability-ending (a)-(b) $ 24,043,443 $ 20,300,216 $ 17,732,042 Plan fiduciary net position as a percentage of the total pension liability 74.33% 77.13% 79.12% Covered-employee payroll $ 12,783,667 $ 12,951,932 $ 13,022,309 Net pension liability as a percentage of covered- employee payroll 188.08% 156.74% 136.17% Notes to Schedule: Changes in assumptions. The discount rate was changed from 7.5% (net of administrative expenses)to 7.65%in 2015. Fiscal year 2015 was the first year of implementation, therefore only three years are shown. 124 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 4—Schedules of the City's Proportionate Share of the Net Pension Liability Last Ten Fiscal Years* Safety Plan 2015-2016 2014-2015 2013-2014 Plan's proportion of the net pension liabliity 0.38281% 0.35376% 0.22994% Plan's proportionate share of the net pension liability $ 19,826,444 $ 14,576,416 $ 14,308,774 Plan's covered-employee payroll 2 $ 5,841,908 $ 5,671,755 $ 5,115,288 Plan's proportionate share of the net pension liability as a percentage of covered-employee payroll 339.38% 257.00% 279.73% Plan's fiduciary net position $ 63,591,785 $ 65,540,377 $ 62,697,310 Plan's fiduciary net position as a percentage of the total pension liability 76.23% 81.81% 78.26% Plan's proportionate share of aggregate employer contributions 3'4 $ 1,609,491 $ 1,250,672 $ 1,775,034 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 three years are shown. 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 unfunded liability) contributions made by the employer during the measurement period. 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. 125 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 4—Schedules of the City's Proportionate Share of the Net Pension Liability (Continued) Last Ten Fiscal Years* San Dieguito Water District Plan 2015-20161 2014-20151 2013-20141 Plan's proportion of the net pension liabliity 0.18103% 0.18296% 0.06074% Plan's proportionate share of the net pension liability $ 6,288,631 $ 5,019,493 $ 3,779,285 Plan's covered-employee payroll 2 $ 1,808,714 $ 1,756,033 $ 1,712,639 Plan's proportionate share of the net pension liability as a percentage of covered-employee payroll 347.69% 285.84% 220.67% Plan's fiduciary net position $ 15,586,708 $ 16,358,655 $ 18,489,458 Plan's fiduciary net position as a percentage of the total pension liability 71.25% 76.52% 83.03% Plan's proportionate share of aggregate employer contributions 3'4 $ 356,509 $ 565,860 $ 499,985 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 three years are shown. 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 unfunded liability) contributions made by the employer during the measurement period. 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. 126 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 5—Schedules of Contributions Last Ten Fiscal Years* City Miscellaneous Plan 2016-17' 2015-16 2014-15' 2013-14' Actuarially determined contribution $ 2,723,629 $ 2,585,583 $ 1,815,263 $ 2,278,140 Contributions in relation to the actuarially determined contributions 2 (2,723,629) (2,927,539) (2,077,263) (2,278,140) Contribution deficiency(excess) $ - $ (341,956) $ (262,000) $ Covered-employee payroll 3,4 $ 13,167,177 $ 12,783,667 $ 12,951,932 $ 13,022,309 Contributions as a percentage of covered- employee payroll 3 20.68% 22.90% 16.04% 17.49% Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However,some employers may choose to make additional contributions towards their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 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. 4 Payroll from prior year($12,783,667)was assumed to increase by the 3.00%payroll growth assumption. Notes to Schedule Valuation date: 6/30/2015 6/30/2014 6/30/2013 The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2013-14 were from the June 30,2011 public agency valuations. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry Age Normal Amortization method/period For details,see June 30,2012 Funding Valuation Report Asset valuation method Actuarial Value of Assets. For details, see June 30, 2012 Funding Valuation Report. Inflation 2.75% Salary increases Varies by entry age and service Payroll growth 3.00% Investment rate of return 7.50%, net of pension plan investment and administrative expenses,including inflation Retirement age The probabilities of retirement are based on the 2010 Ca1PERS Experience study for the period from 1997 to 2007. Mortality The probabilities of mortality are based on the 2010 Ca1PERS Experience Study for the period from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Fiscal year 2015 was the first year of implementation,therefore only four years are shown. 127 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 5—Schedules of Contributions (Continued) Last Ten Fiscal Years* Safety Plan 2016-17 2015-16' 2014-15' 2013-14' Contractually determined contribution(actuarially determined) $ 1,108,343 $ 1,609,491 $ 1,251,594 $ 1,209,864 Contributions in relation to the actuarially determined contributions 2 (1,108,343) (1,609,491) (1,251,594) (1,209,864) Contribution deficiency(excess) $ - $ - $ - $ - Covered-employee payroll 3,4 $ 6,017,165 $ 5,841,908 $ 5,671,755 $ 5,154,534 Contributions as a percentage of covered- employee payroll 3 18.42% 27.55% 22.07% 23.47% Historical information is available only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions towards their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 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. 4 Payroll from prior year($5,671,755)was assumed to increase by the 3.00%payroll growth assumption. Notes to Schedule Valuation date: 6/30/2015 6/30/2014 6/30/2013 The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2016-17 were from the June 30, 2014 public agency valuations. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry Age Normal Amortization method/period For details,see June 30,2011 Funding Valuation Report Asset valuation method Actuarial Value of Assets. For details,see June 30,2011 Funding Valuation Report. Inflation 2.75% Salary increases Varies by entry age and service Payroll growth 3.00% Investment rate of return 7.50%, net of pension plan investment and administrative expenses,including inflation Retirement age The probabilities of retirement are based on the 2010 Ca1PERS Experience study for the period from 1997 to 2007. Mortality The probabilities of mortality are based on the 2010 Ca1PERS Experience Study for the period from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Fiscal year 2015 was the first year of implementation,therefore only four years are shown. 128 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 5—Schedules of Contributions (Continued) Last Ten Fiscal Years* San Dieguito Water District Plan 2016-17' 2015-16 2014-15' 2013-14' Contractually determined contribution(actuarially determined) $ 493,586 $ 356,509 $ 271,845 $ 241,133 Contributions in relation to the actuarially determined contributions 2 (493,586) (356,509) (271,845) (241,133) Contribution deficiency(excess) $ - $ - $ - $ - Covered-employee payroll 3,4 $ 1,862,975 $ 1,808,714 $ 1,756,033 $ 1,712,639 Contributions as a percentage of covered- employee payroll 3 26.49% 19.71% 15.48% 14.08% Historical information is available only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions towards their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 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. 4 Payroll from prior year($1,808,714)was assumed to increase by the 3.00%payroll growth assumption. Notes to Schedule Valuation date: 6/30/2015 6/30/2014 6/30/2013 The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2016-17 were from the June 30, 2014 public agency valuations. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry Age Normal Amortization method/period For details,see June 30,2011 Funding Valuation Report Asset valuation method Actuarial Value of Assets. For details, see June 30, 2011 Funding Valuation Report. Inflation 2.75% Salary increases Varies by entry age and service Payroll growth 3.00% Investment rate of return 7.50%, net of pension plan investment and administrative expenses,including inflation Retirement age The probabilities of retirement are based on the 2010 Ca1PERS Experience study for the period from 1997 to 2007. Mortality The probabilities of mortality are based on the 2010 Ca1PERS Experience Study for the period from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Fiscal year 2015 was the first year of implementation,therefore only four years are shown. 129 City of Encinitas Required Supplementary Information (Unaudited) (Continued) For the Year Ended June 30, 2017 Note 6—Schedules of Funding Progress —Other Postemployment Benefits A. Other Postemployment Benefits (OPEB) — City's Plan Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2011 $ 1,960,000 $ 10,506,000 $ 8,546,000 18.66% $ 18,252,000 46.82% June 30, 2013 2,178,800 8,686,482 6,507,682 25.08% 18,135,000 35.88% June 30, 2015 2,915,458 12,060,155 9,144,697 24.17% 18,533,738 49.34% B. Other Postemployment Benefits (OPEB) — San Dieguito Water District's Plan Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2011 $ 65,000 $ 343,000 $ 278,000 18.95% $ 1,230,000 22.60% June 30, 2013 68,176 484,247 416,071 14.08% 1,886,000 22.06% June 30, 2015 111,363 484,247 372,884 23.00% 1,767,898 21.09% 130 SUPPLEMENTARY INFORMATION 131 This page intentionally left blank. 132 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS: Infrastructure Improvements - This fund is used to account for financial resources from state and federal grants which are primarily to fund operations and capital improvements. Grants and Housing- This fund is used to account for financial resources from state and federal grants that are utilized to fund various City programs such as affordable housing and law enforcement. Development Impact - This fund is used to account for development impacUmitigation fees that are collected in connection with land use and construction applications. These monies are utilized to fund specified city capital improvement projects. Lighting and Landscaping - This fund is used to account for special assessments and certain restricted property tax revenues collected from homeowners and businesses. These monies are utilized to fund specified operational and maintenance costs related to common area landscaping, street lighting, and park maintenance. DEBT SERVICE FUNDS: City Debt Service - This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for the payment of principal and interest on City long-term debt. Encinitas Public Financing Authority- This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for the payment of principal and interest on Encinitas Public Financing Authority long-term debt. 133 City of Encinitas Combining Balance Sheet Non-Major Governmental Funds June 30, 2017 Special Revenue Infrastructure Grants and Development Lighting and Improvements Housing Impact Landscaping ASSETS Cash and investments $ 952,921 $ 1,484,631 $ 3,806,259 $ 3,117,438 Receivables 141,766 231,734 - 74,390 Inventory and prepaids - - - - Long-term receivable - 194,466 216,967 - Restricted cash and investments - - - - Total assets $ 1,094,687 $ 1,910,831 $ 4,023,226 $ 3,191,828 LIABILITIES, DEFERRED INFLOWS OF RESOURCES,AND FUND BALANCES LIABILITIES Accounts payable and accrued liabilities $ 3,837 $ 143,700 $ - $ 243,752 Unearned revenue 104,844 - - - Due to other funds 13,169,595 243,125 - - Deposits and other liabilities - - 16,342 - Totalliabilities 13,278,276 386,825 16,342 243,752 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - 