HomeMy WebLinkAbout2009-10-13 - Board of Directors Meeting Agenda PacketYorba Linda
Water District
AGENDA
YORBA LINDA WATER DISTRICT
BOARD OF DIRECTORS SPECIAL MEETING
Tuesday, October 13, 2009, 4:00 PM
1717 E Miraloma Ave, Placentia CA 92870
1. CALL TO ORDER
2. PLEDGE OF ALLEGIANCE
3. ROLL CALL
John W. Summerfield, President
William R. Mills, Vice President
Paul R. Armstrong
Michael J. Beverage
Ric Collett
4. ADDITIONS /DELETIONS TO THE AGENDA
5. PUBLIC COMMENTS
Any individual wishing to address the Board is requested to identify themselves and state the matter on which
they wish to comment. If the matter is on the agenda, the Board will recognize the individual for their comment
when the item is considered. No action will be taken on matters not listed on the agenda. Comments are limited
to matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to five
minutes.
6. ACTION CALENDAR
This portion of the agenda is for items where staff presentations and Board discussions are needed prior to
formal Board action.
6.1. FY 08/09 Audited Financial Statements
Recommendation: That the Board of Directors approve the draft of the FY 08109
audited financial statements and forward to the next Board of Directors meeting to
receive and file a final report.
6.2. GASB 43 & 45 Actuarial Valuation
Recommendation: That the Board of Directors receive and file the FY 08109
actuarial report for other post employment benefits (OPEB).
6.3. Credit to Customers for New Water Rate Increase Applied Prior to September 14, 2009
and Preliminary Adjustments to FY 09/10 Budget Amendments
Recommendation: (1) That the Board of Directors approve a credit to the District's
customers in the amount of the approved water rate increase that was applied and
prorated to water usage and minimum service charges prior to September 14, 2009.
(2) That the Board of Directors authorize staff to prepare the proposed FY 09110
Budget adjustments coinsistent with the revisions in Column C of the attached
exhibit, for consideration by the Board to receive and file at their next scheduled
meeting.
7. DISCUSSION ITEMS
This portion of the agenda is for matters that cannot reasonably be expected to be concluded by action of the
Board of Directors at the meeting, such as technical presentations, drafts of proposed policies, or similar items for
which staff is seeking the advice and counsel of the Board of Directors. Time permitting, it is generally in the
District's interest to discuss these more complex matters at one meeting and consider formal action at another
meeting. This portion of the agenda may also include items for information only.
7.1. Bond Convenant Compliance Timeline
8. ADJOURNMENT
8.1. The next regular meeting of the Board of Directors will be held October 21, 2009 at 8:30
a. m.
Items Distributed to the Board Less Than 72 Hours Prior to the Meeting
Pursuant to Government Code section 54957.5, non - exempt public records that relate to open session agenda items
and are distributed to a majority of the Board less than seventy -two (72) hours prior to the meeting will be available for
public inspection in the lobby of the District's business office located at 1717 E. Miraloma Avenue, Placentia, CA 92870,
during regular business hours. When practical, these public records will also be made available on the District's internet
website accessible at http: / /www.ylwd.com /.
Accommodations for the Disabled
Any person may make a request for a disability - related modification or accommodation needed for that person to be
able to participate in the public meeting by telephoning the Executive Secretary at 714 - 701 -3020, or writing to Yorba
Linda Water District, P.O. Box 309, Yorba Linda, CA 92885 -0309. Requests must specify the nature of the disability and
the type of accommodation requested. A telephone number or other contact information should be included so the
District staff may discuss appropriate arrangements. Persons requesting a disability - related accommodation should
make the request with adequate time before the meeting for the District to provide the requested accommodation.
AGENDA REPORT
Meeting Date: October 13, 2009
To: Board of Directors
From: Ken Vecchiarelli, General
Manager
Presented By: Ken Vecchiarelli, General
Manager
Prepared By: Cindy Navaroli, Interim Finance
Director
Budgeted
Funding Source:
Dept:
ITEM NO. 6.1
N/A
N/A
Finance
Reviewed by Legal: N/A
CEQA Compliance: N/A
Subject: FY 08/09 Audited Financial Statements
STAFF RECOMMENDATION:
That the Board of Directors approve the draft of the FY 08/09 audited financial statements and
forward to the next Board of Directors meeting to receive and file a final report.
DISCUSSION:
Attached are the audited financial statements for FY 08/09. The auditors have issued an unqualified
(clean) opinion, and have also made recommendations to internal controls that staff is in the
process of implementing. Some areas of the report are different than prior years, as follows:
1. Staff has expanded the introductory section, (page 1), to include more useful information about
the District's current activities and future plans.
2. This year the District has implemented GASB 45, which requires a footnote disclosure on
obligations for other post employment benefits (page 48).
PRIOR RELEVANT BOARD ACTION(S):
None.
ATTACHMENTS:
Description: Type:
Draft FY 09 audited financial statements.pdf FY 08/09 audited financial statements Backup Material
Auditor communication letter.pdf FY 09 auditor communication letter Backup Material
WKS1 N-10672.1
TABLE OF CONTENTS
June 30, 2009
INTRODUCTORY SECTION:
Letter of Transmittal
FINANCIAL SECTION,
Independent Auditors' Report
15
Management's Discussion and Analysis
53
(Required Supplementary Information)
17
Basic Financial Statements:
23
Combined Statement of Net Assets
24
Combined Statement of Revenues, Expenses,
56
and Changes in Net Assets
26
Statement of Cash Flows
27
Notes to Basic Financial ttements
29
Required Supplementary-Information:
53
Other Post-Employ . ment Bettefit Plan - Schedule
of Funding ress
g
A
54
SUPPLEMENTARY INFORMATION:
55
Combining Schedule of Net Assets
56
Combining Statement of Revenues, Expenses and
Changes in Net Assets
60
Schedule of Operating Expenses by Cost Center and
Nature of Expenses for Water and Sewer
63
Schedule of Capital Assets
64
Independent Auditors' Report on Internal Control. Over
Financial Reporting and on Coinpliance and her Matters
Based on an Audit of Financial Statements Performed in
11
Accordance with Government Auditin Standards
67
V, AMI1N
-
MTSI� !'
The independent audit concluded, based upon the audit, that there was reasonable basis for rendering an
unquaed ("clean") opinion that the Yorba Linda Water District financial statements for the year ended
June 30, 2009 are fairly presented Mi conformity with GAAP. The independent auditor's report is
presented as the first component of the financial section of this report.
This report is organized into two sections- (1) Introductory and (2) Financial. The Introductory sectioi.
offers general information about the District's organization and current District activities and reports on I
summary of significant financial results. The Financial section includes the Independent Auditors' Repo I
Management's Discussion and Analysis of the District's basic financial statements, and the District
2-udited basic financial statements with accompanying Notes.
GAAP requires that management provide a narrative introduction, overview and analysis to accompany
the financial statements in the form of the Management's Discussion and Analysis (MD&A) section. This
letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The
District's MD&A can be found immediately after the independent Auditors' Report.
Economic Condition and Otiflook
10
POP, MMVII
Some ways residential customers can reduce their water use by ten percent voluntary conservation
include:
• Watering lawns one less day each week;
• Turning off water when not needed — while brushing teeth, while soaping up in the shower, etc.
• Washing your clothes at the app ' ropriate water setting, and
• Repairing all leaky faucets and toilets,
Water Conservation P#4' fifils
The District has iiWemented conservation management practices since the late 1980's. District staff
participates in commui ' itty events and distributes materials to encourage water conservation. The District
offers the following conservation programs:
• Smart-Timer Irrigatioli'Landscape Controller
• High Efficiency Clothes Washers
• High Efficiency Toilets
• Synthetic Turf
N
M�j or Initiatives
The activities of the Board and staff of the District are driven by its Mission Statement: "To provide
reliable, high quality water and sewer services in an environmentally responsible manner at the most
economical cost to our customers."
11
In December 2009, the District will be developing a Request for Proposals to conduct a rate study. This
study will address a tiered water conservation rate structure, in addition to budget based water allocation
rate structure for customers of the District. It is the District's goal for the study to be completed and
approved by the Board of Director for implementation beginning in FY 2010/11.
Enhanced Outreach & Communications
The District continues to enhance its communication with the communitv.-, In the FY 2009/10 budget, the
District is funding a newly formed position of a Public Inforinatton Specialist. This position will develop
additional public information and water conservation programs with the overalt' al of developing a more
transparent and complete image of the District to the community. Ad''ditionally, it is the District's intent. to
develop a short-term and long-term public information master plan.
In February 2009, the District formed a Citizen's Advisory Committee to serve as ambassadors to the
community. On a monthly basis, the committee meets with 11-strict Staff to discuss and provide
recommendations on various pending District issues. 3461�,P ittee has been actively involved with
issues such as the water rate increase, water conse'ry'afion, public information, and other matters as they
arise. The co
31
Capital Projeav
In FY 2009/101 the Board of Directors approved a Five-Year Capital Improvement Program for 2009 to
2014 with a combined total of $44.4M. Of that amount, an estimated $18.2M is budgeted M" FY 2009/10
for projects in planning, design and construction. Those projects include the following:
N
Hidden Hills Reservoir Project
Located at the top of Hidden Hills Road, this $7M p 'ect will provide more efficient operation i jai
r0i
the District's higher pressure zones in the Hidden Hills area. The project consists of t
construction of a two million gallon buried concrete reservoir and improvements to the Santia
Booster Pump Station. It is currently in construction and will be completed in mid 2010. 1
Oter 'Upcoming Pr6jzets
In addition to the above,, the District is proceeding with other challenging projects in the near-
term. These include the following:
Solar Power Generation Project
The District will be constructing a solar power generation project as a pilot program,
located on the roof of the Administration Building. The pilot program will deten-nine thi
actual cost for constructing, and operating and maintaining a solar facility for potential
expansion to other District facilities.
• NvIater Recycling Project
The District plans to complete a feasibility study for construction of a small-scale
wastewater recycling facility to produce water for landscaping and irrigation of golf
courses and greenbelts. The District will be applying for a grant, which is available to
partially fund recycled water project studies.
M
ffol
m
Mission and Vision Statements
Mission Statement
Yorba Linda Water District will provide reliable, high quality water and sewer services in an
environmentally responsible manner at the most economical cost to our customers.
Vision Statement
Yorba Linda Water District will become the premier self-sufficient source for reliable water,
sewer and related services in the communities it serves.
Paul R. Armstrong Michael J. Beverage
Director Director
Elected 11 10'106 Elected 11/04108
IN
Ric Collett
Director
Elected 11/04/0,1
CHINO HILLS
, \ r �
ER SERVICE AREA
"M LIM 41A
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YORBA LINDA WATER DISTRICT
DiStriCt Boundary
IMPROV6MENT
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YORBA LINDA WATER DISTRICT
DiStriCt Boundary
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iiii'll 1111111%111 111 rill 1111,11 111! ii
In our opinion, the basic financi9l"statements referred to above present fairly, in all material respects,
the financial position of Yorb aLinda Water District as • June 30, 2009 and the results of its operations
md cash flows for the year then ended in conformity with accounting principles generally accepted in
the United States
_ Y..
As described in Note 10 to the financial statements, the District adopted the provisions of
Governmental Accounting Standards Board Statement No. 45. "Accounting and Financial Reporting
by Employers for Postemployment Benefits Other than Pensions", for the year ended June 30, 2009.
MRORMEM
The following Management's Discussion and Analysis (MD&A) of activities and financial
performance of the Yorba Linda Water District (District) provides an introduction to the financial
statements of the District for the fiscal year ended June 30, 2009. We encourage readers to consider the
information presented here in conjunction with the transmittal letter in the Introductory Section and
with the basic financial statements and related notes, which follow this section.
Financial Highlights
The District's Water Services 2009 operating loss wa5,,`7,,"($4 054275) or ($289,165) more than
the District's Water Services 2008 operating loss of ($b,762,1 10).'
The District's statements consist of four funds, the Water Fund, the Sewer Fund, Improvement District
No. 1, , and Improvement District No. 2. The District's records are maintained on an enterprise basis, as
it is the intent of the Board of Directors that the costs of providing water and sewer to the customer of
ihe District are financed primarily through user charges.
See independent auditors' report.
-17-
41 1 ii X IN
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTENTUED)
EMIMEM
pip qj p� 1111p 111�ppqgi =��
Notes to the Basic Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in
the basic financial statements. The notes to the is financial statements can be found on pages 29
through 52.
See independent auditors' report.
��������������������������������'��i��������'i�����l���, , 1
I 114N IN
MANAGEMENT'S DISCUSSIONAND ANALYSIS
(CONTINUED)
Statement of Net Assets
F
Afflim"IM
Condensed Statements of Net Assets
At the end of fiscal year 2009, the District showed a negative balance in its unrestricted net assets of
$7,002,222 which indicates that there aren't any reserves to be utilized in future years, as was the same
with the negative balance of $4,898,647 at the end of fiscal year 2008.
