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HomeMy WebLinkAbout04. Basic audited Financial Statements for FY 2016 and 2015 and Memorandum on Internal Control and Required CommunicationsCentral San BOARD OF DIRECTORS POSITION PAPER 4. ,E)RAG� Board Meeting Date: December 1, 2016 Subject: ACCEPT THE COMPARATIVE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND 2016, AND THE AUDITOR'S MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Submitted By: Thea Vassallo, CPA, CMA Finance Manager Initiating Dept./Div.: Administrative / Finance & Accounting REVIEWED AND RECOMMENDED OMMENDED FDR BOARD ACTION: Roger S. Bailey General Manager ISSUE: The comparative audited financial statements of the Central Contra Costa Sanitary District for the Fiscal Years (FY) ended June 30, 2015 and 2016, and the auditor's memorandum on internal control and required communications for the year ended June 30, 2016 are being submitted to the Board of Directors. BACKGROUND: The firm of Maze & Associates has completed its fourth examination of Central San's financial statements for the FYs ended June 30, 2015, and 2016, and has submitted the audited financial statements and auditor's opinion thereon. The objective of the audit is the expression of an opinion as to whether the basic financial statements are fairly presented, in all material respects, in conformity with United States generally accepted accounting principles and to report on the fairness of the supplementary information in relation to the financial statements taken as a whole. The audit is conducted in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and includes tests of the accounting records of Central San and other procedures considered necessary to express such an opinion. The independent auditor's report for the FYs ending June 30, 2015 and 2016 expresses an unqualified (clean) opinion. In accordance with Government Code Section 53891, information from the audit is used to prepare a report to the State Controller's office. The report will be sent electronically by the annual deadline of January 31, 2017. The audited financial statements are also sent to the County Auditor -Controller, Contra Costa County Board of Supervisors, and the Bond Rating Agencies. In the performance of their examination of the financial statements, the auditors evaluate Central San's internal accounting controls related to the financial statements in Page 1 of 3 POSITION PAPER Board Meeting Date: December 1, 2016 Subject: ACCEPT THE COMPARATIVE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND 2016, AND THE AUDITOR'S MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 compliance with laws, regulations, and the provisions or grant agreements, noncompliance with which could have a material effect on the financial statements as required by Government Auditing Standards. Based on their observations during the course of the examination, the auditors advise management of any significant deficiencies or material misstatements and any recommendations to improve the system of internal accounting controls. See Attachment 2, "Memorandum on Internal Control and Required Communications." There were no significant deficiencies or material misstatements identified. The original contract with Maze & Associates is for a four-year term with a one-year extension. ALTERNATIVES/CONSIDERATIONS: None. FINANCIAL IMPACTS: Below is information regarding implementation of significant pension reporting changes included in the basic audited Financial Statements for FYs ended June 30, 2015 and 2016. The new Governmental Accounting Standards Board (GASB) Statements that affect Central San this audit cycle are as follows: GASB Statement No. 68 — Accounting and Financial Reporting for Pensions Requires recognition of the entire net pension liability and a more comprehensive measure of pension expense. GASB Statement No. 71 — Pension Transition for Contributions Made Subsequent to the Measurement Date GASB 71 amends GASB 68 by eliminating the source of a potential significant understatement of restated beginning net position and expense in the first year of implementation of GASB 68 in the accrual basis financial statements of employer contributing entities. The collective net pension liability included in the Statement of Net Position for FY June 30, 2016, the second year of implementation, is $91,746,888. This is an increase of $2.2 million from FY 2014-15, mainly due to a reduction in the discount rate assumed by CCCERA from 7.25% to 7.0%. Additional information related to GASB 68 and 71 are provided in Footnote 9 - Pension Plans -- Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions, starting on page 34 through 38. Additionally, the Required Supplementary Information includes new schedules on changes in net pension liability, ratios and contributions - see pages 46 and 47. Page 2of3 POSITION PAPER Board Meeting Date: December 1, 2016 Subject: ACCEPT THE COMPARATIVE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND 2016, AND THE AUDITOR'S MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 GASB Statement No. 72 — Fair Value Measurement and Application This Statement addresses accounting and financial reporting issues related to fair value measurements. The Statement provides guidance for determining a fair value measurement for financial reporting purposes. COMMITTEE RECOMMENDATION: The audited financial statements and the auditor's memorandum on internal control and required communications will be reviewed by Vikki Rodriguez from Maze & Associates at the Finance Committee meeting on November 28, 2016. RECOMMENDED BOARD ACTION: Accept the basic audited financial statements for the FYs ended June 30, 2015 and 2016, and the auditor's memorandum on internal control and required communications for the FY ended June 30, 2016. Attached Supporting Documents: 1. Basic Financial Statements for the Years Ended June 30, 2015 and 2016 2. Memorandum on Internal Control and Required Communications for the Year Ended June 30, 2016 Page 3 of 3 ATTACHMENTI CENTRAL CONTRA COSTA SANITARY DISTRICT BASIC FINANCIAL STATEMENTS FOR THE YEARS ENDED JTJNE 30, 2016 AND 2015 REVIEW DRAFT 11/18/2016 1:30 PM This Page Left Intentionally Blank REVIEW DRAFT 11/18/2016 1:30 PM CENTRAL CONTRA COSTA SANITARY DISTRICT BASIC FINANCIAL STATEMENTS For the Years Ended June 34, 2016 and 2015 Table of Contents INTRODUC T ORY SECTION Table of Contents FINANCIAL SECTION INDEPENDENT AUDITOR'S REPORT 1 MANAGEMENT'S DISCCTSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Statements of Net Position 10 Statements of Revenues, Expenses and Changes in Net Position 13 Statements of Cash Flows. 14 NOTES TO BASIC FINANCIAL STATEMENTS. 17 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Changes in the Net Pension Liability and Related Ratios ... 46 Schedule of Contributions 47 Post -Retirement Health Care Defined Benefit Plan — Schedule of Funding Progress 48 SUPPLEMENTARY INFORMATION Combining Schedule of Net Position -- Enterprise Sub -Funds 50 Combining Schedule of Revenues, Expenses and Changes in Net Position -- Enterprise Sub -Funds 51 Schedule of Running Expenses, Comparison of Budget and Actual Expenses by Department 52 Running Expense — Schedule of Supplemental Net Position Analysis 53 1 REVIEW DRAFT 11/18/2016 1:30 PM This Page Left. Intentionally Blank REVIEW DRAFT 11/18/2016 1:3 0 PM M MAZE &ASSOCIATES INDEPENDENT AUDITOR'S REPORT To the Board of Directors Central Contra Costa Sanitary District Martinez, California Report on Financial Statements We have audited the accompanying financial statements of the Central Contra Costa Sanitary District (District) as of and for the years ended June 30, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the District's basic fmancial statements as listed in the Table of Contents. Management's Responsibility for the Fin an cial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the fmancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the as s es sment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the fmancial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fmancial position of the Central Contra Costa Sanitary District as of June 30, 2016 and 2015, and the changes in financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Accountancy Corporation 3478 Buskirk Avenue, Suite 215 Pleasant Hill, CA 94523 T 925.930.0902 F 925.930.0135 E maze@mazeassociates.com w mazeassociates.com Emphasis of a Matter Management adopted the provisions of Governmental Accounting Standards Board Statement No. 72 Fair Value Measurement and Application, which became effective during the year ended June 30, 2016 as discussed in Note 1 to the financial statements. The emphasis of this matter does not constitute a modification to our opinion. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis and pension and OPEB related tables be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the District's financial statements as a whole. The Supplementary Information listed in the Table of Contents is presented for purposes of additional analysis and is not a required part of the financial statements. The Supplementary Information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the fmancial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Supplementary Information is fairly stated in all material respects in relation to the financial statements as a whole. Pleasant Hill, California DATE 2 Central Contra Costa Sanitary District MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the Central Contra Costa Sanitary District's annual financial report presents an analysis of the District's financial performance during the fiscal year ended June 30, 2016. This information is presented in conjunction with the audited financial statements, which follow this report. FINANCIAL HIGHLIGHTS The District's 2015-16 financial highlights are listed below. These results are discussed in more detail later in the report. • The District's total ending net position increased by $30.0 million or 5.32% in 2015-16. This is mainly due to increases in operating revenues, capital contributions, and a decrease in operating expenses. • Total revenues in 2015-16 increased by $4.3 million or 4.17%. The total Sewer Service Charge (SSC) rate increased for single family homes by 7.29% to $471 and 5.47% for multi -family homes to $463. Increased development in the service area lead to an increase in permit and inspection fees. • Total 2015-16 expenses decreased by $6.7 million or -6.28%. This is mainly due to a reduction in sewage treatment costs and pension expense. • Capital Contributions increased in 2015-16 by $8.1 million or 56.70%. The increase is mainly due to an increase in capital contributions from Concord and a higher allocation of SSC to Capital Contributions from Operating Revenues. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report includes the Management's Discussion and Analysis report, the independent auditor's report and the basic financial statements of the District. The financial statements also include notes that explain information in the financial statements in more detail. This report also contains other supplementary information in addition to the basic financial statements. REQUIRED FINANCIAL STATEMENTS The District's financial statements report information utilizing methods similar to those used by private sector companies. These statements offer short and long-term financial information about the District's activities. • Statement of Net Position — reports the District's current financial resources (short-term spendable resources) with capital assets, deferred outflows of resources, long-term obligations, and deferred inflows of resources. • Statement of Revenues, Expenses and Changes in Net Position - reports the District's operating and non-operating revenues by major source along with operating and non-operating expenses and capital contributions. ® Statement of Cash Flows - reports the District's cash flows from operating activities, non - capital financing activities, capital and related financing activities, investing activities, and non- cash activities. STATEMENT OF NET POSITION The following table shows the condensed statement of net position of the Central Contra Costa Sanitary District for the past three fiscal years: Condensed Statement of Net Position Current Assets Capital Assets Other Non-current Assets Total Assets Deferred Outflows of Resources -Pension Related Current Liabilities Non -Current Liabilities Total Liabilities Deferred Inflows of Resources -Pension related Net Investment in Capital Assets Restricted - Debt Service Unrestricted Total Net Position Fiscal Year Ended June 30 2015-16 $ 95, 584, 553 616, 005, 037 7,580,512 719,170,102 34,464,472 10, 986, 379 127,458, 808 138,445,187 21,618,960 581,844,903 4,363,251 7,362,273 593,570,427 2014-15 $ 82,554,355 609, 718,479 7,832,901 700,105,735 