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2018 SDWD Annual Financial ReportSan Dieguito Water District Annual Financial Report For the Year Ended June 30, 2018 San Dieguito Water District A Component Unit of the City of Encinitas San Dieguito Water District Table of Contents Page FINANCIAL SECTION Independent Auditors’ Report on Financial Statements ......................................................................... 1 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 ................................................... 6 Management’s Discussion and Analysis (Required Supplementary Information – Unaudited) .......... 7 Basic Financial Statements: Statements of Net Position ....................................................................................................................... 15 Statements of Revenues, Expenses, and Changes in Net Position ......................................................... 16 Statements of Cash Flows ......................................................................................................................... 17 Notes to the Financial Statements ............................................................................................................ 19 Required Supplementary Information (Unaudited): Schedule of Funding Progress ............................................................................................................ 53 Schedule of Proportionate Share of the Net Pension Liability and Related Ratios.............................. 54 Schedule of Contributions .................................................................................................................... 55 Schedule of Proportionate Share of the Net OPEB Liability and Related Ratios ................................. 56 Schedule of Contributions - OPEB....................................................................................................... 57 SELECTED STATISTICAL INFORMATION SECTION (UNAUDITED) Schedule of Water Rates ..................................................................................................................... 62 Bi-Monthly Meter Service Availability Charges .................................................................................... 62 Historic Potable Water System Revenues ........................................................................................... 63 Historic Recycled Water System Revenues ........................................................................................ 63 Summary of Water Production by Source ............................................................................................ 64 Summary of Water Deliveries by Source ............................................................................................. 64 Sales by Customer Class..................................................................................................................... 65 Total Service Connections by Category ............................................................................................... 65 Historical Debt Service Coverage ........................................................................................................ 66 This page intentionally left blank. San Dieguito Water District, 505 S Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov FINANCIAL SECTION This page intentionally left blank. INDEPENDENT AUDITORS’ REPORT To the Board of Directors of the San Dieguito Water District Encinitas, California Report on Financial Statements We have audited the accompanying financial statements of the San Dieguito Water District (the “District”), a component unit of the City of Encinitas, California (the “City”), which comprise the statement of net position as of June 30, 2018 and June 30, 2017 and the related statements of revenues, expenses, and changes in net position, and cash flows for the years then ended, and the related notes to financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audits. Investment in R.E. Badger Filtration Plant We did not audit the financial statements of the R.E. Badger Filtration Plant which represents the following percentages of the assets, net position, and expenses of the District as of June 30, 2018 and June 30, 2017: % of Total June 30, 2018 June 30, 2017 Assets 33% 35% Net Position 43% 48% Expenses 11% 11% Those statements were audited by other auditors whose report has been furnished to us, and our opinion, in so far as it relates to the amounts included for the Investments in R.E. Filtration Plant, is based solely on the report of the other auditors. 4365 Executive Drive, Suite 710, San Diego, California 92121 Tel: 858-242-5100 • Fax: 858-242-5150 www.pungroup.com 3939352 Pun & McGeady_L_final.pdf 2 1/14/14 3:48 PM To the Board of Directors of the San Dieguito Water District Encinitas, California Page 2 2 Investment in R.E. Badger Water Facilities Financing Authority We did not audit the financial statements of the R.E. Badger Water Facilities Financing Authority which represents the following percentages of the assets, net position, and expenses of the District as of June 30, 2018 and June 30, 2017: % of Total June 30, 2018 June 30, 2017 Assets 1% 1% Net Position 2% 2% Expenses 5% 5% Those statements were audited by other auditors whose report has been furnished to us, and our opinion, in so far as it relates to the amounts included for the Investments in R.E. Filtration Plant, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our audit and the report of others auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the District as of June 30, 2018 and June 30, 2017, and the changes in financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. To the Board of Directors of the San Dieguito Water District Encinitas, California Page 3 3 Emphasis of Matter Change in Accounting Principle As discussed in Note 11 to the financial statements, in 2018, the District adopted new accounting guidance, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The adoption of this statement requires retrospective application of previously reported net position at July 1, 2017 as described in Note 13 to the basic financial statements. In addition, Total OPEB Liability is reported in the Statement of Net Position in the amount of $315,665 as of June 30, 2017, the measurement date. This Net OPEB Liability is calculated by actuaries using estimates and actuarial techniques from an actuarial valuation as of June 30, 2017. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the schedule of funding progress, schedule of changes in net pension liability and related ratios, schedule of contributions, and schedule of changes in net OPEB liability and related ratios, schedule of contributions - OPEB, on pages 7-11 and 52-56, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements. The statistical section is presented for purposes of additional analysis and is not a required part of the basic financial statements. The statistical section has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on them. To the Board of Directors of the San Dieguito Water District Encinitas, California Page 4 4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 27, 2018, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering District’s internal control over financial reporting and compliance. San Diego, California December 27, 2018 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Independent Auditors’ Report To the Board of Directors of the San Dieguito Water District Encinitas, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the San Dieguito Water District (the “District”), a component unit of the City of Encinitas, California (the “City”), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated December 27, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (“internal control”) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control. 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 District’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 4365 Executive Drive, Suite 710, San Diego, California 92121 Tel: 858-242-5100 • Fax: 858-242-5150 www.pungroup.com 3939352 Pun & McGeady_L_final.pdf 2 1/14/14 3:48 PM To the Board of Directors of the San Dieguito Water District Encinitas, California Page 2 6 Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Diego, California December 27, 2018 San Dieguito Water District Management’s Discussion & Analysis (Unaudited) 7 This section of the San Dieguito Water District (the “District”) Annual Financial Report presents Management’s Discussion and Analysis of the District’s financial position and performance for Fiscal Year 2017-18. Please read it in conjunction with the District’s Basic Financial Statements, which include explanatory footnotes and required supplementary information. FINANCIAL HIGHLIGHTS Table 1 Summarized Statement of Net Position (Millions of Dollars) The District’s net position increased by $2.9 million, or 6.3 percent, from 2017 to 2018. A majority of the increase is the result of a net investment increase in capital assets. The District had positive cash flows from operations in 2018, after factoring in debt service payments of $1.4 million. Rates had minor impact on the net position as the last rate increase went into effect January 1, 2017 after approval by the Board on January 20, 2016. There was no rate increase in 2018. San Dieguito Water District Management’s Discussion & Analysis (Continued) (Unaudited) 8 Changes in Net Position are affected by revenues and operating expenses as summarized in Table 2. Table 2 Summarized Statement of Revenues, Expenses and Changes in Net Position (Millions of Dollars) Revenues – Operating revenues increased $2.1 million from 2017 to 2018 due to higher potable water and recycled water sales. Non-operating revenues remained flat from 2017 to 2018. Expenses – Operating expenses increased $0.1 million from 2017 to 2018 mainly due to increased maintenance of facilities and general operations. Capital contributions decreased from 2017 to 2018 due to lower levels of development activity within the District. San Dieguito Water District Management’s Discussion & Analysis (Continued) (Unaudited) 9 Net Position – The net position was restated in 2018 to reflect Board action taken in October 2017 approving a revised Reserve Policy. The previous Reserve Policy had the Operating Reserve set at 60 days’ worth of the following year annual operating expenses for the District and the Capital Replacement Reserve set at 2 to 3 times of the average future 5-year capital appropriation. The Board approved the Operating Reserve to be increased to 90 days’ worth of the following year annual operating expenses and the Capital Replacement Reserve to be reduced to 1 to 2 times of the average future 5-year capital appropriation, in conformance with industry standards and similar to neighboring agencies. CAPITAL ASSETS AND CAPITAL IMPROVEMENT PROGRAMS The District has an ongoing capital improvement program and publishes a capital budget every year. The capital budget includes funding for both infrastructure and various large consulting projects, such as capital master plans and water rate studies. The District generally capitalizes infrastructure and expenses consulting studies in the accompanying Basic Financial Statements. Capital expenditures for infrastructure are accounted for in the accompanying financial statements either as: (1) additions to Capital Assets, or (2) additions to Investments in Joint Ventures. Additions to Capital Assets totaled approximately $0.4 million, which