BVIR
2009
2008
Change
Assets:
Unrestricted assets $
14,007,432
16,306,313
(2,298,881)
Restricted assets
37,529,983
47,347,291
(94817,308)
Other current assets
815,581
845,507
(29,926)
Capital assets, net
165 002 140
153,073,196
11,928,944
Total assets
217 355.136
217,572,307
217.171 �
Liabilities:
Liabilities payable from unrestricted current assets
7,056,071
7,348,976
(292,905)
Liabilities payable from restricted assets
1,324,195
1,157,041
167,154
Non-current liabilities
58,8552S6
59.763,725
908,4691
Total liabilities
672k-.522
68,269-,742
1 034 220,E
Net assets:
Net investment in capital assets
139,677,663
1,926,714
Restricted
15, 5, 5 9
14,523,549
993,910
Unrestricted
(7,002.222)
9
t4 8 64�7
0357�5
Total net assets
_1 50-j 19,614 $
�JAMQ_J_Q
__W.009_
At the end of fiscal year 2009, the District showed a negative balance in its unrestricted net assets of
$7,002,222 which indicates that there aren't any reserves to be utilized in future years, as was the same
with the negative balance of $4,898,647 at the end of fiscal year 2008.
BVIR
Sk
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
For the year. ended June 30, 2009
i�� i�i; li� 1111 ; 11 111111 1 111 11 QV311,1, 1, ITI: I- WIN MET=
3=_1 t
Condensed Statements of Revenues, Expenses and Changes in Net Assets
Revenues:
Operating revenues
Non-operating revenues
Total revenues
Expenses:
Operating expenses
Depreciation and amortization
Non-operating expenses
Total expenses
MI►
21,325,763
2,452,540
23,778.303
ME
$ 21,098,191
3,042,278
24,140,469
Change
227,572
(589,738)
(362,166)
21,509,345
20,629,403
879,942
4,167,958
3,572,726
595,232
1,647,748
45,7991
689,487
27,324,781
25,160.120
2,164,661
In 2009, the District's total revenues decreased by $362,166, primarily due to an increase in water
sales offset by a decrease in interest earnings. Total expenses increased by $2,164,661, due to increases
in imported water costs, groundwater replenishment, and departmental and operational expenses.
In 2008, the District's total revenues increased by $174,479, primarily due to • increase in operatinp
revenues of $123,498 from increased water and sewer services. In addition, total expenses increased
by $1,732,446, due to increases in imported water costs, groundwater replenishment, and departmental
and operational expenses.
MANAGEMENT"S DISCUSSION O AND ANALYSIS
(CNTINUED)
For the year ended June 30, 2009
MUMMI=
Changes in capital asset amounts for 2009 were as follows-
Additional information regarding capital assets can be found in Note 5 to the financial statements.
ffla = �
Balance
Transfers/
Balance
2008
Additions
Deletions
2009
Capital assets:
Capital assets, not being depreciated
30,032,709 $
9,048,353
(20,208,978) $
18,872,084
Capital assets, being depreciated
164,602,200
27,444,790"
(509,326)
191,537,664
Less accumulated depreciation
(41,561,713)
(4,167,958),'
322,063
(45,407,608)
Total capital assets, net d
153,073,196 $
32"325,185
S' (20,396,241)
165,002,140
Changes in capital asset amounts for 2008 were as
follows:
Additional information regarding capital assets can be found in Note 5 to the financial statements.
ffla = �
M03 *j 007.116 9 � ON I 141014*jwl�
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
MM3WM
Changes in long-term liabilities amounts for the year ended June 30, 2009 were as follows-
Beginning Ending
Balance Additions Reductions Balance
Participation
9,860,000
(215,000) $
9,645,000
2008 Revenue Certificates of Participation
34995000
(355,000 )
34,640,000
Subtotal
44,855,000
(570,000)
44,285,000
Add (Less):
Discount
(136,715)
5,432
(131,283)
Premium
783,795
(26A20)
757,375
Total $
45 50 0
$ ===j5_q(L9
91,09—
Changes in long-term liabilities amounts for the year ended June 30,,-,2008 were as follows:
Add (Less):
Discount (142,148) 5,433 (136,715)
Premium 792,602 (8,807) 783,795
Total .. .... 3 74) $ 45.502.080
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This financial report is designed to provide the District's funding sources, customers, stakeholders and
other interested parties with an overview of the District's financial operations and financial condition.
Should the reader have questions regarding the information included in this report or wish to request
additional financial information, please contact the District at 1717 E. Miraloma Avenue, Placentia,
California 92807 or the Finance Department at (714) 701-3040.
See independent auditors' report.
-22-
YO RBA LINDA WATER DISTRICT
COM13INED STATEMENT OF NET ASSETS
June 30, 2009
(With comparative totals as of June 30, 2008)
TOTAL CURRENT ASSETS
VON CT TR R FWT A q qFTq -
2009 2008
1,505,345
$ 5,342,253
9,248,752
5,045,886
32,033
30,329
2,564,759
4,643,394
29,183
26,848
168,076
643,814
282,699
397,985
176,585
175,804
14,007,432
16,306,313
34,124,773
45,278,202
3,399,809
2,023,735
5,401
45,354
37,529,983
47,347,291
51,537,415
63,653,604
18,872,084
30,032,709
191,537,664
164,602,200
(45,407,608)
(41,561,713)
165,002,140
153,073,196
815,581
845,507
165,817,721
153,918,703
217,355,136
217,572,307
See independent auditors' report and notes to basic financial statements.
-24-
DOE=
COMBINED STATEMIENT OF NET ASSETS
(CONTINUED)
June 30, 2009
(With comparative totals as of June 30, 2008)
1AFTWO1101
2009 2008
Accounts payable and accrued expenses
5,558,142 $
5,905,218
Accrued salaries and wages
174,579
83,655
Accrued compensated absences (Note 6)
122,992
115,495
Customer and other deposits
477,341
406,540
Construction bonding deposits
133,079
130,154
Deferred credits
589,938
707,914
TOTAL PAYABLE FROM UNTRESTRICTED CURRENT ASSETS.,-,–
7,056,071
7,348,976
PAYABLE FROM RESTRICTED ASSETS:
Accrued interest payable
499,195
579,722
Prepaid connection fees
-
7,319
Certificates of Participation - current portion (Note 7)
825,000
570,000
TOTAL PAYABLE FROM RESTRICTED ASSETS
024,195
1,157,041
TOTAL CURRENT LIABILITIES
8,380,266
8,506,017
NET ASSETS:
Invested in capital assets, net of related debt (Note 8)
Restricted
Unrestricted
See independent auditors' report and notes to basic financial statements.
- 25 -
14,279,414 14,485,161
368,976 346,484
120,774 -
44,086,092 44,932,090
— 58,855,256 59,763,725 -
67,235,522 68,269,74
141,604,377 139,677,663
15,517,459 14,523,549
(7,002t222) (4,898,647)
= a -implelyAWWAN
For the year ended June 30, 2009
(With c arative o Is for t4c, vear e-tided Juvie 11. 20*R)
See independent auditors' report and notes to basic financial statements,
-26-
2009
2008
OPERATING REVENUES-
Metered water sales
16,188,560
$ 18.227,040
Metered water sales restricted for debt service
3,022,468
830,278
Sewer maintenance charges
1,259,723
11247,907
Construction water sales
302,312
292,117
Irrigation sales
84,631
78,340
Customer service fees
215,273
160,225
Rents and royalties
41,566
49,605
Outside of District water sales
20,559
32,518
Unmetered water sales
8,208
9,816
Other charges and services
182,461
170,345
TOTAL OPERATING REVENUES
')1,325,763
21,098,191
OPERATING EXPENSES:
Variable water costs
10,859,328
10,516,507
Personnel services
6,498,959
5,751,384
Supplies and services
4,151,058
4,361,512
TOTAL OPERATING EXPENSES
21,509,345
20,629,403
OPERATING LOSS BEFORE DEPRECIATION
(183,582)
468.788
DEPRECIATION
4,167,958
3,572,726
OPERATING LOSS
(4,351,5
(3,103,938)
NON OPERATING REVENUES: (EXPENSES):
Property taxes - debt s(zp4ce
6,883
5,713
Property taxes - Opera &
11276,638
1,257,943
Interest and investment ea "rags
689,108
1,508,193
Other nonoperating revenues
479,911
270,429
Interest expense
(1,469,925)
(824,387)
Other expense
(177,553)
(133,604)
TOTAL NONOPERATING REVENUES (EXPENSES)
805,062
2,084,287
NET LOSS BEFORE CAPITAL CONTRIBUTIONS
(3,546,478)
(1,019,651)
CAPITAL CONTRIBUTIONS
4,363,527
4,100,051
CHANGES IN NET ASSETS
817,049
3,080,400
NET ASSETS - BEGINNING OF YEAR
149,302,565
146,222,165
NET ASSETS -END OF YEAR
$ 150,119.614
$ 149,302,565
See independent auditors' report and notes to basic financial statements,
-26-
I a & 11
9921041=12=3 ♦ ■
1,967,651 537,925
Proceeds from property taxes and assessments
1,274,303
1,253,746
Other revenue
665,540
270,836
Other expenses
(142,195)
(111,929)
NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES
L797,648
1,412,653
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES:
Property taxes received for debt service
6,883
5,713
Proceeds from capital contributions
623,292
30,048
Acquisition and construction of capital assets
(12,286,690)
(21,653,453)
Proceeds from sales of capital assets
1,635
3,499
Proceeds from bond issuance
-
34,995,000
Bond premium
792,602
Payment of bond issuance costs
(615,757)
Principal paid on long-term liabilit y
(570,000)
(210,000)
Interest paid on long-term li4bili%y
(2,157,836)
(464,595)
Proceeds from deposits for construction
478,663
(698,109)
NET CASH PROVIDED (USED) BY CAPITAL AND
RELATED FWANCINGACTIVITIE.S
(13,904,053)
12, 184,948
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale/purchase of investments, net
(5,364,774)
11,129,037
Interest and investment earnings
513,191
1,379,743
NET CASE PROVIDED (USED) BY RI STING ACTIVITIES
(4,851,583)
12,508,780
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(14,990,337)
26,644,306
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
50,620,455
23,976,149
CASE AND CASH EQUIVALENTS - END OF YEAR
35,630,118
$ 50,620,455
See independent auditors' report and notes to basic financial statements. (Continued)
-27-
11111111111.1��
W4111131011 1111 WIN
I ILI
For the year ended June 30, 2009
(With comparative totals for the year ended June 30, 2008)
See independent auditors' report and notes to basic financial statements.
-28-
2009
2008
RECONCILIATION OF OPERATING LOSS TO NET
-CASH PROVIDED BY OPERATING ACTIVITIES:
Operating loss
$
(4,351,540)
(3,103,938)
Adjustments to reconcile operating loss to
net cash provided by operating activities:
Depreciation
4,167,958
3,572,726
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable
2,078,635
(125,609)
Inventory
115,286
(23,809)
Prepaid expenses and other deposits
(781)
(1,538)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses
(347,076)
164,580
Accrued salaries and wages
12,842
Accrued other post-employment benefits (OPEB) liabilityl'
120,774
Accrued compensated absences
29,989
16,502
Customer and other deposits
70,801
26,169
Prepaid connection fees
(7,319)
Total adjustments
6,319,191
3,641,863
NET CASH PROVIDED BY OPERATING ACTIVITIES
1,967,651
537,925
CASH AND CASH EQUIVALENTS -
FINANCIAL STATEMENT CLA$SIFICAT1bN:
Unrestricted
$
1,505,345
5,342,253
Restricted
34,124,773
45,278,202
A
TOTAL CASE[XND CASH EQUIVALENTS -
FINANCIAL STATEMENT CLASISIFICATION
$
35,630,118
$
50,620,455
NONCASH INVESTING, CAPITAL: AND
RELATED FINANCING ACTIVITIES:
Amortization related to long-term debt
20,988
$
3,374
Capital contributions
3,416,512
$
3,514,722
See independent auditors' report and notes to basic financial statements.
-28-
sulam
WIMMINVIRMWOVIOMMOF
9=111 ON Well lieLatisin
The basic financial statements are comprised of the Combined Statements of Net Assets, th
Combined Statements of Revenues, Expenses and Changes in Net Assets, the Statements oll
I
Cash Flows and the notes to the basic financial statements.
a =8
� ill
1105 11,111 � 1
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
V-
&VA
c. Measurement Focus and Basis of Accounting.-:
I
In the Statement of Net Assets, net assets are classified in the following categories:
Invested in capital assets, net of related debt - This amount consists of capital assets net of
accumulated depreciation and reduced by outstanding debt that is attributed to the
acquisition, construction, or improvement of the assets.
Restricted net assets - This amount is restricted by exterinal creditors, grantors, contributors,
or laws or regulations of other governments.
Unrestricted net assets - This amount is all net assets that do not meet the definition A
"invested in capital assets, net of related debt" or "restricted net assets", I
When both restricted and unrestricted resources are available for use, the District may use
restricted resources or unrestricted resources based on the Board's discrefion.