12,420,138 10, 029,487 127,324,915 137,354,402 2013-14 79,291,642 608, 583,268 8,621,042 % Increase (Decrease) FY 15-16 FY 15-16 vs. vs. FY 14-15 FY 13-14 15.78% 20.55% 1.03% 1.22% -3.22% -12.07% 696,495,952 2.72% 3.26% 12,145,509 40,004,777 52,150,286 177.49% 9.54% 0.11% 0.79% 100.00% - 9.54% 218.61% 165.47% 11,564,393 - 86.94% 100.00% 573,175,094 4, 288,008 (13, 856, 024) $ 563,607,078 568, 006, 023 4,809,248 71,530,395 1.51% 1.75% -153.13% 2.44% - 9.27% -89.71% $ 644,345,666 5.32% -7188% The total net position of the District decreased from $644.3 million in 2013-14 to $563.6 million in 2014-15 and increased to $593.6 million in 2015-16. The District's total assets have increased by $19.1 million or 2.72% compared to 2014-15, and $22.7 million or 3.26% compared to 2013-14. The total liabilities increased $1.1 million or 0.79% compared to 2014-15, and increased $86.3 million or 165.47% compared to 2013-14. The decrease in net position over the three-year period totals $50.8 million or -7.88% and is the result of the combination of net income, capital contributions, and the implementation of GASB 68 and GASB 71 which required the District to record the Net Pension Liability. By far the largest portion of the District's net position (98.02% percent) reflects its investment in capital assets (e.g. land, buildings, machinery, equipment, intangible assets, and sewer line infrastructure), less any related debt used to acquire those assets that are still outstanding. The District uses these capital assets to provide services to its ratepayers; consequently, these assets are not available for future spending. Although the District's investment in its capital assets is reported net of debt, it should be noted that the funds needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. There is currently $4.4 million restricted for debt service. The remaining balance of $7.4 million in unrestricted net position increased by $21.2 million from 2014-15 and decreased by $64.2 million from 2013-14 due to the implementation of GASB 68 and 71 which required the District to record its Net Pension Liability. REVIEW OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION The table below shows the condensed statement of revenues, expenses, and changes in net position for the District for the past three fiscal years: Condensed Statement of Revenues, Expenses, and Changes in Net Position Sewer Service Charges (SSC) Other Service Charges and Miscellaneous Total Operating Revenue Property Tax Permit & Inspection Fees Interest and All Other Total Non -Operating Revenues Total Revenues Total Labor and Benefits Chemicals & Utilities Repairs and Maintenance Professional, Legal and Outside Services Materials & Supplies Hauling and Disposal Self -Insurance Expense Pension Expense All Other Depreciation Expense Total Operating Expenses Non -Operating Expense - Interest Expense Total Expenses Fiscal Year Ended June 30 2015-16 $ 86,147, 863 1,586,673 87,734,536 14, 835,167 2,546,723 1,757,403 19,139,293 106,873,829 63, 988,158 5,053,263 4,891,062 4,196,302 2,251,356 889,471 1,600,617 (9,778,389) 1,815,647 22, 885, 030 97,792,517 1,427,641 99,220,158 2014-15 $ 82, 916.457 1,599,997 84, 516,434 14, 083, 331 1,843,922 2,147, 005 18,074,278 102,590,712 66,104,630 5,532,237 3,873,557 3,322,881 1,934,253 884,703 1,333,518 (3,012,757) 1,636,826 22, 740, 942 104,350,790 1,523,127 105,873,917 2013-14 $ 72,422,285 1,579,723 74,002,008 13,093,841 1,575,251 1,291,752 15,960,844 89,962,852 58,954,453 6,002,514 3,126, 617 % Increase (Decrease) FY15-16FY15-16 vs. vs. FY 14-15 FY 13-14 3.90% 18.95% -0.83% 0.44% 3.81% 18.56% 5.34% 13.30% 38.11% 61.67% -18.15% 36.05% 5.89% 19.91% 4A7% 18.80% -3.20% 8.54% -8.66% -15.81% 26.27% 56.43% 3,995,861 26.29% 5.02% 2,060,796 16.39% 9.25% 914,739 0.54% -2.76% 858,738 20.03% 86.39% 224.57% 100.00% 1,702,131 10.92% 6.67% 21,892,545 0.63% 4.53% 99,508,394 -6.28% -1.72% 1,996,689 -6.27% -28.50% 101,505,083 -6.28% -2.25% Condensed Statement of Revenues, Expenses, and Changes in Net Position Income Before Capital Contributions 1 Customer Contributions (SSC) 1 Contributed Sewer Lines Capital Contributions - Connection Fees Total Capital Contributions Change in Net Position Beginning Net Position Restatement - Implementation of GASB 68 and GASB 71 Ending Net Position Fiscal Year Ended June 30 2015-16 7,653,671 11,991,752 1,774,168 8,543,758 22,309,678 29,963,349 563,607,078 2014-15 (3,283,205) 6,769 623 794,218 6,673,298 14,237 139 10,953 934 644,345,666 (91,692,522) 2013-14 % Increase (Decrease) FY15-16 FY15-16 vs. vs. FY 14-15 FY 13-14 (11,542,231) 333.12% 166.31% 10,486,067 77.14% 14.36% 1,462,316 123.39% 21.33% 8,224, 517 20,172,900 8,630,669 635,71 4,997 28.03% 3.88% 56.70% 10.59% 173.54% 247.17% -12.53% -11.34% - 100.00% $ 593,570,427 $ 563,607,078 $ 644,345,666 5.32% -7.88% Revenue Total operating revenues increased from $74.0 million in 2013-14 to $84.5 million in 2014-15 and to $87.7 million in 2015-16. Operating revenues increased by $3.2 million or 3.81% compared to 2014-15, and increased by $13.7 million or 18.56% comparing 2015-16 to 2013-14. Total non-operating revenue increased from $16.0 million in 2013-14 to $18.1 million in 2014-15 and to $19.1 million in 2015-16. An increase compared to 2014-15 by $1.1 million or 5.89%, and increased by $3.2 million or 19.91% comparing 2015-16 to 2013-14. Total revenues increased from $90.0 million in 2013-14 to $102.6 million in 2014-15 to $106.9 million in 2015-16. The change in total revenue resulted in an increase of $4.3 million or 4.17% comparing 2015-16 to 2014-15, and increased by $16.9 million or 18.80% comparing 2015-16 to 2013-14. There was a 7.29% rate increase for single family homes and a 5.47% rate increase for multi -family homes in 2015-16, an 8.40% SSC general rate increase in 2014-15, and a 9.16% SSC general rate increase in 2013-14. Property tax revenue increased by $0.75 million or 5.34% from 2015-16 to 2014-15, and $1.7 million or 13.30% comparing 2015-16 to 2013-2014 due to the recovery of housing values. Expenses Total expenses increased from $101.5 million in 2013-14 to $105.9 million in 2014-15 and decreased to $99.2 million in 2015-16. In 2015-16, total expenses decreased by $6.7 million or -6.28% compared to 2014-15. Comparing 2015-16 to 2013-14, total expenses were $2.3 million or -2.25% lower. Decreases were mainly due to a reduction in sewage treatment costs and pension expense. Depreciation expense increased due to new capital additions. Non-operating expense is mainly driven by debt service interest expense. Total income before capital contributions went from -$11.5 million in 2013-14, to -$3.3 million in 2014- 15, and $7.7 million in 2015-16. Total capital contributions in 2015-16 were $22.3 million compared to $14.2 million in 2014-15 and $20.2 million in 2013-14. This was mainly due to higher customer contributions SSC in 2015-16 due to the rate increase, a shift of the internal SSC revenue allocation, and volatility in connection fees due to the fluctuation of the housing and construction markets. The total change in net position increased by $19.0 million or 173.54% when comparing 2015-16 to 2014-15 and increased $21.3 million or 247.17% when comparing 2015-16 to 2013-14. CAPITAL ASSETS Capital assets for fiscal years 2015-16, 2014-15 and 2013-14 totaled $616.0 million, $609.7 million, and $608.6 million, respectively. Capital assets include the District's entire major infrastructure including wastewater treatment facilities, sewers, land, buildings, pumping stations, vehicles, intangible assets and furniture and equipment exceeding our capitalization policy limit of $5,000, net of depreciation. As of June 30, 2016, the District's investment in capital assets totaled $616.0 million, an increase of $6.3 million or 1.03% over the capital asset balance of $609.7 million at June 30, 2015. Capital assets increased by $7.4 million or 1.22% comparing 2015-16 to 2013-14. A comparison of the District's capital assets over the past three fiscal years is presented below: Capital Assets Land Sewage Collection System Contributed Sewer Lines Outfall Sewers Sewage Treatment Plant Recycled Water Infrastructure Pumping Stations Buildings Intangible Assets Furniture & Equipment Motor Vehicles Construction In Progress Subtotal Less Accumulated Depreciation Total Capital Assets (net of depreciation) Fiscal Year Ended June 30 2015-16 $ 17,320,570 341,412,320 154, 863, 632 11, 371, 574 323, 360, 945 19,215,350 56,270,149 42,412,648 4,936,407 12,627,569 7,378,730 24,480,982 1,015,650,876 399, 645, 839 $ 616,005,037 2014-15 $ 17, 320, 570 331,167,382 153, 091,464 11,339,298 320,717,418 19, 065,139 56,046,563 42,412,648 4,875,507 10, 886, 007 6,883,134 13,958,646 987,763,776 378,045,297 $ 609,718,479 2013-14 $ 17, 320, 570 318,206,017 152, 297, 246 11,339,298 303, 606, 835 17,127,656 54, 956, 574 42,196,085 4,812,127 10, 025, 826 6,721,031 27,508,158 966,117,423 % Increase (Decrease) FY 15-16 FY 15-16 vs. vs. FY 14-15 FY 13-14 0.00% 0.00% 3.09% 7.29% 1.16% 1.69% 0.28% 0.28% 0.82% 6.51% 0.79% 12.19% 0.40% 2.39% 0.00% 0.51% 1.25% 2.58% 16.00% 25.95% 7.20% 9.79% 75.38% -11.00% 2.82% 5.13% 357,534,155 5.71% 11.78% $ 608,583,268 1.03% 1.22% The major reasons for the increase in capital assets, net of depreciation, of $6.3 million from 2014-15 to 2015-16 and $7.4 million from 2013-14 to 2015-16, are as follows: • Sewer pipe ongoing renovations, upgrades, expansion, pumping station improvements, and contributed sewer lines increased by $12.2 million comparing 2015-16 to 2014-15 and $27.1 million comparing 2015-16 to 2013-14. • Treatment plant infrastructure renovations, upgrades, equipment, and improvements increased by $2.6 million comparing 2015-16 to 2014-15 and $19.8 million comparing 2015-16 to 2014-15. • All other asset categories, including construction in progress, increased by $13.0 million comparing 2015-16 to 2014-15 and increased by $2.5 million comparing 2015-16 to 2013-14. • Capital asset increases are offset by an increased subtraction of accumulated depreciation of $21.6 million comparing 2015-16 to 2014-15 and $42.1 million comparing 2015-16 to 2013-14 due to increasing capital asset investment and its associated depreciation expense. See Note 5 in the audited financial statements. DEBT ADMINISTRATION The total debt obligations for fiscal years 2015-16, 2014-15 and 2013-14 totaled $34.2 million, $36.5 million, and $40.6 million, respectively. As of June 30, 2016, the District's outstanding debt totaled $34.2 million, which is a decrease of $2.4 million or -6.52% over the debt balance of $36.5 million at June 30, 2015. Debt decreased by $6.4 million or -15.81% comparing 2015-16 to 2013-14. The 2009 certificates of participation and the 1999 State Water Resources Control Board Water Reclamation Loan principal and related interest for both decrease annually due to the scheduled principal payments. The District did not issue any new debt this fiscal year. The source of funds for repayment of debt issued for expansion purposes is the state property taxes received. A comparison of the District's debt service for the past three fiscal years is presented below: Debt Service Fiscal Year Ended June 30 Revenue Bonds Water Reclamation Loan 2015-16 $ 33, 800, 000 360,134 Total Debt Service $ 34,160,134 See Note 6 in the audited financial statements. ECONOMIC AND OTHER FACTORS 2014-15 2013-14 $ 35, 010, 000 $ 39, 875, 000 533,385 702,245 $ 36,543,385 $ 40,577,245 % increase (Decrease) FY 15-15 FY 15-15 vs. vs. FY 14-15 13-14 -6.14% -15.24% -32.48% -48.72% -6.52% -15.81% The Federal and State of California economies continue to recover from the 2008 recession. The Federal economic challenges have resulted in budget sequestration. The State Budget Act reflects California achieving a solid balanced budget, however, there remain a number of major risks that threaten the state's fiscal stability, including the overhang of fiscal debts, growing long-term liabilities, and lingering uncertainties regarding the cost of the federal Affordable Care Act. The recent agreement between the Governor and legislative leaders to create a Rainy Day Fund will help the state minimize future boom and bust cycles. Changes in the state budget have a significant impact on the District. Federal and State economic challenges will continue into the future and will have a trickle-down effect on local government. Items impacting the District are: o Current Employee Memorandum of Understanding contracts end as of December 17, 2017. • Current and future legislation impacting public employee pensions is still being litigated, currently requiring higher employee contributions and lower pensions by eliminating spiking. • Increased cost of employee benefits, mainly due to pension costs and healthcare. • Strong demand for recycled water from District customers as a result of mandatory water restrictions due to the current drought conditions