194,466 216,967 - Total deferred inflows of resources - 194,466 216,967 - Fund Balances: Nonspendable - - - - Restricted - 1,329,540 3,789,917 2,948,076 Unassigned (deficit) (12,183,589) - - - Total fund balances (12,183,589) 1,329,540 3,789,917 2,948,076 Total liabilities,deferred inflows of resources and fund balances $ 1,094,687 $ 1,910,831 $ 4,023,226 $ 3,191,828 (Continued) 134 City of Encinitas Combining Balance Sheet (Continued) Non-Major Governmental Funds June 30, 2017 Debt Service Total Encinitas Public Other City Financing Governmental Debt Service Authority Funds ASSETS Cash and investments $ - $ - $ 9,361,249 Receivables - - 447,890 Inventory and prepaids 296,234 - 296,234 Long-term receivable - - 411,433 Restricted cash and investments 784,068 9,576 793,644 Total assets $ 1,080,302 $ 9,576 $ 11,310,450 LIABILITIES, DEFERRED INFLOWS OF RESOURCES,AND FUND BALANCES LIABILITIES Accounts payable and accrued liabilities $ 567,437 $ - $ 958,726 Unearned revenue - - 104,844 Due to other funds - - 13,412,720 Deposits and other liabilities - - 16,342 Total liabilities 567,437 - 14,492,632 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - - 411,433 Total deferred inflows of resources - - 411,433 Fund Balances: Nonspendable 296,234 - 296,234 Restricted 216,631 9,576 8,293,740 Unassigned (deficit) - - (12,183,589) Total fund balances 512,865 9,576 (3,593,615) Total liabilities,deferred inflows of resources and fund balances $ 1,080,302 $ 9,576 $ 11,310,450 (Concluded) 135 City of Encinitas Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds For the Year Ended June 30, 2017 Special Revenue Infrastructure Grants and Development Lighting and Improvements Housing Impact Landscaping REVENUES: Taxes and assessments $ 447,107 $ 394,684 $ - $ 2,053,595 Intergovernmental 4,434,934 1,016,631 - - Development impact fees - - 800,370 - Use of money and property 21,189 12,959 99,347 74,995 Other - 201,625 - 39,469 Total revenues 4,903,230 1,625,899 899,717 2,168,059 EXPENDITURES: Current: General government - 143,787 - - Public safety - 225,290 - - Public works - 445,991 - 1,648,946 Planning and building - 447,427 - - Engineering services 221,463 - - - Parks and recreation - 127,379 - 107,276 Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 221,463 1,389,874 - 1,756,222 REVENUES OVER (UNDER) EXPENDITURES 4,681,767 236,025 899,717 411,837 OTHER FINANCING SOURCES (USES): Issuance of debt - - - - Premium on bond issuance - - - - Deposit to escrow for bond refunding - - - - Transfers in 154,775 253,920 72,052 27,344 Transfers out (8,804,396) (532,570) (3,323,243) (212,500) Total other financing sources(uses) (8,649,621) (278,650) (3,251,191) (185,156) NET CHANGE IN FUND BALANCES (3,967,854) (42,625) (2,351,474) 226,681 FUND BALANCES: Beginning of year (8,215,735) 1,372,165 6,141,391 2,721,395 End of year $(12,183,589) $ 1,329,540 $ 3,789,917 $ 2,948,076 (Continued) 136 City of Encinitas Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Continued) Non-Major Governmental Funds For the Year Ended June 30, 2017 Debt Service Total Encinitas Public Other City Financing Governmental Debt Service Authority Funds REVENUES: Taxes and assessments $ - $ - $ 2,895,386 Intergovernmental - - 5,451,565 Development impact fees - - 800,370 Use of money and property 1,035 27,615 237,140 Other - - 241,094 Total revenues 1,035 27,615 9,625,555 EXPENDITURES: Current: General government - - 143,787 Public safety - - 225,290 Public works - - 2,094,937 Planning and building - - 447,427 Engineering services - - 221,463 Parks and recreation - - 234,655 Debt service: Principal 418,417 2,435,000 2,853,417 Interest and fiscal charges 62,061 2,015,709 2,077,770 Total expenditures 480,478 4,450,709 8,298,746 REVENUES OVER (UNDER) EXPENDITURES (479,443) (4,423,094) 1,326,809 OTHER FINANCING SOURCES (USES): Issuance of debt - 11,955,000 11,955,000 Premium on bond issuance - 1,360,284 1,360,284 Deposit to escrow for bond refunding - (14,725,914) (14,725,914) Transfers in 488,109 3,773,307 4,769,507 Transfers out - - (12,872,709) Total other financing sources(uses) 488,109 2,362,677 (9,513,832) NET CHANGE IN FUND BALANCES 8,666 (2,060,417) (8,187,023) FUND BALANCES: Beginning of year 504,199 2,069,993 4,593,408 End of year $ 512,865 $ 9,576 $ (3,593,615) (Concluded) 137 City of Encinitas Schedule of Revenues, Expenditures, and Change in Fund Balance - Budget and Actual Infrastructure Improvements Special Revenue Fund For the Year Ended June 30, 2017 Final Actual Variance with Budget Amounts Final Budget REVENUES: Taxes and assessments $ 401,550 $ 447,107 $ 45,557 Intergovernmental 8,819,510 4,434,934 (4,384,576) Use of money and property - 21,189 21,189 Total revenues 9,221,060 4,903,230 (4,317,830) EXPENDITURES: Current: Engineering services 226,547 221,463 5,084 Total expenditures 226,547 221,463 5,084 REVENUES OVER (UNDER) EXPENDITURES 8,994,513 4,681,767 (4,312,746) OTHER FINANCING SOURCES (USES): Transfers in 154,775 154,775 - Transfers out (8,924,510) (8,804,396) 120,114 Total other financing sources(uses) (8,769,735) (8,649,621) 120,114 NET CHANGE IN FUND BALANCE $ 224,778 (3,967,854) $ (4,192,632) FUND BALANCE: Beginning of year (8,215,735) End of year $ (12,183,589) 138 City of Encinitas Schedule of Revenues, Expenditures, and Change in Fund Balance - Budget and Actual Grants and Housing Special Revenue Fund For the Year Ended June 30, 2017 Final Actual Variance with Budget Amounts Final Budget REVENUES: Taxes and assessments $ 404,601 $ 394,684 $ (9,917) Intergovernmental 1,084,758 1,016,631 (68,127) Use of money and property 538 12,959 12,421 Other 215,000 201,625 (13,375) Total revenues 1,704,897 1,625,899 (78,998) EXPENDITURES: Current: General government 191,609 143,787 47,822 Public safety 239,360 225,290 14,070 Public works 508,904 445,991 62,913 Planning and building 503,038 447,427 55,611 Parks and recreation 225,883 127,379 98,504 Total expenditures 1,668,794 1,389,874 278,920 REVENUES OVER (UNDER) EXPENDITURES 36,103 236,025 199,922 OTHER FINANCING SOURCES (USES) Transfers in 279,480 253,920 (25,560) Transfers(out) (532,570) (532,570) - Total other financing sources(uses) (253,090) (278,650) (25,560) NET CHANGE IN FUND BALANCE $ (216,987) (42,625) $ 174,362 FUND BALANCE: Beginning of year 1,372,165 End of year $ 1,329,540 139 City of Encinitas Schedule of Revenues, Expenditures, and Change in Fund Balance - Budget and Actual Development Impact Special Revenue Fund For the Year Ended June 30, 2017 Final Actual Variance with Budget Amounts Final Budget REVENUES: Development impact fees $ 820,976 $ 800,370 $ (20,606) Use of money and property 34,734 99,347 64,613 Total revenues 855,710 899,717 44,007 REVENUES OVER (UNDER) EXPENDITURES 855,710 899,717 44,007 OTHER FINANCING SOURCES (USES) Transfers in 72,052 72,052 - Transfers(out) (3,336,887) (3,323,243) 13,644 Total other financing sources(uses) (3,264,835) (3,251,191) 13,644 NET CHANGE IN FUND BALANCE $ (2,409,125) (2,351,474) $ 57,651 FUND BALANCE: Beginning of year 6,141,391 End of year $ 3,789,917 140 City of Encinitas Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Lighting and Landscaping Special Revenue Fund For the Year Ended June 30, 2017 Final Actual Variance with Budget Amounts Final Budget REVENUES: Taxes and assessments $ 1,900,050 $ 2,053,595 $ 153,545 Use of money and property 50,600 74,995 24,395 Other - 39,469 39,469 Total revenues 1,950,650 2,168,059 217,409 EXPENDITURES: Current: Public works 1,970,469 1,648,946 321,523 Parks and recreation 125,522 107,276 18,246 Total expenditures 2,095,991 1,756,222 339,769 REVENUES OVER (UNDER) EXPENDITURES (145,341) 411,837 557,178 OTHER FINANCING SOURCES (USES) Transfers in 8,400 27,344 18,944 Transfers(out) (212,500) (212,500) - Total other financing sources(uses) (204,100) (185,156) 18,944 NET CHANGE IN FUND BALANCE $ (349,441) 226,681 $ 576,122 FUND BALANCE: Beginning of year 2,721,395 End of year $ 2,948,076 141 , .0 This page intentionally left blank. 142 Internal Service Funds Internal Service Funds are used to finance and account for special activities and services performed by a designated City department for other departments on a cost reimbursement basis. Risk Management - This fund is used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, or to other governments, on a cost reimbursement basis for risk management expenditures. Wastewater Support - This fund is used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, or to other governments, on a cost reimbursement basis for wastewater support expenditures. Vehicle Maintenance - This fund is used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, or to other governments, on a cost reimbursement basis for vehicle maintenance expenditures. Vehicle Replacement - This fund is used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, or to other governments, on a cost reimbursement basis for vehicle replacement expenditures. 143 This page intentionally left blank. 144 City of Encinitas Combining Statement of Net Position All Internal Service Funds June 30, 2017 Risk Wastewater Vehicle Vehicle Management Support Maintenance Replacement Total ASSETS Current assets: Cash and investments $ 6,016,281 $ 5,226 $ 6,328 $ 1,612,857 $ 7,640,692 Inventory and prepaid items 47,762 - - 401,161 448,923 Total current assets 6,064,043 5,226 6,328 2,014,018 8,089,615 Noncurrent assets: Capital assets: Utility, plant, vehicles, and equipment, net - - - 3,326,817 3,326,817 Total noncurrent assets - - - 3,326,817 3,326,817 Total assets 6,064,043 5,226 6,328 5,340,835 11,416,432 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 109,099 5,226 6,328 435,587 556,240 Current portion of capital leases payable - - - 422,965 422,965 Total current liabilities 109,099 5,226 6,328 858,552 979,205 Noncurrent liabilities: Capital lease payable - - - 802,426 802,426 Total noncurrent liabilities - - - 802,426 802,426 Total liabilities 109,099 5,226 6,328 1,660,978 1,781,631 NET POSITION Net investment in capital assets - - - 2,101,426 2,101,426 Unrestricted 5,954,944 - - 1,578,431 7,533,375 Total net position $ 5,954,944 $ - $ - $ 3,679,857 $ 9,634,801 145 City of Encinitas Combining Statement of Revenues, Expenses, and Changes in Net Position All Internal Service Funds For the Year Ended June 30, 2017 Risk Wastewater Vehicle Vehicle Management Support Maintenance Replacement Total OPERATING REVENUES: Interfund revenues $ 1,035,314 $ 854,074 $ 594,413 $ - $ 2,483,801 Other revenues 1,500,784 - 1,046 - 1,501,830 Total operating revenues 2,536,098 854,074 595,459 - 3,985,631 OPERATING EXPENSES: Operational support services 449,894 75,412 232,893 10,127 768,326 Administrative support 397,893 665,662 362,566 - 1,426,121 Insurance and claims 1,096,356 - - - 1,096,356 Depreciation of capital assets - - - 531,073 531,073 Total operating expenses 1,944,143 741,074 595,459 541,200 3,821,876 Operating income(loss) 591,955 113,000 - (541,200) 163,755 NONOPERATING REVENUES: Gain (loss)on disposal of capital assets - - - 1,937 1,937 Interest expense - - - (18,861) (18,861) Total nonoperating revenues - - - (16,924) (16,924) INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 591,955 113,000 - (558,124) 146,831 Transfers in 988,006 - - 616,000 1,604,006 Transfers out - (113,000) - - (113,000) Total capital contributions and transfers 988,006 (113,000) - 616,000 1,491,006 Net change in net position 1,579,961 - - 57,876 1,637,837 NET POSITION: Beginning of year 4,374,983 - - 3,621,981 7,996,964 End of year $ 5,954,944 $ - $ - $ 3,679,857 $ 9,634,801 146 City of Encinitas Combining Statement of Cash Flows All Internal Service Funds For the Year Ended June 30, 