.e
-31-
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
�� M0 1111, i � � I i � � � I ii 1,111 111114111111161 � 1 111111 1
RMN! M �
Operating revenues, such as charges for services (water sales) result from exchange
transactions associated with the principal activity of the District. Nonoperating revenues, such
as property taxes and assessments, and investment income, result from nonexchange
transactions or ancillary activities in which the District receives value without directly giving
equal value in exchange.
Operating expenses include the cost of sales and i0vices'',, ' administrative expenses and
depreciation on capital assets. All expenses not ,,rneeting this -definition are reported as
nonoperating expenses.
Cash and Cash Equivalents:
The District considers all highly liquid ffiv6stbnents with ,a maturity of three months or less at
the time of purchase to'be cash equivalents.
g. Investments and Inver tmentNlicy:`,
No MU
The District extends credit to customers in the normal course of operations. Managern ent has
evaluated the accounts and believes they are all collectible. Management evaluates all
accounts receivable and if it is determined that they are uncollectible they are written off as a
bad debt expense. A charge of $27,135 and $13,431 were made to bad debt expense for the
fiscal years ended June 30, 2009 and 2008, respectively.
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
i. Property Taxes and Assessments,
Property taxes receivable at year-end are related'to property taxes-collected by the Orange
County Tax Collector which have not been credited to the 'District's cash balance as of June 30.
The property tax calendar is as follows:
Lien Date:
January'
Levy Date:
July"
Due Dates:
First'Insfallment' November 1
Secor4'Installment March I
Collection Dates:
_, i
First Installment - December 10
Sec'ond, Installment -April 10
Inventory consists primarily of materials and supplies used in the construction and
maintenance of the water and sewer systems and are stated at cost using the average-cost
method on a first in, first out basis.
Capital assets acquired and/or constructed are capitalized at historical cost. District policy has
set the capitalization threshold for reporting capital assets at $5,000. Contributed assets are
recorded at estimated fair market value • the date of contribution, Upon retirement or other
disposition of capital assets, the cost and related accumulated depreciation are removed from
the respective balances and any gains or losses are recognized.
See independent auditors' report.
-33 -
W,III I � 0
IF114-11 � 41111111111111111111'11111 � 1111,11111 ► 1
NOTES TO BASIC FINANCIAL STATEMENT',j
(CONTINUED)
@ME=
Depreciation is recorded on the straight-line basis over the estimated useful lives of the assets
as follows:
m, Bond Issuance Costs.-
kf
o. Compensated 'Absences:
Upon termination or retirement, permanent employees are entitled to receive compensation at
their current base salary for all unused vacation leave except for those employees that have not
completed the probationary period.
Permanent employees that retire in accordance with the Public Employee's Retirement System
qualifications are entitled to receive compensation at their current base salary for three-eighths
of all unused sick leave.
See independent auditors' report.
-34-
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
H 9 Ma� WE
=a 1101 MMI IMMIT"I RAN affi aM I
p. Deferred Credits:
111111111 1 �
Construction deposits are collected by the District to cover .the cost of construction projects
within the District. Funds in excess of project costs are refunded to the customer.
0J
The District recognizes water and sewer service charges based on cycle billings rendered to the
customers each month.
See independent auditors' report.
-35 -
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
Mm=
Capital contributions represent cash and capital asset additions contributed to the District by
property owners or real estate developers desiring services that require capital expenditures or
capacity commitment.
w. Budgetary Policies
The District adopts a two-year nonappropriated budget 'for planning, control and evaluation
purposes. Budgetary control and evaluation are affe6ied by comparisons of actual revenues
and expenses with planned revenues and expenses',f6r the period. Enipumbrance accounting is
not used to account for commitments relatedAb" unperf6imed contracts for construction and
services.
Improvement Improvement
District District
Water Sewer No. I No, 2 Total
$ 431,660 $ 1,073,685 $ $ 1,505,345
8,313,971 934,781 9,248,752
23,988,171
2,226)093 7,910,509 34,124,773
2j00j92 1,299,2t7 3,399.809
See independent auditors' report.
-36-
ma ill
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
Cash on hand
Deposits (overdraft) with
financial institutions
Escrow deposits
Water
$ 1,200 S
Improvement Improvement
District District
Sewer No: I No. 2
I
(1,202,940) 726)593, 1,440,124
684,703
53,615
Total
1,200
1,654,480
1,074,800
Excluding amounts held by bond trustee that are not subject to California Government Code
restrictions.
N/A - Not Applicable
See independent auditors' report.
-37-
Maximum
Maximum
Maximum
Percentage
Investment
Authorized Investment T
Maturity
of Portfolio
in One Issuer
Bank or Savings and Loans`
years
None
None
Local Agency Investment Fund (LAIF)
N/A
None
$ 10 million
Orange County Commingled Investment Pool
N/A
None
$10 Million
California Asset Management Program
N/A
None
None
U. S Treasury Bills, Notes and Bonds
5 years
None
None
U.S. Government Sponsored
Enterprise Securities
5 years
50%
None
Corporate Bonds
5 years
30%
None
Bankers Acceptances
180 days
10%
None
Commercial Paper
270 days
25%
None
Money Market Funds
N/A
None
None
Excluding amounts held by bond trustee that are not subject to California Government Code
restrictions.
N/A - Not Applicable
See independent auditors' report.
-37-
qq1i! 11 !q 0SWENBUZIN
►
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
Investments of debt proceeds held by bond trustees are governed by provisions of the del"
agreements, rather than the general provisions of the California Government Code or the District
investment policy. The table below identifies the investment types that are authorized f
investments held by bond trustees. The table also identifies certain provisions of these del
agreements that address interest rate risk and concentration of risk'.'
"Maximum
Pe'rcentage
A110*4
Maximum
Investment
in One Issuer
•
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
1 year
None
None
30 days
None
None
None
None
None
See independent auditors' report.
-38 -
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
OWN 1 1
Information about the sensitivity of the fair values of the District"s investments (including
investments held by bond trustee) to market interest rate fluctuations is provided by the following
table that shows the distribution of the District's investments by maturity as of June 30, 2009.
Held by bond trustee:
Money market funds AAA 21.513.330 21,513,330
S45.54&199 L-LD= S39-3il S-20-01-6, L—S.3 iX-a S--JULIla S-IA49-M 5-1-44k.9-71
See independent auditors' report.
Efflam
Remainin 'M�aW otbs
rit�in �M n
12 Months 13-24
Investment Type
Total or Less Months
Money market funds
$ 3,7 ,795 3,746,795 S
Commercial paper
895,951
California Asset Management Prograin
6ffl9, 780 6;689,780
U.S. Government Sponsored
Enterprise Securities
�41 '121
7: )1 321 6�392�1000 109-)
Corporate obligations
2,'270,249 1,939,406 333,843
U.S. Treasury Obligations
U'27;773 1,027,773
Held by bond trustee:
Money market funds
21,5'13 330 21,513 -
4 548,199 44,205,035 1,341J64
Disclosures Relating to Crm# Risk.,
Generally, credit ri sk,isl ek that, an issuer of an investment will not fulfill its obligation to the
holder of the inv ' estment. This is',,Theasured by the assignment of a rating by a -nationally
recognized statisfieal rating orgahization.
Presented in the following table are the minimum rating
required by (where APplicable) the California Government Code, the District's investment policy,
or debt agreements, and the ktual Standard and Poor's credit rating as of year end for each
investment type.
Minimum Not
Investment Legal Required
Type Rating Total to be Rated
AAA AA A+ A A-I+ A-1
Money market Winds AAA S 3,746,795
S 3,746,795
Commercial paper A-t 2,895,951
- 1,449,030 1,446,921
California Asset
Management Program N/A 6,699,780
6,689.790 - -
U.S. Government
Sponsored Enterprise
Securities N/A 7,401.321
7,401,321
Corporate obligations A 1273,249 -
- 500,016 835,120 938,113
U.S. Treasury obligations N/A 1,027,773 1,027,773
- -
Held by bond trustee:
Money market funds AAA 21.513.330 21,513,330
S45.54&199 L-LD= S39-3il S-20-01-6, L—S.3 iX-a S--JULIla S-IA49-M 5-1-44k.9-71
See independent auditors' report.
Efflam
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
The investment policy of the District contains -no limitations on the amount that can be invested in
any one issuer beyond that stipulated by the California Government Code,
Custodial Credit Risk-,
See independ t auditors' report.
-40-
NOTES TO BASIC FINA]NCIAL STATEMENTS
(CONTINUED)
1111,1111111111111111111111 !: liq 111,111til!111 VON? 11,111!
4. RESTRICTED ASSETS:
Restricted assets were provided b}, and are to be used for the following as of June 30, 2009 and
2008:
Source Use
and proceeds, taxes, Construction of assets in
assessments and interest Improvement District No. 1
Bond proceeds, taxes,
assessments and interest
1•� r
Bond proceeds, taxes,
assessments and interest
Construction of assets in
Improvement III# No. 2
Construction of capital
assets expansion
See independent auditors' report.
-41-
N)fi o WMR
41326,685 S 4,128,550
11074,800 796.M
81*tol
1,453fi57 1) 'a
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
See independent auditors' report.
-42-
Balance
Bala-ace
July L 2008
Additions
Deletions
June 30, 2009
Capital assets, not being depreciated:
Land, mineral and water rights
3471,490
347,490
Construction in progress
293685,219
9,048,353
(20,208,978)
18,524,594
Total capital assets, not
being depreciated
-----30 032 09
9.048 353",
�'20 108 978)
140 206 916,
18.872084
Capital assets, being depreciated:
Source of supply
5,775,'-674.
5,775,674
Pumping plant
10,674,112• �-`,�.�,6i563}390
(369,682)
16,867,820
Water trea t
tment plan
5561 3
2,6,
2,556,613
Transmission and distribution plant
1 1 28,344,3,64
20,47:6333
(106,501)
148,684,596
General plant
17.291 .037,
405,067
(33,143)
17,652.961
Total capital assets,
being depreciated
164 602,200
27.444,790
509 326)
191,537.664
Less accumulated depreciation for.-
Source of supply
(1,232,397)
(144,358)
(1,376,755)
Pumping plant
(2,957,268)
(455,989)
207,638
(3,205,619)
Water treatment,, ant
(580.067)
(117,449)
(697,516)
Transmission and distribution plant
(33,012,241)
(2,657,339)
81,281
(35,588,299)
General plant
(3,779,740)
---(792,823)
33,144
(4,539,41
Total accumulated depreciation
X41,561.713)
--(47 958)
322,063
(45,40708)
Total capital assets,
being depreciated, net
123,040,487
23.276,832
(187,263)
146 130,056
See independent auditors' report.
-42-
,III lo II
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
Hianges in capital assets for the year ended June 30, 2008 is as follows-
Capital assets, not being depreciated:
Land, mineral and water rights
Construction in progress
Total capital assets, not
being depreciated
Balance Balance
July 1, 2007 Additions Deletions June 30, 2008
$ 347,490 $ $ - $ 347,490
18,689J64 21,433,1,4 (10,437,..109) 29,685219
19,036,654 21.433,164 (10,4371.109 30,032,709
Total capital assets,
being depreciated, net
152,8222705 14.266,477
Iffm 9 -- - -- -
(1,088,039)
(144,358)
-
(2,960,100)
(362,257)
365,089
(500,236)
(117,450)
37,619
(32,076,917)
(2,513,983)
1,578,659
(3,84-6�,771
(434,678)
501,709
MCA VKGI
(1,232,397)
(2,957,268)
(580,067)
(33,012,241)
(3,779,7
Depreciation expense for the depreciable capital assets was $4,167,958 and $3,572,726 in 2009
and 2008, respectively.
The District has been involved in various construction projects throughout the year. The balance of
construction in progress at June 30, 2009 and 2008 are $18,524,594 and $29,685,219, respectively.
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
Compensated absences are comprised of unpaid vacation leave, sick leave and compensating time
off which are accrued as earned. The District's liability for compensated absences is determined
annually.
The following is a summary of changes to compensated absences balances at June 30, 2009:
Balance '',,"Balance Due Within
July l.. 2008 Earned Taken -June 30, 2009 One Year
3 (369 23f 4919 8 $ 122 99)
The following is a summary of changes to compensated;,absences balane'es,at June 30, 2008:
Balance
July 1, 20•7
M —
7. LON G-TE DrZW-�,
_372.441,
Balance
June 30, 2008
9
of Participation
$ 9�860,000 $
$ (215,000)
9,645,000 $ 220,000
2008 Revenue Certificates
of Participation
34 95,000
(355,000)
34,640.000 605,00
Subtotal
(570,000)
44,285,000
Add (Less):
Discount
(136,715)
5,432
(131,283)
Premium
783.795
(Z6-,4 2 0)
757,375
Total
5=02 R
,Q
9 988)
$ 44,%j 92
Qee independent auditors' report
V&SIONIZEINOWN
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
F
A surety bond for $679,137 was issued by Financial Guaranty Insurance Company (FGIC). FGIC
is not rated by Moody's Investors' Service, Standard & Poor's or Fitch Investors' Service. At
June 30, 2009 the 2003 Certificates outstanding balance was $9,645,000.