is primarily the replacement or improvements to the water distribution system and purchases of vehicles and equipment. The District also capitalized approximately $0.4 million of capital improvement costs paid for the R.E. Badger Joint Facilities. The overall budget of the District for capital improvements averages about $3.1 million per year over the next seven years. Table 3 Capital Assets, Net of Accumulated Depreciation (Millions of Dollars) San Dieguito Water District Management’s Discussion & Analysis (Continued) (Unaudited) 10 DEBT ADMINISTRATION Table 4 Long-Term Debt The District’s total long-term debt outstanding at June 30 consisted of: On September 18, 2014, the District issued $5,870,000 of Water Revenue Refunding Bonds, Series 2014. The Series 2014 bonds redeemed all of the District’s outstanding 2004 Water Revenue Refunding Bonds remaining of $8,110,000, which were themselves a refunding of the District’s original 1993 Water Revenue Bonds. The 2014 refunding resulted in saving the District approximately $250,000 annually in debt service costs, due to lower market interest rates and the elimination of a reserve previously required on the 2004 bonds. Interest is due and payable semi-annually at rates ranging from 3.0 percent to 4.0 percent. On November 20, 2007, the Authority issued $20,685,000 of 2007 Water Refunding Bonds while concurrently redeeming all of its outstanding 1999 Water Revenue Bonds, on behalf of its member agencies, the Santa Fe Irrigation District and the San Dieguito Water District. The transaction was a current refunding intended to save the member agencies future interest costs due to lower market interest rates. No new funds were raised by either agency. New Installation Purchase Agreements were executed, which saves the District approximately $60,000 per year on debt service. The debt service payments on these two obligations will total approximately $1.4 million annually, going forward. The District has covenanted to maintain debt service coverage of at least 115 percent of net revenues available for debt service each fiscal year. The District was in compliance with its debt service coverage requirement for the FY 2017-18. The District does not currently have plans to issue additional debt. San Dieguito Water District Management’s Discussion & Analysis (Continued) (Unaudited) 11 ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES On June 28, 2017, the District Board of Directors (Board) approved the two-year operating and capital budget for FY 2017-18 and FY 2018-19. During the two-year budget cycle, funds are appropriated in the first fiscal year only and then the District returns to the Board one year later to present its “second-year revise” budget, which is revised based on changed assumptions to the originally published figures for the second year. On June 20, 2018, the Board approved the FY 2018-19 operating and capital “second-year revise” budget. The operating budget anticipates total revenues of $18.6 million, which is an overall increase of $0.4 million over the prior year. On January 20, 2016, the Board approved an updated two-year water rate study, modifying the District’s water rates and meter service charges. This action approved an overall revenue increase from rates and charges of 6.5 percent on February 1, 2016 and another 6.5 percent overall rate and charge increase on January 1, 2017. Another update to the District’s water rate schedule is scheduled to occur in Spring 2019, which may result in new water rate and charge increases. Operating expenses for FY 2018-19 are budgeted at $14.9 Million or approximately $2.5 million more than prior year. The increase is largely due to the increased cost of water. The Board also approved a modest 2.0 percent increase in salaries and benefits in Fiscal Year 2018-19. The capital budget anticipates capital costs at $3.0 million, which is on par with the average for the next seven years. This includes $1.1 million for District capital improvements and $1.9 million for capital contributions to the R.E. Badger Joint Facilities. Overall, the District expects to end FY 2018-19 with an available fund balance of $11.0 million, based on its internal projections CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT If you have questions about this report or need additional information, please contact the City of Encinitas Finance Department or the San Dieguito Water District General Manager’s office. 12 This page intentionally left blank. San Dieguito Water District, 505 S Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 13 BASIC FINANCIAL STATEMENTS 14 This page intentionally left blank. 2018 2017 ASSETS Current assets: Cash and investments 16,103,120$ 13,671,646$ Restricted cash and investments with fiscal agent 156 65 Accounts receivables, net 2,308,598 2,243,159 Inventories 237,791 221,388 Total current assets 18,649,665 16,136,258 Noncurrent assets: Investments in joint ventures 21,810,960 22,547,246 Capital assets, net 23,687,954 23,222,557 Total noncurrent assets 45,498,914 45,769,803 Total assets 64,148,579 61,906,061 DEFERRED OUTFLOWS OF RESOURCES OPEB related items 53,291 - Pension related items 2,148,106 1,540,047 Total deferred outflows of resources 2,201,397 1,540,047 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 851,121 1,189,620 Accrued interest payable 86,465 97,259 Deposits 402,300 298,195 Compensated absences - due within one year 73,807 162,845 Long-term debt - due within one year 1,100,000 1,060,000 Total current liabilities 2,513,693 2,807,919 Noncurrent liabilities: Compensated absences - due more than one year 54,236 - Long-term debt - due in more than one year 7,276,231 8,450,602 Net OPEB liability 315,665 - Aggregate net pension liability 7,141,232 6,288,631 Total noncurrent liabilities 14,787,364 14,739,233 Total liabilities 17,301,057 17,547,152 DEFERRED INFLOWS OF RESOURCES OPEB related items 7,074 - Pension related items 447,916 168,372 Total deferred inflows of resources 454,990 168,372 NET POSITION Net investment in capital assets 15,311,723 13,711,955 Restricted 156 65 Unrestricted 33,282,050 32,018,564 Total net position 48,593,929$ 45,730,584$ June 30, 2018 and 2017 Statements of Net Position San Dieguito Water District See accompanying Notes to the Financial Statements 15 2018 2017 OPERATING REVENUES Charges for services 16,791,403$ 14,788,114$ Rental income 109,229 91,247 Interfund revenues 61,329 63,863 Other revenue 63,493 37,620 Total operating revenues 17,025,454 14,980,844 OPERATING EXPENSES Source of supply 5,029,043 5,888,028 General operations and maintenance 5,208,840 4,982,370 Facility operations and maintenance 2,266,216 1,570,463 General and administrative 527,197 453,276 Depreciation of capital assets 703,955 694,595 Amortization of other assets - 98,155 Insurance and claims 65,037 - Total operating expenses 13,800,288 13,686,887 NET OPERATING INCOME (LOSS)3,225,166 1,293,957 NONOPERATING REVENUES (EXPENSES) Property taxes 1,030,168 959,873 Investment earnings 53,880 81,966 Gain on sale of capital assets 8,285 6,925 Amortization of investment in joint ventures (1,144,958) (284,032) Accretion of bond premium 74,372 74,372 Interest expense (328,051) (366,740) Total nonoperating revenues (expenses)(306,304) 472,364 INCOME BEFORE CAPITAL CONTRIBUTIONS 2,918,862 1,766,321 CAPITAL CONTRIBUTIONS Contribution of capital assets: Donation - 258,940 Easements 38,253 43,477 Connection fees 194,040 161,600 Total capital contributions 232,293 464,017 CHANGES IN NET POSITION 3,151,155 2,230,338 NET POSITION: Beginning of year, as restated (Note 13)45,442,774 43,500,246 End of year 48,593,929$ 45,730,584$ San Dieguito Water District Statements of Revenues, Expenses, and Changes in Net Position For the Years Ended June 30, 2018 and 2017 See accompanying Notes to the Financial Statements 16 2018 2017 Cash flows from operating activities: Receipts from users 16,835,193$ 15,118,189$ Receipts from interfund charges 61,329 63,863 Payments to employees and suppliers for goods and services (12,876,209) (12,667,002) Other operating revenues 63,493 37,620 Net cash provided by operating activities 4,083,806 2,552,670 Cash flows from noncapital financing activities: Receipts from property taxes 1,030,168 959,873 Net cash provided by noncapital and related financing activities 1,030,168 959,873 Cash flows from capital and related financing activities: Acquisition of capital assets (1,169,352) (1,433,511) Capital contributions - connection fees 232,293 464,017 Principal payments on bonds and note payable (1,060,000) (1,025,000) Interest payments on bonds and note payable (338,843) (374,783) Capital related payments to R.E. Badger Filtration Plant (408,672) (3,051,139) Proceeds from sale of capital assets 8,285 6,925 Net cash (used in) capital and related financing activities (2,736,289) (5,413,491) Cash flows from investing activities: Investment income received 53,880 81,966 Net cash provided by investing activities 53,880 81,966 Net increase (decrease) in cash and cash equivalents 2,431,565 (1,818,982) Cash and cash equivalents, beginning of year 13,671,711 15,490,693 Cash and cash equivalents, end of year 16,103,276$ 13,671,711$ Reconciliation of cash and cash equivalents to the Statements of Net Position: Current assets: Cash and investments 16,103,120$ 13,671,646$ Restricted cash and investments with fiscal agent 156 65 Total cash and cash equivalents 16,103,276$ 13,671,711$ San Dieguito Water District Statements of Cash Flows For the Years Ended June 30, 2018 and 2017 See accompanying Notes to the Financial Statements 17 2018 2017 Reconciliation of operating income to net cash provided by operating activities: Operating income 3,225,166$ 1,009,925$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 703,955 1,076,782 Changes in operating assets, deferred outflows of resources, liabilities, and deferred inflows of resources: Accounts receivable (65,439) 238,828 Inventory and prepaid items (16,403) (39,995) OPEB related deferred outflows of resources 10,037 - Pension related deferred outflows of resources (608,060) (699,416) Accounts payable and accrued liabilities (338,499) (127,094) Deposits 104,105 (56,433) Compensated absences (34,802) - Net OPEB liability (35,473) Net pension liability 852,601 1,269,138 OPEB-related deferred inflows 7,074 - Pension-related deferred inflows 279,544 (119,065) Net cash provided by operating activities 4,083,806$ 2,552,670$ Noncash capital and related financing activities: Amortization of original issue premium 74,372$ 74,372$ Contribution of capital assets 38,253 302,417 112,625$ 376,789$ For the Years Ended June 30, 2018 and 2017 Statements of Cash Flows (Continued) San Dieguito Water District See accompanying Notes to the Financial Statements 18 San Dieguito Water District Notes to the Financial Statements For the Years Ended June 30, 2018 and 2017 19 Note 1 – Reporting Entity San Dieguito Water District (the “District”) was formed in 1922 under the laws of the State of California to supply irrigation and potable water services to the central western portion of San Diego County. The District became a subsidiary district of the City of Encinitas, California (the “City”) on October 1, 1986, pursuant to an election approving the San Dieguito Reorganization and the incorporation of the City. The District is considered a component unit of the City, based on the provisions of Governmental Accounting Standards Board (“GASB”) Statement No. 61, The Financial Reporting Entity: Omnibus - An Amendment of GASB Statement No. 14 and No. 34. Note 2 – Summary of Significant