2017 Risk Wastewater Vehicle Vehicle Management Support Maintenance Replacement Total CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from users $2,567,357 $ 854,074 $ 598,919 $ - $4,020,350 Cash received from(paid to)other funds - - - (629,851) (629,851) Payments to employees (847,787) (741,074) (595,459) (10,127) (2,194,447) Payments to suppliers and vendors (1,154,027) (5,871) (6,118) 630,625 (535,391) Net cash provided by(used in)operating activities 565,543 107,129 (2,658) (9,353) 660,661 CASHFLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets - - - (662,875) (662,875) Principal payment on long-term debt - - - (331,993) (331,993) Proceeds from issuance of debt - - - 629,851 629,851 Interest payments on capital leases - - - (18,861) (18,861) Proceeds from sale of capital assets - - - 1,937 1,937 Net cash(used in)capital and related financing activities - - - (381,941) (381,941) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in 988,006 - - 616,000 1,604,006 Transfers(out) - (113,000) - - (113,000) Net cash provided by(used in)noncapital financing activities 988,006 (113,000) - 616,000 1,491,006 Net increase(decrease)in cash and cash equivalents 1,553,549 (5,871) (2,658) 224,706 1,769,726 CASH AND CASH EQUIVALENTS: Beginning of year 4,462,732 11,097 8,986 1,388,151 5,870,966 End of year $6,016,281 $ 5,226 $ 6,328 $1,612,857 $ 7,640,692 RECONCILIATION OF OPERATING INCOME(LOSS)TO NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES: Operating income(loss) $ 591,955 $ 113,000 $ - $ (541,200) $ 163,755 Adjustments to reconcile operating income(loss)to net cash provided by(used in)operating activities: Depreciation - - - 531,073 531,073 Changes in operating assets and liabilities: Accounts receivable 31,259 - 3,460 - 34,719 Inventory and prepaid items (47,762) - - 228,690 180,928 Accounts payable and accrued liabilities (9,909) (5,871) (6,118) 401,935 380,037 Due to other funds - - - (629,851) (629,851) Total adjustments (26,412) (5,871) (2,658) 531,847 496,906 Net cash provided by(used in)operating activities $ 565,543 $ 107,129 $ (2,658) $ (9,353) $ 660,661 147 This page intentionally left blank. 148 FIDUCIARY FUNDS AGENCYFUND The Agency Funds are used to account for assets held by the City in a trustee capacity for individuals, private organizations, other governments, and/or other funds. Community Facilities District #1 - This fund accounts for all money collected to pay for debt service of the Community Facilities District#1 for which the City acts as paying agent but has no legal commitment or obligation. Requeza Street Assessment District #93-1 - This fund accounts for all money collected to pay for debt service of the Requeza Assessment District for which the City acts as paying agent but has no legal commitment or obligation. 149 This page intentionally left blank. 150 City of Encinitas Statement of Changes in Assets and Liabilities Agency Funds For the Year Ended June 30, 2017 Balance Balance July 1, 2016 Additions Deletions June 30, 2017 Community Facilities District#1 Assets: Cash and investments $ 2,089,264 $ 2,683,416 $ (2,637,001) $ 2,135,679 Restricted cash and investments: Held by fiscal agents 1,976,121 2,588,981 (2,586,060) 1,979,042 Special assessments receivable 28,350,000 - (1,425,000) 26,925,000 Current assessments receivable 18,531 11,833 (18,531) 11,833 Total assets $ 32,433,916 $ 5,284,230 $ (6,666,592) $ 31,051,554 Liabilities: Due to bondholders $ 32,433,916 $ 44,222 $ (1,426,584) $ 31,051,554 Total liabilities $ 32,433,916 $ 44,222 $ (1,426,584) $ 31,051,554 Requeza Street Assessment District No.93-1 Assets: Cash and investments $ 3,494 $ 1,305 $ (1,284) $ 3,515 Special assessments receivable - - - - Total assets $ 3,494 $ 1,305 $ (1,284) $ 3,515 Liabilities: Due to bondholders $ 3,494 $ 1,305 $ (1,284) $ 3,515 Total liabilities $ 3,494 $ 1,305 $ (1,284) $ 3,515 Total -All Agency Funds Assets: Cash and investments $ 2,092,758 $ 2,684,721 $ (2,638,285) $ 2,139,194 Restricted cash and investments: Held by fiscal agents 1,976,121 2,588,981 (2,586,060) 1,979,042 Interest receivable - - - - Special assessments receivable 28,350,000 - (1,425,000) 26,925,000 Current assessments receivable 18,531 11,833 (18,531) 11,833 Total assets $ 32,437,410 $ 5,285,535 $ (6,667,876) $ 31,055,069 Liabilities: Due to bondholders $ 32,437,410 $ 45,527 $ (1,427,868) $ 31,055,069 Total liabilities $ 32,437,410 $ 45,527 $ (1,427,868) $ 31,055,069 151 This page intentionally left blank. 152 City of Encinitas Statistical Section This section of the City of Encinitas' Comprehensive Annual Financial Report presents detailed information as a contex for understanding what the information in the financial statements, note disclosures, required supplementary and supplementary information says about the City's overall financial health. Contents Page Financial Trends -These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed overtime. 1 Net Position by Components 154 2 Changes in Net Position 156 3 Fund Balances of Governmental Funds 160 4 Changes in Fund Balances of Governmental Funds 162 Revenue Capacity-These schedules contain information to help the reader assess the City's most significant local revenue source which is property tax. 5 Assessed Value of Taxable Property, General Property Tax 164 6 Principal Property Taxpayers, General Property Tax 165 7 Property Tax Levies and Collections 167 8 Direct and Overlapping Property Tax Rates, General Property Tax 168 Debt Capacity-These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. 9 Ratios of Outstanding Debt by Type 172 10 Ratios of General Bonded Debt Outstanding 174 11 Schedule of Direct and Overlapping Bonded Debt 175 12 Legal Debt Margin Information 176 13 Historical Debt Service Coverage 178 Demographics and Economic Information -These schedules offer demographics and economic indicators to help the reader understand the environment within which the City's financial activities take place. 14 Demographic and Economic Statistics 180 15 General Governmental Tax Revenue by Source 181 16 Taxable Sales by Business Type 182 Operating Information - These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. 17 Full-time and Part-Time Employees by Function 183 18 Operating Indicators by Function 184 19 Capital Asset Statistics by Function 186 20 Cardiff Sanitary Division - Summary of Operational Data 189 21 San Dieguito Water District- Summary of Operational Data 193 Sources: Unless otherwise noted, the information in these schedules was derived from the Comprehensive Annual Financial Reports for the relevant year. 153 City of Encinitas Net Position by Components Last Ten Fiscal Years (Accrual Basis of Accounting) Fiscal Year 2008 2009 2010 2011 2012 Government activities: Net investment in capital assets $ 125,786,039 $ 131,703,037 $ 130,912,728 $ 139,575,875 $ 153,516,469 Restricted 5,207,761 4,340,090 4,219,623 - - Unrestricted 56,901,871 53,452,967 54,755,944 56,799,902 43,857,634 Total governmental activities net position $ 187,895,671 $ 189,496,094 $ 189,888,295 $ 196,375,777 $ 197,374,103 Business-type activities: Net investment in capital assets $ 19,204,679 $ 19,422,684 $ 25,014,811 $ 30,076,172 $ 25,155,766 Restricted 1,814,716 1,048,426 - - - Unrestricted 65,301,729 68,683,799 71,916,135 72,608,845 83,232,015 Total business-type activities net position $ 86,321,124 $ 89,154,909 $ 96,930,946 $ 102,685,185 $ 108,387,781 Primary government: Net investment in capital assets $ 144,990,718 $ 151,125,721 $ 155,927,539 $ 169,652,047 $ 178,672,235 Restricted 7,022,477 5,388,516 4,219,623 - - Unrestricted 122,203,600 122,136,766 126,672,079 129,408,747 127,089,649 Total primary government net position $ 274,216,795 $ 278,651,003 $ 286,819,241 $ 299,060,970 $ 305,761,884 154 City of Encinitas Net Position by Components Last Ten Fiscal Years (Accrual Basis of Accounting) (Continued) Fiscal Year 2013 2014 2015 2016 2017 Government activities: Net investment in capital assets $ 157,395,370 $ 161,902,991 $ 157,304,041 $ 162,923,350 $ 165,759,601 Restricted 9,980,695 17,363,704 18,741,022 30,996,309 19,867,542 Unrestricted 37,646,551 38,446,880 9,229,896 (580,736) 9,510,235 Total governmental activities net position $ 205,022,616 $ 217,713,575 $ 185,274,959 $ 193,338,923 $ 195,137,378 Business-type activities: Net investment in capital assets $ 32,247,941 $ 54,362,661 $ 39,806,764 $ 42,501,264 $ 44,977,544 Restricted - 1,039,739 - 1,377,006 20,237 Unrestricted 79,816,600 62,426,804 75,781,002 75,512,969 79,286,895 Total business-type activities net position $ 112,064,541 $ 117,829,204 $ 115,587,766 $ 119,391,239 $ 124,284,676 Primary government: Net investment in capital assets $ 189,643,311 $ 216,265,652 $ 197,110,805 $ 205,424,614 $ 210,737,145 Restricted 9,980,695 18,403,443 18,741,022 32,373,315 19,887,779 Unrestricted 117,463,151 100,873,684 85,010,898 74,932,233 88,797,130 Total primary government net position $ 317,087,157 $ 335,542,779 $ 300,862,725 $ 312,730,162 $ 319,422,054 155 City of Encinitas Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting) Fiscal Year 2008 2009 2010 2011 2012 Expenses: Government activities: General government $ 12,783,573 $ 14,249,545 $ 12,132,268 $ 10,912,556 $ 12,064,527 Public safety 21,015,336 22,039,493 22,269,616 22,324,624 23,062,746 Public works 11,595,020 9,360,563 9,520,416 10,981,355 8,560,330 Planning and building 5,287,058 4,833,543 5,599,614 5,539,148 5,008,179 Engineering services 3,972,242 4,010,485 3,873,432 3,646,306 5,817,932 Parks and recreation 6,594,001 6,902,715 6,518,623 6,243,769 5,578,716 Interest and fiscal charges on long-term debt 2,261,104 2,266,817 2,296,422 2,029,477 1,811,714 Total governmental activities expenses 63,508,334 63,663,161 62,210,391 61,677,235 61,904,144 Business-type activities: Cardiff Sanitary Division 2,985,912 2,854,368 3,569,880 3,715,529 3,385,439 San Dieguito Water District 11,894,734 12,955,085 11,633,694 11,622,126 12,448,911 Encinitas Sanitary Division 1,823,088 1,805,624 1,855,278 1,992,334 1,719,176 Affordable Housing 242,553 260,130 256,873 244,748 1,492,811 Recreation Programs - - - - 1,187,788 Total business-type activities expenses 16,946,287 17,875,207 17,315,725 17,574,737 20,234,125 Total primary government expenses 80,454,621 81,538,368 79,526,116 79,251,972 82,138,269 Program revenues: Government activities: Charges for services: General government 2,895,795 1,608,273 1,962,344 2,453,152 1,789,943 Public safety 1,006,293 103,641 105,799 98,202 99,047 Public works - 19,276 668 - - Planning and building 2,284,066 1,539,851 1,521,889 1,816,765 2,155,076 Engineering services 1,655,539 759,885 660,734 1,063,822 736,786 Parks and recreation 1,224,923 810,667 1,126,285 1,149,350 14,580 Operating grants and contributions 5,736,957 4,838,455 5,392,117 6,964,053 5,896,502 Capital grants and contributions 2,699,027 3,613,636 3,437,302 4,854,393 3,626,279 Total governmental activities program revenues 17,502,600 13,293,684 14,207,138 18,399,737 14,318,213 Business-type activities: Charges for services: Cardiff Sanitary Division 4,926,104 5,009,340 4,979,238 4,830,204 4,970,662 San Dieguito Water District 11,283,219 11,379,337 11,046,650 12,438,502 12,922,922 Encinitas Sanitary Division 2,685,490 2,811,359 2,816,963 2,895,879 2,897,592 Affordable Housing - 222,507 202,499 216,723 214,503 Recreation Programs - - - - 1,273,007 Operating grants and contributions - - - - 1,105,851 Capital grants and contributions 746,586 299,326 231,362 712,827 460,688 Total business-type activities program revenues 19,641,399 19,721,869 19,276,712 21,094,135 23,845,225 Total primary government program revenues 37,143,999 33,015,553 