Year Ending
Xiingipal
Interest
Total
2010
220,000
453,074
$ 673,074
2011
225000
445,726
670,726
2012
= 235,000
437,382
672,382
2013
245,000
428,076
673,076
20
255,000
418,076
673,076
2015-2019
1,440,000
1,914,526
3,354,526
2020 - 2024
1,800,000
1,537,969
3)337,969
2025-202.9
2,29500
1,030,625
3,325)625
2030 - 203 4':
.. . ..................... 2,930,000
380,750
3,310,750
Subtotal,
9fi45M00
7,046,204
16,691,204
Less: Discount
(131,283)
-
(1_31,283)
Total
S9 717
7, ®4b,20 4
�
16 559 "" 921
WZ,
1 9,
See independent auditors' report.
-45-
NOTES TO BASIC FINANCIAL STATEMENTS
VESMORM
#'
debt requirements
outstanding - !, 2009
2008 `I.evenue ' ertif cates
Interest
1,528,196
1,503,496
1,477,796
1,451,096
1,423,396
6,660,880
5,784,980
4,674,645
3,211,690
1205625
28,917,800
nv���
3
2,128,396
•■ 1 .:'
10fi25,980
10,594,645
10546,690
The balance of net investment in capital assets consisted of the following as of June 30, 2009 and
2008:
See independent auditors' report,
-46-
2009
S 16502J4
a
21.513t3 I
LIU
Ea
(441,932,080)
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
b. Funding Policy:
10. OTHER POST EMPLOYMENT BEN, EFITS (OPEB):
a. Plan Description:
See independent auditors" report.
-47-
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
b. Funding Policy:
e. Annual OPEB Cost and Net OPEB Obligation:
Annual require. d. contribution
$ 217,979
Interest on,-n PB oblig4 tion
"OE
Adjustm - ent to annual required contribution
-
AnnuA, OPEB cost':expense}
217,979
Actual con_ butionsmade
97,205
Increase in net .01 ` tB obligation
120,774
Net OPEB Obligation - beginning of year
-
Net OPEB Obligation - end of year
74
The District's annual OPEB cost, the oercentage of annual OPEB cost contributed to the plan,
and the net OPEB obligation for the year ended June 30, 2009, the first year in which GASB
Statement 45 isrequired to be implement4 were as follows:
Fiscal
Year
Ended
6/30/09
Annual
OPEB
Cost
217,979
Percentage
of Annual
OPEB Costs
Contributed
See independent auditors' report.
-48-
�W
Net
OPEB
Obligation
$ 120,774
NOTES TO BASIC FINANCIAL STATEMENTS
(CONUNUED)
11 11 1111 1 1 ill 11 11 1 FA
iq
IN
INUMN
The District is exposed to various risks of loss related to torts, theft of, damage to and destruction
of assets, errors and omissions, injuries to employees and natural disasters. In an effort to manage
its risk exposure, the District is a member of the Association of California Water Agencies Joint
Powers Insurance Authority (the Authority).
See independent auditors' report.
-49-
w
IT03810- �, �1,1 92=12 �,, V 110-1 089116NN
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
The Authority is a risk-p• oling self-insurance authority, created under provisions of California
Government Code Sections 6500 et. seq. The purpose of the Authority is to arrange and administer
[ilrograms of insurance for the pooling of self-insured losses and to purchase excess insuranc*
coverage.
See independent auditors' report.
-50-
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
The District has a variety of agreements with private parties relating to the installation,
improvement or modification of water facilities and distribution systems within its service area.
The financing of such construction contracts is being provided primarily from the District's
replacement reserves and advances for construction. The District r to approximately
$11,244,461 of open construction contracts as of June 30, 2009.
Total
Approved
I.- I
Project Name tontract
Design of Hidden Hills Reservoir (2MG) 322,769
CM for Highland Reservoir Replacement (6MG) ,605,856
Geotechnical support services for Highland Reservoir,-
Construction
Costs
to Date
319,541
268,650
Balance
to
Complete
3,228
337,206
Replacement
86,200
35,308
50,892
Environmental support services for lj bland Reservoir
Replacement
37,951
29,309
8,642
Construction of Highland Reservoir eplacernent
9,384,921
4,550,577
4,834,344
Construction of 18-inch and..3.67inch Transmission
Pipelines
1,011,222
900,717
110,505
CM for 18-inch an636-inch Bastanchury Transmission
Pipelines
142,780
136,520
6,260
Design, CM and Inspecti6n.,of Lakevie'%A, Avenue Res.
1,626,582
1,553,625
72,957
GIS data conversion contract,
183,576
181,496
2,080
GIS parcel database 5-year purchase agreement
42,118
24,771
17,347
Zone reconfiguration project
215,751
172,292
43,459
Hidden Hills Reservoir construction
51012,458
845,350
4,167,108
Hidden Hills Reservoir construction management
348,520
9,983
338.537
Hidden Hills Reservoir geotechnical services
113,470
789
112,681
Hidden Hills Reservoir construction support services
267,500
42,800
224,700
Zone Reconfiguration Project construction
1.099,000
218,725
880,275
Zone Reconfiguration Project construction materials testing
39,400
8,120
31,280
Lakeview Sewer Lift Station
19,960
17,000
2,960
.Q,560.03-4
S-9-31
-11, 4 A
See independent auditors' report.
-51 -
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
See independent auditors' report.
-52-
``ii
ME312M
Actuarial Value
of Assets
(AVA)
(b)
Actuarial
Accrued
Valuation
Liability
Date
(a)
06/01/09
$ 2,950,127
Unfunded
Liability
(UL)
(a) - (b)
- $ 2,950,127
O.OM:- 4,983,653
UL as a
% of Payroll
Percentage of
[(a)-(b)]/(c)
MONWI
YORBA LINDA WATER DISTRICT
COMBINING SCBEDULE NET ASSETS
N,ON(.'ITRRFWT Assrrs:
6
Water Sewer
431,660
$ 1,073,685
8,313,971
934,791
21,056
2.367
2,399,492
165,267
27,229
1,954
165,187
2,889
282,699
176,585
41.917.879
2-180.943
15,373,864
566,546
126,071,542
29,992,128
(28JI7,877)
(7J46,143)
113,327,529
23,412,531
815,581 -
11 4Z.1 43,110 23,412,531
Improvement Improvement
01)] strict No. 1 District No. 2 Totals
$ 1,505,345
9,248,752
5,320
3,290
32,033
-
-
2,564,759
29,183
168,076
282,699
176.585
5,320
3,290
14)007A32
2,226,093
7,910,509
34.124,773
2,100,592
1,299,217
3,399,8 09,
4,326,685
9,209,726
37-529,983),
4,332,005
9,213,016
51,537,415
820,900
2,110, 774
18,872,084
17,920,588
17,5531406
191,5317,664
(5,003,374)
(5,140t214)
(45,407,608)
13,738,114
14,523,'90,6,'
165,002,140
-
-
815,581
13,738,114
14,523,966
165,817,721
18,070,119
23,736,992
217,355-136
$ 4,820,989
64,473
164,871
8,914
122,992
-
83,215
394,126
88,742
rnn �,nn
44,337
TOTAL NET ASSETS
. r . a _•
14,279,414 -
368,976 -
110,721 10,053
44,086,092 -
58,845,203 10,053
66,0401145 521,903
89,929,766 23,412,531
2,025,385 (44,337)
(8,040,735) 1,703,377
83,914,416 25,071,571
Improvement IMPTOvement
234,259 438,421 $ 5,558,142
- 794 174,579
2—,992
477,341
133,079
4
;.
CHANGES IN NET ASSETS
T ASSETS - END OF YEAR
_, • 11
85�286,641 23,095,539
$ 83,914,416 25,071,571
Water
Sewer
OPERATING REVENUES.
Metered water sales
16,188,560
$ -
Metered water sales restricted for debt service
3,022.468
-
Sewer maintenance charges
-
1,259,723
Construction water sales
302,312
Irrigation sales
84,631
-
Customer service fees
21 5,273
-
Rents and royalties
41,566
-
Outside of District water sales
20,559
-
Unetered water sales
$5208
-
Othr charges and services
118,801
63,662
TOTAL OPERATING REVENUES
20.002,378
1,323,385
OPERATING E ENSES:
Variable water costs
10,859,328
-
Personnel services
5,864,46$
634,491
Supplies and services
x,705,278
445,780
TOTAL OPERATING EXPENSES
20,429,074
1,080,271
TOTAL OPERATING INCOME (LOSS) BEFORE DEP TlOX
(426,696)
243,114
DEPECIATION
3,624,579
543,379
OPERATING LOSS
(4,051,275)
(300,265)
NONOPERATING REVENUES (EXPENSES)--,-,,,,
Property taxes - debt wry ce
-
Property taxes - operi ons
1,276,638
-
Interest and investment egs
468,011
22,874
Other nonoperating revenues,
430,953
32,389
Interest expense
(1,469,925)
-
Other expense
(166,926)
(2,194)
TOTAL NONOPERATING REVENUES (EXPENSES)
538,751
53,069
T INCO (LOSS) BEFORE CAPITAL COT UTiONTS
(3,512,524)
(247,196)
CHANGES IN NET ASSETS
T ASSETS - END OF YEAR
_, • 11
85�286,641 23,095,539
$ 83,914,416 25,071,571
Improvement Improvement
District No. I District No. 2 Totals
(183,582)
411:67.958
1,228
5,655
6,883
1,276,638
61,442
136,781
689,108
11,184
,5.385
479,911
(1,469,925)
(5,204)
(3,229)
(177,553)
68,650
144,592
905,062
68,650
144,592
(3,546,478)
-
-
4,363.527
68,650
144,592
817,049
17,767,210
23,153,175
149302,565
$ 17,835,860
$ 23,297,767
150,119,614
I= MI k
OPERATING EXPENSES:
Variable Water Costs:
Imported water
O replenishment assessment
Fuel and poweripumping
MW'D connection charge
Personnel Services:
Unit salaries
Management, supervisor and confidential salaries
Fringe benefits
Director's fees
Salaries - other
Total Personnel Services
Gull 1114ll1VCit .7111 J3
Travel and conferences
Noncapital equipment
Bad debt expense
Recreation committee
Other
14
WIW=
10,859,328 10,859.328
134,037
304,870
2,956,772
1,359.064
141,285
1,500,349
1,722,466
184,437
1,906,903
37,799
3,686
41,485
93.237
213
93,450
Vii
634,491
6,498)959
57,937
58,504
916,441
779,231
99,064
878,295
230,792
22,826
253,618
134,037
1,863
135,900
304,623
25,910
330,533
342,387
50,630
393,017
494,167
58,893
553,060
25,621
215
25,836
34,171
3,380
37,551
16,941
6,056
22,997
22,417
2,315
24,732
28,021
2,291
30,312
63,260
3,661
66,921
24,615
2,520
27,135
14,467
1,431
15,898
332,591
106,221
438,812
3.705,278
445,780
4,151,058
20,429,074 1,080271 $ 21,509,345
� �64X-VIUBVI
Water
Sewer
Land, Mineral and Water Rights:
Land
138,629
Water -rights
86,300
Mineral rights
63,650
Land rights and easements
385
58,526
Total Land, Mineral and, Water Rights
288,964
58,526
Source of Supply:
Wells
3,868,911
-
MV%fD connection
3 73, 93 7
Total Source of Supply
4,242,848
Pumping Plant:
Structures and improvements
445,016
-
Equipment
x-1672457_
29.240
Total Pumping Plant Y
12,612,473
29,240
Water Treatment Plant:
Structures and improvements
932,474
Equipment
804,633
Total Water Treatment Plant
1,737.107
Transmission and Distribution Plant:
Mains
44,337,117
26,826,567
Reservoirs and tanks
28,958,730
-
Service and meter installation
5,121,615
2,180,954
Fire hydrants
6,081,483
Meters
5,573,820
Fire mains
714,886
Structures and improvem en
1,288,070
Total Transmission and D.J.stributi on.,PI. ant
92,075,721
29,007,521
General Plant:
Structures and improvements
11,401,765
-
Transportation equipment
1,537,716
955,367
Power operated equipment
228,191
-
Communication equipment
565,557
-
Computer equipment
400.958
-
Office furniture
1,188,942
-
Tools, shops and garage equipment
50,675
-
Other
4,650
-
Store equipment
24,949
Total General Plant
15.403.393
955,367
Construction in Progress
15,084,900
508,020
Total Capital Assets
141,445,406
$ 30,558,674
Improvement
Improvement
Disirict No, I
District No. 2
Totals
$ -
$
$ 138,629
-
-
86,300
-
-
63,650
-
-
58,911
347,490
7534618
588,778
5,211,307
123,514
66,916
564,367
877,132
655,694
5,775,674
781,868
2,161,000
9,387,884
1,117,891
165,348
7,479,936
1,899,759
2,326,348
16.867.820
370,338
170,814
1,473fii26
278,354
-
1,082,987
648,692
170,814
2,556,613
7,614,845
5,531,549.:
84,31.0,,078
5,822,555
8,400,449.',
4..1.381 w ?34
-
7,302.569' ' ..