in the state. • Housing market continues to show improvement which impacts the District's property tax revenues, and development and user fees. • Regulatory requirements becoming more stringent, causing the District to spend more on compliance, both for operations and maintenance costs and capital projects. This may require debt financing for large capital projects. ■ Continued low interest rates negatively impact interest earnings for District temporary investments as well as OPEB trust and pension plan assets. In addition to making efforts to reduce spending and improve process efficiencies, the District has the ability to raise the SSC to meet its long-term commitments. The District has a Standard and Poor's AAA rating, and can obtain bond financing if necessary. FINANCIAL CONTACT The financial report is designed to provide the District's customers and creditors with a general overview of District finances and to demonstrate the District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact: Finance Manager Thea Vassallo, Central Contra Costa Sanitary District, 5019 Imhoff Place, Martinez, CA 94553. CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF NET POSITION JUNE 30, 2016 AND 2015 ASSETS CURRENT ASSETS 2016 2015 Cash and cash equivalents (Note 2) $32,451,718 $45,218,013 Short term investments (Note 2) 39,000,000 15,498,572 Accounts receivable, net (Note 3) 19,018,549 17,141,474 Interest receivable 181,707 60,067 Parts and supplies 2,146,172 2,079,435 Prepaid expenses 2,786,407 2,556,794 Total current assets NON-CURRENT ASSETS 95,584,553 82,554,355 Restricted cash and cash equivalents (Notes 1.F. and 2) 100,000 100,000 Restricted investments (Note 2) 4,856,450 4,856,450 Assessment Districts receivable (Note 4) 1,515,818 1,669,686 Net OPEB asset (Note 10) 1,108,244 1,206,765 Capital assets: Nondepreciable (Note 5) 46,737,959 36,154,723 Depreciable, net of accumulated depreciation (Note 5) 569,267,078 573,563,756 Total capital assets, net 616,005,037 609,718,479 Total non-current assets 623,585,549 617,551,3 80 TOTAL ASSETS 719,170,102 700,105,735 DEFERRED OUTFLOWS OF RESOURCES Pension related (Note 9) $34,464,472 $12,420,138 (Continued) 10 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF NET POSITION JUNE 30, 2016 AND 2015 LIABILITIES CURRENT LIABILITIES Accounts payable and accrued expenses Interest payable Refunding Water Revenue Bonds - current portion (Note 6) Water Reclamation Loan Contract - current portion (Note 6) Accrued compensated absences - current portion (Note 1.J.) Provision for uninsured claims (Note 7) Refundable deposits Total current liabilities NON-CURRENT LIABILITIES Refunding Water Revenue Bonds, noncurrent portion (Note 6) Water Reclamation Loan Contract, noncurrent portion (Note 6) Accrued compensated absences, noncurrent portion (Note 1J.) Collective net pension liability (Note 9) Total non-current liabilities TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES Pension related (Note 9) NET POSITION (Note 11) Net investment in capital assets Restricted for debt service Unrestricted TOTAL NET POSITION See accompanying notes to financial statements 11 2016 2015 $6,174,225 $5,374,441 592,380 621,847 2,300,000 2,210,000 177,756 173,251 448,000 403,000 1,000,000 1,000,000 294,018 246,948 10,986,379 10,029,487 31,500,000 33,800,000 182,378 360,134 4,029,542 3,629,271 91,746,888 89,535,510 127,458,808 127,324,915 138,445,187 137,354,402 21,618,960 581,844,903 4,363,251 7,362,273 $593,570,427 11,564,393 573,175,094 4,288,008 (13,856,024) $563,607,078 This Page Left Intentionally Blank CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 OPERATING REVENUES Sewer service charges (SSC) Service charges - City of Concord (Note 8) Other services charges Miscellaneous charges Total operating revenues OPERATING EXPENSES Sewage collection and pumping stations Sewage treatment Engineering Recycled water Administrative and general Pension expense (Note 9) Depreciation (Note 5) Total operating expenses OPERATING (LOSS) NONOPERAT1NG REVENUES (EXPENSES) Taxes Permit and inspection fees Interest earnings Interest expense Other income (expense), net Total nonoperating revenues (expenses), net INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS CAPITAL CONTRIBUTIONS City of Concord contributions to capital costs (Note 8) Customer contributions to capital cost (SSC) Contributed sewer lines Capital contributions - connection fees Total capital contributions CHANGE IN NET POSITION NET POSITION, BEGINNING OF YEAR Prior period adjustment for implementation of GASB Statements 68 and 71 (Note 9) NET POSITION, END OF YEAR See accompanying notes to financial statements 13 2016 2015 $72,233,903 $70,023,512 13,913,960 12,892,945 963,014 1,006,197 623,659 593,780 87,734,536 84,516,434 16,977,612 18,200,513 25,959,525 29,507,722 16,301,976 13,200,972 559,272 24,887,491 23,713,398 (9,778,3 89) (3,012,757) 22,885,030 22,740,942 97,792,517 104,350,790 (10,057,981) (19,834,356) 14,835,167 14,083,331 2,546,723 1,843,942 562,308 318,475 (1,427,641) (1,523,127) 1,195,095 1,828,530 17,711,652 16,551,151 7,653,671 (3,283,205) 3,671,892 8,319, 860 1,774,168 8,543,758 22,309,678 29,963,349 563,607,078 $593,570,427 2,897,491 3,872,132 794,218 6,673,298 14,237,139 10,953,934 644,345,666 (91,692,522) 8563,607,078 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF CASH FLOWS FOR TJX YEARS ENDED JUNE 30, 2016 AND 2015 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $86,011,329 $84,488,757 Payments to suppliers (42,3 86,633) (48,3 83,516) Payments to employees and related benefits (41,204,947) (36,727,579) Net Cash Provided (Used) by Operating Activities 2,419,749 (622,338) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Receipt of taxes 14,835,167 14,083,331 Inspection/permit fees and other non-operating income 3,741,818 3,672,472 Cash Flows from Noncapital Financing Activities 18,576,985 17,755,803 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 13,765,920 7,563,841 Connection fees 8,543,758 6,673,298 Acquisition and construction of capital assets (29,535,660) (23,887,364) Proceeds from sale of capital assets 364,072 11,211 Interest paid on long-term debt (1,457,108) (1,574,660) Principal payments on long-term debt (2,383,251) (4,033,860) Cash Flows (Used for) Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES (10,702,269) (15,247,534) Redemption of investments 15,498,572 10,613,063 Acquisition of investments (39,000,000) (15,500,000) Interest received 440,668 289,489 Cash Flows from (Used for) Investing Activities (23,060,760) (4,597,448) NET INCREASE (DECREASE) IN CASH (12,766,295) (2,711,517) Cash, beginning of year 45,318,0 13 48,029,530 Cash, end of year $32,551,718 $45,318,013 (Continued) See accompanying notes to financial statements 14 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 Reconciliation of operating (loss) to net cash provided by operating activities: Operating (loss) Adjustments to reconcile operating loss to cash flows from operating activities: Depreciation Change in assets and liabilities: 2016 2015 ($10,057,981) ($19,834,356) 22,885,030 22,740,942 Receivables, net (1,723,207) (27,677) Parts and supplies (66,737) 9,450 Prepaid expenses (229,613) (252,852) Net OPEB asset 98,521 913 Accounts payable and accrued expenses 799,784 (467,989) Accrued payroll and related expenses 445,271 185,878 Refundable deposits 47,070 36,110 Net pension liability (9,778,389) (3,012,757) Net cash provided (used) by operating activities $2,419,749 ($622,338) SCHEDULE OF NON CASH ACTIVITY Change in fair value of investments $440,668 $289,489 Capital asset donations 1,774,168 633,208 Total non cash activity CASH. AND CASH EQUIVALENTS, AS PRESENTED ON STATEMENT OF NET POSITION: $2,214,836 $922,697 Unrestricted cash and cash equivalents $32,451,718 $45,218,013 Restricted cash and cash equivalents 100,000 100,000 Total cash and cash equivalents at end of year $32,551,718 $45,318,013 See accompanying notes to financial statements 15 This Page Left Intentionally Blank CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE I — DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The Central Contra Costa Sanitary District (District), a special district and a public entity established under the Sanitary District Act of 1923, provides sewer service for the incorporated and unincorporated areas under its jurisdiction. A Board of Directors comprised of five elected members governs the District. As required by accounting principles generally accepted in the United States of America, these basic financial statements present the financial statements of Central Contra Costa Sanitary District and its component unit. The component unit discussed in the following paragraph is blended in the District's reporting entity because of the significance of its operational and financial relationship with the District. Blended Component Unit - Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component unit discussed below is reported in the District's financial statements because of the significance of its relationship with the District. The component unit, although a legally separate entity, is reported in the financial statements using the blended presentation method as if it were part of the District's operations because the Governing Board of the component unit is the same as of Governing Board of the District and because its purpose is to finance facilities to be used for the direct benefit of the District. The Central Contra Costa Sanitary District Facilities Financing Authority (Authority) was organized solely for the purpose of providing financial assistance to the District. The Authority does this by acquiring, constructing, improving and financing various facilities, land and equipment purchases, and by leasing or selling certain facilities, land and equipment for the use, benefit and enjoyment of the public served by the District. The Authority has no employees and the Board of Directors of the Authority consists of the same persons who are serving as the Board of Directors of the District. There are no separate basic financial statements prepared for the Authority. �. Basis ofAccounting The District's financial statements are prepared on the accrual basis of accounting. The District applies all applicable Governmental Accounting Standards Board (GASB) pronouncements for certain accounting and financial reporting guidance. 17 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO TIIE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The District is a proprietary entity; it uses an enterprise fund format to report its activities for financial statement purposes. Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the cost and expenses, including depreciation, of providing goods or services to its customers be financed or recovered primarily through user charges; or where the governing body has decided that periodic determination of revenues earned, expense incurred, and net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Enterprise funds are used to account for activities similar to those in the private sector, where the proper matching of revenues and costs is important and the full accrual basis of accounting is required. With this measurement focus, all assets and liabilities of the enterprise are recorded on its statement of net position, all revenues are recognized when earned and all expenses, including depreciation, are recognized when incurred. Enterprise funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with an enterprise fund's principal ongoing operations. The principal operating revenues of the District are charges to customers for services. Operating expenses for the District include the costs of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. For internal operating purposes, the District's Board of Directors has established four separate sub -funds, each of which includes a separate self -balancing set of accounts and a separate Board approved budget for revenues and expenses. These sub --funds are combined into the single enterprise fund presented in the accompanying financial statements. The nature and purpose of these sub -funds are as follows: Running Expense - Running Expense accounts for the general operations of the District. Substantially all operating revenues and expenses are accounted for in this sub -fund. Sewer Construction - Sewer Construction accounts for non-operating revenues, which are to be used for acquisition or construction of plant, property and equipment. Self -Insurance - Self -Insurance accounts for interest earnings on cash balances in this sub -fund and cash allocations from other sub -funds, as well as for costs of insurance premiums and claims not covered by the District's insurance coverage. Debt Service - Debt Service accounts for activity associated with the payment of the District's long term bonds and loans. That portion of the District's net position which is allocable to each of these sub -funds has been shown separately in the accompanying supplementary information to the financial statements. The District's Board of Directors adopts annual budgets on a basis consistent with accounting principles generally accepted in the United States of America. 