Accounting Policies Basis of Presentation Financial statement presentation follows the recommendations promulgated by the Governmental Accounting Standards Board (“GASB”) commonly referred to as accounting principles generally accepted in the United States of America (“U.S. GAAP”). GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting standards. Measurement Focus, Basis of Accounting and Financial Statements Presentation The Financial Statements (i.e., the statement of net position, the statement of revenues, expenses and changes in net position, and statement of cash flows) report information on all of the activities of the District. The Financial Statements are reported using the “economic resources” measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Interest associated with the current fiscal period is considered to be susceptible to accrual and so has been recognized as revenue of the current fiscal period. The Statement of Net Position reports separate sections for Deferred Outflows of Resources, and Deferred Inflows of Resources, when applicable. Deferred Outflows of Resources represent outflows of resources (consumption of net position) that apply to future periods and that, therefore, will not be recognized as an expense until that time. Deferred Inflows of Resources represent inflows of resources (acquisition of net position) that apply to future periods and that, therefore, are not recognized as revenue until that time. Operating revenues are those revenues that are generated from the primary operations of the District. The District reports a measure of operations by presenting the change in net position from operations as "operating income" in the statement of revenues, expenses, and changes in net position. Operating activities are defined by the District as all activities other than financing and investing activities (interest expense and investment income), and other infrequently occurring transaction of a non-operating nature. Operating expenses are those expenses that are essential to the primary operations of the District. All other expenses are reported as non-operating expenses. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 20 Note 2 – Summary of Significant Accounting Policies (Continued) Cash and Investments Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less and are carried at cost, which approximates fair value. The majority of the District’s cash and investments is invested in the City’s pooled investment fund (the “City Pool”). The District does not own any specifically identifiable securities or investments in the City Pool. As a participant in the City Pool, the District has rights to its ratable share of the pooled cash and investments in the City Pool, on a dollar-for-dollar basis. The District’s ratable share of investment income from the City Pool is calculated and distributed on a monthly basis. Investment income is reported as non-operating revenue in the Statement of Revenues, Expenses, and Changes in Net Position. Since all amounts invested in the City Pool are available upon demand, the District considers all amounts invested in the City Pool to be cash equivalents. Certain disclosure requirements, if applicable for deposit and investment risk, are specified for the following areas:  Interest Rate Risk  Credit Risk  Overall  Custodial Credit Risk  Concentration of Credit Risk  Foreign Currency Risk Restricted Cash and Investments Cash and investments with fiscal agents are restricted due to limitations on their use by bond covenants or donor limitations. Fiscal agents acting on behalf of the District hold investment funds arising from the proceeds of long-term debt issuances. The funds may be used for specific capital outlays or for the payment of certain bonds, and have been invested only as permitted by specific State statutes or applicable District ordinance, resolution or bond indenture. 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. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 21 Note 2 – Summary of Significant Accounting Policies (Continued) Receivables and Unbilled Revenues Customer accounts receivable consist of amounts owed by private individuals and organizations for services rendered in the regular course of business operations. Receivables are shown net of allowances for doubtful accounts, if any. The District also accrues an estimated amount for services that have been provided, but not yet billed. Federal and State grants accrued as revenue when all eligibility requirements have been met. Amount earned but outstanding at year end are reported as accounts receivable. Inventory of Materials Inventories consist primarily of materials used in the construction and repair of the District’s plant and equipment and on-site supplies such as water meters. Inventory is stated at cost using average-cost basis. Other Assets The District’s defined-benefit pension plan, which has less than 100 active members, was required to enroll in a CalPERS risk-sharing pool in 2003. As part of that enrollment process, CalPERS calculated the funded status of the plan and compared that amount to the funded status of the risk pool at inception, and a “side fund liability” was created. The difference was financed by CalPERS over a 17 year period at the assumed rate of return of the CalPERS pooled investment fund (7.75 percent). The District elected to prepay the full amount of $981,523 in Fiscal Year 2006-07 and has capitalized this amount in the Statement of Net Position. This amount is being amortized over ten (10) years on a straight-line basis. At June 30, 2018 and 2017, this amount is fully amortized. Investment in R.E. Badger Filtration Plant (the “Joint Facilities”) The District’s investment in the Joint Facilities is accounted for using the equity method of accounting. The District makes periodic contributions to cover its share of capital and operating costs. Contributions for capital are accounted for as an increase in the District’s investment account. Contributions for operations are accounted for as operating expenses under the classification: facility operations and maintenance. Depreciation expense on plant operations that is charged to the District is accounted for as an operating expense. Investment in R.E. Badger Water Facilities Financing Authority (the “Financing Authority”) The District’s investment in the Financing Authority is accounted for using the equity method of accounting. The equity interest is comprised primarily of bond reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. Changes in the investment account result primarily from interest revenues on reserve funds and amortization expense on the bond discounts and issuance costs. These items are classified as non-operating revenues and expenses in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 22 Note 2 – Summary of Significant Accounting Policies (Continued) Capital Assets Capital assets consist of land easements, the perpetual right-of-use of the City’s Public Works facility, structure and improvements, machinery and equipment, distribution system, and capacity rights. Capital assets are valued at historical cost, or estimated historical cost, if actual historical cost was not available. Donated capital assets are valued at their estimated fair market value on the date donated. The District policy has set the capitalization threshold for reporting capital assets at $5,000 for non-infrastructure assets and $100,000 for infrastructure assets, all of which must have an estimated useful life in excess of one year. Depreciation is recorded on a straight-line basis over estimated useful lives of the assets as follows: Structures and improvements 20-45 years Equipment, machinery and vehicles 5-20 years Collection and distribution system 50 years Capacity rights 50 years Major outlays for capital assets are capitalized as projects, once constructed, and repairs and maintenance costs are expensed. Interest accrued during capital assets construction, if any, is capitalized as part of the asset cost, net of interest income, on construction bond proceeds. Deposits Deposits consist of cash amounts that the District has collected from customers related to on-going construction work being performed by the applicant. It can either be a “job deposit,” which is an amount collected to cover the expected costs to the District related to the project, or a “security deposit” which is meant to help guarantee that the work required of the applicant will be completed to the satisfaction of the District. Compensated Absences The District’s policy permits its employees to accumulate not more than one and one half of their current annual vacation. The District participates in the City's short term disability income protection plan (IPP) Program which provides employees with protection against loss of income due to illness or disability. Employees do not earn any number of hours of sick leave and thus, no provision has been made for sick leave liability under the account for compensated absences. The unused vacation pay will be paid to employee or his/her beneficiary upon leaving the District’s employment. The amount due will be determined using salary/wage rate in effect at the time of separation. Long-Term Debt Debt premiums and discounts are deferred and amortized over the life of the debt using the straight-line method. Long-term debt is reported net of the applicable bond premium or discount. Debt issuance costs are expensed when incurred. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 23 Note 2 – Summary of Significant Accounting Policies (Continued) Pensions For purposes of measuring the net pension liability at June 30, 2018, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the plans and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans (Note 9). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value. The following timeframes are used for pension reporting: For the Year Ended June 30, 2018 Valuation Date June 30, 2016 Measurement Date June 30, 2017 Measurement Period July 1, 2016 to June 30, 2017 Other Postemployment Benefits (“OPEB”) For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the District Retiree Benefits Plan (“OPEB Plan”) and additions to/deductions from OPEB Plan's fiduciary net position have been determined on the same basis as they are reported by the OPEB Plan. For this purpose, the OPEB Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value, except for money market investments, which are reported at amortized cost. The following timeframes are used for OPEB reporting: For the Year Ended June 30, 2018 Valuation Date June 30, 2017 Measurement Date June 30, 2017 Measurement Period July 1, 2016 to June 30, 2017 Arbitrage Rebate Requirement The District is subject to the Internal Revenue Code (“IRC”) Section 148(f), related to its tax exempt revenue bonds. The IRC requires that investment earnings on gross proceeds of any revenue bonds that are in excess of the amount prescribed will be surrendered to the Internal Revenue Service. The District had no rebate liability for arbitrage as of June 30, 2018 and 2017. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 24 Note 2 – Summary of Significant Accounting Policies (Continued) Net Position Net position represents the difference between all other elements in the statement of net position and should be displayed in the following three components: Net Investment in Capital Assets – This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets. Restricted – This component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Unrestricted – This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. Property Taxes Property taxes are levied on March 1 and are payable in two installments: November 1 and February 1 of each year. Property taxes become delinquent on December 10 and April 10, for the first and second installments, respectively. The lien date is March 1. The County of San Diego, California (“County”) bills and collects property taxes and remits them to the District according to a payment schedule established by the County. The County is permitted by State law to levy on properties at one percent of full market value (at time of purchase) and can increase the property tax rate at no more than two percent per year. The District receives a share of this basic tax levy proportionate to what it received during the years 1976-1978. Property taxes are recognized in the fiscal year for which the taxes have been levied. No allowance for doubtful accounts was considered necessary. Use of Restricted/Unrestricted Assets When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 25 Note 3 – Cash and Investments At June 30, cash and investments are reported in the accompanying statement of net position as follows: 2018 2017 Cash and investments 16,103,120$ 13,671,646$ Cash and investments with fiscal agent 156 65 Total cash and investments 16,103,276$ 13,671,711$ At June 30, cash and investments are reported at fair value based on quoted market prices. The following table presents 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: Fair Measurement Fair Measurement Value Input Value Input Cash on hand 300$ Uncategorized 300$ Uncategorized City of Encinitas pooled investments fund 16,102,976 Uncategorized 13,671,411 Uncategorized Total cash and investments 16,103,276$ 13,671,711$ 2018 2017 Authorized Investments The District’s investments are managed by the City. All of the District’s cash, except investments held by fiscal agents, are invested in the City Pool. The District has an equity interest in the City Pool equal to its proportionate share of invested cash. The District does not have a separate investment policy; its cash are invested according to the City of Encinitas’ adopted investment policy. The table below identifies the allowable investment types authorized by the California Government Code (the “Gov’t Code”) and the City’s adopted Investment Policy (the “Investment Policy”). The table also identifies certain restrictions related to interest rate risk and concentration of credit risk. The Investment Policy restricts the City Treasurer to investing in only the types of investments listed herein, which is more restrictive than the Gov’t Code, as the City’s policy does not allow certain investments to be purchased which are permitted under the Gov’t Code. Authorized Maximum Maximum by Investment Maximum Percentage of Investment in Authorized Investment Type Policy Maturity Portfolio One Issuer Repurchased Agreements-Overnight "Sweep" Yes 1 day 20% No Limit Local Agency Investment Fund (LAIF) Yes N/A 30% No Limit Other Governmental Managed Investment Pools Yes N/A 30% No Limit Money Market Mutual Funds Yes N/A 20% 10% Certificates of Deposit Yes 1 year 10% $1M Negotiable Certificates of Deposit Yes 5 years 10% $1M Bankers' Acceptances Yes 180 days 10% $1M U.S. Treasury Bills, Notes and Bonds Yes 5 years 50% 15% U.S. Government Sponsored Enterprises Yes 5 years 60% 15% Commercial Paper Yes 270 days 25% $5M Commercial Medium-Term Notes Yes 5 years 15% $1M San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 26 Note 3 – Cash and Investments (Continued) Investments Authorized and Utilized under Debt Agreements The investment of the proceeds of debt issues is governed by the provisions of the 2004 Bond Indenture. Although there are several authorized investment instruments, the District’s reserve fund is currently invested 100 percent in a Money Market Mutual Fund. Disclosures Related to Interest Rate Risk The District invests all of its excess cash in the City Pool. As a participant, the District has immediate access to its funds on a dollar-for-dollar basis. The allocation of investment income is made to the District based on the book value of its investment (which approximates fair market value). As a result, the District is not exposed to interest rate risk, as it would be if it owned direct securities for its own account. The District’s investment with fiscal agents consists of an institutional money market mutual fund. This Fund has a stable net asset value of $1.00 and the funds can be withdrawn at any time without prior notice. Any changes to the fair value of this money market mutual fund are allocated on a monthly basis to each participant, as a part of their monthly distribution. Disclosures Relating to Credit Risk Credit risk is defined as the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical organization. Presented below is the minimum rating required by (where applicable) the Gov’t Code, the Investment Policy, or the debt agreements, and the actual rating as of year end for each investment type. Credit ratings as of June, 30, 2018 were as follows: Minimum Legal AAA/ Investment Type Totals Rating Aaa Not Rated Investment in City Pool 16,102,976$ N/A -$ 16,102,976$ Total investments 16,102,976$ -$ 16,102,976$ Rating as of Year End Credit ratings as of June, 30, 2017 were as follows: Minimum Legal AAA/ Investment Type Totals Rating Aaa Not Rated Investment in City Pool 13,671,411$ N/A -$ 13,671,411$ Total investments 13,671,411$ -$ 13,671,411$ Rating as of Year End San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 27 Note 3 – Cash and Investments (Continued) Disclosures Relating to Credit Risk (Continued) The investment policy contains limitations on the amount that can be invested in any one issuer beyond those stipulated in the Gov’t Code. GASB Statement No. 40 requires disclosure by amount and issuer, of investments in any one issuer that represent five percent or more of total investments. As of June 30, 2018, both the Investment in City Pool exceeded five percent of the District’s total cash and investments. As of June 30, 2017 the Investment in City Pool exceeded five percent of the District’s total cash and investments. Disclosures Relating to Custodial Credit Risk The District is exposed to custodial credit risk indirectly via its investment in the City Pool. Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, an entity may not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, an entity may not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Government Code and the Investment Policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provisions for deposits: The Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging qualifying securities in an undivided collateral pool held by a depository regulated under State Law. The market value of the qualifying pledged securities must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits. At June 30, 2018 and 2017 the District had no deposits with financial institutions or any other parties that would subject the District to custodial credit risk. Note 4 – Investment in Joint Ventures At June 30, investment in joint ventures consisted of the following: 2018 2017 R.E. Badger Filtration Plant 21,045,875$ 21,786,604$ R.E. Badger Water Facilities Financing Authority 765,085 760,642 Total investment in other agencies 21,810,960$ 22,547,246$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 28 Note 4 – Investment Other Agencies (Continued) R.E. Badger Filtration Plant In 1967, the District entered into an agreement with the Santa Fe Irrigation District (Santa Fe) for the joint ownership, maintenance, operation, and use of a water treatment plant and various facilities for the storage and delivery of potable water. During the ensuing years, the parties have added various facilities and improvements, which are owned in different percentages depending on the type of facility and the agreements in place. The ownership percentages of the Joint Facilities are described below: San Dieguito Santa Fe Facilities Water District Irrigation District Filtration Plant 45% 55% Filtered Water Reservior (13 million gallons) 31% 69% Joint Pipeline 39% 61% San Dieguito Reservoir 42% 58% Santa Fe is responsible for the operations, maintenance, and construction of capital improvements of the Joint Facilities, as well as the related administration. For the years ended June 30, 2018 and 2017, the District made capital contributions of $413,387 and $3,051,139, respectively and recorded its share of depreciation and other allocated charges, as well as a true-up charge affecting the prior fiscal year. The investment balance at June 30, 2018 and 2017 was $21,045,875 and $21,786,604, respectively. Operations and maintenance costs are allocated monthly on the basis of the water used by each district, and administrative costs are allocated based on an agreed-upon cost allocation plan. For the years ended June 30, 2018 and 2017, the District’s share of operations and maintenance costs for the Joint Facilities was $2,266,216 and $1,570,463, respectively. R.E Badger Water Facilities Financing Authority In 1999, the District and Santa Fe entered into a joint exercise of powers agreement and formed the Financing Authority, to provide financing for the acquisition and construction of capital improvements related to the Joint Facilities. The Financing Authority subsequently issued revenue bonds for the purpose of funding those capital improvements. Each district is obligated under an Installment Purchase Agreement to repay their proportionate share of the costs of the long-term financing. The investment in the Financing Authority consists primarily of a share of the debt reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. The investment balance at June 30, 2018 and 2017 was $765,085 and $760,642, respectively. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 29 Note 5 – Capital Assets Summary of changes in capital assets for the year ended June 30, 2018 is as follows: Balance Balance July 1, 2017 Additions Deletions Transfers June 30, 2018 Capital assets, not depreciated Land easements 3,262,678$ 38,253$ -$ -$ 3,300,931$ Public works facilities right of use 3,378,700 - - - 3,378,700 Construction in progress 1,914,408 708,560 (57,419) (1,774,864) 790,685 Total capital assets, not depreciated 8,555,786 746,813 (57,419) (1,774,864) 7,470,316 Capital assets, being depreciated Structures and improvements 11,007 - - - 11,007 Machinery, equipment, and vehicles 2,312,153 59,999 (27,389) 131,323 2,476,086 Distribution system 39,567,447 419,959 - 1,643,541 41,630,947 Capacity rights 323,190 - - - 323,190 Total capital assets, being depreciated 42,213,797 479,958 (27,389) 1,774,864 44,441,230 Less accumulated depreciation Structures and improvements (5,595) (1,101) - - (6,696) Machinery and equipment (1,679,160) (169,843) 27,389 - (1,821,614) Distribution system (25,723,837) (526,548) - - (26,250,385) Capacity rights (138,434) (6,463) - - (144,897) Total accumulated depreciation (27,547,026) (703,955) 27,389 - (28,223,592) Total capital assets, being depreciated, net 14,666,771 (223,997) - 1,774,864 16,217,638 Total capital assets, net 23,222,557$ 522,816$ (57,419)$ -$ 23,687,954$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 30 Note 5 – Capital Assets (Continued) Summary of changes in capital assets for the year ended June 30, 2017 is as follows: Balance Balance July 1, 2016 Additions Deletions Transfers June 30, 2017 Capital assets, not depreciated Land easements 3,219,301$ 43,377$ -$ -$ 3,262,678$ Public works facilities right of use 3,378,700 - - - 3,378,700 Construction in progress 937,748 1,056,849 - (80,189) 1,914,408 Total capital assets, not depreciated 7,535,749 1,100,226 - (80,189) 8,555,786 Capital assets, being depreciated Structures and improvements 11,007 - - - 11,007 Machinery and equipment 2,355,844 74,345 (98,737) (19,299) 2,312,153 Distribution system 39,228,318 258,940 - 80,189 39,567,447 Capacity rights 323,190 - - - 323,190 Total capital assets, being depreciated 41,918,359 333,285 (98,737) 60,890 42,213,797 Less accumulated depreciation Structures and improvements (4,495) (1,100) - - (5,595) Machinery and equipment (1,624,431) (172,765) 98,737 19,299 (1,679,160) Distribution system (25,209,571) (514,266) - - (25,723,837) Capacity rights (131,970) (6,464) - - (138,434) Total accumulated depreciation (26,970,467) (694,595) 98,737 19,299 (27,547,026) Total capital assets, being depreciated, net 14,947,892 (361,310) - 80,189 14,666,771 Total capital assets, net 22,483,641$ 738,916$ -$ -$ 23,222,557$ Note 6 – Compensated Absences Summary of changes in compensated absences for the years ended June 30, 2018 and 2017 is as follows: Beginning Ending Due within Due in More Fiscal Year Balance Additions Deletions Balance One Year Than One Year 2017-2018 162,845$ 134,859$ (169,661)$ 128,043$ 73,807$ 54,236$ 2016-2017 161,310 131,111 (129,576) 162,845 162,845 - Compensated absences represent the dollar value of employee vacation leave earned (up to the specified maximum amount of hours) but unused as of June 30, 2018 and 2017. The balance outstanding of $73,807 and $162,845 at June 30, 2018 and 2017, respectively, are classified as a current liability because there are no restrictions on when employees may make use of their accrued vacation. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 31 Note 7 – Long-Term Debt A summary of changes in long-term debt for the year ended June 30, 2018, is as follows: Balance Balance Due within Due In More July 1, 2017 Additions Deletion June 30, 2018 One Year Than One Year 2007 Note Payable to R.E. Badger Water Facilities Financing Authority 4,275,000$ -$ (455,000)$ 3,820,000$ 475,000$ 3,345,000$ 2014 Water Revenue Bonds 4,715,000 - (605,000) 4,110,000 625,000 3,485,000 add: original issue premium 520,602 - (74,371) 446,231 - 446,231 Total long-term obligation 9,510,602$ -$ (1,134,371)$ 8,376,231$ 1,100,000$ 7,276,231$ A summary of changes in long-term debt for the year ended June 30, 2017, is as follows: Balance Balance Due within Due In More July 1, 2016 Additions Deletion June 30, 2017 One Year Than One Year 2007 Note Payable to R.E. Badger Water Facilities Financing Authority 4,715,000$ -$ (440,000)$ 4,275,000$ 455,000$ 3,820,000$ 2014 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 Total long-term obligation 10,609,973$ -$ (1,099,371)$ 9,510,602$ 1,060,000$ 8,450,602$ 2007 Note Payable to the R.E. Badger Water Facilities Financing Authority On November 20, 2007, the R.E. Badger Water Facilities Financing Authority issued $20,685,000 of 2007 Water Revenue Refunding Bonds while concurrently redeeming all of its outstanding 1999 Water Revenue bonds, on behalf of its member agencies, the Santa Fe Irrigation District and the San Dieguito Water District. The transaction was a current refunding intended to save the member agencies future interest costs due to lower market interest rates. New Installment Purchase Agreements were executed. The overall bond issue consists of $20,685,000 of serial bonds maturing from 2008 through 2024. The District’s portion of the refinancing totaled $7,705,000. Principal is due and payable annually in amounts ranging from $335,000 to $620,000. Interest is due and payable semi-annually at rates ranging from 3.5 percent to 4.5 percent. The District accounts for its share of the bonds as a note payable to the Financing Authority. Annual debt service requirements for the 2007 Note Payable to the R.E. Badger Water Facilities Financing Authority outstanding at June 30, 2018 are as follows: Year Ending June 30 Principal Interest Total 2019 475,000$ 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 570,000 66,043 636,043 2024-2025 1,215,000 54,865 1,269,865 Total 3,820,000$ 608,307$ 4,428,307$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 32 Note 7 – Long-Term Debt (Continued) 2014 Water Revenue Refunding Bonds On September 18, 2014, the District issued $5,870,000 of Water Revenue Refunding Bonds, Series 2014, to defease and refund on a current basis, all of the outstanding 2004 Water Revenue Refunding Bonds. The bonds consist of serial bonds maturing from 2016 through 2024 in annual installments of $570,000 to $755,000. Interest is due and payable semi-annually at rates ranging from 3.0 percent to 4.0 percent. 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 $780,873. The annual debt service requirements for the 2014 Water Revenue Refunding Bonds outstanding at June 30, 2018 are as follows: Year Ending June 30 Principal Interest Total 2019 625,000$ 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 725,000 44,700 769,700 2024 755,000 15,100 770,100 Total 4,110,000$ 508,475$ 4,618,475$ Pledged Revenues The District has pledged its net revenues (as defined) to pay the annual debt service on the bonds and note described above. The District has covenanted to set rates and charges in order to produce net revenues of at least 115 percent of annual debt service. During the years ended June 30, 2018 and June, 30, 2017, principal and interest paid were $1,398,844 and $1,401,319, respectively, net revenues available for debt service were $5,289,865 and $3,273,387, respectively, resulting in debt service coverage ratios of 378 percent and 235 percent, respectively. Note 8 – Risk Management Risk management programs and support for the District are provided by the City risk management department. The District is a member of the Association of California Water Agencies - Joint Powers Insurance Authority (JPIA), which provides coverage for general liability, property and casualty, and workers’ compensation. Self-insured retention level $10,000. As of June 30, 2018 and 2017, in the opinion of the District’s management and general counsel, there were no material claims which would require accrual in the accompanying financial statements. Management has determined, based on modest self-insurance retention levels and favorable claims experience, that no self-insurance reserve is required. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 33 Note 9 – Public Employees Retirement System – CalPERS Summary Net Pension Liability Net pension liability is reported in the Statement of Net Position as follows at June 30: 2018 2017 Net pension liability 7,141,232$ 6,288,631$ Total 7,141,232$ 6,288,631$ Deferred Outflows of Resources Deferred outflows of resources are reported in the accompanying Statement of Net Position as follows at June 30: 2018 2017 Pension contributions after the measurement date 504,492$ 472,819$ Changes of assumptions 891,674 - Difference between projected and actual earnings on pension plan investments 218,306 740,965$ Change in plan proportion 533,634 301,343 Total 2,148,106$ 1,540,047$ Deferred Inflows of Resources Deferred inflows of resources are reported in the accompanying Statement of Net Position as follows at June 30: 2018 2017 Difference between projected and actual experience 103,679$ -$ Employer contributions in excess of proportionate share of contributions 319,454 26,007 Changes in assumptions 24,783 142,365 Total 447,916$ 168,372$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 34 Note 9 – Public Employees Retirement System – CalPERS (Continued) Summary (Continued) Pension Expense Pension expense is included in the accompanying Statement of Revenues, Expenses, and Changes in Net Position as follows for the year ended June 30: 2018 2017 Pension Expense 591,501$ 923,486$ Total 591,501$ 923,486$ Plan Description The SDWD Plan (the Plan) is a cost-sharing multiple employer defined benefit plan that provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to members and beneficiaries, in which the District participates with other public agencies that each have fewer than 100 active members and share the same benefit formula. The Plan is administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statutes within the Public Employee’s Retirement Law. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office – 400 P Street, Sacramento, California 95814. Benefits Provided The SDWD Plan provides employees hired before October 13, 2012 with a Tier 1 benefit equal to 2.7 percent 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 percent 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 percent 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. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 35 Note 9 – Public Employees Retirement System – CalPERS (Continued) Employees Covered by Benefit Terms At June 30, the following employees were covered by the benefit terms for the Plan: 2018 2017 Active employees 23 25 Inactive employees or beneficiaries currently receiving benefits 33 32 Inactive employees entitled to, but not yet receiving benefits 6 7 Total 62 64 Contributions Section 20841(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1 following notice of a change of the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The public agency cost-sharing plans covered by the miscellaneous risk pools, the Plan’s actuarially determined rate is based on the estimated amount necessary to pay the Plan’s allocated share of the risk pool’s costs of benefits earned by employees during the year, and any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Active members in the Tier 1 Plan are required to contribute eight percent of their annual covered salary (the "employee contribution"). Effective October 13, 2012, all Tier 1 members contribute the full eight percent, which is credited to their individual accounts. Members receiving the Tier 2 or Tier 3 benefits are required to contribute seven percent, and 6.25 percent 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 rates for the year ended June 30, 2017 for Tier 1, Tier 2, and PEPRA employees were 11.634 percent, 7.159 percent, and 6.555 percent, respectively. The employer contribution rates for the year ended June 30, 2016 for Tier 1, Tier 2, and PEPRA employees were 10.958 percent, 6.709 percent, and 6.237 percent, respectively. The employer contribution rates are calculated and established annually by CalPERS, based on the actuarial methods and assumptions as adopted by the CalPERS Board of Administration. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 36 Note 9 – Public Employees Retirement System – CalPERS (Continued) Contributions (Continued) For the measurement period ended June 30, the Plan’s proportionate share of aggregate employer contributions made was as follows: 2018 2017 Contributions recognized as part of pension expense 472,819$ 356,509$ Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, the District reported net pension liabilities for its proportionate share 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: June 30, 2016 (Valuation date) 21,875,339$ 15,586,708$ 6,288,631$ Balance at: June 30, 2017 (Measurement date) 23,132,699 15,991,467 7,141,232 Net changes during 2016-2017 1,257,360$ 404,759$ 852,601$ Plan Total Plan Plan Net Pension Fiduciary Pension Liability Net Position Liability/(Asset) Balance at: June 30, 2015 (Valuation date) 21,378,148$ 16,358,655$ 5,019,493$ Balance at: June 30, 2016 (Measurement date) 21,875,339 15,586,708 6,288,631 Net changes during 2015-2016 497,191$ (771,947)$ 1,269,138$ The District’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 Plan is measured as of June 30, 2017, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2016 rolled forward to June 30, 2017 using standard update procedures. The District’s proportion of the net pension liability was based on a projection of the District’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 37 Note 9 – Public Employees Retirement System – CalPERS (Continued) Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions (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, 2014). 