6,081,483
-
-
5,573,820
...'714,886
231,956
-
1,520.026
13,669,356
13,931,948
148,684,596
825,649
468,552
12,695,966
-
-
2,493,083
-
-
228,181
-
-
565,557
-
-
400,958
-
-
1,188,942
-
-
50,675
-
-
4,650
-
-
24,949
8251649
468,552
17,652,961
820,900
2,110,774
18,524,594
18,741,488
19,664,180
$ 210,409,748
MBRIEMM =4
M-1076- "ll TOOMMKIIII
The Board of Directors
Yorba, Linda Water District
P alifornia
IM Rn. 0 r VOTITATW- I
A comprehensive capital asset accountability system could provide the District valuable benefits such
as asset procurement, construction and utilization management, loss control and theft prevention, and
responsible asset stewardship. Currently, the District manages its capital asset construction-in-progress
projects in various spreadsheets and a manual ledger system and not in a comprehensive capital asset
accountability system.
PMOII
Auditors' Comment and Recommendation:
Management concurs with the comment. The District is in the process of limiting the duties of the
payroll accountant to process payroll only.
WMK=
Management concurs witli the comment. The District is in the �Process of examining all accounting
processes in conjunction with other departments, as well implem''enting a sophisticated new
accounting software system that will help maintain timely and accurate communication.
IMIMMA
1� 1111��111;iilll riiiiqi I -or
ET "411 Z ! I i ii ii 1 111111 ans
governance.
Management concurs with the comment. The District currently has a temporary worker that contro,
inventory -usage when the storekeeper is not in. The District has plans to re-design the storekeep
duties and responsibilities
• help maintain more effective internal controls. I
a Wom
�c • � � �
AGENDA REPORT
Meeting Date: October 13, 2009
To: Board of Directors
From: Ken Vecchiarelli, General
Manager
Presented By: Cindy Navaroli, Interim Finance
Director
Prepared By: Cindy Navaroli, Interim Finance
Director
Subject: GASB 43 & 45 Actuarial Valuation
STAFF RECOMMENDATION:
Budgeted
Funding Source:
Dept:
Reviewed by Legal:
CEQA Compliance:
ITEM NO. 6.2
N/A
N/A
Finance
N/A
N/A
That the Board of Directors receive and file the FY 08/09 actuarial report for other post employment
benefits (OPEB).
COMMITTEE RECOMMENDATION:
The Finance Committee has reviewed the Actuarial Study of Retirees Health Liabilities and
recommended that it be forwarded to the full Board for approval.
DISCUSSION:
The District had an actuarial study of retiree health liabilities performed pursuant to GASB 43 & 45
accounting standards for FY 08/09. The attached report explains the accounting standards and
provides support for the OPEB disclosures in the audited financial statements. The report includes
recommendations and possible action items that can be discussed at a future Finance Committee
meeting or Board workshop.
PRIOR RELEVANT BOARD ACTION(S):
None.
ATTACHMENTS:
Description: Type:
Final GASB 45 report from TCS.doc GASB 43 &45 report Backup Material
Total Compensation Systems, Inc.
Yorba Linda Water District
Actuarial Study of
Retiree Health Liabilities
Prepared by:
Total Compensation Systems, Inc.
Date: August 31, 2009
Total Compensation Systems, Inc.
Table of Contents
PART I: EXECUTIVE SUMMARY ............................................................................... ..............................3
A. INTRODUCTION .. ...............................
B. GENERAL FINDINGS ..........................
C. DESCRIPTION OF RETIREE BENEFITS.
D. RECOMMENDATIONS ........................
3
4
5
5
PARTII: BACKGROUND ............................................................................................ ............................... 7
A. SUMMARY ..................
B. ACTUARIAL ACCRUAL
7
7
PART III: LIABILITIES AND COSTS FOR RETIREE BENEFITS ..................... .............................10
PART IV: "PAY AS YOU GO" FUNDING OF RETIREE BENEFITS .................. .............................14
PART V: RECOMMENDATIONS FOR FUTURE VALUATIONS ....................... .............................15
PARTVI: APPENDICES ............................................................................................... .............................16
APPENDIX A: MATERIALS USED FOR THIS STUDY ...............................
APPENDIX B: EFFECT OF ASSUMPTIONS USED IN CALCULATIONS.
APPENDIX C: ACTUARIAL ASSUMPTIONS AND METHODS ...................
APPENDIX D: DISTRIBUTION OF ELIGIBLE PARTICIPANTS BY AGE...
APPENDIX E: GLOSSARY OF RETIREE HEALTH VALUATION TERMS.
2
16
17
18
22
23
Total Compensation Systems, Inc.
Yorba Linda Water District
Actuarial Study of Retiree Health Liabilities
PART L• EXECUTIVE SUMMARY
A. Introduction
Yorba Linda Water District engaged Total Compensation Systems, Inc. (TCS) to analyze liabilities
associated with its current retiree health program as of June 1, 2009 (the valuation date).
This actuarial study is intended to serve the following purposes:
» To provide information to enable Yorba Linda Water District to manage the costs and
liabilities associated with its retiree health benefits.
» To provide information to enable Yorba Linda Water District to communicate the
financial implications of retiree health benefits to internal financial staff, the Board,
employee groups and other affected parties.
» To provide information needed to comply with Governmental Accounting Standards
Board Accounting Standards 43 and 45 related to "other postemployment benefits"
(OPEB's).
Because this report was prepared in compliance with GASB 43 and 45, as appropriate, Yorba Linda Water District
should not use this report for any other purpose without discussion with TCS. This means that any discussions with
employee groups, governing Boards, etc. should be restricted to the implications of GASB 43 and 45 compliance.
This actuarial report includes several estimates for Yorba Linda Water District's retiree health program. In
addition to the tables included in this report, we also performed cash flow adequacy tests as required under Actuarial
Standard of Practice 6 (ASOP 6). Our cash flow adequacy testing covers a twenty -year period. We would be happy
to make this cash flow adequacy test available to Yorba Linda Water District in spreadsheet format upon request.
We calculated the following estimates separately for active employees and retirees. As requested, we also
separated results by the following employee classifications: Bargaining Unit and Management. We estimated the
following:
➢ the total liability created. (The actuarial present value of total projected benefits or
APVTPB)
➢ the ten year "pay -as- you -go" cost to provide these benefits.
➢ the "actuarial accrued liability (AAL)." (The AAL is the portion of the APVTPB
attributable to employees' service prior to the valuation date.)
➢ the amount necessary to amortize the UAAL over a period of 30 years.
➢ the annual contribution required to fund retiree benefits over the working lifetime of
eligible employees (the "normal cost ").
➢ The Annual Required Contribution (ARC) which is the basis of calculating the annual
Total Compensation Systems, Inc.
OPEB cost and net OPEB obligation under GASB 43 and 45.
We summarized the data used to perform this study in Appendix A. No effort was made to verify this
information beyond brief tests for reasonableness and consistency.
All cost and liability figures contained in this study are estimates of future results. Future results can vary
dramatically and the accuracy of estimates contained in this report depends on the actuarial assumptions used.
Normal costs and liabilities could easily vary by 10 - 20% or more from estimates contained in this report. The best
way to respond to this uncertainty of future results is to have an actuarial study performed regularly - no less
frequently than every two or three years as provided by GASB 43 and 45.
B. General Findings
We estimate the "pay -as- you -go" cost of providing retiree health benefits in the year beginning June 1, 2009
to be $112,356 (see Section IV.A.). The "pay -as- you -go" cost is the cost of benefits for current retirees. Until GASB
43/45 become effective, the "pay -as- you -go" cost is the only amount that must be reflected as a retiree health
program expense on accrual basis accounting statements.
There are several reasons why it is important for public agencies to evaluate retiree health costs and
liabilities. The Governmental Accounting Standards Board (GASB) will soon require accounting for the costs and
liabilities associated with retiree health benefits on an accrual basis -- i.e. over the working lifetime of eligible
employees. (The effective date of the GASB accounting standard will range from 2007 to 2009, depending on the
annual revenue of the District during the 1998 -99 fiscal year.) Auditors may require an actuarial study for an
unqualified audit based on AICPA Statement of Position 92 -06.
Complying with accounting and regulatory requirements will require employers to expense more than what
is required to simply pay retiree health benefit costs. These excess expenses over time — plus interest — will
accumulate a liability related to retiree health benefits. These expenses and liabilities will be lower and more stable
for employers that establish irrevocable trusts. By funding retiree benefits through such a trust, there will be enough
funds available at retirement (on average) that, with interest, will be sufficient to pay all promised retiree health
benefits without the need for any post- retirement District contributions.
For current employees, the value of benefits "accrued" in the year beginning June 1, 2009 (the normal cost)
is $140,903. This normal cost would increase each year based on covered payroll. Had Yorba Linda Water District
begun accruing retiree health benefits when each current employee and retiree was hired, a substantial liability
would have accumulated. We estimate the amount that would have accumulated to be $1,740,127. This amount is
called the "actuarial accrued liability" (AAL).
We calculated the annual cost to amortize the unfunded actuarial accrued liability using a 5% discount rate.
We used a 30 year amortization period. The current year cost to amortize the unfunded "actuarial accrued liability"
is $77,076. This amortization payment would increase each year based on covered payroll. Payments would
continue for 30 years, after which time amortization payments would end.
Combining the normal cost and UAAL amortization costs in the first year produces a total first year annual
required contribution (ARC) of $217,979. The ARC is used as the basis for determining expenses and liabilities
under GASB 43/45. The ARC is used in lieu of (rather than in addition to) the "pay -as- you -go" cost. The additional
cost of compliance with GASB 43 and 45 is therefore $105,623.
We based all of the above estimates on employees as of May, 2009. Over time, liabilities and cash flow will
4
Total Compensation Systems, Inc.
vary based on the number and demographic characteristics of employees and retirees. It will be important to
periodically revalue costs and liabilities.
C. Description of Retiree Benefits
Following is a description of the current retiree benefit plan:
Bargaining Unit Management
Benefit types provided Medical and dental Medical and dental
Duration of Benefits One year per three years One year per three years
of service of service
Required Service
Minimum Age
Dependent Coverage
District Contribution %
District Cap
D. Recommendations
5 years
50
Yes
100%
Active caps
5 years
50
Yes
100%
Active caps
Sunervisory /Confidential
Medical and dental
One year per three years of
service
5 years
50
Yes
100%
Active caps
It is outside the scope of this report to make specific recommendations of actions Yorba Linda Water
District should take to manage the substantial liability created by the current retiree health program. Total
Compensation Systems, Inc. can assist in identifying and evaluating options once this report has been studied. The
following recommendations are intended only to allow the District to get more information from this and future
studies. Because we have not conducted a comprehensive administrative audit of Yorba Linda Water District's
practices, it is possible that Yorba Linda Water District is already complying with some or all of our
recommendations.
➢ We recommend that Yorba Linda Water District inventory all benefits and services provided to
retirees — whether contractually or not and whether retiree -paid or not. For each, Yorba Linda
Water District should determine whether the benefit is material and subject to GASB 43 and/or 45.
➢ We recommend that Yorba Linda Water District conduct a study whenever events or
contemplated actions significantly affect present or future liabilities, but no less frequently
than every two or three years, as will be required under GASB 43/45.
➢ We recommend that the District communicate the magnitude of these costs to employees
and include employees in discussions of options to control the costs.
➢ Because of the significant liabilities created by the current retiree health program, the
District should consider earmarking funds to pay future benefits. Accrual basis costs under
GASB 43/45 will be lower and more stable to the extent liabilities are funded under an
irrevocable trust that qualifies under GASB 43/45 as a "plan."
➢ Under GASB 45, it is important to isolate the cost of retiree health benefits. We strongly urge
Yorba Linda Water District to have all premiums, claims and expenses for retirees separated from
active employee premiums, claims, expenses, etc. To the extent any retiree benefits are made
available to retirees over the age of 65 — even on a retiree-pay-all basis — all premiums, claims and
Total Compensation Systems, Inc.
expenses for post -65 retiree coverage should be segregated from those for pre -65 coverage.
Furthermore, Yorba Linda Water District should arrange for the rates or prices of all retiree benefits
to be set on what is expected to be a self - sustaining basis.
➢ Yorba Linda Water District should establish a way of designating employees as eligible or
ineligible for future OPEB benefits. Ineligible employees can include those in ineligible job classes;
those hired after a designated date restricting eligibility; those who, due to their age at hire cannot
qualify for District -paid OPEB benefits; employees who exceed the termination age for OPEB
benefits, etc.