33,483,850 39,493,872 38,163,438 Governmental activities (46,005,734) (50,369,477) (48,003,253) (43,277,498) (47,585,931) Business-type activities 2,695,112 1,846,662 1,960,987 3,519,398 3,611,100 Total net revenue (expense) $(43,310,622) $ (48,522,815) $(46,042,266) $(39,758,100) $(43,974,831) 156 City of Encinitas Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting) (Continued) Fiscal Year 2013 2014 2015 2016 2017 Expenses: Government activities: General government $ 10,616,440 $ 9,549,338 $ 10,810,882 $ 11,750,737 $ 11,737,634 Public safety 24,629,613 25,146,843 25,762,703 27,255,755 29,437,181 Public works 10,851,147 10,239,746 11,565,315 11,743,123 9,205,570 Planning and building 4,353,831 5,853,995 6,550,992 7,255,460 6,935,754 Engineering services 3,813,678 3,988,720 6,253,352 4,591,315 8,918,281 Parks and recreation 5,542,550 4,735,864 5,205,986 6,778,769 7,046,255 Interest and fiscal charges on long-term debt 1,932,904 1,913,349 2,311,944 2,494,815 2,237,069 Total governmental activities expenses 61,740,163 61,427,855 68,461,174 71,869,974 75,517,744 Business-type activities: Cardiff Sanitary Division 3,373,704 2,922,446 4,262,565 3,857,531 3,308,454 San Dieguito Water District 12,200,431 13,552,862 15,005,767 13,462,935 13,970,919 Encinitas Sanitary Division 1,983,786 2,438,692 1,731,770 2,306,540 2,037,116 Affordable Housing 1,499,863 1,405,225 1,408,226 1,440,124 1,449,917 Recreation Programs 1,153,840 1,300,555 1,331,565 - - Total business-type activities expenses 20,211,624 21,619,780 23,739,893 21,067,130 20,766,406 Total primary government expenses 81,951,787 83,047,635 92,201,067 92,937,104 96,284,150 Program revenues: Government activities: Charges for services: General government 1,775,756 1,800,630 1,629,857 1,594,277 1,675,799 Public safety 91,495 202,220 160,178 1,009,713 1,148,567 Public works - - 759,918 107,279 65,746 Planning and building 1,894,785 2,874,894 2,737,225 2,800,413 2,954,523 Engineering services 955,986 1,075,885 1,055,311 1,367,902 1,143,830 Parks and recreation 39,946 35,791 46,846 1,741,619 1,796,918 Operating grants and contributions 3,759,864 4,345,931 3,878,422 3,349,186 3,419,730 Capital grants and contributions 6,462,979 8,756,281 4,126,194 5,409,098 4,407,963 Total governmental activities program revenues 14,980,811 19,091,632 14,393,951 17,379,487 16,613,076 Business-type activities: Charges for services: Cardiff Sanitary Division 4,755,573 4,605,867 4,528,551 4,761,486 4,788,884 San Dieguito Water District 13,687,156 15,297,718 14,785,858 14,684,387 14,851,977 Encinitas Sanitary Division 2,933,319 2,879,605 2,841,235 2,855,690 2,819,006 Affordable Housing 214,115 216,728 247,349 218,148 213,124 Recreation Programs 1,059,009 1,269,179 1,321,471 - - Operating grants and contributions 1,103,639 994,607 1,061,698 1,068,549 1,099,366 Capital grants and contributions 1,003,057 1,066,769 483,425 681,412 736,370 Total business-type activities program revenues 24,755,868 26,330,473 25,269,587 24,269,672 24,508,727 Total primary government program revenues 39,736,679 45,422,105 39,663,538 41,649,159 41,121,803 Governmental activities (46,759,352) (42,336,223) (54,067,223) (54,490,487) (58,904,668) Business-type activities 4,544,244 4,710,693 1,529,694 3,202,542 3,742,321 Total net revenue(expense) $(42,215,108) $(37,625,530) $(52,537,529) $(51,287,945) $(55,162,347) 157 City of Encinitas Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting) (Continued) Fiscal Year 2008 2009 2010 2011 2012 General Revenues and Other Changes in Net Position: Governmental activities: Taxes Property and documentary transfer taxes $ 33,858,150 $ 35,064,401 $ 32,285,155 $ 32,292,988 $ 32,788,129 Sales taxes 8,130,837 7,340,410 8,780,203 10,244,506 10,613,188 Transient occupancy taxes 1,182,816 1,099,817 1,179,789 1,276,980 1,413,926 Franchise taxes 2,212,915 2,162,729 2,031,924 2,108,420 2,144,162 Intergovernmental revenues 1,335,594 1,866,726 794,362 1,488,770 635,097 Use of money and property 3,842,268 2,884,233 1,085,981 657,796 387,066 Other general revenues 568,884 1,551,584 2,238,041 1,695,520 1,780,543 Gain/(Loss)on sale of assets - - - - - Impairment loss on capital assets - - - - - Transfers - - - - (668,877) Total governmental activities 51,131,464 51,969,900 48,395,455 49,764,980 49,093,234 Business-type activities: Property taxes 690,407 721,628 718,212 706,175 725,551 Intergovernmental-unrestricted - - - - - Use of money and property 1,756,153 974,702 395,152 508,089 188,259 Other general revenues 250,351 45,193 228,614 401,013 - Gain/(Loss)on sale of assets - - - - - Transfers - - - - 668,877 Total business-type activities 2,696,911 1,741,523 1,341,978 1,615,277 1,582,687 Total primary government 53,828,375 53,711,423 49,737,433 51,380,257 50,675,921 Changes in Net Position Government activities 5,125,730 1,600,423 392,202 6,487,482 1,507,303 Business-type activities 5,392,023 3,588,185 3,302,965 5,134,675 5,193,787 Total primary government $ 10,517,753 $ 5,188,608 $ 3,695,167 $ 11,622,157 $ 6,701,090 The City reports Recreation Programs as a business-type activity starting in Fiscal Year 2012. 158 City of Encinitas Changes in Net Position Last Ten Fiscal Years (Accrual Basis of Accounting) (Continued) Fiscal Year 2013 2014 2015 2016 2017 General Revenues and Other Changes in Net Position: Governmental activities: Taxes Property and documentary transfer taxes $ 34,974,578 $ 36,414,507 $ 38,508,558 $ 41,210,485 43,494,220 Sales taxes 11,585,145 12,067,360 12,569,119 14,166,771 12,549,609 Transient occupancy taxes 1,491,998 1,570,459 1,828,116 2,018,024 2,216,145 Franchise taxes 2,323,616 2,614,844 2,761,335 2,794,144 2,545,854 Intergovernmental revenues 541,079 479,026 814,337 388,876 251,919 Use of money and property 552,512 705,849 880,989 611,350 770,634 Other general revenues 1,596,026 1,257,002 1,567,168 956,824 961,475 Gain/(Loss)on sale of assets - (48,320) 107,177 8,865 1,937 Impairment loss on capital assets - - - - (2,088,668) Transfers 1,809,656 (33,545) (36,068) 399,112 - Total governmental activities 54,874,610 55,027,182 59,000,731 62,554,451 60,703,125 Business-type activities: Property taxes 749,378 787,242 834,994 906,106 959,873 Intergovernmental-unrestricted 189,676 - - - (31,828) Use of money and property 3,118 357,357 (60,169) (63,690) 6,925 Other general revenues - 63,768 63,768 153,667 - Gain/(Loss)on sale of assets - (187,942) 18,085 4,010 216,146 Transfers (1,809,656) 33,545 36,068 (399,112) - Total business-type activities (867,484) 1,053,970 892,746 600,981 1,151,116 Total primary government 54,007,126 56,081,152 59,893,477 63,155,432 61,854,241 Changes in Net Position Government activities 8,115,258 12,690,959 4,933,508 8,063,964 1,798,457 Business-type activities 3,676,760 5,764,663 2,422,440 3,803,523 4,893,437 Total primary government $ 11,792,018 $ 18,455,622 $ 7,355,948 $ 11,867,487 $ 6,691,894 The City reports Recreation Programs as a business-type activity starting in Fiscal Year 2012. 159 City of Encinitas Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) Fiscal Year 2008 2009 2010 2011 2012 General fund: Reserved $ 6,210,167 $ 5,255,137 $ 4,286,026 $ - $ - Unreserved, designated 35,790,162 38,413,388 36,913,369 - - Unreserved, undesignated 9,126,804 3,866,759 5,789,899 - - Nonspendable - - - 2,648,338 2,868,533 Restricted - - - 633,245 - Committed - - - 42,274,327 19,371,624 Assigned - - - - - Unassigned - - - 1,850,582 17,964,935 Total general fund $ 51,127,133 $ 47,535,284 $ 46,989,294 $ 47,406,492 $ 40,205,092 All other governmental funds: Reserved $ 3,908,007 $ 3,771,850 $ 3,408,409 $ - $ - Unreserved, designated 10,968,342 10,694,605 10,430,543 - - Unreserved, undesignated - - - - - Nonspendable - - - 145,686 - Restricted - - - 8,290,163 13,471,421 Committed - - - 7,570,021 - Assigned - - - - 2,169,209 Unassigned - - - - - Total all other governmental funds $ 14,876,349 $ 14,466,455 $ 13,838,952 $ 16,005,870 $ 15,640,630 Total all governmental funds $ 66,003,482 $ 62,001,739 $ 60,828,246 $ 63,412,362 $ 55,845,722 (1) GASB 54, which requires changes in reporting categories for fund balances was implemented in Fiscal Year 2010-2011. 160 City of Encinitas Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) (Continued) Fiscal Year 2013 2014 2015 2016 2017 General fund: Reserved $ - $ - $ - $ - $ - Unreserved, designated - - - - - Unreserved, undesignated - - - - - Nonspendable 1,980,075 2,052,250 1,535,601 1,109,424 727,094 Restricted 7,996,400 4,079 3,009,269 - 1,472,372 Committed 9,847,719 8,136,886 8,266,796 - 13,937,399 Assigned 561,762 561,762 561,762 - - Unassigned 21,160,822 25,151,131 28,029,019 31,775,120 9,514,727 Total general fund $ 41,546,778 $ 35,906,108 $ 41,402,447 $ 32,884,544 $ 25,651,592 All other governmental funds: Reserved $ - $ - $ - $ - $ - Unreserved, designated - - - - - Unreserved, undesignated - - - - - Nonspendable - 1,565 - 287,756 296,234 Restricted 13,036,985 17,358,060 18,741,022 4,305,652 30,282,525 Committed - - - 1,626,219 18,998,215 Assigned 2,135,100 - - 24,776,682 - Unassigned - - - - (12,183,589) Total all other governmental funds $ 15,172,085 $ 17,359,625 $ 18,741,022 $ 30,996,309 $ 37,393,385 Total all governmental funds $ 56,718,863 $ 53,265,733 $ 60,143,469 $ 63,880,853 $ 63,044,977 (1) GASB 54, which requires changes in reporting categories for fund balances was implemented in Fiscal Year 2010-2011. 161 City of Encinitas Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) Fiscal Year 2008 2009 2010 2011 2012 Revenues: Taxes and assessments $ 47,483,312 $ 47,800,573 $ 46,805,219 $ 48,100,768 $ 49,089,142 Intergovernmental 5,999,680 5,950,205 6,917,521 8,369,571 6,537,855 Charges for services 9,293,303 6,621,931 5,164,315 6,376,261 4,406,737 Fines, forfeitures, and penalties 884,446 746,023 761,202 856,392 657,364 Use of money and property 3,851,877 2,008,557 1,085,981 657,798 639,676 Other 1,227,055 1,110,325 2,875,491 3,803,927 2,715,266 Total Revenues 68,739,673 64,237,614 63,609,729 68,164,717 64,046,040 Expenditures: C u rre nt: General government 11,903,557 13,036,815 11,859,415 10,155,732 9,277,443 Public safety 20,896,882 21,636,969 22,049,239 22,107,692 22,853,121 Public works 5,432,032 6,033,513 5,888,161 6,051,253 5,843,228 Planning and building 5,287,058 4,811,020 5,599,614 5,539,148 4,655,501 Engineering services 3,972,242 3,986,859 3,873,432 3,646,306 3,804,813 Parks and recreation 5,585,446 5,811,778 5,482,578 5,293,664 4,333,303 Capital outlay 20,704,628 8,473,396 5,606,327 8,559,193 12,803,379 Debt service: Principal 1,581,033 2,197,891 2,091,882 2,481,223 2,359,932 Interest and fiscal charges 2,244,288 2,251,116 2,332,574 2,056,501 1,872,773 Bond issuance costs - - - 395,404 - Total expenditures 77,607,166 68,239,357 64,783,222 66,286,116 67,803,493 Excess(deficiency)of revenues over(under)expenditures (8,867,493) (4,001,743) (1,173,493) 1,878,601 (3,757,453) Other Financing Sources(Uses): Transfer in from CFD debt service - - - - - Operating transfers in 25,007,578 12,631,197 11,066,120 13,133,224 17,661,946 Operating transfers out (25,007,578) (12,631,197) (11,066,120) (13,133,224) (18,354,656) Proceeds from capital lease - - - - 599,639 Proceeds from sale of property - - - 19,530,000 - Issuance of debt 2,100,000 - - - - Premium on debt - - - 215,515 - Deposit to escrow for bond refunding - - - - - Bond discounts - - - (19,040,000) - Total other financing sources(uses) 2,100,000 - - 705,515 (93,071) Net change in fund balances $ (6,767,493) $ (4,001,743) $ (1,173,493) $ 2,584,116 $ (3,850,524) Debt service as a percentage of noncapital expenditures 6.7% 7.4% 7.5% 7.9% 7.7% 162 City of Encinitas Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) (Continued) Fiscal