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, 2017 less the sum of all additional side fund (or unfunded liability) contributions made by all employers during the measurement period (2016-17). (3) The individual plan’s TPL, FNP and NPL are also calculated at the valuation date. (4) Two ratios are created by dividing the plan’s individual TPL and FNP as of the valuation date from (3) by the amounts in step (1), the risk pool’s total TPL and FNP, respectively. (5) The plan’s TPL as of the Measurement Date is equal to the risk pool TPL generated in (2) multiplied by the TPL ratio generated in (4). The plan’s FNP as of the Measurement Date is equal to the FNP generated in (2) multiplied by the FNP ratio generated in (4) plus any additional side fund (or unfunded liability) contributions made by the employer on behalf of the plan during the measurement period. (6) The plan’s NPL at the Measurement Date is the difference between the TPL and FNP calculated in (5). The District’s proportionate share of the net pension liability for each SDWD Plan as of the measurement date June 30 was as follows: Proportion June 30, 2017 0.1810300% Proportion June 30, 2018 0.1811600% Change - Increase (Decrease) 0.0001300% Proportion June 30, 2016 0.1829617% Proportion June 30, 2017 0.1810300% Change - Increase (Decrease) -0.0019317% For the years ended June 30, 2018 and 2017, the District recognized pension expense of $591,501 and of $923,486, respectively, for the SDWD Plan. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 38 Note 9 – Public Employees Retirement System – CalPERS (Continued) Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) At June 30 the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred outflows Deferred inflows Deferred outflows Deferred inflows of Resources of Resources of Resources of Resources Contribution made after the measurement date 504,492$ -$ 472,819$ -$ Difference between expected and actual experience - (103,679) 11,600 - Changes of assumptions 891,674 - - (142,365) Net difference between projected and actual earnings on pension plan investments 218,306 - 740,965 - Difference between employer's actual contributions and proportionate share of contributions - (319,454) 13,320 (26,007) Adjustments due to difference in proportions 533,634 (24,783) 301,343 - Total 2,148,106$ (447,916)$ 1,540,047$ (168,372)$ June 30, 2018 June 30, 2017 The $504,492 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 2019 $231,031 2020 687,707 2021 406,573 2022 (129,613) Thereafter - 1,195,698$ Measurement Period Ended June 30 2018 176,947$ 2019 148,909 2020 381,091 2021 191,909 Thereafter - 898,856$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 39 Note 9 – Public Employees Retirement System – CalPERS (Continued) Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2017 and 2016 (the measurement dates), the total pension liability was determined by rolling forward the June 30, 2016 and 2015 total pension liability determined in the June 30, 2016 and June 30, 2015 actuarial accounting valuations, respectively. The June 30, 2017 and June 30, 2016 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Actuarial Assumptions: Discount Rate 7.15% Inflation Salary Increases Investment Rate of Return Mortality Rate Table 1 Post Retirement Benefit Increase Entry Age Normal 2.75% Varies by Entry Age and Service 7.65% Net of Pension Plan Investment and Administrative Expenses; includes inflation Derived using CalPERS’ 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. Contract cost of living adjustment (COLA) up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter. 1 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. For more details on this table, please refer to CalPERS’ 2015 Experience Study report. All other actuarial assumptions used in the June 30, 2016 and June 30, 2015 valuations 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 No. 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 7.65 percent to 7.15 percent as of the June 30, 2016 measurement date to correct the adjustment which previously reduced the discount rate for administrative expenses. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 40 Note 9 – Public Employees Retirement System – CalPERS (Continued) Discount Rate The discount rate used to measure the total pension liability as of the June 30, 2017 and June 30, 2016 measurement dates was 7.15 and 7.65 (net of administrative expenses) percent, respectively. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.15 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website under the GASB No. 68 section. 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. The long-term expected real rate of return by asset class for the measurement period ended June 30, 2017 was as follows: Asset Class New Strategic Allocation Real Return Years 1 - 10 1 Real Return Years 11 + 2 Global equity 47.00% 4.90% 5.38% Global fixed income 19.00% 0.80% 2.27% Inflation sensitive 6.00% 0.60% 1.39% Private equity 12.00% 6.60% 6.63% Real estate 11.00% 2.80% 5.21% Infrastructure and forestland 3.00% 3.90% 5.36% Liquidity 2.00% (0.40%) (0.90%) 1 An expected inflation of 2.5 percent was used for this period. 2 An expected inflation of 3.0 percent was used for this period. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 41 Note 9 – Public Employees Retirement System – CalPERS (Continued) Discount Rate (Continued) The long-term expected real rate of return by asset class for the measurement period ended June 30, 2016 was as follows: Asset Class New Strategic Allocation Real Return Years 1 - 10 1 Real Return Years 11 + 2 Global equity 51.00% 5.25% 5.71% Global fixed income 20.00% 0.99% 2.43% Inflation sensitive 6.00% 0.45% 3.36% Private equity 10.00% 6.83% 6.95% Real estate 10.00% 4.50% 5.13% Infrastructure and forestland 2.00% 4.50% 5.09% Liquidity 1.00% (0.55%) (1.05%) 1 An expected inflation of 2.5 percent was used for this period. 2 An expected inflation of 3.0 percent 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 District’s proportionate share of the net pension liability for each SDWD Plan, calculated using the discount rate for each SDWD Plan, as well as what the District’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate: Measurement Discount Rate - 1% Current Discount Discount Rate + 1% Date (6.15%) Rate (7.15%) (8.15%) June 30, 2017 $10,323,063 7,141,232$ 4,505,982$ Plan's Net Pension Liability/(Asset) Measurement Discount Rate - 1% Current Discount Discount Rate + 1% Date (6.65%) Rate (7.65%) (8.65%) June 30, 2016 9,233,733$ 6,288,631$ 3,854,650$ Plan's Net Pension Liability/(Asset) Pension Plan Fiduciary Net Position Detailed information about the plan’s fiduciary net position is available in the separately issued CalPERS financial report and can be obtained from CalPERS website under Forms and Publications. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 42 Note 10 – Other Postemployment Benefits - GASB 45 Plan Description The District provides OPEB benefits (postretirement health care) through the CalPERS healthcare program (PEMHCA), to eligible employees who retire directly from the District. Retirees receive the PEMHCA minimum benefit as determined by CalPERS. The District does not provide any retiree benefits for dental, vision, or life insurance. The District’s OPEB plan does not issue a separate stand-alone report. The District has elected to join the California Employers’ Retiree Benefit Trust (the “Trust”), which provides a means to fully fund the annual OPEB cost, referred to as the Annual Required Contribution (ARC). The District makes its annual contribution to the Trust, pays benefits either directly to retirees or through PEMHCA during the year, and then seeks reimbursement for these “pay-as-you-go expenses” from the Trust. Funding Policy and Actuarial Methods and Assumption It is the District’s Policy to fully fund the annual required contribution (ARC) each fiscal year. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood between the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and the plan members at that point. The actuarial methods and assumptions used include techniques designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of plan assets, consistent with the long–term perspective of the calculations. The following key assumptions were utilized in developing the June 30, 2017 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 percent. 5) The expected future medical price inflation trend ranges from 5.0 to 6.5 percent. 6) Core inflation rate of 2.75 percent. 7) Payroll increases of 3.0 percent per annum, in aggregate. 8) Projected salary increase is based on merit increase data from the most recent CalPERS Pension Plan Study. 9) Levels of Participation – participation levels for safety personnel eligible of lifetime medical benefits is assumed to be 100 percent, while participation levels for miscellaneous employees who receive the CalPERS minimum required contribution is 50 percent, based on experience. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 43 Note 10 – Other Postemployment Benefits - GASB 45 (Continued) Annual Required Contribution (ARC) and OPEB Cost Summary The ARC for fiscal years June 30, 2018 and 2017 of $26,924 and $52,780, respectively, represents a level of funding that, if paid on an on-going basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liability over a maximum of 30 years. The annual OPEB costs, the percentage of annual OPEB cost contributed, and the resulting net OPEB obligation for the preceding three years were as follows: Percentage of Annual Annual OPEB Cost Net OPEB Fiscal Year OPEB Cost APC Contributed Obligation June 30, 2015 29,000$ 100% -$ June 30, 2016 28,794 100% - June 30, 2017 52,780 100% - Funding Status and Funding Progress As of June 30, 2017, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $493,240, and the actuarial value of assets was $177,575, resulting in an unfunded actuarial liability (“UAAL”) of $315,665 and a funded ratio (actuarial value of assets as a percentage of the actuarial liability) of 36 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about the future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Estimated Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2017 177,575$ 493,240$ 315,665$ 36.00% 1,802,043$ 17.52% The schedule of funding progress for the Plan is presented as Required Supplementary Information following the Notes to the Financial Statements. These schedules show multiyear trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 44 Note 11 – Other Postemployment Benefits (GASB 75) 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, 2017, and applies to Fiscal Years 2016-17 and 2017-18. A. Summary Aggregate Net OPEB Liability Aggregate net OPEB liability is reported in the accompanying Statement of Net Position as follows: Net OPEB liabilities: Net OPEB liabilities 315,665$ Total net OPEB liabilities 315,665$ Deferred Outflows of Resources Deferred outflows of resources related to OPEB are reported in the accompanying Statement of Net Position as follows: Deferred outflows of resources: OPEB contribution after measurement date 53,291$ Total deferred outflows of resources 53,291$ Deferred Inflows of Resources Deferred inflows of resources related to OPEB are reported in the accompanying Statement of Net Position as follows: Deferred inflows of resources: Differences between projected and actual earnings on OPEB plan investments 7,074$ Total deferred inflows of resources 7,074$ OPEB Expense OPEB expenses are included in the accompanying Statement of Revenues, Expenses, and Changes in Net Position as follows: OPEB expenses: OPEB expenses 34,933$ Total OPEB expenses 34,933$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 45 Note 11 – Other Postemployment Benefits (GASB 75) (Continued) 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, 2017, and applies to Fiscal Years 2016-17 and 2017-18. 