➢ Several assumptions were made in estimating costs and liabilities under Yorba Linda Water
District's retiree health program. Further studies may be desired to validate any
assumptions where there is any doubt that the assumption is appropriate. (See Appendices
B and C for a list of assumptions and concerns.) For example, Yorba Linda Water District
should maintain a retiree database that includes — in addition to date of birth, gender and
employee classification — retirement date and (if applicable) dependent date of birth,
relationship and gender. It will also be helpful for Yorba Linda Water District to maintain
employment termination information — namely, the number of OPEB - eligible employees in
each employee class that terminate employment each year for reasons other than death,
disability or retirement.
➢ Segregating plan assets will allow taking advantage of California Government Code
Sections 53620 through 53622 to achieve greater investment income on plan assets. This
study assumes an investment return net of all investment and plan expenses of 5 %. We
recommend Yorba Linda Water District take actions to achieve a long term rate of return
that reflects the long term nature of the liabilities.
Respectfully submitted,
Geoffrey L. Kischuk, FSA, MAAA, FCA
Consultant
Total Compensation Systems, Inc.
(805) 496 -1700
0
Total Compensation Systems, Inc.
PART II: BACKGROUND
A. Summary
Accounting principles have long held that the cost of retiree benefits should be "accrued" over employees'
working lifetime. For this reason, the Governmental Accounting Standards Board (GASB) issued in 2004
Accounting Standards 43 and 45 for retiree health benefits. These standards will apply to all public employers that
pay any part of the cost of retiree health benefits for current or future retirees (including early retirees).
The GASB standards will become effective on a phased basis based on revenue during the 1998 -99 fiscal
year. For employers, the first phase will be $100 million or more in revenue. The effective date will be the first fiscal
year on or after December 15, 2006. Successive annual phases will sweep in "$10 to $100 million" and "less than
$10 million" employers. The effective date for "plans" will be one year earlier than the dates for employers. A
"plan" is a trust or other arrangement that is exclusively for retiree health benefits and the assets of which are
protected from creditors.
Until the new GASB standards take effect, the Governmental Accounting Standards Board (GASB)
currently requires public employers to disclose the existence and /or cost of retiree health benefits. GASB
requirements are contained in GASB 12.
Prudent fiscal management of retiree health costs and liabilities requires establishment of a long-term plan.
For most public employers, the magnitude of the accrued liability makes it difficult to immediately begin to fully
accrue retiree health benefits on an actuarial basis. Fortunately, the current absence of stringent accounting or
regulatory funding requirements allows public employers flexibility to transition into full actuarial accrual over the
next few years. Transitioning into full actuarial accrual provides public employers with the time to establish fiscal
management plans that
➢ protect retiree benefit security to the greatest possible extent;
➢ involve employee groups in discussions of benefit design and funding options; and
➢ minimize disruptions to core services that could result from rapidly increasing retiree benefit costs.
Waiting to address retiree health benefit funding until the GASB accounting standards become effective will
dramatically reduce employers' fiscal options. By then, unfunded actuarial accrued liabilities will be bigger, thereby
increasing the expenses needed to amortize the unfunded liability. Higher future amortization expenses would
squeeze financial resources for vital services. Waiting to address these issues until required by GASB will result in
less time to evaluate options and take action to protect benefits for future retirees and /or reduce benefit costs. To the
extent retiree benefits are subject to collective bargaining, the timing and extent of benefit and funding changes may
be constrained.
B. Actuarial Accrual
To actuarially accrue retiree health benefits requires determining the amount to expense each year so that
the liability accumulated at retirement is, on average, sufficient (with interest) to cover all retiree health expenditures
without the need for additional expenses. There are many different ways to determine the annual accrual amount.
The calculation method used is called an "actuarial cost method."
7
Total Compensation Systems, Inc.
Conceptually, there are two components of actuarial cost - a "normal cost" and amortization of something
called the "unfunded actuarial accrued liability." Both accounting standards and actuarial standards usually address
these two components separately (though alternative terminology is sometimes used).
The normal cost can be thought of as the value of the benefit earned each year if benefits are accrued during
the working lifetime of employees. This report will not discuss differences between actuarial cost methods or their
application. Instead, following is a description of a commonly used, generally accepted actuarial cost method that
will be permitted under GASB 43 and 45. This actuarial cost method is called the "entry age normal" method.
Under the entry age normal cost method, an average age at hire and average retirement age are determined
for eligible employees. Then, the actuary determines what amount needs to be expensed each year from hire until
retirement to fully accrue the expected cost of retiree health benefits. This amount is the normal cost. Under GASB
43 and 45, the normal cost can be expressed either as a level dollar amount or as a level percentage of payroll.
The normal cost is determined using several key assumptions:
➢ The current cost of'retiree health benefits (often varying by age, Medicare status and /or dependent
coverage). The higher the current cost of retiree benefits, the higher the normal cost.
➢ The "trend" rate at which retiree health benefits are expected to increase over time. A higher trend
rate increases the normal cost. A "cap" on District contributions can reduce trend to zero once the
cap is reached thereby dramatically reducing normal costs.
➢ Mortality rates that vary by age and sex. (Unisex mortality rates are not usually used because an
individual's OPEB benefits do not depend on the mortality table used.) If employees die prior to
retirement, contributions attributable to deceased employees are available to fund benefits for
employees who live to retirement. After retirement, death results in benefit termination. Although
higher mortality rates reduce normal costs, the mortality assumption is not likely to vary from
employer to employer.
➢ Employment termination rates have the same effect as mortality inasmuch as higher termination
rates reduce normal costs. Employment termination can vary considerably between public agencies.
➢ Vesting rates reflect years of service required to earn full or partial retiree benefits. While longer
vesting periods reduce costs, cost reductions are not usually substantial unless full vesting requires
more than 20 years of service.
➢ Retirement rates determine what proportion of employees retire at each age (assuming employees
reach the requisite length of service). Retirement rates often vary by employee classification and
implicitly reflect the minimum retirement age required for eligibility. Higher retirement rates
increase normal costs but, except for differences in minimum retirement age, retirement rates tend
to be consistent between public agencies for each employee type.
➢ Participation rates indicate what proportion of retirees are expected to elect retiree health benefits
if a significant retiree contribution is required. Higher participation rates increase costs.
➢ The discount rate estimates investment earnings for assets earmarked to cover retiree health benefit
liabilities. The discount rate depends on the nature of underlying assets. For example, earmarked
funds earning money market rates in the county treasury are likely to earn far less than a diversified
Total Compensation Systems, Inc.
portfolio including stocks, bonds, etc. A higher discount rate can dramatically lower normal costs.
GASB 43 and 45 require the interest assumption to reflect likely long term investment return.
The assumptions listed above are not exhaustive, but are the most common assumptions used in actuarial
cost calculations. The actuary selects the assumptions which - taken together - will yield reasonable results. It's not
necessary (or even possible) to predict individual assumptions with complete accuracy.
If all actuarial assumptions were exactly met and an employer had expensed the normal cost every year for
all past and current employees and retirees, the funds would have accumulated to a sizeable amount (after adding
interest and subtracting retiree benefit costs from the accumulated funds). The fund that would have accumulated is
called the actuarial accrued liability or AAL. The excess of the AAL over funds earmarked for retiree health benefits
is called the unfunded actuarial accrued liability (or UAAL). Under GASB 43 and 45, in order for assets to count
toward offsetting the AAL, the assets have to be held in an irrevocable trust that is safe from creditors and can only
be used to provide OPEB benefits to eligible participants.
The actuarial accrued liability (AAL) can arise in several ways. First, at the inception of actuarial funding,
there is usually a substantial UAAL. Under GASB 43 and 45, some portion of this amount can be established as the
"transition obligation" subject to certain constraints. UAAL can also increase as the result of operation of a retiree
health plan - e.g., as a result of plan changes or changes in actuarial assumptions. Finally, AAL can arise from
actuarial gains and losses. Actuarial gains and losses result from differences between actuarial assumptions and
actual plan experience.
Under GASB 43 and 45, employers have several options on how the UAAL can be amortized as follows:
➢ The employer can select an amortization period of 1 to 30 years. (For certain situations that result in a
reduction of the AAL, the amortization period must be at least 10 years.)
➢ The employer may apply the same amortization period to the total combined UAAL or can apply
different periods to different components of the UAAL.
➢ The employer may elect a "closed" or "open" amortization period.
➢ The employer may choose to amortize on a level dollar or level percentage of payroll method.
UAAL amortization payments can be higher than the normal cost. The magnitude of the UAAL depends
not only on all the assumptions discussed earlier, but also on the average age of employees. The higher employees'
average age, the greater the AAL.
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Total Compensation Systems, Inc.
PART III: LIABILITIES AND COSTS FOR RETIREE BENEFITS
A. Introduction.
We calculated the actuarial present value of projected benefits ( APVPB) separately for each employee. We
determined eligibility for retiree benefits based on information supplied by Yorba Linda Water District. We then
selected assumptions for the factors discussed in the above Section that, based on plan experience and our training
and experience, represent our best prediction of future plan experience. For each employee, we applied the
appropriate factors based on the employee's age, sex and length of service.
We summari zed actuarial assumptions used for this study in Appendix C.
B. Medicare
The extent of Medicare coverage can affect projections of retiree health costs. The method of coordinating
Medicare benefits with the retiree health plan's benefits can have a substantial impact on retiree health costs. We
will be happy to provide more information about Medicare integration methods if requested.
C. Liability for Retiree Benefits.
For each employee, we projected future premium costs using an assumed trend rate (see Appendix Q. A
constant trend rate was used for all years. This rate may understate trend in some years but might overstate it in
others. As long as trend averages the assumed rate over a long period, it is not critical the rate be correct in any one
year.
We multiplied each year's projected cost by the probability that premium will be paid; i.e. based on the
probability that the employee is living, has not terminated employment and has retired. The probability that premium
will be paid is zero if the employee is not eligible. The employee is not eligible if s/he has not met minimum service,
minimum age or, if applicable, maximum age requirements.
The product of each year's premium cost and the probability that premium will be paid equals the expected
cost for that year. We discounted the expected cost for each year to the valuation date June 1, 2009 at 5% interest.
Finally, we multiplied the above discounted expected cost figures by the probability that the retiree would
elect coverage. A retiree may not elect to be covered if retiree health coverage is available less expensively from
another source (e.g. Medicare risk contract) or the retiree is covered under a spouse's plan.
For current retirees, the approach used was similar. The major difference is that the probability of payment
for current retirees depends only on mortality and age restrictions (i.e. for retired employees the probability of being
retired and of not being terminated are always both 1.0000).
We added the APVPB for all employees to get the actuarial present value of total projected benefits
( APVTPB). The APVTPB (sometimes called the expected postemployment benefit obligation or EPBO) is the
estimated present value of all future retiree health benefits for all current employees and retirees. The APVTPB is
the amount on June 1, 2009 that, if all actuarial assumptions are exactly right, would be sufficient to expense all
promised benefits until the last current employee or retiree dies or reaches the maximum eligibility age.
10
Total Compensation Systems, Inc.
Actuarial Present Value of Total Projected Benefits
June 1, 2009
Bargaining Unit
Management
Confidential
Supervisory/
56
Total
Bargaining Unit
Management
Confidential
Active: Pre -65
$1,038,079
$759,371
$101,669
$177,039
Post -65
$1,371,347
$1,008,538
$139,441
$223,368
Subtotal
$2,409,426
$1,767,909
$241,110
$400,407
Retiree: Pre -65
$300,017
$81,022
$114,275
$104,720
Post -65
$240,685
$102,791
$122,012
$15,882
Subtotal
$540,702
$183,813
$236,287
$120,602
Grand Total
$2,950,127
$1,951,723
$477,396
$521,008
Subtotal Pre -65 $1,338,095 $840,393 $215,943 $281,759
Subtotal Post -65 $1,612,030 $1,111,329 $261,452 $239,249
The APVTPB should be accrued over the working lifetime of employees. At any time much of it has not
been "earned" by employees. The APVTPB is used to develop expense and liability figures. To do so, the APVTFB
is divided into two parts: the portions attributable to service rendered prior to the valuation date (the past service
liability or actuarial accrued liability under GASB 43 and 45) and to service after the valuation date but prior to
retirement (the future service liability).
The past service and future service liabilities are each funded in a different way. We will start with the
future service liability which is funded by the normal cost.
D. Cost to Prefund Retiree Benefits
1. Normal Cost
The average hire age for eligible employees is 34. To accrue the liability by retirement, the District would
accrue the retiree liability over a period of about 26 years (assuming an average retirement age of 60). We applied an
"entry age normal" actuarial cost method to determine funding rates for active employees. The table below
summarizes the calculated normal cost.
Normal Cost Year Beginning
June 1, 2009 Supervisory/
# of Employees
Per Capita Normal Cost
Pre -65 Benefit
Post -65 Benefit
First Year Normal Cost
Pre -65 Benefit
Post -65 Benefit
Total
Total
Bargaining Unit
Management
Confidential
79
56
11
12
N/A
$738
$974
$979
N/A
$875
$1,215
$1,229
$63,790
$41,328
$10,714
$11,748
$77,113
$49,000
$13,365
$14,748
$140,903
$90,328
$24,079
$26,496
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Total Compensation Systems, Inc.