Year 2013 2014 2015 2016 2017 Revenues: Taxes and assessments $ 51,528,542 $ 53,830,193 $ 56,825,628 $ 61,325,308 $ 61,934,421 Intergovernmental 8,520,220 5,025,480 7,022,485 6,689,475 6,436,599 Charges for services 4,450,756 5,479,847 5,315,721 6,585,518 6,688,958 Fines, forfeitures, and penalties 611,029 632,776 802,936 889,388 850,153 Use of money and property 572,481 724,310 899,807 1,222,730 1,285,049 Other 2,141,439 3,654,621 2,456,996 2,804,043 2,215,452 Total Revenues 67,824,467 69,347,227 73,323,573 79,516,462 79,410,632 Expenditures: Current: General government 9,430,487 9,109,412 9,362,214 9,288,227 10,017,430 Public safety 23,655,367 24,164,979 24,902,920 26,976,136 27,724,959 Public works 6,057,646 6,281,800 6,682,424 6,305,340 6,351,537 Planning and building 4,238,882 4,716,315 5,082,589 5,159,777 5,110,298 Engineering services 3,716,994 3,949,352 4,162,630 4,298,563 4,368,601 Parks and recreation 4,377,047 4,672,683 5,091,224 6,366,337 6,610,308 Capital outlay 18,836,006 14,548,894 18,440,036 10,799,083 12,230,552 Debt service: Principal 2,295,614 2,661,976 2,730,686 2,783,268 2,853,417 Interest and fiscal charges 2,050,068 1,937,144 2,170,164 2,372,231 2,077,770 Bond issuance costs - - - - - Total expenditures 74,658,111 72,042,555 78,624,887 74,348,962 77,344,872 Excess(deficiency)of revenues over(under)expenditures (6,833,644) (2,695,328) (5,301,314) 5,167,500 2,065,760 Other Financing Sources (Uses): Transfer in from CFD debt service - - - - - Operating transfers in 23,363,240 20,570,966 24,514,293 44,550,246 35,159,839 Operating transfers out (24,208,239) (21,328,768) (25,509,616) (45,577,444) (36,650,845) Proceeds from capital lease 555,384 - - - - Proceeds from sale of property 7,865,000 - 13,174,373 15,645,000 - Issuance of debt - - - 115 11,955,000 Premium on debt 131,400 - - 772,212 1,360,284 Deposit to escrow for bond refunding - - - (16,820,243) (14,725,914) Bond discounts - - - - - Total other financing sources(uses) 7,706,784 (757,802) 12,179,050 (1,430,114) (2,901,636) Net change in fund balances $ 873,140 $ (3,453,130) $ 6,877,736 $ 3,737,386 $ (835,876) Debt service as a percentage of noncapital expenditures 7.8% 8.0% 8.1% 8.1% 7.6% 163 City of Encinitas Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years (In thousands of dollars) Total Net Taxable Fiscal Year Residential Commercial Industrial All Other Assessed Total Direct Ended June 30 Property Property Property Property(1) Value (2) Tax Rate % (3) 2008 $ 9,342,260 $ 875,958 $ 33,263 $ 435,672 $ 10,687,153 0.23229% 2009 9,800,179 969,642 35,427 451,831 11,257,079 0.23278% 2010 9,774,056 1,063,161 36,255 464,096 11,337,568 0.23338% 2011 9,767,731 1,110,811 36,036 427,619 11,342,197 0.23472% 2012 9,886,681 1,154,923 34,944 421,308 11,497,856 0.23866% 2013 10,030,357 1,247,785 37,766 408,020 11,723,928 0.23974% 2014 10,393,910 1,300,287 39,501 413,663 12,147,361 0.24570% 2015 11,073,358 1,323,412 39,665 433,569 12,870,004 0.24534% 2016 11,864,809 1,359,004 41,187 437,972 13,702,972 0.23978% 2017 12,622,536 1,390,398 41,805 417,474 14,472,213 0.24019% FTaxable Assessed Value $14,000,000 (In thousands) $12,000,000 — — $10,000,000 $8,000,000 Residential $6,000,000 Commercial ■Industrial $4,000,000 $2,000,000 — — $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fiscal Year (1) All Other Property includes the following categories: dry farm, institutional, irrigated, recreational, vacant land, SBC nonunitary, possessory interest, unsecured, and unknown. (2) The "total net taxable assessed value" is net of tax-exempt property. Homeowners exemptions are not included in the totals shown.. (3) The total direct tax rate is the city's proportionate share of Proposition 13 property taxes collected within the tax area. 164 City of Encinitas Principal Property Taxpayers Current Fiscal Year and Nine Years Ago 2017 2008 Taxable % of Total Taxable % of Total Assessed City Assessed Assessed City Assessed Taxpayer Secured Value Rank Secure Value Secured Value Rank Secure Value TRC Encinitas Village $ 82,893,554 1 0.58% Collwood Pines Apartments LP 77,155,677 2 0.54% Belmont Village Tenant LLC 57,152,956 3 0.40% Encinitas Town Center Associates LLC 37,265,074 4 0.26% $ 32,518,472 3 0.31% NCHC 3 LLC 35,278,609 5 0.25% 25,487,698 7 0.24% PK III Encinitas Marketplace LP 35,100,000 6 0.24% 38,175,000 2 0.36% Weingarten Nostat Inc 34,608,013 7 0.24% Home Depot USA Inc. 30,013,643 8 0.21% 27,332,975 5 0.26% ASN Encinitas LLC 28,648,098 9 0.20% SSL Landlord LLC 24,892,013 10 0.17% Mission Ridge 24,289,441 11 0.17% Keith B. and Sara S. Harrison 23,947,260 12 0.17% 19,091,138 10 0.18% Vons Companies Inc. 23,578,557 13 0.16% 20,542,368 9 0.19% Shea Homes LP 22,552,043 14 0.16% Loja Pacific Station LLC 20,798,678 15 0.15% Quail Pointe Apartments LP 20,210,329 16 0.14% 17,851,085 11 0.17% UCSD Garden View LLC 19,098,730 17 0.13% Sterling Family Trust 18,649,210 18 0.13% 16,408,871 13 0.16% LA Fitness International LLC 18,427,845 19 0.13% Plenc El Camino LLC 18,339,169 20 0.13% 16,150,099 14 0.15% Scripps Health 86,837,209 1 0.82% Essex Cardiff Apartments 31,048,341 4 0.29% WRI El Camino LP 26,070,696 6 0.25% Urschel Laboratories Inc. 21,488,604 8 0.20% Encinitas Plaza LLC 16,607,905 12 0.16% NCBP Development Inc. 15,856,500 15 0.15% Hughes Encinitas Limited 15,713,615 16 0.15% Security Title Insurance Co. 13,520,105 17 0.13% G M S Realty LLC 13,420,914 18 0.13% Bellflower Capital 12,916,443 19 0.12% North Coast Business Park 12,875,299 20 0.12% $ 652,898,899 4.56% $ 479,913,337 4.55% 165 l� This page intentionally left blank. 166 City of Encinitas Property Tax Levies and Collections Last Ten Fiscal Years (1) Collected within the Fiscal Taxes Levied Fiscal Year of Levy Year Ended for the Percent June 30 Fiscal Year Amount of Levy 2008 $ 26,950,803 $ 25,584,630 94.93% 2009 27,441,558 26,326,996 95.94% 2010 27,421,386 26,490,783 96.61% 2011 27,541,487 26,888,921 97.63% 2012 28,100,611 27,540,858 98.01% 2013 29,207,237 28,712,036 98.30% 2014 30,550,301 30,009,574 98.23% 2015 32,251,814 31,755,994 98.46% 2016 34,443,972 33,961,174 98.60% 2017 48,540,436 47,871,961 98.62% (1) City of Encinitas General Fund 167 City of Encinitas Direct and Overlapping Property Tax Rates Last Ten Fiscal Years Fiscal Year 2008 2009 2010 2011 2012 % % % % % City of Encinitas Basic Rate 0.23229 0.23278 0.23338 0.23472 0.23866 City of Encinitas Direct Rate (1) 0.23229 0.23278 0.23338 0.23472 0.23866 Overlapping Rates: (2) City of Encinitas 0.26641 0.26648 0.26648 0.26648 0.24020 Encinitas Landscape & Lighting District 0.01596 0.01596 0.01596 0.01596 0.02100 Autistic Pupils Monors Elem 0.00009 0.00009 0.00009 0.00009 0.00000 Autistic Pupils Monors High 0.00009 0.00009 0.00009 0.00009 0.00000 Cardiff, Encinitas Elementary 0.26237 0.26240 0.26240 0.26240 0.24870 Children's Institutions Tuition 0.00146 0.00146 0.00146 0.00146 0.00107 County General 0.08264 0.07570 0.07570 0.07570 0.08020 County Library 0.01298 0.01995 0.01995 0.01995 0.01969 County School Service 0.00687 0.00687 0.00687 0.00687 0.00643 County School Service-Capital Outlay 0.00173 0.00173 0.00173 0.00173 0.00161 County Service Area No. 17 0.00291 0.00291 0.00291 0.00291 0.00251 CWA San Dieguito Water District, OMWD 0.00344 0.00344 0.00344 0.00344 0.02510 Development Centers for Handicapped Elem 0.00043 0.00043 0.00043 0.00043 0.00000 Development Centers for Handicapped High 0.00044 0.00044 0.00044 0.00044 0.00000 Educable Mentally Retarded Minors 0.00196 0.00196 0.00196 0.00196 0.00161 Educational Revenue Augmentation Fund 0.08574 0.08570 0.08570 0.08570 0.08620 Mira Costa Community College 0.08594 0.08590 0.08590 0.08590 0.08150 Physically Handicapped Minors Elem 0.00303 0.00303 0.00303 0.00303 0.00268 Physically Handicapped Minors High 0.00304 0.00304 0.00304 0.00304 0.00268 Regional Occupational Centers 0.00438 0.00438 0.00438 0.00438 0.00375 San Dieguito Union High 0.14405 0.14400 0.14400 0.14400 0.13610 San Dieguito Water District 0.00992 0.00992 0.00992 0.00992 0.03590 Trainable Mentally Retarded Minors Elem 0.00197 0.00197 0.00197 0.00197 0.00161 Trainable Mentally Retarded Minors High 0.00198 0.00198 0.00198 0.00198 0.00161 Oceanside (19/85001),Vista (19/85701) Projects 0.00017 0.00017 0.00017 0.00017 0.00000 Total Prop 13 Rate (3) 1.00000 1.00000 1.00000 1.00000 1.00000 Notes: (1) Total Direct Rate is the weighted average of all individual direct rates applied by the government preparing the statistical section information. (2) General fund tax rates are representative and based upon the direct and overlapping rates for the largest General Fund tax rate area (TRA) by net taxable value. (3) In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1%based upon the assessed value of the property being taxed. Each year the assessed value of property may be increased by an "inflation factor"(limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it was sold to a new owner. At that point,the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value. 168 City of Encinitas Direct and Overlapping Property Tax Rates Last Ten Fiscal Years (Continued) Fiscal Year 2013 2014 2015 2016 2017 City of Encinitas Basic Rate 0.23974 0.24002 0.24534 0.23978 0.23644 City of Encinitas Direct Rate (1) 0.23974 0.24002 0.24534 0.23978 0.23644 Overlapping Rates: (2) City of Encinitas 0.24020 0.24020 0.24020 0.24020 0.24020 Encinitas Landscape & Lighting District 0.02100 0.02100 0.02100 0.02100 0.02100 Autistic Pupils Monors Elem 0.00000 0.00000 0.00000 0.00000 0.00000 Autistic Pupils Monors High 0.00000 0.00000 0.00000 0.00000 0.00000 Cardiff, Encinitas Elementary 0.24870 0.24870 0.24870 0.24870 0.24870 Children's Institutions Tuition 0.00107 0.00107 0.00107 0.00107 0.00107 County General 0.08020 0.08020 0.08020 0.08020 0.08020 County Library 0.01969 0.01969 0.01969 0.01969 0.01969 County School Service 0.00643 0.00643 0.00643 0.00643 0.00643 County School Service-Capital Outlay 0.00161 0.00161 0.00161 0.00161 0.00161 County Service Area No. 17 0.00251 0.00251 0.00251 0.00251 0.00251 CWA San Dieguito Water District, OMWD 0.02510 0.02510 0.02510 0.02510 0.02510 Development Centers for Handicapped Elem 0.00000 0.00000 0.00000 0.00000 0.00000 Development Centers for Handicapped High 0.00000 0.00000 0.00000 0.00000 0.00000 Educable Mentally Retarded Minors 0.00161 0.00161 0.00161 0.00161 0.00161 Educational Revenue Augmentation Fund 0.08620 0.08620 0.08620 0.08620 0.08620 Mira Costa Community College 0.08150 0.08150 0.08150 0.08150 0.08150 Physically Handicapped Minors Elem 0.00268 0.00268 0.00268 0.00268 0.00268 Physically Handicapped Minors High 0.00268 0.00268 0.00268 0.00268 0.00268 Regional Occupational Centers 0.00375 0.00375 0.00375 0.00375 0.00375 San Dieguito Union High 0.13610 0.13610 0.13610 0.13610 0.13610 San Dieguito Water District 0.03590 0.03590 0.03590 0.03590 0.03590 Trainable Mentally Retarded Minors Elem 0.00161 0.00161 0.00161 0.00161 0.00161 Trainable Mentally Retarded Minors High 0.00161 0.00161 0.00161 0.00161 0.00161 Oceanside (19/85001),Vista (19/85701) Projects 0.00000 0.00000 0.00000 0.00000 0.00000 Total Prop 13 Rate (3) 1.00000 1.00000 1.00000 1.00000 1.00000 Notes: (1) Total Direct Rate is the weighted average of all individual direct rates applied by the government preparing the statistical section information. (2) General fund tax rates are representative and based upon the direct and overlapping rates for the largest General Fund tax rate area (TRA) by net taxable value. (3) In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1%based upon the assessed value of the property being taxed. Each year the assessed value of property may be increased by an "inflation factor"(limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it was sold to a new owner. At that point,the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value. 