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. SDWD has elected to join the California Employers' Retiree Benefit Trust (the "Trust") in accordance with GASB Statement No. 75, which provides a means to fund the annual OPEB costs, referred to as the Actuarially Determined Contribution (ADC). The ADC includes the normal cost (current accrual for benefits being earned) plus an amortization of the unfunded accrued liability or net OPEB liability over 15 years on a level-percentage of pay basis. SDWD’s funding policy is to pre-fund the ADC through the trust. Eligibility Employees of SDWD are eligible for retiree health benefits if they retire from SDWD and commence pension benefits under PERS (typically on or after age 50 with at least five years of PERS eligible service). Membership in the plan consisted of the following at June 30, 2017, the date of the latest actuarial valuation: Active employees 22 Retired employees and beneficiaries 13 35 San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 46 Note 11 – Other Postemployment Benefits (GASB 75) (Continued) B. San Dieguito Water District – Retiree Health Plan (Continued) Net OPEB Liability SDWD’s net OPEB liability was measured as of June 30, 2017. The total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2017. The net OPEB liability at June 30, 2018 was: Total OPEB Liability 493,240$ Plan Fiduciary Net Position (177,575) Net OPEB Liability 315,665$ Actuarial Assumptions The net OPEB liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified: Actuarial Cost Method Actuarial Assumptions: Discount Rate 7.00% Inflation 2.75% Wage Inflation 3.00% Expected Rate of Return Merit Increases: Pre-retirement Turnover Pre-retirement Mortality Post-retirement Mortality Healthcare Trend Rate Merit increases from the most recent CalPERS pension plan experiences study. The benefits are not payroll related, but each individual's projected cost is allocated over their lifetime as a level-percentage of pay. 7.00% per annum. This discount rate assumes the SDWD continues to fully fund for its retiree benefits throught the California Employers' Retiree Benefit Trust (CERBT) under its investment strategy 1 of 7.28% with an additional margin for adverse deviation. An annual healthcare cost trend rate of 6.5% initially reduced by decrements to an ultimate of 5.0% therefore. According to the post-retirement mortality rates under the CalPERS pension plan updated to reflect the most recent experience study. According to the pre-retirement mortality rates under the CalPERS pension plan updated to reflect the most recent experience study. According to the termination rates under the CalPERS pension plan. Entry Age Normal The actuarial assumptions used in the June 30, 2017 valuation were based on the results of an actuarial experience study for the period July 1, 2016 to June 30, 2017. San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 47 Note 11 – Other Postemployment Benefits (GASB 75) (Continued) B. San Dieguito Water District – Retiree Health Plan (Continued) Discount Rate The discount rate used to measure the net OPEB liability was seven percent. This discount rate assumes the City continues to fully fund for its retiree health benefits through the California Employers’ Retiree Benefit Trust (CERBT) under its investment allocation Strategy 1. The rate reflects the CERBT published median interest rate for strategy 1 of 7.28 percent with an additional margin for adverse deviation. 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. Percentage of Asset Class Portfolio Real Return1 Global equity 57.00% 5.50% Fixed income 27.00% 2.35% Inflation sensitive 5.00% 1.50% Commodities 3.00% 1.75% Real estate investment trusts 8.00% 3.650% 100.00% 1 Long-term expected rate of return is 7.00 percent Change in the Net OPEB Liability Total OPEB Plan Fiduciary Net Net OPEB Liability Position Liability/(Asset) (a) (b) (c) = (a) - (b) Balance at June 30, 2016 (Valuation Date) 475,974$ 124,836$ 351,138$ Changes Recognized for the Measurement Period: Service cost 13,309 - 13,309 Interest on the total OPEB liability 33,225 - 33,225 Contributions from the employer - 63,332 (63,332) Contributions from employees - - - Net investment income, net of administrative expense - 18,770 (18,770) Benefit payments, including refunds of employee contributions (29,268) (29,268) - Administrative expense - (95) 95 Net Changes during July 1, 2016 to June 30, 2017 17,266 52,739 (35,473) Balance at June 30, 2017 (Measurement Date) 493,240$ 177,575$ 315,665$ Increase (Decrease) San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 48 Note 11 – Other Postemployment Benefits (GASB 75) (Continued) B. San Dieguito Water District – Retiree Health Plan (Continued) Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the net OPEB liability of SDWD, as well as what SDWD’s net OPEB liability would be if it were calculated using a discount rate 1-percentage point lower (6.0 percent) or 1- percentage point higher (8.0 percent) than the current discount rate: Discount Rate - 1% Current Discount Discount Rate + 1% (6.00%) Rate (7.00%) (8.00%) June 30, 2017 Measurement Date 375,313$ 315,665$ 265,912$ Plan's OPEB Liability/(Asset) Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the net OPEB liability of SDWD, as well as what SDWD’s net OPEB liability would be if it were calculated using healthcare cost trend rates 1-percentage point lower (5.0%HMO/5.5%PPO decreasing to 4.0%HMO/4.5%PPO) or 1-percentage point higher (7.0%HMO/6.5%PPO decreasing to 6.0%HMO/6.5%PPO than the current healthcare cost trend rates: (5.00% HMO/5.50%PPO (6.00% HMO/6.50%PPO (7.00% HMO/7.50%PPO decreasing to decreasing to decreasing to 4.00% HMO/4.00% PPO) 5.00% HMO/5.00% PPO) 6.00% HMO/6.00% PPO) June 30, 2017 Measurement Date 261,886$ 315,665$ 380,731$ Plan's Net OPEB Liability/(Asset) Contributions, OPEB Liabilities, OPEB Expense and Deferred Outflows/Inflows of Resources to OPEB SDWD’s policy is to fund the ADC, which includes the normal cost (current accrual for benefits being earned) plus an amortization of the net (unfunded accrued) OPEB liability. For the year ended June 30, 2018, SDWD recognized OPEB expense of $34,933 for the SDWD Plan. At June 30, 2018 SDWD reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred outflows Deferred inflows of Resources of Resources OPEB contribution made after the measurement period 53,291$ -$ Net difference between projected and actual earning on OPEB plan investments - 7,074 Total 53,291$ 7,074$ San Dieguito Water District Notes to the Financial Statements (Continued) For the Years Ended June 30, 2018 and 2017 49 Note 11 – Other Postemployment Benefits (GASB 75) (Continued) C. San Dieguito Water District – Retiree Health Plan (Continued) The $52,391 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: Measurement Period Ended June 30 2018 (1,769)$ 2019 (1,769) 2020 (1,769) 2021 (1,767) 2022 - Thereafter - (7,074)$ Note 12 – Commitments and Contingencies Risk management programs and support for the District are provided by the City of Encinitas Risk Management Department, for which the District pays the City an annual fee (charge for those services.) Management has determined, based on modest self-insurance retention levels and favorable claims experience, that no liability accruals were necessary. The District has no outstanding claims as of June 30, 2018, and did not pay any claims during the fiscal year. Note 13 – 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 for the years ended June 30, 2018 and 2017: Net position at July 1, 2017, as previously reported 45,730,584$ To implement GASB 75 for net OPEB liability (287,810) Net position at July 1, 2017, as restated 45,442,774$ Net position at July 1, 2016, as previously reported 43,500,246$ To adjust restricted cash (1,377,006) to adjust amount due to R.E. Badger 1,377,006 Net position at July 1, 2016, as restated 43,500,246$ 50 This page intentionally left blank. San Dieguito Water District, 505 So. Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 51 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 52 This page intentionally left blank. San Dieguito Water District Required Supplementary Information (Unaudited) For the Years Ended June 30, 2018 and 2017 53 Note 1 – Schedule of Funding Progress A. Other Postemployment Employee Benefits Schedule of Funding Progress 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, 2011 65,000$ 343,000$ 278,000$ 18.95% 1,230,000$ 22.60% June 30, 2013 68,176 332,472 264,296 20.51% 1,886,000 14.01% June 30, 2015 177,575 493,240 315,665 36.00% 1,802,043 17.52% San Dieguito Water District Required Supplementary Information (Unaudited) (Continued) For the Years Ended June 30, 2018 and 2017 54 Note 2 – Schedule of Proportionate Share of the Net Pension Liability and Related Ratios 6/30/2017 1 6/30/2016 1 6/30/2015 1 6/30/2014 1 Plan's proportion of the net pension liabliity 0.1811600% 0.1810300% 0.1829600% 0.0006074% Plan's proportionate share of the net pension liability 7,141,232$ 6,288,631$ 5,019,493$ 3,779,285$ Plan's covered-employee payroll 2 $1,812,312 1,808,714$ 1,756,033$ 1,712,639$ Plan's proportionate share of the net pension liability as a percentage of covered-employee payroll 394.04% 347.69% 285.84% 220.67% Plan's fiduciary net position 15,991,467$ 15,586,708$ 16,358,655$ 18,489,458$ Plan's fiduciary net position as a percentage of the total pension liability 69.13% 71.25% 76.52% 83.03% Plan's proportionate share of aggregate employer contributions 3, 4 493,586$ 356,509$ 565,860$ 499,985$ Notes to Schedule: * Fiscal Year 2014-15 was the first year of implementation, therefore only three years are shown. 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 five 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 No. 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. 1 Historical information is presented only for measurement periods for which GASB No. 68 is applicable. 2 Covered-Employee Payroll represented above is based on pensionable earnings provided by the employer. However, GASB No. 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. 