18 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Investments Investments held at June 30, 2016 and 2015 with original maturities greater than one year, are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. D. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs -- other than quoted prices included within level 1 -- that are observable for an asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset or liability. If the fair value of an asset or liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement. E. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. '. Bank Escrow Deposit An escrow agreement was formed between the District and the National Park Service for the right-of-way through the John Muir National Historic Site, in lieu of issuing a performance bond. The current right-of-way permit is 10 years, but is renewable and must remain in effect so long as there is sewage running through the area; therefore, it is unlikely that the escrow funds will ever be released to the District. These funds are listed as restricted cash in the financial statements. G. Parts and Supplies Parts and supplies are valued at average cost and are used primarily for internal purposes. 19 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. Property, Plant, and Equipment Purchased capital assets are stated at historical cost. Capital assets contributed to the District are stated at estimated fair value at the time of contribution. The capitalization threshold for capital assets is $5,000. Expenditures which materially increase the value or life of capital assets are capitalized and depreciated over the remaining useful life of the asset. Depreciation of exhaustible capital assets has been provided using the straight-line method over the asset's useful life as follows: Years Sewage Collection Facilities 75 Intangible Assets 75 Sewage Treatment Plant and Pumping Plants 40 Buildings 50 Furniture and Equipment 5 --15 Motor Vehicles 7 --15 L Property Taxes Property tax revenue is recognized in the fiscal year for which the tax is levied. The County of Contra Costa levies, bills and collects property taxesfor the District; all material amounts are collected by June 30. General County taxes collected are the same as the amount levied since the County participates in California's alternative method of apportionment called the Teeter Plan. The Teeter Plan as provided in Section 4701 at seq. of the State of Revenue and Taxation Code establishes a mechanism for the County to advance the full amount of property tax and other levies to taxing agencies based on the tax levy, rather than on the basis of actual tax collections. Although this system is a simpler method to administer, the County assumes the risk of delinquencies. The County in return retains the penalties and accrued interest thereon. Secured property tax bilis are mailed once a year, during the month of October on the current secured tax roll, to the owner of the property as of the lien date (January 1). Payments can be made in two installments, and are due on November 1 and February 1. Delinquent accounts are assessed a penalty of 10 percent. Accounts which remain unpaid on June 30 are charged an additional 1/z percent per month. Unsecured property tax is due on July 1 and becomes delinquent on August 31. The penalty percentage rates are the same as secured property tax. J. Compensated Absences The liability for vested vacation, compensatory time, and sick pay is recorded as an expense when earned. District employees have a vested interest in 100 percent of accrued vacation time and 85 percent of accrued sick time for employees hired before May 1, 1985. Employees hired after May 1, 1985 have a vested interest in up to 40 percent of their sick time, based upon length of employment with the District. 20 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGN1r'1CANT ACCOUNTING POLICIES (Continued) The changes in compensated absences were as follows for fiscal years ended June 30: 2016 2015 Beginning Balance $4,032,271 $3,846,393 Additions 558,479 413,745 Payments (113,208) (227,867) Ending Balance $4,477,542 $4,032,271 Current Portion $448,000 $403,000 The current portion of the liability to be used within the next year is estimated by management to be approximately 10% of the ending balance. K. Statement of Cash Flows For purposes of the statement of cash flows, all highly liquid investments, including restricted assets, with maturities of three months or less when purchased, are considered to be cash equivalents. Included therein are petty cash, bank accounts, and the State of California Local Agency Investment Fund (LAIF). Restricted assets are debt service amounts maintained by fiduciaries and not available for general expenses. L. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. M. Implementation of Governmental Accounting Standards Board (GASB) Pronouncements GASB Statement No. 72 — In 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement are effective for financial statements for period beginning after June 15, 2015, therefore, the District implemented this Statement in fiscal year ending June 30, 2016. GASB Statement No. 76 -- The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this statement is to reduce the GAAP hierchy to two categories of authoritative GAAP from the four categories under GASB Statement No. 55. The statement is effective for the periods beginnings after June 15, 2015, or the 2015-2016 fiscal year. 21 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) GASB Statement No. 79 -- Certain External Investment Pools and Pool Participants. The objective of this Statement is to address for certain external investment pool and their participants the accounting and financial reporting implications that result from changes in the regulatory provisions referenced by previous accounting and fmancial reporting standards. This statement is effective for the periods beginning after December 15, 2015, or the 2015-2016 fiscal year. NOTE 2 — CASH AND INVESTMENTS A. Summary of Cash and Investments Cash and investments as of June 30, are classified in the accompanying fmancial statements as follows: 2016 2015 Cash and cash equivalents $32,451,718 $45,218,013 Short term investments 39,000,000 15,498,572 Restricted cash and cash equivalents 100,000 100,000 Restricted investments 4,856,450 4,856,450 Total Cash and Investments $76,408,168 $65,673,035 B. Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State: U.S. Treasury instruments, registered State warrants or treasury notes, securities of the U.S. Governments, or its agencies, commercial paper, certificates of deposit placed with commercial banks and/or savings with loan companies, and certificates of participation. State code and the District's investment policy prohibit the District from investing in investments with a rating of less than A or equivalent, C. General Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: 22 CENTRA. CONTRA COSTA SANITARY DISTRICT NOTES TO TIME BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 2 — CASH AND INVESTMENTS (Continued) Authorized Investment Type District District California State Limits Policy Policy Maximum Maximum Maximum Maximum Percentage Minimum Remaining Percentage Investment of Portfolio Legal Maturity of Portfolio In One Issuer (Per Issuer) Quality U.S. Treasury Obligations 5 years None None 100% N/A U.S. Government Agency Issues 5 years None None 100% NIA Money Market Funds 5 years 30% 10% 20% A Negotiable Certificates of Deposit 5 years 30% 30% 30% AA Banker's Acceptances 180 40% 40% 10% N/A Commercial Paper (1) 270 25% 10% 10% A-1 Medium Term Notes 5 years 30% 5% 5% AA Collateralized Certificates of Deposit (2) 5 years 30% None 10% Aaa Supranationals 5 years 30% 5% 5% AA County Pooled Investment Funds N/A None None 100/o N/A Local Agency Investment Fund (LAIF) N/A None None 100% N/A (1) Prime quality; limited to corporations with assets over $500,000,000 (2) Prior approval of the Board of Directors must be obtained to acquire maturities beyond one year, excluding Treasury Notes and LAIF. 23 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO t HE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 2 — CASH AND INVESTMENTS (Continued) D. Fair Value Hierarchy The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The following is a summary of the fair value hierarchy of the fair value of investments of the District as of June 30, 2016: Investment Type 2016 Level 2 Total Commercial Paper - ABBEY $4,000,000 $4,000,000 Commercial Paper - Credit Agricole 5,000,000 5,000,000 Commercial Paper - Toyota Motor Credit 5,000,000 5,000,000 Commercial Paper - JP Morgan 5,000,000 5,000,000 Corn mercial Paper Standard Charter 5,000,000 5,000,000 California Local Agency Investment Fund 32,300,000 32,300,000 Total Investments $56,300,000 56,300,000 Cash in bank 20,108,168 Total Cash and Investments $76,408,168 The following is a summary of the fair value hierarchy of the fair value of investments of the District as of June 30, 2015: Investment Type 2015 Level 2 Total Commercial Paper - Toyota Motor Credit $5,000,000 $5,000,000 Commercial Paper - Toyota Motor Corp 2,250,000 2,250,000 Commercial Paper - General Electric 2,500,000 2,500,000 U.S Federal Agency Securities - FHLB 2,500,000 2,500,000 U.S Federal Agency Securities - FNMA 1,000,000 1,000,000 California Local Agency Investment Fund 43,000,000 43,000,000 Total Investments $56,250,000 56,250,000 Cash in bank 9,423,035 Total Cash and Investments $65,673,035 24 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO TIM BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 2 — CASH AND INVESTMENTS (Continued) I Investments classified in Level 1 of the fair value hierarchy, valued at $19.9 million in 2016 and $7.1 million in 2015, respectively, are valued using quoted prices in active markets. Commercial paper totaling $24 million in 2016 and $9.8 million in 2015, respectively, classified in Level 2 of the fair value hierarchy, is valued using matrix pricing techniques maintained by various pricing vendors. Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices. The California Local Agency Investment Fund, classified in Level 2 of the fair value hierarchy, is valued based on the fair value factor provided by the Treasurer of the State of California, which is calculated as the fair value divided by the amortized cost of the investment pool. `. Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment; generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. It is the District's policy to manage exposure to interest rate risk by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. District policy is that investment maturities do not exceed one year, with the exception of Treasury Notes or Local Agency Investment Fund; however, investments can be held longer with Board approval. Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuation is provided by the following schedule that shows the distribution of the District's investments by maturity, as of June 30: 2016 2015 12 Months 12 Months Investment Type or less Maturity or less Maturity Certificates of Deposit - Debt Reserve $4,856,450 4/28/17 $4,856,450 4128117 Certificates of Deposit 2,250,000 7124115 Certificates of Deposit - ABBEY 5,000,000 4/27/17 Certificates of Deposit - Union Bank 5,000,000 7/22/16 Certificates of Deposit - BNP Paribas 5,000,000 10/26/16 Commercial Paper - ABBEY 4,000,000 7/22/16 Commercial Paper - Credit Agricole 5,000,000 10/25/16 Commercial Paper - Toyota Motor Credit 5,000,000 7/22/16 5,000,000 7/24/15 Commercial Paper - JP Morgan 5,000,000 1/20/17 Commercial Paper - Standard Charter 5,000,000 1/26/17 Commercial Paper - Toyota Motor Corp 2,250,000 7/24/15 Commercial Paper - General Electric 2,500,000 7/24/15 U.S Federal Agency Securities - FHLB 2,500,000 7/22/15 U.S Federal Agency Securities - FNMA 1,000,000 8/12/15 California Local Agency Investment Fund 32,300,000 Not applicable 43,000,000 Not applicable Total Investments 76,156,450 63,356,450 Cash in bank 251,718 2,316,585 Total Cash and Investments $76,408,168 $65,673,035 25 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 1 NOTE 2 — CASH AND INVESTMENTS (Continued) I F. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of June 30, of each investment type: Investment Type Rated Aaa: Certificates of Deposit U.S. Federal Agency Securities Commercial Paper Totals Not rated: California Local Agency Investment Fund Cash in Bank Total Cash and Investments G. Concentration of Credit Risk Totals 2016 2015 $19,856,450 $7,106,450 3,500,000 24,000,000 9,750,000 43,856,450 20,356,450 32,300,000 43,000,000 251,718 2,316,585 $76,408,168 $65,673,035 Investments in LAIF — The District is a voluntary participant in LAIF which is regulated by the California Government Code under the oversight of the Treasurer of the State of California. LAIF is not registered with the Securities and Exchange Commission. The fair value of the District's investment in this pool is reported in the accompanying financial statements at amounts based upon the District's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. At June 30, 2016 and 2015, these investments matured in an average of 167 and 191 days, respectively. Investments in County Treasury — The District is considered to be a voluntary participant in an external investment pool. The fair value of the District's investment in the pool is reported in the financial statements in cash and cash equivalents at amounts based upon the District's pro -rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 26 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 2 — CASH AND INVESTMENTS (Continued) H. Custodial Credit Risk - Investments Custodial risk for investments is the risk that, in the event of the failure of the counterparty (e.g. the broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code does not contain legal or policy requirements that would limit the exposure to custodial credit risk. The District's policy is to use the services of the Treasurer's Office of the County of Contra Costa, which will transact the District's investment decisions in compliance with the requirements of the District's policy. The County Treasurer's Office will execute the District's investments through such broker-dealers and financial institutions as are approved by the County Treasurer, and through the State Treasurer's Office for investment in the Local Agency Investment Fund. NOTE 3 —ACCOUNTS RECEIVABLE Accounts receivable for the years ended June 30 are comprised of the following: 2016 2015 City of Concord (see Note 8) $17,585,852 $15,790,436 Household Hazardous Waste Partners 727,513 749,827 All Other 705,184 601,211 Total Accounts Receivable $19,018,549 $17,141,474 NOTE 4 —ASSESSMENT DISTRICTS RECEIVABLE I The District established the Contractual Assessment District (CAD) program to help homeowners finance the cost of connecting to the District. The construction costs associated with the project within the program are capitalized and depreciated. Individual homeowners are assessed at an amount equal to their share of the construction costs and connection fee. The assessments, plus interest, are generally payable over 10 years. The CAD receivable balance at June 30, 2016 and 2015 was $257,159 and $289,505, respectively. The District also established the Alhambra Valley Assessment District (AVAD) to provided services to residents in the Alhambra Valley in Martinez. Residents have the choice to pay cash or finance the construction costs and connection fees. The AVAD receivable balance at June 30, 2016 and 2015 was $1,258,659 and $1,380,181, respectively. The total receivable balance at June 30, 2016 and 2015 for CAD and AVAD was $1,515,818 and $1,669,686, respectively, and is shown as a non-current asset on the Statement of Net Position. 27 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 5 —CAPITAL ASSETS Property, plant and equipment, and construction in progress are summarized below for the year ended June 30, 2016: Capital assets not being depreciated: Land Easements (intangible) Construction in Progress Total nondepreciated assets Capital assets being depreciated: Sewage collection system Contributed sewer lines Outfall sewers Sewage treatment plant Recycled water infrastructure Pumping stations Building Furniture and equipment Motor vehicles Total depreciated assets Less accumulated depreciation: Sewage collection system Contributed sewer lines Outfall sewers Sewage treatment plant Recycled water infrastructure Pumping stations Buildings Furniture and equipment Motor vehicles Total accumulated depreciation Total capital assets being depreciated, net Capital assets, net Balance at June 30, 2015 Additions Retirements $17,320,570 4,875,507 13,958,646 $27,713,804 ($364,072) 36,154,723 27,713,804 (364,072) 331,167,382 (1,105,003) 153,091,464 1,774,168 (2,000) 11,339,298 320,717,418 (100,000) 19,065,139 56,046,563 (5,000) 42,412,648 10,886,007 47,688 6,883,134 (72,485) 951,609,053 1,821,856 (1,284,488) 61,147,639 4,544,975 (1,105,003) 55,204,677 2,066,190 (2,000) 3,314,407 151,179 200,602,861 10,363,847 (100,000) 7,276,987 783,824 28,643,263 2,245,841 (5,000) 10,387,226 1,230,599 7,049,851 1,139,039 4,418,386 359,536 (72,485) 378,045,297 22,885,030 (1,284,488) 573,563,756 $609,718,479 Transfers & Adjustments $60,900 (16, 827,396) (16, 766,496) 11,349,941 32,276 2,743,527 150,211 228,586 1,693,874 568,081 16,766,496 Balance at June 30, 2016 $17,320,570 4,936,407 24,480,982 46,737,959 341,412,320 154,863,632 11,371,574 323,360,945 19,215,350 56,270,149 42,412, 648 12,627,569 7,378,730 968,912,917 64,587,611 57,268,867 3,465,586 210,866,708 8,060,811 30,884,104 11,617,825 8,188,890 4,705,437 399,645,839 (21,063,174) 16,766,496 569,267,078 $6,650,630 ($364,072) $616,005,037 28 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 1 NOTE 5 —CAPITAL ASSETS (Continued) Property, plant and equipment, and construction in progress are summarized below for the year ended June 30, 2015: Balance at Transfers & Balance at June 30, 2014 Additions Retirements Adjustments June 30, 2015 Capital assets not being depreciated: Land $17,320,570 $17,320,570 Easements (intangible) 4,812,127 $63,380 4,875,507 Construction in Progress 27,508,158 $23,254,156 ($5,629) (36,798,039) 13,958,646 Total nondepreciated assets 49,640,855 23,254,156 (5,629) (36,734,659) 36,154,723 Capital assets being depreciated: Sewage collection system 318,206,017 (580,000) 13,541,365 331,167,382 Contributed sewer lines 152,297,246 633,208 (5,582) 166,592 153,091,464 Outfall sewers 11,339,298 11,339,298 Sewage treatment plant 303,606,835 (850,000) 17,960,583 320,717,418 Recycled water infrastructure 17,127,656 1,937,483 19,065,139 Pumping stations 54,956,574 (80,000) 1,169,989 56,046,563 Buildings 42,196,085 216,563 42,412,648 Furniture and equipment 10,025,826 (450,000) 1,310,181 10,886,007 Motor vehicles 6,721,031 (269,800) 431,903 6,883,134 Total depreciated assets 916,476,568 633,208 (2,235,382) 36,734,659 951,609,053 Less accumulated depreciation: Sewage collection system 57,348,606 4,379,033 (580,000) 61,147,639 Contributed sewer lines 53,161,229 2,043,448 55,204,677 Outfall sewers 3,163,443 150,964 3,314,407 Sewage treatment plant 190,858,122 10,594,739 (850,000) 200,602,861 Recycled water infrastructure 6,527,311 749,676 7,276,987 Pumping stations 26,503,493 2,219,770 (80,000) 28,643,263 Buildings 9,158,948 1,228,278 10,387,226 Furniture and equipment 6,473,327 1,026,524 (450,000) 7,049,851 Motor vehicles 4,339,676 348,510 (269,800) 4,418,386 Total accumulated depreciation 357,534,155 22,740,942 (2,229,800) - 378,045,297 Total capital assets being depreciated, net 558,942,413 (22,107,734) (5,582) 36,734,659 573,563,756 Capital assets, net $608,583,268 $1,146,422 ($11,211) - $609,718,479 29 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 6 —LONG-TERM DEBT A. Summary of Activity The changes in the District's long-term obligations during the year ended June 30, 2016 consisted of the following: Original Amount Issue Balance Balance due within Amount June 30, 2015 Retirements June 30, 2016 one year 2009 Series A Certificates of Participation Wastewater Revenue 3.45-3.78%, due 9/1/2029 $19,635,000 $19,635,000 $19,635,000 2009 Series B Certificates of Participation Wastewater Revenue .40-3.79%, due 9/112029 34,490,000 16,375,000 $2,210,000 14,165,000 $2,300,000 1999 State Water Resources Control Board Water Reclamation Loan 2.60%, due 3/31/2018 2,916,872 533,385 173,251 360,134 177,756 Total Long -Term Debt 36,543,385 $2,383,251 34,160,134 $2,477,756 Less current portion (2,383,251) (2,477,756) $34,160,134 $31,682,378 The changes in the District's long-term obligations during the year ended June 30, 2015 consisted of the following: Original Amount Issue Balance Balance due within Amount June 30, 2014 Retirements June 30, 2015 one year 2009 Series A Certificates of Participation Wastewater Revenue 3.45-3.78%, due 9/1/2029 $19,635,000 $19,635,000 $19,635,000 2009 Series B Certificates of Participation Wastewater Revenue .40-3.79%, due 9/1/2029 34,490,000 20,240,000 $3,865,000 16,375,000 $2,210,000 1999 State Water Resources Control Board Water Reclamation Loan 2.60%, due 3/31/2018 2,916,872 702,245 168,860 533,385 173,251 Total Long -Term Debt Less current portion 40,577,245 $4,033,860 (4,033,861) $36,543,384 30 36,543,385 $2,383,251 (2,383,251) $34,160,134 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 6 — LONG-TERM DEBT (Continued) B. Debt Service Requirements The 2009 Revenue COP debt service requirements are as follows: Fiscal Year Series A Ending Series A Series B Total 35% Tax Net June 30, Principal Interest Principal Interest Principal Interest Subsidy Total 2017 $1,190,840 $2,300,000 $501,300 $2,300,000 $1,692,140 ($416,794) $3,575,346 2018 1,190,840 2,405,000 424,175 2,405,000 1,615,015 (416,794) 3,603,221 2019 1,190,840 2,480,000 329,483 2,480,000 1,520,323 (416,794) 3,583,529 2020 1,190,840 2,580,000 226,950 2,580,000 1,417,790 (416,794) 3,580,996 2021 1,118,907 1,025,000 175,583 1,025,000 1,294,490 (391,617) 1,927,873 2022 - 2026 $8,890,000 4,106,872 3,375,000 202,375 12,265,000 4,309,247 (1,437,405) 15,136,842 2027 - 2030 10,745,000 986,867 10,745,000 986,867 (345,404) 11,386,463 Total $19,635,000 " $10,976,006 $14,165,000 $1,859,866 $33,800,000 $12,835,872 ($3,841,602) $42,794,270 As part of the Federal budget sequestration, the Internal Revenue Service (IRS) has announced that, as of March 1, 2016, credit payments claimed by issuers of certain tax credit bonds, including Build America Bonds, may be subject to a reduction of 6.8%. C. 2009 Wastewater Revenue Certificates of Participation On November 12, 2009 and December 3, 2009 the District issued two Certificates of Participation (COP). The 2009 Wastewater Revenue Certificates of Participation, Series A and Series B were issued for $19,635,000 and $34,490,000, respectively, The Series A COP are federally taxable "Build America Bonds" which have a direct 35% interest rate subsidy from the Federal Government. Yields on this series range from 3.45% to 3.78%, net of the subsidy. The Series B COP are tax exempt bonds that were used to refund the 1998 and 2002 bond issues and raise an additional $30 million in new proceeds with yields ranging from .40% to 3.79%. The two bonds total $54,125,000, and are secured by a pledge of tax and net revenues of the wastewater system. Principal payments began annually on September 1, 2010 with semi-annual payments due on September 1 and March 1 of each year. Both bonds will be fully amortized as of September 1, 2029. The refunded portion of the original bonds will be paid off based on the original amortization schedule. D. Water Reclamation Loan Contract The District entered into a contract with the State of California State Water Resources Control Board (Board), which advanced the District $2,916,872 for design and construction costs for projects related to recycled water treatment programs. 