169 City of Encinitas Direct and Overlapping Property Tax Rates Last Ten Fiscal Years (Continued) Fiscal Year 2008 2009 2010 2011 2012 Gen Bond Cardiff 2000A 0.03306 0.03212 0.03518 - - Gen Bond Cardiff 2000 Election,2010 Ref.Bonds - - - 0.03715 0.03489 MWD D/S Remainder of SDCWA 1501999 0.00450 0.00430 0.00430 0.00370 0.00370 Total Voter Approved Rate 0.03756 0.03642 0.03948 0.04085 0.03859 Total Tax Rate 1.03756 1.03642 1.03948 1.04085 1.03859 170 City of Encinitas Direct and Overlapping Property Tax Rates Last Ten Fiscal Years (Continued) Fiscal Year 2013 2014 2015 2016 2017 Gen Bond Cardiff 2000A - - - - - Gen Bond Cardiff 2000 Election,2010 Ref.Bonds 0.03458 0.03386 0.03554 0.03324 0.03192 MWD D/S Remainder of SDCWA 1501999 0.00350 0.00350 0.00350 0.00350 0.00350 Total Voter Approved Rate 0.03808 0.03736 0.03904 0.03674 0.03542 Total Tax Rate 1.03808 1.03736 1.03904 1.03674 1.03542 171 City of Encinitas Ratios of Outstanding Debt by Type Last Ten Fiscal Years Governmental Activities Fiscal Year Ended Total Governmental June 30 Bonded Debt Capital Leases Activities 2008 47,960,000 2,670,340 (3) 50,630,340 2009 46,005,000 2,432,449 48,437,449 2010 44,165,000 2,185,567 46,350,567 2011 42,641,535 3,036,899 45,678,434 2012 40,645,759 3,281,606 43,927,365 2013 46,736,383 3,446,376 50,182,759 2014 44,546,848 2,964,400 47,511,248 2015 55,431,687 2,513,713 57,945,400 2016 52,933,882 2,050,840 (4) 54,984,722 2017 48,953,813 2,205,282 51,159,095 (1) Percentage of Personal Income ratios are calculated using personal income and population for the prior calendar year. (2) Debt per Capita is calculated by dividing the total primary government amount by City population shown on the Demographic and Economic statistics page. (3) During 2008, the City borrowed $2.1 million to partially fund major improvements to the Encinitas Civic Center under a capital lease arrangement with a financial institution. 172 City of Encinitas Ratios of Outstanding Debt by Type Last Ten Fiscal Years (Continued) Business-type Activities Fiscal Year Debt Per Ended Water Bonds CSD Note EHA Note Total Business- Total Primary Capita June 30 and Notes Payable Payable type Activities Government (2) 2008 19,340,000 6,660,000 1,723,832 27,723,832 78,354,172 1318 2009 18,440,000 6,220,000 1,681,534 26,341,534 74,778,983 1254 2010 17,545,000 5,770,000 1,638,817 24,953,817 71,304,384 1190 2011 16,620,000 5,300,000 1,591,681 23,511,681 69,190,115 1147 2012 15,660,000 4,625,969 1,544,434 21,830,403 65,757,768 1090 2013 14,670,000 4,045,028 1,495,415 20,210,443 70,393,202 1162 2014 13,645,000 3,447,591 1,444,731 18,537,322 66,048,570 1079 2015 11,669,345 2,833,824 1,391,715 15,894,884 73,840,284 1200 2016 10,609,973 2,205,893 1,331,410 14,147,276 69,131,998 1117 2017 9,510,602 1,559,300 1,253,177 12,323,079 63,482,174 1019 (1) Percentage of Personal Income ratios are calculated using personal income and population for the prior calendar year. (2) Debt per Capita is calculated by dividing the total primary government amount by City population shown on the Demographic and Economic statistics page. (3) During 2008, the City borrowed $2.1 million to partially fund major improvements to the Encinitas Civic Center under a capital lease arrangement with a financial institution. 173 City of Encinitas Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years Outstanding General Bonded Debt Fiscal Certificates of Participation Percentage Year Ended and Assessed of Assessed Per June 30 Lease Revenue Bonds Valuation (1) Value Capita 2008 10,687,153,000 0.00% 751 2009 46,005,000 11,257,079,000 0.41% 774 2010 44,165,000 11,337,568,000 0.39% 741 2011 42,641,535 11,342,197,000 0.38% 712 2012 40,645,759 11,497,857,000 0.35% 674 2013 46,736,383 11,725,285,000 0.40% 772 2014 44,546,848 12,147,361,000 0.37% 728 2015 55,431,687 12,870,003,660 0.43% 901 2016 52,933,882 13,702,972,188 0.39% 855 2017 $ 48,953,813 $ 14,472,213,000 0.34% 786 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. General bonded debt is debt payable with governmental fund resources and general obligation bonds recorded in enterprise funds of which, the City has none. (1) Assessed valuation has been used because the actual market value of taxable property is not readily available in the State of California. The assessed valuation information can be found in the Assessed Value and Estimated Actual Value of Taxable Property schedule in the Statistical Section. 174 City of Encinitas Schedule of Direct and Overlapping Bonded Debt June 30, 2017 $14,473,964,302 City's Share of Total Debt Applicable Overlapping Debt 6/30/17 %(1) 6/30/17 OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District $ 74,905,000 0.560% $ 419,468 Cardiff School District 17,889,035 100% 17,889,035 Encinitas Union School District 49,961,066 67.287% 33,617,302 San Dieguito Union High School 316,250,000 24.617% 77,851,263 San Dieguito Union High School District Community Facilities Districts 38,916,731 1.840-100.00% 10,491,612 City of Encinitas Community Facilities District No. 1 26,925,000 100% 26,925,000 Olivenhain Municipal Water District, Assessment District No. 96-1 11,670,000 25.975% 3,031,283 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $ 170,224,962 DIRECT AND OVERLAPPING GENERAL FUND DEBT San Diego County General Fund Obligations $291,180,000 3.098% $ 9,020,756 San Diego County Pension Obligations 605,520,000 3.098% 18,759,010 San Diego County Superintendent of Schools Obligations 11,460,000 3.098% 355,031 Mira Costa Community College District Certificates of Participation 12,265,000 15.106% 1,852,751 San Dieguito Union High School District General Fund Obligations 12,730,000 24.617% 3,133,744 City of Encinitas Governmental Bonded Debt 46,930,000 100% 46,930,000 City of Encinitas Governmental Capital Leases 2,205,282 100% 2,205,282 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $ 82,256,573 TOTAL DIRECT DEBT $ 49,135,282 TOTAL OVERLAPPING DEBT 203,346,254 COMBINED TOTAL DEBT $252,481,535 (2) (1) The percentage of overlapping applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the city divided by the district's total taxable assessed value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, and mortgage revenue. Ratios to 2016-17 Assessed Valuation: Total Overlapping Tax and Assessment Debt.................................... 1.18% Total Direct Debt ($49,135,282)..................................................... 0.34% Combined Total Debt...................................................................... 1.74% 175 City of Encinitas Legal Debt Margin Information Last Ten Fiscal Years (in thousands) Fiscal Years 2008 2009 2010 2011 2012 Assessed valuation $ 10,687,153 $ 11,257,079 $ 11,337,568 $ 11,342,197 $ 11,497,857 Conversion percentage equal 25% 25% 25% 25% 25% to 25% of Assessed valuation Adjusted assessed valuation 2,671,788 2,814,270 2,834,392 2,835,549 2,874,464 Debt limit percentage 15% 15% 15% 15% 15% Debt limit 400,768 422,141 425,159 425,332 431,170 Total net debt applicable to limit: 47,960 46,005 44,165 42,641 40,646 Legal debt margin $ 352,808 $ 376,136 $ 380,994 $ 382,691 $ 390,524 Total debt applicable to the limit as a percentage of debt limit 11.97% 10.90% 10.39% 10.03% 9.43% The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time the that the legal debt margin was enacted by the State of California for local governments located within the state. Notes: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 176 City of Encinitas Legal Debt Margin Information Last Ten Fiscal Years (in thousands) (Continued) Fiscal Years 2013 2014 2015 2016 2017 Assessed valuation $ 11,723,929 $ 12,147,361 $ 12,870,004 $ 13,702,972 $ 14,472,213 Conversion percentage equal 25% 25% 25% 25% 25% to 25% of Assessed valuation Adjusted assessed valuation 2,930,982 3,036,840 3,217,501 3,425,743 3,618,053 Debt limit percentage 15% 15% 15% 15% 15% Debt limit 439,647 455,526 482,625 513,861 542,708 Total net debt applicable to limit: 46,736 44,547 55,432 52,934 48,954 Legal debt margin $ 392,911 $ 410,979 $ 427,193 $ 460,927 $ 493,754 Total debt applicable to the limit as a percentage of debt limit 10.63% 9.78% 11.49% 10.30% 9.02% The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time the that the legal debt margin was enacted by the State of California for local governments located within the state. Notes: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 177 City of Encinitas Historical Debt Service Coverage Last Ten Fiscal Years San Dieguito Water District 2008 2009 2010 2011 2012 Revenues: Operating revenues-including connection fees $ 11,468,569 $ 11,521,897 $ 11,267,684 $ 12,574,450 $ 13,170,422 Non-operating revenues 1,464,949 1,129,594 879,477 817,872 813,610 Gross Revenues 12,933,518 12,651,491 12,147,161 13,392,322 13,984,032 Total Operating&Non-Operating Expenses 12,366,526 12,955,085 11,634,347 11,614,631 12,448,911 Net Income 566,992 (303,594) 512,814 1,777,691 1,535,121 Add back........ Interest expense 830,953 803,748 749,704 725,936 698,908 Depreciation and amortization expense 2,250,919 2,217,274 1,213,640 1,196,007 1,294,904 Net Revenues Available for Debt Service 3,648,864 2,717,428 2,476,158 3,699,634 3,528,933 Less:Debt Service Paid 1999 Badger Bonds-Interest Charges 148,992 - - - 1999 Badger Bonds-Principal Payments 280,000 - - - - 2004 Water Revenue Refunding Bonds-Interest Charges 497,181 485,769 469,269 452,244 433,950 2004 Water Revenue Refunding Bonds-Principal Payments 530,000 540,000 560,000 575,000 595,000 2007 Note Payble to Financing Authority-Interest Charges 167,780 290,748 265,157 281,494 270,352 2007 Note Payble to Financing Authority-Principal Payments - 360,000 335,000 350,000 365,000 2014 Water Revenue Refunding Bonds-Interest Charges - - - - 2014 Water Revenue Refunding Bonds-Principal Payments - - - - - Total Debt Service $ 1,623,953 $ 1,676,517 $ 1,629,426 $ 1,658,738 $ 1,664,302 Coverage by Net Revenues Available for Debt Service 225% 162% 152% 223% 212% Debt service coverage requirement is minimum 115%including connection fees. The above schedules include connection fees in operating revenues. ■ Cardiff Sanitary Division 2008 2009 2010 2011 2012 Revenues: Operating revenues-including connection fees(1) $ 5,422,603 $ 5,062,773 $ 5,049,039 $ 5,337,717 $ 5,087,182 Non-operating revenues 688,423 392,505 162,601 355,974 79,347 Gross Revenues 6,111,026 5,455,278 5,211,640 5,693,691 5,166,529 Total Operating&Non-Operating Expenses 2,985,912 2,854,368 3,569,880 3,746,748 3,385,439 Net Income 3,125,114 2,600,910 1,641,760 1,946,943 1,781,090 Add back........ Interest expense 315,700 302,067 285,800 267,533 248,400 Depreciation and amortization expense 460,083 303,930 912,026 932,273 404,640 Net Revenues Available for Debt Service 3,900,897 3,206,907 2,839,586 3,146,749 2,434,130 Less:Debt Service 2003 Note Payable to SEJPA-Interest Charges 319,950 307,200 291,800 273,800 255,000 2003 Note Payable to SEJPA-Principal Payments 425,000 440,000 450,000 470,000 490,000 2011 Note Payable to SEJPA-Interest Charges - - - - 28,945 2011 Note Payable to SEJPA-Principal Payments - - - - 25,000 Total Debt Service $ 744,950 $ 747,200 $ 741,800 $ 743,800 $ 798,945 Coverage by Net Revenues Available for Debt Service 524% 429% 383% 423% 305% Debt service coverage requirement is minimum 110%including connection fees. The above schedules include connection fees in operating revenues. 