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. San Dieguito Water District Required Supplementary Information (Unaudited) (Continued) For the Years Ended June 30, 2018 and 2017 55 Note 3 – Schedule of Contributions 2016-17 1 2016-17 1 2015-16 1 2014-15 1 2013-14 1 Contractually determined contribution (actuarially determined) 504,492$ 472,819$ 356,509$ 271,845$ 241,133$ Contributions in relation to the actuarially determined contributions 2 (504,492) (472,819) (598,690) (271,845) (241,133) Contribution deficiency (excess)-$ -$ (242,181)$ -$ -$ Covered-employee payroll 3, 4 1,812,312$ 1,862,975$ 1,808,714$ 1,756,033$ 1,712,639$ Contributions as a percentage of covered- employee payroll 3 27.84% 25.38% 33.10% 15.48% 14.08% Notes to Schedule Valuation date:6/30/2016 6/30/2015 6/30/2014 6/30/2013 Methods and assumptions used to determine contribution rates: Actuarial cost method Amortization method/period Asset valuation method Inflation Salary increases Payroll growth Investment rate of return Retirement age Mortality * Fiscal Year 2014-15 was the first year of implementation, therefore, only two years are shown. 7.50%, net of pension plan investment and administrative expenses, including inflation The probabilities of retirement are based on the 2010 CalPERS Experience study for the period from 1997 to 2007. The probabilities of mortality are based on the 2010 CalPERS 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. 3 Covered-employee payroll represented above is based on pensionable earnings provided by the employer. However, GASB No. 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 was assumed to increase by the three percent payroll growth assumption. 1 Historical information is presented only for measurement periods for which GASB No. 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. 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. 3.00% Varies by entry age and service 2.15% Actuarial Value of Assets. For details, see June 30, 2011 Funding Valuation Report. For details, see June 30, 2011 Funding Valuation Report Entry Age Normal San Dieguito Water District Required Supplementary Information (Unaudited) (Continued) For the Years Ended June 30, 2018 and 2017 56 Note 4 – Schedule of Proportionate Share of the Net OPEB Liability and Related Ratios Measurement period 2016-171 Total OPEB liability Service cost 13,309$ Interest 33,225 Benefit payments, including refunds of employee contributions (29,268) Net change in total OPEB liability 17,266 Total OPEB liability - beginning 475,974 Total OPEB liability - ending (a)493,240$ OPEB fiduciary net position Contributions - employer 63,332$ Net investment income2 18,770 Benefit payments, including refunds of employee contributions (29,268) Other (95) Net change in plan fiduciary net position 52,739 Plan fiduciary net position - beginning 124,836 Plan fiduciary net position - ending (b)177,575$ District's net OPEB liability - ending (a) - (b)315,665$ Plan fiduciary net position as a percentage 36.00% of the total OPEB liability Covered payroll 1,802,043$ District's net OPEB liability as a percentage of covered payroll 17.52% 1 Ten year historical information is not available. San Dieguito Water District Required Supplementary Information (Unaudited) (Continued) For the Years Ended June 30, 2018 and 2017 57 Note 5 – Schedule of Contributions – OPEB 2017 1 Contractually determined contribution (actuarially determined) 52,780$ Contributions in relation to the actuarially determined contributions 2 (63,332) Contribution deficiency (excess)(10,552)$ Covered payroll 3, 4 1,802,043$ Contributions as a percentage of covered payroll 3 3.51% Notes to Schedule Valuation date:6/30/2017 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry Age Normal Amortization method/period Level percentage of pay Asset valuation method Inflation 2.75% Salary increases 3.00% Payroll growth 3.00% Investment rate of return 7.00% Retirement age Mortality * Fiscal Year 2017-18 was the first year of implementation, therefore, only one year is shown. 1 Historical information is available only for measurement periods for which GASB No. 75 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 No. 75 defines covered 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 was assumed to increase by the three percent payroll growth assumption. The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2016-17 were from the June 30, 2015 public agency valuations. According to the mortality rates under the CalPERS pension plan updated to reflect the most recent experience study. According to the retirement rates under the most recent CalPERS pension plan experience study. 58 This page intentionally left blank. San Dieguito Water District, 505 So. Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 59 STATISTICAL SECTION 60 This page intentionally left blank. 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. 61 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 Bi-Monthly Meter Service Availability Charges (2) As of June 30, 2018 Water Meter Service Infrastructure Fire Meter Service Availability Access Availability Meter Size Charge Charge Charge 5/8" & 3/4" 39.82$ 6.02$ 8.47$ 1" 58.63 9.66 8.47 1-1/2" 105.24 18.06 9.55 2" 161.40 31.32 16.65 3" 292.52 57.82 42.12 4" 479.81 98.74 86.04 6" 947.59 180.60 243.69 8" 1,509.16 313.04 515.61 Source: San Dieguito Water District (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. Table 1 Rate (1) Table 2 San Dieguito Water District San Dieguito Water District Schedule of Water Rates As of June 30, 2018 62 Meter Fiscal Potable Percentage Availability Percent Year Water Sales Change (3)Charge Change (3) 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% 2018 11,222,736 18.5% 3,772,759 6.4% (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 Meter Fiscal Recycle Percent Availability Percent Year Water Sales Change Charges (4)Change 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%) 2018 853,052 19.0% 86,098 9.4% (4) The District first implemented a meter availability charge for recycled customers on September 1, 2013. Source: San Dieguito Water District Table 3 Last Ten Fiscal Years Table 4 San Dieguito Water District Last Ten Fiscal Years San Dieguito Water District Historic Potable Water System Revenues Historic Recycled Water System Revenues 63 Fiscal Local Imported Total Recycled Total Year Water Water Potable Water Production 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 2018 3,450 2,660 6,110 714 6,824 (5) Potable water production is defined as water either produced locally or purchsed from imported sources. Fiscal Percent Percent Year Potable Change Recycled Change 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% 2018 5,838 10.4% 714 9.2% distribution system and/or water pumped or used through the fire distribution system. Source: San Dieguito Water District Note: The differences between potable water production and deliveries represents water loss in the San Dieguito Water District (6) Since FY 2011-12, Recycled Water Production and Delivery figures are revised to include water provided to the Encinitas Ranch Golf Authority (ERGA). Beginning in FY 2011-12, the San Elijo Joint Powers Authority (SEJPA) began directly providing recycled water to ERGA. The recycled water provided to ERGA credits towards the Districts production and delivery water to ERGA and the District ceased selling recycled figures as ERGA falls within the District's sphere of influence. Table 5 Last Ten Fiscal Years Potable Production (in acre-feet)(5) Table 6 Last Ten Fiscal Years San Dieguito Water District Summary of Water Production by Source Summary of Water Deliveries by Source 64 Acre-Feet Percent of Customer Description Sold Water Sold Agriculture 204 3.5% Commercial 544 9.3% Construction 26 0.4% Government 39 0.7% Landscaping 441 7.5% Multi-Family Residential 1177 20.2% Public 135 2.3% Single-Family Residential 3272 56.1% Total Sales 5,838 100.0% Source: San Dieguito Water District Fiscal Percent Percent Year Potable Increase Recycled Increase 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% 2018 11,790 0.4% 85 (2.3%) Source: San Dieguito Water District The decline of one connection during FY 2010-11 reflects the change in the contract arrangement with the Encinitas Ranch Golf Course. Table 7 As of June 30, 2018 Table 8 Last Ten Fiscal Years San Dieguito Water District Sales by Customer Class San Dieguito Water District Total Service Connections by Category 65 2009 2010 2011 2012 2013 Revenues: Operating revenues - including connection fees 11,521,897$ 11,267,684$ 12,574,450$ 13,170,422$ 13,789,636$ Nonoperating revenues 1,129,594 879,477 817,872 813,610 869,568 Gross Revenues 12,651,491 12,147,161 13,392,322 13,984,032 14,659,204 Total Operating and Nonoperating Expenses 12,955,085 11,634,347 11,614,631 12,448,911 12,198,228 Net Income (303,594) 512,814 1,777,691 1,535,121 2,460,976 Add: Interest expense 803,748 749,704 725,936 698,908 657,963 Depreciation and amortization expense 2,217,274 1,213,640 1,196,007 1,294,904 1,476,044 Net Revenues Available for Debt Service 2,717,428 2,476,158 3,699,634 3,528,933 4,594,983 Less: Debt Service Paid 1999 Badger Bonds-Interest Charges - - - - - 1999 Badger Bonds-Principal Payments - - - - - 2004 Water Revenue Refunding Bonds - Interest Charges 485,769 469,269 452,244 433,950 408,906 2004 Water Revenue Refunding Bonds - Principal Payments 540,000 560,000 575,000 595,000 615,000 2007 Note Payable to Financing Authority - Interest Charges 290,748 265,157 281,494 270,352 256,744 2007 Note Payable to Financing Authority - Principal Payments 360,000 335,000 350,000 365,000 375,000 2014 Water Revenue Refunding Bonds - Interest Charges - - - - - 2014 Water Revenue Refunding Bonds - Principal Payments - - - - - Total Debt Service 1,676,517$ 1,629,426$ 1,658,738$ 1,664,302$ 1,655,650$ Coverage by Net Revenues Available for Debt Service 162% 152% 223%212% 278% Debt service coverage requirement is minimum 115 percent including connection fees. The above schedules include connection fees in operating revenues. City of Encinitas Historical Debt Service Coverage Last Ten Fiscal Years San Dieguito Water District Source: City of Encinitas Finance Department 66 2014 2015 2016 2017 2018 Revenues: Operating revenues - including connection fees 15,715,575$ 15,152,433$ 14,852,061$ 15,142,544$ 17,219,494$ Nonoperating revenues 827,676 927,526 1,013,297 1,048,764 1,092,337 Gross Revenues 16,543,251 16,079,959 15,865,358 16,191,308 18,311,831 Total Operating and Nonoperating Expenses 14,066,485 15,481,543 13,800,671 14,263,288 15,198,929 Net Income 2,476,766 598,416 2,064,687 1,928,020 3,112,902 Add: Interest expense 622,075 475,775 412,108 366,740 328,050 Depreciation and amortization expense 1,490,806 2,271,907 1,514,716 978,627 1,848,913 Net Revenues Available for Debt Service 4,589,647 3,346,098 3,991,511 3,273,387 5,289,865 Less: Debt Service Paid 1999 Badger Bonds-Interest Charges - - - - - 1999 Badger Bonds-Principal Payments - - - - - 2004 Water Revenue Refunding Bonds - Interest Charges 380,731 144,720 - - - 2004 Water Revenue Refunding Bonds - Principal Payments 640,000 665,000 - - - 2007 Note Payable to Financing Authority - Interest Charges 241,344 224,994 211,144 191,244 171,619 2007 Note Payable to Financing Authority - Principal Payments 385,000 405,000 415,000 440,000 455,000 2014 Water Revenue Refunding Bonds - Interest Charges - 106,061 202,400 185,075 167,225 2014 Water Revenue Refunding Bonds - Principal Payments - - 570,000 585,000 605,000 Total Debt Service 1,647,075$ 1,545,775$ 1,398,544$ 1,401,319$ 1,398,844$ Coverage by Net Revenues Available for Debt Service 279% 216% 285%234%378% Debt service coverage requirement is minimum 115 percent including connection fees. The above schedules include connection fees in operating revenues. City of Encinitas Historical Debt Service Coverage Last Ten Fiscal Years (Continued) San Dieguito Water District Source: City of Encinitas Finance Department 67 This page intentionally left blank. 68