31 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 6 — LONG-TERM DEBT (Continued) The District must repay advances from the Board over a 20 year period beginning March 31, 1999, with an interest rate of 2.60%. Debt service requirements are as follows: Fis cal Year Ending June 30 2017 2018 Total Principal Interest $177,756 $9,363 182,378 4,742 $360,134 $14,105 Total $187,119 187,120 $374,239 1 NOTE 7 -- RISK MANAGEMENT The District is exposed to various risks of loss including torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. To manage these risks, the District joined with other entities to form the California Sanitation Risk Management Authority (CSRMA), a public entity risk pool currently operating as a common risk management and insurance program for the member entities. The purpose of CSRMA is to spread the adverse effects of losses among the member entities and to purchase excess insurance as a group, thereby reducing its cost. Through CSRMA, the District purchases property insurance and workers' compensation insurance. A. Insurance Coverage The District's insurance coverage is as follows: Type of Coverage All -Risk Property: Fire/Boiler & Machinery Crime Liability: Fiduciary Liability Board Commercial General Liability and Environmental Exposure Pollution Liability CommerciaVExcess Liability Employment Practice Liability Insurer Limits Public Entity Property Insurance Program (PEPIP) Alliant RLI Insurance Company Aspen Specialty Ins. Co. Aspen Specialty Ins. Co. Chartis Specialty Ins. Co. Hiscox Insurance Co. WorkersCompensation: Excess Workers' Compensation CSRMA 32 $532,743,577 1,000,000 1,000,000 1,000,000 9,000,000 15,000,000 1,000,000 Statutory Self Insured Deductible Per Occurrence $250,000 2,500 0 5,000 50,000 500,000 35,000 0 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 7 —RISK MANAGEMENT (Continued)1 B. Provision for Uninsured Claims The Governmental Accounting Standard Board (GASB) requires state and local governments to record their liability for uninsured claims in their financial statements. The District's policy is to maintain a reserve for claims of $1,500,000 which is equivalent to three claims at $500,000 per occurrence. The District's actuary has calculated its potential liability as of June 30, 2016 to be $559,000. The District has recorded a liability of $1,000,000 which is the District's Self -Insured Retention. The District's uninsured claims activity and exposure relates primarily to its general and automobile liability program. The District records its estimated liability for uninsured claims in this area based on the results of periodic actuarial evaluations. The actuarial evaluations are typically performed every two years. For intervening years, the liability for uninsured claims is reviewed for adequacy based on claims activity during the intervening period. For fiscal years ended June 30, 2016, 2015, and 2014, settlements have not exceeded insurance coverage. Changes in the District's estimated liability for retained losses are summarized as - follows as of June 30: 2016 2015 2014 Beginning balance $1,000,000 $1,000,000 $1,000,000 Provisions for claims incurred in the current year and changes in the liability for retained - lo s s es incurred in prior years 888,745 499,956 171,806 Claims paid and/or adjustments (888,745) (499,956) (171,806) Ending balance $1,000,000 $1,000,000 $1,000,000 NOTE 8 —AGREEMENT WITH THE CITY OF CONCORD 1 In 1974, the District and the City of Concord (the City) entered into a cost-sharing agreement under which the District became responsible for providing sewage treatment facilities and services to the City. Under this agreement, the City pays a service charge for its share of operating, maintenance and administrative costs and makes a contribution for its share of facilities and makes a contribution for its share of facilities capital costs expended. Service charges and contributions to capital costs from the City totaled $13,913,960 and $3,671,892, respectively, for the year ended June 30, 2016, for a total of $17,585,852. Service charges and contributions to capital costs from the City totaled $12,892,945 and $2,897,491, respectively, for the year ended June 30, 2015, for a total of $15,790,436. 33 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 9 —PENSION PLANS A. Contra Costa County Employees' Retirement Association Pension Plan Plan Descriptions --- Substantially all District permanent employees are required to participate in the Contra Costa County Employees' Retirement Association (CCCERA), a cost-sharing multiple employer public defined benefit retirement plan (Plan), governed by the County Employee's Retirement Law of 1937, as amended, and the California Public Employees' Pension Reform Act of 2013 (PEPRA). The latest available actuarial and financial information for the Plan is for the year 'ended December 31, 2015. CCCERA issues a publicly available financial report that includes financial statements and supplemental information of the Plan. That report is available by writing to Contra Costa County Employees' Retirement Association, 1355 Willow Way, Suite 221, Concord, CA 94520-5 72 8 or by calling (925) 521-3960. Benefits Provided -- The Plan provides for retirement, disability, and death and survivor benefits. Annual cost of living (COL) adjustments to retirement allowances can be granted by the Retirement Board as provided by State statutes. Retirement benefits are based on age, length of service, date of membership and final average salary. Subject to vested status, employees can withdraw contributions plus interests credited, or leave them as a deferred retirement when they terminate, or transfer to a reciprocal retirement system. The Plans' provisions and benefits in effect at June 30, 2016, are summarized as follows: Ms cellaneous On or after Hire date Prior to January 1, 2013 January 1, 2013 Benefit formula 2% at 55 2% at 62% Benefit vesting schedule 10 years service 5 years service Benefit payments monthly for life monthly for life Retirement age 50 52 Monthly benefits, as a % of eligible compensation 0% to 100% No limit Required employee contribution rates 9.08% 8.42% Required employer contribution rates 61.41% 58.67% Contributions — The Plan requires employees to pay a portion of the basic retirement benefit and a portion of future COL costs. However, the District has paid the majority of the employees' basic contributions in accordance with the Memorandum of Understanding (MOU). Employees must pay the COL portion of the employee rate. For the year ended June 30, 2016, the contributions to the Plan were $18,330,143. 34 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 9 —PENSION PLANS (Continued)1 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions - As of June 30, 2016, the District reported net pension liabilities for its proportionate share of the net pension liability of the Plan as follows: Miscellaneous Proportionate Share of Net Pension Liability $91,746,888 Total Net Pension Liability $91,746,888 The District's net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of December 31, 2015, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of December 31, 2014 rolled forward to December 31, 2015 using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The District's proportionate share of the net pension liability for the Plan as of December 31, 2013, 2014, and 2015 were as follows: Reporting Date for Employer under GASS 68 as of December 31 2013 2014 2015 Proportion of the Net Pension Liability 7.488% 7.488% 6.088% Proportionate share of Net Pension Liability $110,183,830 89,535,510 91,746,888 Covered - employee payroll $25,791,346 26,906,131 29,061,743 Proportionate share of the Net Pension Liability as a percentage of its c overe d - employee payroll 427.21% 332, 77% 315.70% Plan Fiduciary Net Pension as a percentage of the Total Pension Liability 67.22% 73.86% 74.14% For the year ended June 30, 2016, the District recognized negative pension expense of $9,778,3 89. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Differences between expected and actual experience Changes of assumptions or other inputs Change in proportion and differences between employer contributions and proportionate share of contributions Net difference between projected and actual earnings on pension plan investments Total 35 Deferred Outflows ofResources $9,349,978 3,422,162 1,387,107 20,305,225 $34,464,472 Deferred Inflows ofResources $9,262,284 2,601 12,354,075 $21,618,960 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 9 —PENSION PLANS (Continued) The $9,349,978 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Year Ended Annual June 30 Amortization 2017 ($235,715) 2018 (235,715) 2019 523,197 2020 3,443,767 2021 Actuarial Assumptions -- The total pension liabilities in the December 31, 2014 actuarial valuations were determined using the following actuarial assumptions: Miscellaneous Valuation Date December 31, 2014 Measurement Date December 31, 2015 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level percent of payroll Actuarial Assumptions : Discount Rate 7.00% Inflation Rate 2.75% Payroll Growth 2.75% (1) Projected Salary Increase 4.00% - 13.25% (2) Cost of Living Adjustments 2.75% Investment Rate of Return 7.00% (3) Mortality RP -2014 Healthy Annuitant Mortality Table (1) Plus "across the board" real salary increases of 0.5% per year (2) Vary by service, including inflation (3) Net of pension plan investment expenses, including inflation 36 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 9 —PENSION PLANS (Continued)) Discount Rate — The discount rate used to measure the total pension liability was 7% for the Plan. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially determined contribution rates. For this purpose, only employee and employer contributions that are intended to fund benefits for current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments for current plan members. Therefore, the long --term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability as December 31, 2015. The long-term expected rate of return on pension plan investments was determined in 2016 using a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table: Asset Class Long -Term Target Expected Real Allocation Rate of Return Large Cap U.S. Equity 6% 5.75% Developed International Equity 10% 6.99% Emerging Markets Equity 14% 8.95% Short -Term Govt/Credit 24% 0.20% U.S. Treasury 2% 0.30% Real Estate 7% 4.45% Cash & Equivalents 1% -0.46% Risk Diversifying Strategies 2% 4.30% Private Credit 17% 6.30% Private Equity 17% 8.10% Total 100% 37 CENTRAL CONTRA COSTA SANITARY DIS TRIC T NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 9 —PENSION PLANS (Continued) A change in the discount rate would affect the measurement of the Total Pension Liability (TPL). A lower discount rate results in a higher TPL and higher discount rates results in a lower TPL. Because the discount rate does not affect the measurement of assets, the percentage change in the Net Pension Liability (NPL) can be very significant for a relatively small change in the discount rate. The table below shows the sensitivity of the NPL to a one percent decrease and a one percent increase in the discount rate: 1% Decreas e Net Pension Liability Mis cellaneous 6.40% $140,696,391 Current Discount Rate 7.00% Net Pension Liability $91,746,888 1% Increase 8.04% Net Pension Liability $51,886,697 B. Deferred Compensation Plan District employees may defer a portion of their compensation under a District sponsored Deferred Compensation Plan created in accordance with Internal Revenue Code Section 457. The plan was established by the District's Board of Directors and any amendments to the plan must be authorized by the Board of Directors. Under this plan, participants are not taxed on the deferred portion of their compensation until it is distributed to them; distributions may be made only at termination, retirement, death, or in an emergency as defined by the plan. The District does not make contributions to the plan. The plan's 457 assets are held in trust with ICMA Retirement Corporation for the exclusive benefit of the participants and are not included in the District's financial statements. C. 401 (a) Defined Contribution Plan The District also contributes to a money purchase plan created in accordance with Internal Revenue Code section 401(a). The plan was established by the District's Board of Directors and any amendments to the plan must be authorized by the Board. Contributions to the plan are made in accordance with a memorandum of understanding stating that in lieu of making payments to Social Security, the District contributes to the 401(a) Plan an amount equal to that which would have been contributed to Social Security on behalf of its employees as long as the District is not required to participate in Social Security. The District contributed $1,856,025 and $1,740,604 to the Plan during the years ended June 30, 2016 and 2015, respectively. The 401(a) money purchase plan assets are held in trust with ICMA Retirement Corporation for the exclusive benefit of the participants and are not included in the District's financial statements. 