178 City of Encinitas Historical Debt Service Coverage Last Ten Fiscal Years (Continued) San Dieguito Water District 2013 2014 2015 2016 2017 Revenues: Operating revenues-including connection fees $ 13,789,636 $ 15,715,575 $ 15,152,433 $ 14,852,061 $ 15,142,544 Non-operating revenues 869,568 827,676 927,526 1,013,297 1,048,764 Gross Revenues 14,659,204 16,543,251 16,079,959 15,865,358 16,191,308 Total Operating&Non-Operating Expenses 12,198,228 14,066,485 15,481,543 13,800,671 14,263,288 Net Income 2,460,976 2,476,766 598,416 2,064,687 1,928,020 Add back........ Interest expense 657,963 622,075 475,775 412,108 366,740 Depreciation and amortization expense 1,476,044 1,490,806 2,271,907 1,514,716 978,627 Net Revenues Available for Debt Service 4,594,983 4,589,647 3,346,098 3,991,511 3,273,387 Less:Debt Service Paid 1999 Badger Bonds-Interest Charges - - - - - 1999 Badger Bonds-Principal Payments - - - 2004 Water Revenue Refunding Bonds-Interest Charges 408,906 380,731 144,720 2004 Water Revenue Refunding Bonds-Principal Payments 615,000 640,000 665,000 - - 2007 Note Payble to Financing Authority-Interest Charges 256,744 241,344 224,994 211,144 191,244 2007 Note Payble to Financing Authority-Principal Payments 375,000 385,000 405,000 415,000 440,000 2014 Water Revenue Refunding Bonds-Interest Charges - - 106,061 202,400 185,075 2014 Water Revenue Refunding Bonds-Principal Payments - - - 570,000 585,000 Total Debt Service $ 1,655,650 $ 1,647,075 $ 1,545,775 $ 1,398,544 $ 1,401,319 Coverage by Net Revenues Available for Debt Service 278% 279% 216% 285% 234% Debt service coverage requirement is minimum 115%including connection fees. The above schedules include connection fees in operating revenues. Cardiff Sanitary Division 2013 2014 2015 2016 2017 Revenues: Operating revenues-including connection fees(1) $ 4,755,573 $ 4,758,606 $ 4,615,399 $ 4,768,651 $ 4,829,120 Non-operating revenues 39,015 1,216,941 120,668 149,151 140,095 Gross Revenues 4,794,588 5,975,547 4,736,067 4,917,802 4,969,215 Total Operating&Non-Operating Expenses 3,310,986 3,189,268 4,371,847 3,949,288 3,380,180 Net Income 1,483,602 2,786,279 364,220 968,514 1,589,035 Add back........ Interest expense 142,898 266,822 109,282 91,757 71,727 Depreciation and amortization expense 800,000 200,459 1,555,955 1,303,272 754,400 Net Revenues Available for Debt Service 2,426,500 3,253,560 2,029,457 2,363,543 2,415,162 Less:Debt Service 2003 Note Payable to SEJPA-Interest Charges - - - - - 2003 Note Payable to SEJPA-Principal Payments - - - - - 2011 Note Payable to SEJPA-Interest Charges 142,898 131,967 109,282 91,757 79,889 2011 Note Payable to SEJPA-Principal Payments 546,540 563,037 579,366 593,530 612,192 Total Debt Service $ 689,438 $ 695,004 $ 688,648 $ 685,287 $ 692,081 Coverage by Net Revenues Available for Debt Service 352% 467% 294% 345% 349% Debt service coverage requirement is minimum 110%including connection fees. The above schedules include connection fees in operating revenues. 179 City of Encinitas Demographic and Economic Statistics Last Ten Fiscal Years % Change % of San from Avg. Fiscal Year City Diego County Previous Median Household Unemployment Ended June 30 Population Population Year Age Size Rate 2008 63,864 2.0% 2.47% 41.5 2.65 4.2% 2009 59,453 2.0% -7.42% 41.7 2.69 6.9% 2010 59,628 2.0% 0.29% 41.6 2.45 NA 2011 59,910 2.0% 0.47% 42.0 2.50 7.3% 2012 60,346 2.0% 0.72% 42.2 2.45 9.2% 2013 60,568 2.0% 0.37% 41.5 2.50 5.5% 2014 61,204 2.1% 1.04% 41.5 2.49 5.2% 2015 61,518 2.0% 0.51% 41.5 2.50 4.2% 2016 61,893 1.9% 0.67% 41.5 2.50 4.5% 2017 62,288 1.9% 0.63% 41.5 2.50 3.8% NOTE: City population figures have been revised to match updated population from the California State Departi Property Tax Levies and Collections 180 City of Encinitas General Governmental Tax Revenue by Source Last Ten Fiscal Years Fiscal Year Property and Ended June Documentary Transient 30 Transfer Tax Sales Tax Occupancy Tax Franchise Tax Total Tax Revenue 2008 $ 33,858,150 $ 8,130,837 $ 1,182,816 $ 2,212,915 45,384,718 2009 35,064,401 7,340,410 1,099,817 2,162,729 45,667,357 2010 32,285,155 8,780,202 1,179,789 2,031,924 44,277,070 2011 32,292,988 10,244,506 1,276,980 2,108,420 45,922,894 2012 32,788,129 10,613,188 1,413,926 2,144,162 46,959,405 2013 34,974,578 11,585,145 1,491,998 2,323,616 50,375,337 2014 36,414,507 12,067,360 1,570,459 2,614,844 52,667,170 2015 38,508,558 12,569,119 1,828,116 2,761,335 55,667,128 2016 41,210,486 14,166,771 1,616,171 2,358,567 59,351,995 2017 43,494,220 12,549,609 2,216,145 2,545,854 60,805,828 Total General Governmental Tax Revenues $50,000,000 $45,000,000 $40,000,000 $35,000,000 ■Pro perty Tax $30,000,000 $25,000,000 Sales Tax $20,000,000 ■Transient $15,000,000 Occupancy Tax $10,000,000 ■Franchise Tax $5,000,000 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fiscal Year 181 City of Encinitas Taxable Sales by Business Type Last Ten Fiscal Years 2008 2009 2010 2011 2012 Autos and Transportation $ 1,304,574 $ 1,138,428 $ 1,189,413 $ 1,330,270 $ 1,427,132 Building and Construction 1,334,408 1,057,851 818,484 774,109 868,790 Business and Industry 580,488 520,656 461,247 537,840 518,699 Food and Drugs 1,039,216 979,585 931,937 945,542 995,511 Fuel and Service Stations 1,182,908 1,085,758 1,146,372 1,351,288 1,569,265 General Consumer Goods 3,042,340 2,949,625 2,836,989 2,818,809 3,117,547 Restaurants and Hotels 1,425,305 1,448,867 1,388,570 1,442,976 1,624,007 Total $ 9,909,239 $ 9,180,770 $ 8,773,012 $ 9,200,834 $ 10,120,951 2013 2014 2015 2016 2017 Autos and Transportation $ 1,446,737 $ 1,519,006 $ 1,638,839 $ 1,684,618 $ 1,627,531 Building and Construction 820,467 887,182 944,334 980,140 1,021,600 Business and Industry 560,723 573,032 556,835 738,490 623,641 Food and Drugs 1,003,491 1,001,942 1,028,085 1,005,870 931,650 Fuel and Service Stations 1,577,783 1,559,342 1,500,416 1,382,946 1,191,164 General Consumer Goods 3,165,746 3,355,540 3,476,481 3,535,734 3,492,330 Restaurants and Hotels 1,699,705 1,825,971 1,978,072 2,113,116 2,264,487 Total $ 10,274,652 $ 10,722,015 $ 11,123,062 $ 11,440,914 $ 11,152,403 Note: Due to confidentiality issues, the names of the ten largest revenue payers are not available. The categories presented are intended to provide alternative information regarding the sources of the City's revenue. 182 City of Encinitas Full-Time and Part-Time Employees by Function Last Ten Fiscal Years Function Fiscal Years 2008 2009 2010 2011 2012 General government Fire department 45.45 45.45 43 44.25 44.55 Public works 67 67 68 63 63.00 Engineering services 30.4 30.4 29.55 28.85 28.85 Parks and recreation 27.12 27.12 27.47 27.47 27.42 Planning and building 21.38 21.18 21.18 21.18 21.18 Subtotal 26.75 26.75 26.75 26.75 26.75 218.1 217.9 215.95 211.5 211.75 San Dieguito Water District 22.7 22.7 25.7 25.4 25.40 Property Tax Levies and Collections Function 2013 2014 2015 2016 2017 General government 44.75 44.75 46.75 46.75 46.75 Fire department 63.00 66.00 66.00 69.00 69.00 Public works 29.25 29.55 28.55 28.55 28.55 Engineering services 26.42 27.17 27.17 27.17 27.17 Parks and recreation 21.18 21.18 20.18 20.18 20.18 Planning and building 26.75 27.25 27.25 27.25 27.25 Subtotal 211.35 215.90 215.90 218.90 218.90 San Dieguito Water District 25.00 23.00 24.00 24.00 24.00 183 City of Encinitas Operating Indicators by Function Last Ten Fiscal Years 2008 2009 2010 2011 2012 San Diego County Sheriff's Dept Criminal arrests 1,560 1,715 1,803 1,047 1,231 Traffic arrests 371 424 482 535 485 Traffic accidents 522 438 385 472 441 Traffic citations 11,690 11,974 11,714 12,024 11,349 Calls for service 20,460 19,764 21,216 20,602 20,150 Deputy initiated action 26,971 29,098 25,401 29,224 29,862 Fire: Number of emergency fire calls 134 113 106 96 124 Number of EMS/rescue 3,290 3,179 3,291 3,498 3,495 Other 1,498 1,645 1,475 1,520 1,737 Inspections N/A 4,099 2,055 2,263 2,252 Engineering: Number of permits issued 405 325 301 397 392 Parks and recreation: Number of recreation class registrations 10,927 11,368 11,435 10,697 11,119 Number of facility rentals 524 491 459 377 749 Planning and building: Number of planning permits issued 110 97 181 177 202 Number of new dwelling units issued 98 86 39 51 121 Environmental review 11 8 11 4 7 Appeals 11 12 1 3 3 Plan checks 825 906 805 882 948 Code enforcement complaints 1,881 1,973 1,667 1,645 1,270 Water: New connections 26 6 18 9 79 Average daily consumption (millions of gallons) 6.52 6.24 5.42 5.21 5.32 Sewer: New connections 39 14 26 14 44 Average daily sewage treatment(millions of gallons) 2.55 2.55 2.46 2.43 2.38 The City of Encinitas contracts with the County of San Diego Sheriff's Department to provide law enforcement services. 184 City of Encinitas Operating Indicators by Function Last Ten Fiscal Years (Continued) 2013 2014 2015 2016 2017 San Diego County Sheriff's Dept Criminal arrests 1,548 1,595 1,743 1,997 1,612 Traffic arrests 383 331 551 263 201 Traffic accidents 372 323 297 274 289 Traffic citations 11,381 10,357 13,650 14,873 4,891 Calls for service 20,559 19,394 21,335 22,518 19,372 Deputy initiated action 31,281 29,849 27,339 27,481 24,625 Fire: Number of emergency fire calls 102 383 300 328 283 Number of EMS/rescue 3,697 3,806 3,844 4,098 4,717 Other 1,932 1,458 1,265 1,517 1,035 Inspections 2,163 2,143 2,072 2,133 2,122 Engineering: Number of permits issued 269 351 383 436 440 Parks and recreation: Number of recreation class registrations 11,175 16,236 16,289 15,500 16,338 Number of facility rentals 421 578 557 538 492 Planning and building: Number of planning permits issued 207 298 335 263 276 Number of new dwelling units issued 63 161 135 117 94 Environmental review 6 9 10 4 7 Appeals 5 7 6 11 6 Plan checks 990 1,391 1,737 2,339 1,807 Code enforcement complaints 1,199 1,153 1,063 1,199 1,282 Water: New connections 64 131 69 77 39 Average daily consumption (millions of gallons) 5.61 5.71 5.49 4.56 4.85 Sewer: New connections 50 22 53 33 65 Average daily sewage treatment(millions of gallons) 2.40 2.36 2.22 2.20 2.27 The City of Encinitas contracts with the County of San Diego Sheriff's Department to provide law enforcement services. 185 City of Encinitas Capital Asset Statistics by Function Last Ten Fiscal Years 2008 2009 2010 2011 2012 Law enforcement: Number of sub-stations 1 1 1 1 1 Fire department: Fire stations 5 5 5 5 5 Public works: Streets (miles) 198 201 201 201 201 Engineering: Signalized intersections 63 63 63 63 63 Parks and recreation: Community and senior center 1 1 1 1 1 Developed parks 18 18 18 18 18 Undeveloped parks 4 4 4 4 4 Parkland acres 382 382 382 382 382 Habitat/open space acreage 87 87 87 87 87 Marine life refuge 1 1 1 1 1 Trails/streetscapes (miles) 35 35 41 41/10 41/10 Lifeguard towers 7 7 7 7 7 Water: Water mains (miles) 140 166 166 168 168 Maximum daily capacity (millions of gallons) 15 15 15 15 15 * The City of Encinitas contracts with the County of San Diego Sheriff's department to provide law enforcement services. 186 City of Encinitas Capital Asset Statistics by Function Last Ten Fiscal Years (Continued) 2013 2014 2015 2016 2017 Law enforcement: Number of sub-stations 1 1 1 1 1 Fire department: Fire stations 6 6 6 6 6 Public works: Streets (miles) 201 201 201 201 201 Engineering: Signalized intersections 63 63 63 63 63 Parks and recreation: Community and senior center 1 1 1 1 1 Developed parks 18 18 18 18 18 Undeveloped parks 4 4 4 4 4 Parkland acres 382 382 382 382 382 Habitat/open space acreage 87 87 87 87 87 Marine life refuge 1 1 1 1 1 Trails/streetscapes (miles) 41/10 41/10 41/10 41/10 41/10 Lifeguard towers 7 7 7 7 7 Water: Water mains (miles) 168 168 168 168 170 Maximum daily capacity (millions of gallons) 15 15 15 15 15 187 l� This page intentionally left blank. 