Accruing retiree health benefit costs using normal costs would level out the cost of retiree health benefits
over time and more fairly reflect the value of benefits "earned" each year by employees. This normal cost would
increase each year based on covered payroll.
2. Amortization of Unfunded Actuarial Accrued Liability (UAAL)
If actuarial assumptions are borne out by experience, the District could fully accrue retiree benefits by
expensing an amount each year that equals the normal cost. If no accruals had taken place in the past, there would be
a shortfall of many years' contributions, accumulated interest and forfeitures for terminated or deceased employees.
This shortfall is called the actuarial accrued liability (AAL). We calculated the AAL as the APVTPB minus the
present value of future normal costs.
The District can amortize the UAAL over many years. The table below shows the annual amount necessary
to amortize the UAAL over a period of 30 years at 5% interest. (Thirty years is the longest amortization period
allowable under GASB 43 and 45.) GASB 43 and 45 will allow amortizing the UAAL using either payments that
stay the same as a dollar amount, or payments that are a flat percentage of covered payroll over time. The figures
below reflect the level percentage of payroll method. This amortization payment would increase each year based on
covered payroll. Payments would continue for 30 years, after which time amortization payments would end.
Actuarial Accrued Liability
as of June 1, 2009
Active: Pre -65
Post -65
Subtotal
Retiree: Pre -65
Post -65
Subtotal
Subtot Pre -65
Subtot Post -65
Grand Total
Funded at June 1, 2009
Unfunded AAL
1 st Year UAAL
Amortization at 5.0% over
30 Years
Total Bargaining Unit
$488,948 $356,545
$710,477 $530,932
Supervisory/
Management Confidential
$50,997 $81,406
$76,231 $103,314
$1,199,425
$887,477
$127,228
$184,720
$300,017
$81,022
$114,275
$104,720
$240,685
$102,791
$122,012
$15,882
$540,702
$183,813
$236,287
$120,602
$788,964
$437,567
$165,271
$186,126
$951,163
$633,724
$198,243
$119,196
$1,740,127
$1,071,291
$363,514
$305,322
$0
$0
$0
$0
$1,740,127
$1,071,291
$363,514
$305,322
$77,076 $47,451 $16,101 $13,524
3. Annual Required Contributions (ARC)
If the District determines retiree health plan expenses in accordance with GASB 43 and 45, first year costs
will include both normal cost and UAAL amortization costs. The sum of normal cost and UAAL amortization costs
is called the Annual Required Contribution (ARC) and is shown below.
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Total Compensation Systems, Inc.
Annual Required Contribution (ARC) Year Beginning
June 1, 2009
Supervisory/
Total
Bargaining Unit
Management
Confidential
Normal Cost
$140,903
$90,328
$24,079
$26,496
UAAL Amortization
$77,076
$47,451
$16,101
$13,524
ARC
$217,979
$137,779
$40,180
$40,020
Pay -As- You -Go Cost
$112,356
$47,881
$44,389
$20,086
Added Cost of GASB 43/45
$105,623
$89,898
- $4,209
$19,934
This amortization payment would increase each year based on covered payroll. Payments would continue
for 30 years, after which time amortization payments would end. The normal cost remains as long as there are active
employees who may some day qualify for District -paid retiree health benefits. This normal cost would increase each
year based on covered payroll.
Should Yorba Linda Water District decide to fund retiree health benefits as shown above, the cost of current
retiree benefits would be deducted from earmarked funds. This means the true cost is the difference between the
ARC and "pay -as- you -go" costs. The above table shows the additional cost necessary to fund retiree health benefits.
4. Other Components of Annual OPEB Cost (AOQ
Once GASB 43 and 45 are implemented, the expense and liability amounts may include more components
of cost than the normal cost plus amortization of the UAAL. This will apply to employers that don't fully fund the
Annual Required Cost (ARC) through an irrevocable trust.
➢ The annual OPEB cost (AOC) will include assumed interest on the net OPEB obligation
(NOO). The annual OPEB cost will also include an amortization adjustment for the net
OPEB obligation. (It should be noted that there is no NOO if the ARC is fully funded
through a qualifying "plan".)
➢ The net OPEB obligation will equal the accumulated differences between the (AOC) and
qualifying "plan" contributions.
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Total Compensation Systems, Inc.
PART IV: "PAY AS YOU GO" FUNDING OF RETIREE BENEFITS
We used the actuarial assumptions shown in Appendix C to project ten year cash flow under the retiree
health program. Because these cash flow estimates reflect average assumptions applied to a relatively small number
of employees, estimates for individual years are certain to be inaccurate. However, these estimates show the size of
needed cash flow and also the rate of increase in annual costs. Because we have used trend rates that are constant
over time, it is likely that medical costs will be understated in some years and overstated in others.
The following table shows a projection of annual amounts needed to pay the District share of retiree health
premiums.
Year
Beginning
June 1
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
$112,356
$125,215
$143,413
$111,189
$114,755
$86,934
$116,314
$120,215
$106,146
$99,525
Bar2ainin2 Unit
$47,881
$55,197
$66,444
$54,009
$54,379
$43,807
$56,815
$57,269
$63,425
$75,142
Management
$44,389
$47,472
$51,229
$30,380
$31,428
$32,445
$36,799
$37,714
$22,179
$14,598
14
Supervisory/
Confidential
$20,086
$22,546
$25,740
$26,800
$28,948
$10,682
$22,700
$25,232
$20,542
$9,785
Total Compensation Systems, Inc.
PART V: RECOMMENDATIONS FOR FUTURE VALUATIONS
To effectively manage benefit costs, an employer must periodically examine the existing liability for retiree
benefits as well as future annual expected premium costs. We recommend every two or three years as will be
required under GASB 43/45. In addition, a valuation should be conducted whenever plan changes, changes in
actuarial assumptions or other employer actions are likely to cause a material change in accrual costs and/or
liabilities.
Following are examples of actions that could trigger a new valuation.
➢ An employer should perform a valuation whenever the employer considers or puts in place
an early retirement incentive program.
➢ An employer should perform a valuation whenever the employer adopts a retiree benefit
plan for some or all employees.
➢ An employer should perform a valuation whenever the employer considers or implements
changes to retiree benefit provisions or eligibility requirements.
➢ An employer should perform a valuation whenever the employer introduces or changes
retiree contributions.
We recommend Yorba Linda Water District take the following actions to ease future valuations.
➢ We have used our training, experience and information available to us to establish the
actuarial assumptions used in this valuation. We have no information to indicate that any of
the assumptions do not reasonably reflect future plan experience. However, the District
should review the actuarial assumptions in Appendix C carefully. If the District has any
reason to believe that any of these assumptions do not reasonably represent the expected
future experience of the retiree health plan, the District should engage in discussions or
perform analyses to determine the best estimate of the assumption in question.
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Total Compensation Systems, Inc.
PART VI: APPENDICES
APPENDIX A: MATERIALS USED FOR THIS STUDY
We relied on the following materials to complete this study.
➢ We used paper reports and digital files containing employee demographic data from the
District personnel records.
➢ We used relevant sections of collective bargaining agreements provided by the District.
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Total Compensation Systems, Inc.
APPENDIX B: EFFECT OF ASSUMPTIONS USED IN CALCULATIONS
While we believe the estimates in this study are reasonable overall, it was necessary for us to use
assumptions which inevitably introduce errors. We believe that the errors caused by our assumptions will not
materially affect study results. If the District wants more refined estimates for decision - making, we recommend
additional investigation. Following is a brief summary of the impact of some of the more critical assumptions.
Where actuarial assumptions differ from expected experience, our estimates could be
overstated or understated. One of the most critical assumptions is the medical trend rate.
The District may want to commission further study to assess the sensitivity of liability
estimates to our medical trend assumptions. For example, it may be helpful to know how
liabilities would be affected by using a trend factor 1% higher than what was used in this
study.
2. We used an "entry age normal" actuarial cost method to estimate the actuarial accrued
liability and normal cost. GASB will allow this as one of several permissible methods
under its upcoming accounting standard. Using a different cost method could result in a
somewhat different recognition pattern of costs and liabilities.
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Total Compensation Systems, Inc.
APPENDIX C: ACTUARIAL ASSUMPTIONS AND METHODS
Following is a summary of actuarial assumptions and methods used in this study. The District should
carefully review these assumptions and methods to make sure they reflect the District's assessment of its underlying
experience. It is important for Yorba Linda Water District to understand that the appropriateness of all selected
actuarial assumptions and methods are Yorba Linda Water District's responsibility. Unless otherwise disclosed in
this report, TCS believes that all methods and assumptions are within a reasonable range based on the provisions of
GASB 43 and 45, applicable actuarial standards of practice, Yorba Linda Water District's actual historical
experience, and TCS's judgement based on experience and training.
ACTUARIAL METHODS AND ASSUMPTIONS:
ACTUARIAL COSTMETHOD: Entry age normal. The allocation of OPEB cost is based on years of
service. We used the level percentage of payroll method to allocate OPEB cost over years
of service.
Entry age is based on the average age at hire for eligible employees. The attribution period
is determined as the difference between the average retirement age and the average age at
hire. The present value of future benefits and present value of future normal costs are
determined on an employee by employee basis and then aggregated.
To the extent that different benefit formulas apply to different employees of the same class,
the normal cost is based on the benefit plan applicable to the most recently hired employees
(including future hires if a new benefit formula has been agreed to and communicated to
employees).
AMORTIZAT[ONMETHODS: We used the level percentage of payroll method to allocate amortization
cost by year. We used a 30 year amortization period. Because there has not been a previous
valuation to comply with GASB 43 and/or 45, it was not necessary at this time for Yorba
Linda Water District to make an election with respect to whether to use an "open" or
"closed" amortization period; or whether to use different amortization periods for different
sources of the UAAL.
SUBSTANTIVE PLAN.' As required under GASB 43 and 45, we based the valuation on the substantive
plan. The formulation of the substantive plan was based on a review of written plan
documents as well as historical information provided by Yorba Linda Water District
regarding practices with respect to employer and employee contributions and other relevant
factors.
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Total Compensation Systems, Inc.
ECONOMIC ASSUMPTIONS:
Economic assumptions are set under the guidance of Actuarial Standard of Practice 27 (ASOP 27). Among other
things, ASOP 27 provides that economic assumptions should reflect a consistent underlying rate of general inflation.
For that reason, we show our assumed long -term inflation rate below.
INFLATION: We assumed 3% per year.
INVESTMENT RETURN / DISCOUNT RATE: We assumed 5% per year. This is based on assumed long-
term return on plan assets or employer assets, as appropriate. We used the "Building Block
Method" as described in ASOP 27 Paragraph 3.6.2. Our assessment of long -term returns
for employer assets is based on long -term historical returns for surplus funds invested
pursuant to California Government Code Sections 53601 et seq.
TREND: We assumed 4% per year. Our long -term trend assumption is based on the conclusion that,
while medical trend will continue to be cyclical, the average increase over time cannot
continue to outstrip general inflation by a wide margin. Trend increases in excess of
general inflation result in dramatic increases in unemployment, the number of uninsured
and the number of underinsured. These effects are nearing a tipping point which will
inevitably result in fundamental changes in health care finance and /or delivery which will
bring increases in health care costs more closely in line with general inflation. We do not
believe it is reasonable to project historical trend vs. inflation differences several decades
into the future.
PAYROLL INCREASE: We assumed 3% per year. This assumption applies only to the extent that either or
both of the normal cost and/or UAAL amortization use the level percentage of payroll
method. For purposes of applying the level percentage of payroll method, payroll increase
must not assume any increases in staff or merit increases.
ACTUARIAL ASSET VALUATION.- We used asset values provided by Yorba Linda Water District. Because
there has not been a previous valuation to comply with GASB 43 and/or 45, it was not
necessary at this time for Yorba Linda Water District to make an election with respect to
whether to use an asset smoothing formula and, if so, what smoothing method to use.
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Total Compensation Systems, Inc.
NON - ECONOMIC ASSUMPTIONS:
Economic assumptions are set under the guidance of Actuarial Standard of Practice 35 (ASOP 35).
MORTALITY Ca1PERS mortality for Miscellaneous employees.
RETIREMENT RATES: Ca1PERS retirement rates for the 2 %(a, 55 pension formula for other employees.
VESTING RATES:
Bargaining Manaume Supervisory/
Unit nt Confidential
Vesting Percentage 100% 100% 100%
Vesting Period 5 years 5 years 5 years
COSTS FOR RETIREE COVERAGE:
There was not sufficient information available to determine whether there is an implicit subsidy for retiree health
costs. Based on ASOP 6, there can be justification for using "community- rated" premiums as the basis for the
valuation where the insurer is committed to continuing rating practices. This is especially true where sufficient
information is not available to determine the magnitude of the subsidy. However, Yorba Linda Water District should
recognize that costs and liabilities in this report could change significantly if either the current insurer changes rating
practices or if Yorba Linda Water District changes insurers.