38 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS A. Plan Description The District's defined benefit post employment healthcare plan (DPHP) provides medical benefits to eligible retired District employees and beneficiaries. DPIIP is part of the Public Agency portion of the Public Agency Retirement System (PARS), an agent multiple -employer plan administered by PARS, which acts as a common investment and administrative agent for participating public employees within the State of California. A menu of benefit provisions as well as other requirements is established by the State statute with the Public Employees' Retirement Law. DPW selects optional benefit provisions from the benefit menu by contract with PARS and adopts those benefits through District resolution. PARS issues a separate Comprehensive Annual Financial Report. Copies of the PARS annual financial report may be obtained from PARS, 4350 Von Darman Ave., Suite 100, Newport Beach, CA 92660, by calling 1(8 00) 540-6369, or by emailing info@pars.org. B. Funding Policy GASB Statement No. 45 set rules for computing the employer's expense for retiree benefits other than pension, called OPEB. The expense, called the annual OPEB Cost (AOC), is determined similarly to pensions. The annual required contribution (ARC) of the employer, represents a level of funding that, if paid on an ongoing basis, is projected to cover normal annual costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. When an agency contributes more than the ARC, there is a net OPEB asset (NOA); when the contribution is less than the ARC, a net OPEB obligation (NOO) results. The District had a net OPEB asset of $1,108,244 and $1,206,765 as of June 30, 2016 and 2015, respectively. Because of the volatility of the investment market, the District Board voted to make monthly installments into the OPEB Trust to take advantage of dollar -cost -averaging. C. Annual OPEB Cost and Net OPEB Asset For 2016, the District's annual OPEB cost (expense) was equal to the ARC of $7,890,000. The District contributed $5,159,879 for retiree health care premiums and $2,631,600 to the PARS trust for a total of $7,791,479. The following table summarizes the changes in the District's net OPEB (Asset) at June 30, 2016: 39 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 1 NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS (Continued) Net OPEB Obligation (Asset) at June 30, 2014 ($1,207,678) Annual Required Contribution (ARC) $8,103,000 Interest on Net OPEB Asset (75,000) Adjustment to ARC 97,000 Annual OPER Cost (AOC) 8,125,000 Contributions Made: Health care premiums paid (5,314,087) Contributions to PARS trust (2,810,000) Increase (decrease) in net OPEB obligation 913 Net OPEB Obligation (Asset) at June 30, 2015 (1,206,765) Annual Required Contribution (ARC) 7,866,000 Interest on Net OPEB Asset (79,000) Adjustment to ARC 103,000 Annual OPEB Cost (AOC) 7,890,000 Contributions Made: Health care premiums paid (5,159,879) Contributions to PARS trust (2,631,600) Increase (decrease) in net OPEB obligation 98,521 Net OPER Obligation (Asset) at June 30, 2016 ($1,108,244) The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the OPEB asset for the past three years are presented below: Percentage of Annual OPEB Actual AOC Current Net OPEB Fiscal Year Cost (AOC) Contribution Contributed Year AOC Obligation (Asset) June 30, 2014 $8,128,000 $7,798,040 96% $329,960 ($1,207,678) June 30, 2015 8,125,000 8,124,087 100% 913 (1,206,765) June 30, 2016 7,890,000 7,791,479 99% 98,521 (1,108,244) 40 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 10 —POST EMPLOYMENT HEALTH CARE BENEFITS (Continued) I D. Funded Status and Funding Progress Per PARS, trust assets as of June 30, 2016 and 2015, including trust contributions and interest, total $42,703,154 and $39,917,736, respectively. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the health care cost trend. The funded status of the plan and the annual required contributions of the employer are subject to continual revision, as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress information below and the required supplementary information immediately following the notes to the financial statements presents multiyear trend information that shows whether the actuarial value of the plan assets is increasing or decreasing over time, relative to the actuarial liabilities for benefits. Trend data from the most recent actuarial study is presented below: Cost Method Actuarial Actuarial Actuarial Value of Accrued Valuation Assets Liability Date (A) (B) July 1, 2014 $39,220,000 $107,181,000 E. Actuarial Methods and Assumptions Unfunded (Overfunded) Actuarial Accrued Liability (B - A) URAL $67,961,000 Funded Ratio (AIB) Covered Payroll (Active Plan M embers) (C) 36.59% $30,552,659 Unfunded (Overfunded) Actuarial Liability as Percentage of Covered Payroll [(A — B)IC] Projections for benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation as well as the historical pattern of sharing benefit costs between the employer and plan members. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and actuarial value of assets, consistent with the long-term perspective of the calculations. The District's most recent actuarial valuation was prepared as of July 1, 2014 and was finalized on April 6, 2015. The July 1, 2012 actuarial valuation results are budgeted in fiscal year 2015- 16. 41 222% CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS (Continued) I The following is a summary of the actuarial assumptions and methods: Valuation Date Actuarial Cost Method Amortization Method Average Remaining Period Actuarial Assumptions: Inflation Rate Investment Rate of Return Projected Salary Increases Post -Retirement Benefit Increases Health Care Cost Trend Rates NOTE 11—NET POSITION July 1, 2014 Entry Age Normal Cost Method LevelDollar/Closed 24 Years fixed 3.00% 6.25% 3.25% No planned changes Medical - 8.3% grading to 5% in 2021 - 22 Medicare Part B - same as medical trend Dental - 4% Net Position is the excess of all the District's assets over all its liabilities, regardless of fund. Net Position is divided into three captions: Net Investment in Capital Assets describes the portion of Net Position which is represented by the current net book value of the District's capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted describes the portion of Net Position which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the District cannot unilaterally alter. Unrestricted describes the portion of Net Position which is not restricted as to use. 1 NOTE 12 — LEASE COMMITMENTS 1 The District leases various facilities and equipment under operating leases. Following is a summary of operating lease commitments as of June 30, 2016: Fiscal Year Ending 2017 2018 Total Office Equipment $248,212 248,212 $496,424 Facilities $63,610 33,922 $97,532 Total $311,822 282,134 $593,956 Total rental expense for the fiscal years ended June 30, 2016 and 2015 was $279,636 and $308,484, respectively. 42 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30, 2016 and 2015 1 NOTE 13 — COMMITMENTS AND CONTINGENCIES Commitments and contingencies, undeterminable in amount, include normal recurring pending claims and litigation. In the opinion of management, based upon discussion with legal counsel, there is no pending litigation which is likely to have a material adverse effect on the financial position of the District. Claims and losses are recorded when they are reasonably probable of being incurred and the amount is estimable. Insurance proceeds and settlements are recorded when received. The District has a number of purchase commitments for ongoing operating and capital projects that involve multi-year contracts. Purchase commitments related to these multi-year contracts are approximately $21,187,890 and $9,493,695 as of June 30, 2016 and 2015, respectively. 43 This Page Left Intentionally Blank REQUIRED SUPPLEMENTARY INFORMATION CENTRAL CONTRA COSTA SANITARY DISTRICT Cost -Sharing Multiple Employer Defined Benefit Retirement Plan As of fiscal year ended June 30, 2016 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS Last 10 Years* 2016 2015 Net Change in Total Pension Liability Service Cost $ 11,744,271 $ 14,396,402 Interest on the Total Pension Liability 35,450,291 42,024,521 Expensed portion of current -period changes in proportion and difference between employer's contributions and proportionate share of contributions (3,509,681) 533,503 Expensed portion of current -period benefit changes - - Expensed portion of current -period difference between expected and actual experience in the Total Pension Liability (836,604) (2,988,813) Expensed portion of current -period changes of assumptions or other inputs 972,205 (1,231) Member contributions (5,196,358) (5,860,025) Projected earnings on plan investments (30,472,528) (34,980,271) Expensed portion of current -period differences between actual and projected earnings on plan investments 5,198,286 (200,059) Administrative expense 494,025 522,670 Other 40,685 Recognition of beginning of year deferred outflows of resources as pension expense - Recognition of beginning of year deferred inflows of resources as pension expense (2,593,424) Net amortization of deferred amounts from changes in proportion and differences between employer's contributions and proportionate share of contributions 533,503 - Net change in total pension liability $ 11,824,671 $ 13,446,697 Reconciliation of Net Pension Liability Beginning Net Pension Liability $ 89,535,510 $ 110,183,830 Pension expense 11,824,671 13,446,697 Employer contributions (22,752,611) (24,451,234) New net deferred inflows/outflows 21,270,461 (11,564,393) Change in allocation of prior deferred inflows/outflows 2,163,011 New net deferred flows due to change in proportion (12,354,075) 1,920,610 Recognition of prior deferred inflows/outflows 2,593,424 Recognition of prior deferred flows due to change in proportion (533,503) Net pension liability - ending $ 91,746,888 $ 89,535,510 Plan fiduciary net position as a percentage of the total pension liability 74.14% 73.86% Covered - employee payroll $ 29,061,743 $ 26,906,131 Net pension liability as percentage of covered -employee payroll 315.70% 332.77% Notes to Schedule: Changes in assumptions - In 2016, amounts reported as changes in assumptions resulted primarily from adjustments to expected retirement ages of general employees. * Fiscal year 2015 was the 1st year of implementation, therefore only two years are shown. 46 CENTRAL CONTRA COSTA SANITARY -DISTRICT Cost -Sharing Multiple Employer II e f ine d Benefit Retirement Plan As of fiscal year ending June 30, 2016 SCHEDULE OF CONTRIBUTIONS Last 10 Years* 2016 2015 Actuarially determined contribution $ 22,752,611 $ 24,451,234 Contributions in relation to the actuarially determined contributions 22,752,611 24,451,234 Contribution deficiency (excess) - - Covered -employee payroll $ 29,061,743 $ 26,906,131 Contributions as a percentage of covered -employee payroll Notes to Schedule Measurement Date: Methods and assumptions used to determine contribution rates: 78.29% 90.88% 12/31/2015 Actuarial cost method Entry age Amortization method Level percentage of payroll, closed Remaining amortization period 8 years * Asset valuation method 5 -year semi-annually Inflation 2.75% Salary increases 4% - 1325% Investment rate of return 7.0%, net of pens ion plan investment expense, including inflation Retirement age 50 years Classic, 52 years PEPRA Mortality RP -2014 Healthy Annuitant Mortality Table with setbacks and forwards * Fiscal year 2015 was the lst year of implementation, therefore only two years are shown. * * Remaining balance of December 31, 2007 URAL is amortized over a fixed (decreasing or closed) period with 8 years remaining as of December 31, 2014. Any changes in UAAL after December 31, 2007 will be separately amortized over a fixed 1$ year period effective with that valuation. Any changes in UAAL due to plan amendments will be amortized over a 10 -year fixed period effective with that valuation. 47 CENTRAL CONTRA COSTA SANITARY DISTRICT Post Retirement Health Care Defined Benefit Plan Schedule of Funding Progress As of fiscal year ended June 30, 2016 Last Three Valuations Cost Method Actuarial Actuarial Actuarial Value of Accrued Valuation Assets Liability Date (A) (B) June 30, 2010 $9,404,000 $90,337,000 July 1, 2012 22,481,000 100,498,000 July 1, 2014 33,695,000 103,904,000 Unfunded (Overfunded) Actuarial Accrued Liability (B -- A) UAAL ($80,933,000) (78,017,000) (70,209,000) 48 Funded Ratio (AM) (C) Covered Payroll (Active Plan M embers) 10.41% $25,080,233 22,37% 24,305,548 32.43% 27,930,233 Unfunded (Overfunded) Actuarial Liability as Percentage of Covered Payroll [(A -- B)/C] 323% 321% 251% SUPPLEMENTARY INFORMATION CENTRAL CONTRA COSTA SANITARY DISTRICT COMBINING SCHEDULE OF NET POSITION ENTERPRISE SUB FUNDS JUNE 30, 2016 Running Sewer Self Debt Expense Construction Insurance Service Elimination Total ASSETS CURRENT ASSETS: Cash and cash equivalents $76,496 $26,038,953 $6,336,269 $32,451,718 Short term investments 38,000,000 1,000,000 39,000,000 Accounts receivable 15,156,849 3,861,700 19,018,549 Interest receivable 74,038 8,488 $99,181 181,707 Parts and supplies 2,146,172 2,146,172 Prepaid expenses 2,786,407 2,786,407 Total current assets 58,165,924 30,974,691 6,344,757 99,181 - 95,584,553 NON-CURRENT ASSETS: Restricted cash and equivalents 100,000 100,000 Restricted investments 4,856,450 4,856,450 Assessment Districts receivable 1,515,818 1,515,818 Net OPEB asset 1,108,244 1,108,244 CAPITAL ASSETS Nondepreciable 46,737,959 46,737,959 Depreciable, net of accumulated depreciation 569,267,078 569,267,078 Total capital assets, net 616,005,037 - - - 616,005,037 Total non-current assets 617,213,281 1,515,818 - 4,856,450 - 623,585,549 TOTAL ASSETS 675,379,205 32,490,509 6,344,757 4,955,631 - 719,170,102 DEFERRED OUTFLOWS OF RESOURCES Pension related 34,464,472 - - 34,464,472 LIABILITIES CURRENT LIABILITIES: Accounts payable and accrued expenses 2,821,413 3,346,993 5,819 6,174,225 Interest payable 592,380 592,380 Refunding Water Revenue Bonds - current portion 2,300,000 2,300,000 Water Reclamation Loan Contract - current portion 177,756 177,756 Accrued compensated absences - current portion 448,000 448,000 Liability for uninsured claims 1,000,000 1,000,000 Refundable deposits 142,319 151,699 294,018 Total current liabilities 3,411,732 3,498,692 1,005,819 3,070,136 - 10,986,379 NON-CURRENT LIABIL1! IES: Refunding Water Revenue Bonds, noncurrent portion 31,500,000 31,500,000 Water Reclamation Loan Contract, noncurrent portion 182,378 182,378 Accrued compensated absences, noncurrent portion 4,029,542 4,029,542 Net pension liability 91,746,888 91,746,888 Total noncurrent liabilities 95,776,430 - 31,682,378 127,458,808 TOTAL LIABILITIES 99,188,162 3,498,692 1,005,819 34,752,514 - 138,445,187 DEFERRED INFLOWS OF RESOURCES Pension related 21,618,960 - - 21,618,960 NET POSITION Net investment in capital assets 616,005,037 (34,160,134) 581,844,903 Restricted for debt service 4,363,251 4,363,251 Unrestricted (22,502,292) 24,575,160 5,364,649 (75,244) 7,362,273 TOTAL NET POSITION $593,502,745 $24,575,160 $5,364,649 ($29,872,127) - $593,570,427 50 CENTRAL CONTRA COSTA SANITARY DISTRICT COMBINING SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION ENTERPRISE SUB -FUNDS FOR THE YEAR ENDING JUNE 30, 2016 Running Sewer Self Debt Expense Construction Insurance Service Elimination Total OPERATING REVENUES Sewer service charges (SSC) $72,233,903 $72,233,903 Service charges - City of Concord 13,913,960 13,913,960 Other services charges 963,014 963,014 Miscellaneous charges 623,659 623,659 Total operating revenues 87,734,536 - - 87,734,536 OPERATING EXPENSES Sewage collection and pumping stations 16,977,612 16,977,612 Sewage treatment 25,959,525 25,959,525 Engineering 16,301,976 16,301,976 Recycled water 559,272 559,272 Administrative and general 24,815,005 $1,600,617 ($1,528,131) 24,887,491 Pension expense (9,778,389) (9,778,389) Depreciation 22,885,030 22,885,030 Total operating expenses 97,720,031 1,600,617 - (1,528,131) 97,792,517 OPERATING INCOME (LOSS) (9,985,495) - (1,600,617) 1,528,131 (10,057,981) NONOPERATING REVENUES (EXPENSES) Taxes $11,067,302 $3,767,865 14,835,167 Permit and inspection fees 2,267,520 279,203 2,546,723 Interest earnings 321,519 169,350 28,413 43,026 562,308 Interest expense (1,427,641) (1,427,641) Other income (expense), net 945,947 249,148 1,528,131 (1,528,131) 1,195,095 Total nonoperating revenues 3,534,986 11,765,003 1,556,544 2,383,250 (1,528,131) 17,711,652 NET INCOME (LOSS) BEFORE CAPITAL (6,450,509) 11,765,003 (44,073) 2,383,250 7,653,671 CONTRIBUTIONS AND TRANSFERS CAPITAL CONTRIBUTIONS AND TRANSFERS City of Concord contributions to capital costs 3,671,892 3,671,892 Customer contributions to capital cost (SSC) 8,319,860 8,319,860 Contributed sewer lines 1,774,168 1,774,168 Capital contributions - connection fees 8,543,758 8,543,758 Transfers In (Out) 23,247,614 (23,297,147) (25,711) 75,244 Total capital contributions and transfers 25,021,782 (2,761,637) (25,711) 75,244 22,309,678 CHANGE IN NET POSITION 18,571,273 9,003,366 (69,784) 2,458,494 29,963,349 NET POSITION, BEGINNING OF YEAR 570,465,282 19,988,451 5,408,722 (32,255,377) 563,607,078 NET POSITION, END OF YEAR $589,036,555 $28,991,817 $5,338,938 ($29,796,883) - $593,570,427 51 Salaries and Wages Employee Benefits Less Capitalized Overhead and Benefits Total Salaries and Benefits Directors' Fees and Expense Chemicals Utilities Repairs and Maintenance Hauling and Disposal Professional and Legal Services Outside Services Self Insurance Materials and Supplies Other Total Administration $5,880,017 13,679,196 (20,910) 19,538,303 135,512 92,297 590,182 469,371 1,708,086 1,500,000 344,278 437,117 $24,815,146 CENTRAL CONTRA COSTA SANITARY DISTRICT Schedule of Running Expenses Comparison of Budget and Actual Expenses by Department June 30, 2016 Sewage Sewage Treatment Pumping Recycled Engineering Collection Plant Station Water Total Budget $8,175,196 7,459,960 (2,785,412) 12,849,744 $5,793,321 5,856,307 (33,155) 11,616,473 $9,240,968 8,884,577 (114,691) $891,793 $201,555 $30,182,850 $30,943,085 781,452 97,984 36,759,476 37,036,228 - - (2,954,168) (3,812,007) 18,010,854 1,673,245 299,539 63,988,158 64,167,306 - - 902,592 174,774 139,223 2,756,293 108,055 1,242,048 2,706,770 415,746 88,982 375,691 156,201 9,294 5,161 1,362,972 57,472 218,274 320,430 747,559 809,968 914,054 115,881 173,922 $16,301,976 $14,016,932 $25,959,525 52 - - 135,512 132,177 454,968 62,009 1,419,569 1,655,000 471,107 - 3,633,694 4,780,250 239,154 4,853 4,891,062 5,369,900 9,052 - 889,471 998,550 - 2,048 642,075 640,300 65,457 141,966 3,554,227 3,883,115 1,500,000 1,500,000 23,629 5,492 2,251,356 2,210,045 23,927 43,365 1,708,266 2,128,221 82,960,539 $559,272 Variance Favorable (Unfavorable) $760,235 276,752 (857,839) 179,148 (3,335) 235,431 1,146,556 478,838 109,079 (1,775) 328,888 (41,311) 419,955 884,613,390 $87,464,864 82,851,474 CENTRAL CONTRA COSTA SANITARY DISTRICT RUNNING EXPENSE SCHEDULE OF SUPPLEMENTAL NET POSITION ANALY S I S FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Prior Year Balance $17,079,944 2015 - 2016 Revenue $91,269,522 2015 2016 Expense (97,720,031) Add Back Depreciation Expense 22,885,030 16,434,521 Net Position Attributed to General Operations 33,514,465 Net Position Attributed to All Other 555,522,090 Running Expense Net Position $589,036,555 53 This Page Left Intentionally Blank ATTACHMENT 2 CENTRAL CONTRA COSTA SANITARY DISTRICT MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMCTNICATIONS FOR THE YEAR ENDED JUNE 3U,2016 REVIEW DRAFT 11/18/2016 9:56 AM This Page Left Intentionally Blank CENTRAL CONTRA COSTA SANITARY DISTRICT MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS For the Year Ended June 30, 2016 Table of Contents Pa2e Memorandum on Infernal Control 1 Schedule of Other Matters 3 Required Communications 5 Significant Audit Findings 5 Accounting Policies 5 Unusual Transactions, Controversial or Emerging Areas 6 Estimates 6 Disclosures 7 Difficulties Encountered in Performing the Audit 7 Corrected and Uncorrected Misstatements 7 Disagreements with Management 7 Management Representations 7 Management Consultations with Other Independent Accountants 7 Other Audit Findings or Issues 7 Other Information Accompanying the Financial Statements 8 This Page Left Intentionally Blank MAZ E IVA & ASSOCIATES MEMORANDUM ON INTERNAL CONTROL To the Board of Directors Central Contra Costa Sanitary District Martinez, California We have audited the financial statements of the Central Contra Costa Sanitary District (District) for the year ended June 30, 2016, and have issued our report thereon dated DATE. In planning and performing our audit of the financial statements of the District as of and for the year ended June 30, 2016, in accordance with auditing standards generally accepted in the United States of America, we considered the District's internal control over financial reporting (internal control) as a basis for designing our auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all such deficiencies have been identified. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be a material weakness. However, material weaknesses may exist that have not been identified. Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe to be of potential benefit to the District. This communication is intended solely for the information and use of management, Board of Directors, others within the organization, and agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Pleasant Hill, California DATE Accountancy Corporation 3478 Buskirk Avenue, Suite 215 Pleasant Hill, CA 94523 T 925.930.0902 F 925.930.0135 E maze@mazeassociates.com w mazeassociates.com This Page Left Intentionally Blank CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 30, 2016 2016-01: UPCOMING GASB There are a number of new accounting and financial reporting pronouncements that have been issued by the Governmental Accounting Standards Board, the authoritative standard setting body in the United States. We have included the one that will have an impact on the District's fmancial statements, effective in fiscal year ending June 30, 2018, to keep you informed about these developments on a proactive basis. The following pronouncement is effective in fiscal year 2017/18: GASB 75 Accountini and Financial Reporting for .Postemvlovment Benefits Other Than Pensions The primary objective of this Statement is to improve accounting and fmancial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision -useful information, supporting assessments of accountability and inter -period equity, and creating additional transparency. 3 This Page Left Intentionally Blank IVA7F. MAZE .&ASSOCIATES REQUIRED COMMUNICATIONS To the Board of Directors Central Contra Costa Sanitary District Martinez, California We have audited the basic financial statements of the Central Contra Costa Sanitary District (District) for the year ended June 30, 2016. Professional standards require that we communicate to you the following information related to our audit under generally accepted auditing standards. Significant Audit Findings Accounting .Policies Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the District are included in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year, except as follows: GASB Statement No. 72 — Fair Value Measurement and Application This Statement addresses accounting and fmancial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. This Statement also enhances fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government's financial. position. The pronouncement became effective, and as disclosed in Note 1.M. to the financial statements. Accountancy Corporation 3478 Buskirk Avenue, Suite 215 Pleasant Hill, CA 94523 S T 925.930.0902 F 925.930.0135 E maze@mazeassociates.com w mazeassociates.com GASB Statement No. 76 -- The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments The objective of this Statement is to identify, in the context of the current governmental financial reporting environment, the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non -authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. GASB Statement No. 79 -- Certain External Investment Pools and Pool Participant The objective of this Statement is to address for certain external investment pool and their participants the accounting and financial reporting implications that result from changes in the regulatory provisions referenced by previous accounting and financial reporting standards. This statement is effective for the periods beginning after December 15, 2015, or the 2015-2016 fiscal year. Unusual Transactions, Controversial or Emerging Areas We noted no transactions entered into by District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the District's financial statements are depreciation, claims liability and actuarial estimates for net pension liability and other post -employment benefits. The value of the assets, liability and assumptions used to determine annual required contributions for other post -employment benefits is determined by an actuary study provided to the District as of June 30, 2016. The value of the District's net pension liability was obtained from an actuarial valuation provided by CCCERA. Management's estimate of depreciation is based on the estimated useful lives of the capital assets, and its estimate of claims is based on the District.Attorney's estimates of current and potential litigation, as well as actuary studies provided for the District as of June 30, 2016. We evaluated the key factors and assumptions used to develop the depreciation expense and claims liability and reviewed the current actuary study and determined that they are reasonable in relation to the basic financial statements taken as a whole. 6 Disclosures The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected alllcertain such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit's financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in a management representation letter dated DATE. Managements with other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. 7 Other Information Accompanying the Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. With respect to the required supplementary information accompanying the financial statements, we applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic fmancial statements. We did not express an opinion nor provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The Introductory and Statistical Sections included as part of the Comprehensive Annual Financial Report have not been subjected to the auditing procedures applied in the audit of the basic fmancial statements and, accordingly, we did not express an opinion nor provide any assurance on them. This information is intended solely for the use of the Board of Directors and management and is not intended to be, and should not be, used by anyone other than these specified parties. Pleasant Hill, California DATE 8