188 Cardiff Sanitary Division Summary of Operational Data The following tables are being presented as supplementary information based on requirements for bonds issued to CSD for continuing bond disclosure certificate. 189 Table 1 Cardiff Sanitary Division Rate Schedule for Annual Sewer Charges As of June 30,2017 Sub Fixed Meter Median Annual Users/Class Category Charge HCF Rate HCF Median Charge New Connections(no prior water consumption Group I Residential history) Single Family SF $44.00 $ 5.14 94.90 $ 532.00 Multi Family MF See below 5.14 $355.73/unit Trailer Park TP See below 5.14 $355.73/unit New Connections(no prior water consumption Non-Residential history) Commercial Group 11 See below See below $ 5.40 See below See below Commercial Group III See below See below 7.03 See below See below Commercial Group IV See below See below 10.56 See below See below Multi Family'and Non-Residential Fixed Meter Charge Meter Size Annual Charge Meter Size Annual Charge 5/8" $ 44.00 1-1/2" $ 220.00 3/4" $ 66.00 2" $ 352.00 V $ 110.00 3" $ 660.00 Multi Family=Fixed Meter Charge x 2 Water Consumption Periods To Be Used Residential=2 Lowest Periods of Water Consumption For Meter Readings Occurring Between Dec.-May(most recent available 5-year period) Non-Residential(Commercial)=Water Consumption For Meter Readings Occurring Between July-June of Preceding Year Median Annual Sub Unit Cost HCF(New Median Usage Charge Users/Class Category (perHCF) Connections) (New Connections) Group 11 Commercial Softwater Service SW $ 5.40 ------- Car Wash CW 5.40 1,520 $8,208.00 Office Building OF 5.40 200 1,080.00 Fire Station FS 5.40 110 594.00 Professional Building(Doctor) PB 5.40 160 864.00 Veterinary Clinic VC 5.40 ------- Athletic Gymnasium G 5.40 1,340 7,236.00 Laundromat L 5.40 990 5,346.00 Department and Retail Store DRS 5.40 120 648.00 Warehouse W 5.40 1,050 5,670.00 Hospital,Convalescent Home HCH 5.40 3,240 17,496.00 Parks PB 5.40 510 2,754.00 Church-Membership Organization C 5.40 440 2,376.00 Membership Organization(Non-Church) MO 5.40 240 1,296.00 Social Services SS 5.40 160 864.00 Group III Commercial Hotels-Motels(without restaurant) HM $ 7.03 890 $6,256.70 Repair and Service Station RSS 7.03 70 492.10 Shopping Center SC 7.03 1,030 7,240.90 Kennel K 7.03 900 6,327.00 Coffee Shop CS 7.03 ------- Amusement Park AP 7.03 ------- Nightclub/Bar NC 7.03 320 2,249.60 Commercial Laundry CL 7.03 ------- Manufacturing M 7.03 180 1,265.40 Lumber Yard LY 7.03 ------- Group IV Commercial Hotels-Motel(with restaurant) HM $ 10.56 3,130 $33,052.80 Bakery(wholesale)/Food Processor BW 10.56 ------- Supermarket S M 10.56 1,030 10,876.80 Mortuary MT 10.56 300 3,168.00 Restaurant R 10.56 600 6,336.00 (1) Sewer rates are based on water consumption(fixed charge based on meter size and consumption component). The consumption is based on HCF(hundred cubic feet-748 gallons). 190 Table 2 Cardiff Sanitary Division Historical Service Charges Billed Last Ten Fiscal Years Fiscal Residential Commercial Commercial Single Family Year (Tax Roll) (Tax Roll) (Manual) Total Billed Average 2008 $ 3,983,597 $ 739,676 $ 130,386 $ 4,853,659 $ 668 2009 4,092,138 753,503 127,030 4,972,671 682 2010 4,034,670 703,126 128,223 4,866,019 674 2011 3,984,339 628,165 127,210 4,739,715 664 2012 4,058,990 645,560 123,822 4,828,372 676 2013 3,935,414 666,099 126,677 4,728,190 652 2014 3,812,338 599,324 134,910 4,546,572 622 2015 4,033,393 623,032 135,587 4,792,012 610 2016 3,873,157 610,169 135,107 4,618,432 634 2017 3,958,853 597,392 135,581 4,691,826 648 Cardiff Sanitary Division bills most customers through the San Diego County property tax billing service. Delinquincy rates have been between 1.8%-3.0% during the period presented. Delinquencies do not apply to direct billings. 191 Table 3 Cardiff Sanitary Division Ten Largest Customers FY 2016-2017 Parcel Sewer Service Percentage of Property Owner Count Charges Sewer Charges Scripps Health 1 $ 83,752 1.79% Collwood Pines Apartments LP 4 76,313 1.63% State of California Parks & Recreation 2 54,974 1.17% San Deiguito Union High School District 2 47,967 1.02% Newport Taft Inc 1 29,003 0.62% 944 Regal Road LLC 1 28,988 0.62% Cardiff Town Center LLC 1 27,699 0.59% Deluca Trust 1 27,319 0.58% K&K Lumber Co 2 25,932 0.55% George's Restaurant Inc 1 22,582 0.48% Subtotal 16 $ 424,529 9.05% Total Billed $ 4,691,826 Source: Cardiff Sanitary Division Table 4 Cardiff Sanitary Division Historical Service Connections Last Ten Fiscal Years Commercial Total Connections Residential Industrial Total Year (Billed Parcels) EDU's EDU's EDU's 2008 6,283 6,976 1,122 8,097 2009 6,312 6,990 1,124 8,114 2010 6,317 7,011 1,124 8,136 2011 6,329 7,033 1,124 8,187 2012 6,334 7,067 1,154 8,221 2013 6,365 7,083 1,174 8,257 2014 6,375 7,126 1,176 8,302 2015 6,394 7,132 1,187 8,319 2016 6,416 7,157 1,187 8,344 2017 6,435 7,186 1,187 8,373 Source: Cardiff Sanitary Division 192 San Dieguito Water District 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. 193 Table 1 San Dieguito Water District Schedule of Water Rates As of June 30, 2017 Rate (1) Customer Class Residential Rate Tier Potable Recycled Single-family residential 0-12 units $ 2.81 13-20 units 4.46 21-40 units 5.51 41+ units 6.28 Multi-family residential (per dwelling) 0-8 units 2.81 9-12 units 4.46 13-16 units 5.51 17+ units 6.28 Agriculture Uniform 4.78 $ 4.06 Commercial Uniform 4.78 4.06 Government Uniform 5.23 4.44 Public Uniform 5.23 4.44 Landscaping Uniform 5.51 4.68 Construction Uniform 5.61 4.76 (1) Per Unit (one hundred cubic feet or 748 gallons) Source: San Dieguito Water District Table 2 San Dieguito Water District Bi-Monthly Meter Service Availability Charges(2) As of June 30, 2017 Water Meter Service Infrastructure Fire Meter Service Availability Access Availability Meter Size Charge Charge Charge 5/8" & 3/4" $ 39.82 $ 5.74 $ 8.47 1" 58.63 9.18 8.47 1-1/2" 105.24 17.22 9.55 2" 161.40 29.84 16.65 3" 292.52 55.10 42.12 4" 479.81 94.13 86.04 6" 947.59 172.20 243.69 8" 1,509.16 298.48 515.61 (2) San Dieguito Water District 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 Intrastructure Access Charge is levied by the San Diego County Water Authority and is collected from the customer by the District. Source: San Dieguito Water District 194 Table 3 San Dieguito Water District Historic Potable Water System Revenues Last Ten Fiscal Years Meter Fiscal Potable Percentage Availability Percent Year Water Sales Change (3) Charge Change (3) 2008 $ 7,717,818 1.8% $ 2,404,547 6.8% 2009 7,525,927 -2.5% 2,453,075 2.0% 2010 7,146,854 -5.0% 2,501,264 2.0% 2011 8,205,876 14.8% 3,007,127 20.2% 2012 8,528,418 3.9% 3,196,605 6.3% 2013 9,236,462 8.3% 3,087,794 -3.4% 2014 10,649,157 15.3% 3,227,823 4.5% 2015 9,728,434 -8.6% 3,415,227 5.8% 2016 9,503,108 -2.3% 3,503,933 2.6% 2017 9,467,085 -0.4% 3,544,758 1.2% (3) Due to the varying number of billing cycles in a fiscal year, changes year-over-year may not be exactly comparable. Source: San Dieguito Water District Table 4 San Dieguito Water District Historic Recycled Water System Revenues Last Ten Fiscal Years Meter Fiscal Recycle Percent Availability Percent Year Water Sales Change Charges (4) Change 2008 $ 600,401 0.7% $ - N/A 2009 663,036 10.4% - N/A 2010 537,654 -18.9% - N/A 2011 523,397 -2.7% - N/A 2012 422,925 -19.2% - N/A 2013 400,244 -5.4% - N/A 2014 460,383 15.0% 60,048 N/A 2015 648,398 40.8% 80,585 34.2% 2016 702,301 8.3% 85,149 5.7% 2017 716,826 2.1% 78,732 -7.5% (4) The District first implemented a meter availability charge for recycled customers on September 1, 2013. Source: San Dieguito Water District 195 Table 5 San Dieguito Water District Summary of Water Production by Source Last Ten Fiscal Years Potable Production (6) Fiscal Local Imported Total Recycled Total Year Water Water Potable Water Production 2008 3,539 3,753 7,292 676 7,968 2009 3,869 3,369 7,237 694 7,931 2010 4,399 2,156 6,555 498 7,053 2011 4,434 1,901 6,335 511 6,846 2012 3,719 2,663 6,382 578 (6) 6,960 2013 4,200 2,395 6,595 678 (6) 7,273 2014 1,136 5,598 6,734 692 7,426 2015 603 5,726 6,329 736 7,065 2016 1,400 3,839 5,239 628 5,867 2017 1,446 3,984 5,430 654 6,084 (5) Potable water production is defined as water either produced locally or purchsed from imported sources (expressed in acre-feet). Table 6 San Dieguito Water District Summary of Water Deliveries by Source Last Ten Fiscal Years Fiscal Percent Percent Year Potable Change Recycled Change 2008 6,753 -11.1% 676 -4.5% 2009 6,463 -4.3% 694 2.7% 2010 5,649 -12.6% 498 -28.2% 2011 5,425 -4.0% 511 2.6% 2012 5,957 9.8% 578 (6) 13.1% 2013 6,284 5.5% 678 (6) 17.3% 2014 6,449 2.6% 692 2.1% 2015 6,134 -4.9% 736 6.4% 2016 5,112 -16.7% 628 -14.7% 2017 5,287 3.4% 654 4.1% (6) Since 2012 Recycled Water Production and Delivery figures are revised to include water 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 District 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. Note: 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. Source: San Dieguito Water District 196 Table 7 San Dieguito Water District Sales by Customer Class As of June 30, 2017 Acre-Feet Percent of Customer Description Sold Water Sold Agriculture 175 3.3% Commercial 509 9.6% Construction 15 0.3% Government 22 0.4% Landscaping 378 7.1% Multi-Family Residential 1127 21.3% Public 122 2.3% Single-Family Residential 2939 55.6% Total Sales o Source: San Dieguito Water District Table 8 San Dieguito Water District Total Service Connections by Category Last Ten Fiscal Years Fiscal Percent Percent Year Potable Increase Recycled Increase 2008 11,364 0.2% 59 5.4% 2009 11,370 0.1% 68 15.3% 2010 11,388 0.2% 73 7.4% 2011 11,397 0.1% 72 -1.4% 2012 11,476 0.7% 74 2.8% 2013 11,502 0.2% 77 4.1% 2014 11,610 0.9% 77 0.0% 2015 11,644 0.3% 81 5.2% 2016 11,721 0.7% 82 1.2% 2017 11,740 0.2% 87 6.1% 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. 197 l� This page intentionally left blank. 198 THE PUN GROUP ACCOUNTANTS&ADVISORS INDEPENDENT AUDITORS' 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 To the Honorable Mayor and Members of the City Council of the City of Encinitas 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 governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Encinitas, California (the "City"), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated December 13, 2017. Our report includes a reference to other auditors who audited the financial statements of the following: R.E. Badger Joint Powers Authority, R.E. Badger Financing Authority, and the Encina Wastewater Authority, which are reported as Investment in Other Agencies in the business-type activities, the San Dieguito Water District major enterprise fund, and the Encinitas Sanitary Division, as described in our report on the City's financial statements. This report does not include the results of the other auditors' testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City'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 City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City'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. 4365 Executive Drive, Suite 710,San Diego,California 92121 Tel:858-242-5100• Fax:858-242-5150 www.pungroup.com To the Honorable Mayor and Members of the City Council of the City of Encinitas Encinitas, California Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City'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 City'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 City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. cG� ' San Diego, California December 13, 2017 200 the city of E N C I N I T A CITY OF ENCINITAS 505 S . Vulcan Avenue Encinitas , CA 92024 Phone : 760 . 63 3 . 2600 FAX : 760 . 633 . 2879 www . EncinitasCA . gov