First Year costs are as shown below. Subsequent years' costs are based on first year costs adjusted for trend and
limited by any District contribution caps.
Supervisory/
Bargaining Unit Management Confidential
Current Retirees: based on actual costs
Current Plan:
Future Retirees Pre -65 $10,972 $10,972 $10,972
Future Retirees Post -65 $9,643 $9,643 $9,643
PARTICIPATION RATES: 100%
TURNOVER: Ca1PERS turnover for Miscellaneous employees for other employees.
SPOUSE PREVALENCE: To the extent not provided and when needed to calculate benefit liabilities, 80%
of retirees assumed to be married at retirement. After retirement, the percentage married is
adjusted to reflect mortality.
SPOUSEAGES: To the extent spouse dates of birth are not provided and when needed to calculate benefit
liabilities, female spouse assumed to be three years younger than male.
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Total Compensation Systems, Inc.
AGING FACTORS:
Medical Annual
Attained Age Increases
50 -64
3.5%
65 -69
3.0
70 -74
2.5
75 -79
1.5
80 -84
0.5
85+
0.0
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Total Compensation Systems, Inc.
APPENDIX D: DISTRIBUTION OF ELIGIBLE PARTICIPANTS BY AGE
ELIGIBLE ACTIVE EMPLOYEES:
ELIGIBLE RETIREES:
Supervisory/
Age
Total
Bargaining Unit
Management
Supervisory/
Age
Total
Bargaining Unit
Management
Confidential
Under 25
7
7
0
0
25 -29
7
6
0
1
30 -34
12
9
1
2
35 -39
9
7
0
2
40 -44
8
6
1
1
45 -49
9
7
2
0
50 -54
11
7
2
2
55 -59
3
2
0
1
60 -64
7
2
3
2
65 and
6
3
2
1
older
10
4
4
2
Total
79
56
11
12
ELIGIBLE RETIREES:
Supervisory/
Age
Total
Bargaining Unit
Management
Confidential
Under 50
0
0
0
0
50 -54
0
0
0
0
55 -59
3
1
1
1
60 -64
3
1
1
1
65 -69
3
2
1
0
70 -74
1
0
1
0
75 -79
0
0
0
0
80 -84
0
0
0
0
85 -89
0
0
0
0
90 and
0
0
0
0
older
Total
10
4
4
2
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Total Compensation Systems, Inc.
APPENDIX E: GLOSSARY OF RETIREE HEALTH VALUATION TERMS
Note: The following definitions are intended to help a non - actuary understand concepts related to retiree health
valuations. Therefore, the definitions may not be actuarially accurate.
Actuarial Accrued Liability: The amount of the actuarial present value of total projected benefits attributable to
employees' past service based on the actuarial cost method used.
Actuarial Cost Method: A mathematical model for allocating OPEB costs by year of service.
Actuarial Present Value of Total
Projected Benefits: The projected amount of all OPEB benefits to be paid to current and future retirees
discounted back to the valuation date.
Actuarial Value of Assets: Market - related value of assets which may include an unbiased formula for
smoothing cyclical fluctuations in asset values.
Annual OPEB Cost: This is the amount employers must recognize as an expense each year. The annual
OPEB expense is equal to the Annual Required Contribution plus interest on the
Net OPEB obligation minus an adjustment to reflect the amortization of the net
OPEB obligation.
Annual Required Contribution: The sum of the normal cost and an amount to amortize the unfunded actuarial
Closed Amortization Period:
Di-count Rate-
Implicit Rate Subsides
accrued liability. This is the basis of the annual OPEB cost and net OPEB
obligation.
An amortization approach where the original ending date for the amortization
period remains the same. This would be similar to a conventional, 30 -year
mortgage, for example.
Assumed investment return net of all investment expenses. Generally, a higher
assumed interest rate leads to lower normal costs and actuarial accrued liability.
The estimated amount by which retiree rates are understated in situations where,
for rating purposes, retirees are combined with active employees.
Mortality Rate: Assumed proportion of people who die each year. Mortality rates always vary by
age and often by sex. A mortality table should always be selected that is based on
a similar "population" to the one being studied.
Net OPEB Obligation: The accumulated difference between the annual OPEB cost and amounts
contributed to an irrevocable trust exclusively providing retiree OPEB benefits and
protected from creditors.
Normal Cost: The dollar value of the "earned" portion of retiree health benefits if retiree health
benefits are to be fully accrued at retirement.
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Total Compensation Systems, Inc.
OPEB Benefits: Other PostEmployment Benefits. Generally medical, dental, prescription drug, life,
long -term care or other postemployment benefits that are not pension benefits.
Open Amortization Period: Under an open amortization period, the remaining unamortized balance is subject
to a new amortization schedule each valuation. This would be similar, for example,
to a homeowner refinancing a mortgage with a new 30 -year conventional mortgage
every two or three years.
Participation Rate: The proportion of retirees who elect to receive retiree benefits. A lower
participation rate results in lower normal cost and actuarial accrued liability. The
participation rate often is related to retiree contributions.
Retirement Rate: The proportion of active employees who retire each year. Retirement rates are
usually based on age and/or length of service. (Retirement rates can be used in
conjunction with vesting rates to reflect both age and length of service). The more
likely employees are to retire early, the higher normal costs and actuarial accrued
liability will be.
Transition Obligation: The amount of the unfunded actuarial accrued liability at the time actuarial accrual
begins in accordance with an applicable accounting standard.
Trend Rate: The rate at which the cost of retiree benefits is expected to increase over time. The
trend rate usually varies by type of benefit (e.g. medical, dental, vision, etc.) and
may vary over time. A higher trend rate results in higher normal costs and
actuarial accrued liability.
Turnover Rate: The rate at which employees cease employment due to reasons other than death,
disability or retirement. Turnover rates usually vary based on length of service and
may vary by other factors. Higher turnover rates reduce normal costs and actuarial
accrued liability.
Unfunded Actuarial
Accrued Liability: This is the excess of the actuarial accrued liability over assets irrevocably
committed to provide retiree health benefits.
Valuation Date: The date as of which the OPEB obligation is determined. Under GASB 43 and 45,
the valuation date does not have to coincide with the statement date.
Vesting Rate: The proportion of retiree benefits earned, based on length of service and,
sometimes, age. (Vesting rates are often set in conjunction with retirement rates.)
More rapid vesting increases normal costs and actuarial accrued liability.
24
Meeting Date:
To:
From:
Presented By:
Prepared By:
Subject:
SUMMARY:
AGENDA REPORT
October 13, 2009
Board of Directors
Ken Vecchiarelli, General
Manager
Ken Vecchiarelli, General
Manager
Cindy Navaroli, Interim Finance
Director
Budgeted
Dept:
Reviewed by Legal:
CEQA Compliance:
ITEM NO. 6.3
N/A
Finance
N/A
N/A
Credit to Customers for New Water Rate Increase Applied Prior to September
14, 2009 and Preliminary Adjustments to FY 09/10 Budget Amendments
Staff is proposing adjustments to the amended budget based on updated projections that apply the
approved water rate increase to usage calculated after September 14, 2009 and that include
updated projections for expenses and debt service for FY 09/10.
STAFF RECOMMENDATION:
(1) That the Board of Directors approve a credit to the District's customers in the amount of the
approved water rate increase that was applied and prorated to water usage and minimum service
charges prior to September 14, 2009. (2) That the Board of Directors authorize staff to prepare the
proposed FY 09/10 Budget adjustments coinsistent with the revisions in Column C of the attached
exhibit, for consideration by the Board to receive and file at their next scheduled meeting.
DISCUSSION:
On September 10, 2009 the Board of Directors approved water rate increases in the usage charge
and minimum service charge, effective September 14, 2009. Staff implemented the rate increase in
accordance with amended Resolution No. 07 -17 and past practices by applying the new rate to all
bills calculated on or after September 14, 2009. It was clear from the resulting public response that
this proactive application of the new rate was not clearly understood and not communicated clearly
through the Prop. 218 Public Notice process. This matter was brought to the Board's attention at
their meeting on September 24th and staff was directed to review the financial impacts and prepare
a plan for the Board to consider that might remediate the proactive application of the rate increase.
At the October 5th Board meeting, staff was directed to bring the Board recalculated cash flow
projections based on applying the new rate to water usage after September 14th and to determine
what action may be needed to adjust expenses to offset the resulting loss in billing revenue. Staff
also noted that since the District appeared to be ending the FY 08/09 with a debt service ratio below
the required 110% minimum, it was imperative that the District take proactive action to prevent
noncompliance from occurring in the future.
Attached is the calculation of net revenues adjusted for FY 09/10 based on applying the approved
rate increase on a prospective basis on and after September 14th. The capitalized interest portion of
the debt service has also been subtracted from the debt service calculation in accordance with the
installment agreement for the 2003 and 2008 bonds. Based on this updated information, the District
may adopt further budget adjustments that result in a debt service ratio of 111 %, which is in
compliance with our bond covenants.
PRIOR RELEVANT BOARD ACTION(S):
On September 10, 2009 the Board of Directors approved a rate increase on the usage charge and
minimum service charge components of tha water rates to be effective September 14, 2009. On
September 24, 2009, the Board of Directors requested that a special meeting take place on October
5, 2009 to discuss the timing and implementation of the rate increase. At their meeting on October
8, 2009, the Board agreed to hold another special meeting on October 13, 2009 to further consider
alternative action plans to resolve this matter.
ATTACHMENTS:
Description: Type
Debt Ratio Amended Budget FY 09
Debt Ratio &Amended Budget Backup Material
10 rev 10909.xls
Sample Bill.pdf Sample Bill Backup Material
YLWD FY 09/10 Budget Amendments
Revenues
Water Sales Revenue
Ad Valorem Tax Revenues
Customer Service Charges
Rents & Royalties
Interest Income
Other Revenues
Total Revenues
Operating Expenses
Variable Water Costs
Personnel Services
Supplies & Services
Total Operating and Maintenance Expenses
Net Revenues
Debt Obligations
Audited
Water Fund Amended Budget Proposed
as of 6130109 as of Sept. 10, 2009 Budget adjustments
$ 19,626,738 $
25,800,085 $
23,354,826
1,276,638
1,092,000
1,092,000
215,273
215,273
215,273
41,566
41,566
41,566
468,011
127,900
127,900
549,754
105,500
105,500
22,177,980
27,382,324
24,937,065
10,859,328
12,612,700
12,259,938
5,864,468
6,538,008
6,188,008
3,705,278
4,032,096
4,032,096
20,429,074
23,182,804
22,480,042
1,748,906
4,199,520
2,457,023
Total Debt Obligation 2,727,833 2,806,270 2,806,270
Less Capitalized Interest (580,963) (600,000)
Net Debt Service $ 2,146,870 $ 2,806,270 $ 2,206,270
Debt Service Ratio 81% 150% 111%
(Net Revenues / Net Debt Service)
Amount of Net Revenues as calculated above $ 2,457,023
Amount of Net Revenues needed to get to 110% debt ratio $ (2,426,897)
Excess (shortfall)
$ 30,126
* Less $300,000 reclassification out of personnel costs and into CIP, and $50,000 for 1/2 year unfilled PIO position
Yorba Linda Water District Phone: (714) 701 -30M
1717 1?. Miraloma Avenue Fax: (714) 701 -3058
Placentia, CA 92870 Website: YLWD.com
Name and Baling Address
Service Address
Account dumber Serving the COMMUnity since 1909.
Keep this portion for your rrecm ds
Billing Period
Statement Date Current Charges Due By
09106/09 to 10108/09
10/14/09 11111109
•
a
mew -*ter uerent Rwd
Previous Read
Current
LM Tear hangs vg Daily
Humber size
Usage
Usage Usage
2 54517
54453
64
Nate: derv#) = 748. 10 gallons
TOTAL (units billed)
84
177 -113 8
Previous Billing: Amount of previous bill 09/14109 279.26
Payment Received 09131/09 - Thank you -179.26
Previous billing credit -78.59
....................
Previous Balance-
Current Billing Waiter Charge
Water Usage 12 (units) x 1.79 a 21.48
Water Usage 62 (units) x 2.52 a 131.04
Basic Service Charge 9.84
Backflow Charge 2.42
Total Current Charges ................................. $ 164.76
TOTAL AMOUNT DUE ............................... $ 66.19
Yorba Linda Water District
PO Box 309
Yorba Linda, CA 92665 -0309
Phone: (714) 701 -3000 Fax: (714) 701 -3058
Account No:
SEE REVERSE FOR OTHER PAYMENT OPTIONS
YLWO915A
2000000001 1/1
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Previous Balance: 0.00
Current Charges are due "11MI109 $86.19
TOTAL AMOUNT DUE: $86.19
To avoid penaltles balance is due on -111111091
TOTAL AMOUNT PAID
II. 101111 111, 1l, 6, is III III IAs ell[III[aIIII III I ION [III III gill
Yorba Linda Water District
PO Box 309
Yarba Linda, CA 92885 -0309
10126000279266