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Home My WebLink About04.c. Review draft Position Paper to accept (1) the comparative audited Financial Statements for fiscal years ended June 30, 2018 and 2017 performed by Maze & Associates, and (2) the auditor's memorandum on internal control and required communications fo Page 1 of 85 Item 4.c. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER DRAFT MEETING DATE: DECEMBER 18, 2018 SUBJECT: REVIEW DRAFT POSITION PAPER TO ACCEPT (1)THE COMPARATIVE AUDITED FINANCIAL STATEMENTS FOR FISCAL YEARS ENDED JUNE 30, 2018 AND 2017 PERFORMED BY MAZE &ASSOCIATES,AND (2)THE AUDITOR'S MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 - INVITED GUEST DAVID ALVEY, CERTIFIED PUBLIC ACCOUNTANT OF MAZE&ASSOCIATES SUBMITTED BY: INITIATING DEPARTMENT: CHRIS THOMAS, FINANCE ADMINISTRATOR ADMINISTRATION-FINANCE REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ANN SASAKI, DEPUTY GENERAL MANAGER ISSUE The comparative audited financial statements of Central San for the Fiscal Years (FY)ended June 30, 2018 and 2017, and the auditor's memorandum on internal control and required communications for the year ended June 30, 2018 are being submitted to the Board. BACKGROUND The firm of Maze &Associates has completed its fifth examination of Central San's financial statements for the FYs ended June 30, 2018, and 2017, 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 and the standards for financial audits contained in Government Auditing Standards (GAS), issued by the Controller 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, 2018 and 2017 expresses an unmodified (clean)opinion. I n accordance with Government Code Section 53891, information from the audit is used to prepare a December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 102 of 288 Page 2 of 85 report to the State Controller's office. The report will be sent electronically by the annual deadline of January 31, 2019. The audited financial statements are also sent to the County Auditor-Controller, Contra Costa County Board of Supervisors, and the Bond Rating Agencies. n the performance of their examination of the financial statements, the auditors evaluate Central San's internal accounting controls related to the financial statements in 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 GAS. Based on their observations during the course of the examination, the auditors advise Central San management of any significant deficiencies or material misstatements and any recommendations to improve the system of internal accounting controls. See attached "Memorandum on Internal Control and Required Communications." There were no significant deficiencies or material misstatements identified. We note there was one matter that did not rise to the level of a required reporting item that was nonetheless pointed out to Central San by Maze regarding accruals. Staff will review year-end procedures to ensure the accuracy of the accruals in the financial statements. ALT ERNAT IVES/CONSIDERATIONS None. FINANCIAL IMPACTS Below is information regarding implementation of significant changes included in the basic audited Financial Statements for FYs ended June 30, 2018 and 2017. The new Governmental Accounting Standards Board (GASB) Statements that affect Central San this audit cycle are as follows: GASB Statement No. 75 -Accounting and Financial Reporting for Post-Employment Benefits Other Than Pensions mplementation req uires Central San to report its actuarially determined $46,350,454 Net O P E B L iability on the Statements of Net Position; along with a restatement and reduction of beginning net position of $41,552,816 and an O P E B Expense and Adjustment of$5,545,563 on the Statements of Revenues, Expenses and Changes in Net Position. GASB 75 also required changes to Central San's footnote disclosures including Note 10 - Post Employment Health Care Benefits. COMMITTEE RECOMMENDATION The audited financial statements and the auditor's memorandum on internal control and required communications were reviewed by David Alvey from Maze &Associates at the Finance Committee meeting on December 18, 2018. The Committee recommended Board acceptance. RECOMMENDED BOARD ACTION Accept the basic audited financial statements for the FYs ended J une 30, 2018 and 2017, and the auditor's memorandum on internal control and required communications for the FY ended June 30, 2018. Strategic Plan Tie-In GOAL THREE:Be a Fiscally Sound and Effective Water Sector Utility Strategy 1 - Conduct long-range financial planning, Strategy 2- Manage costs December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 103 of 288 Page 3 of 85 ATTACHMENTS: 1.Audited Financial Statements and Footnotes for Fiscal Years Ended June 30, 2018 and 2017 2. Memorandum on Internal Control and Required Communications Fiscal Year June 30, 2018 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 104 of 288 ATTACHM?V1o1 85 CENTRAL CONTRA COSTA SANITARY DISTRICT BASIC FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 309 2018 AND 2017 DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 105 of 288 Page 5 of 85 This Page Left Intentionally Blank DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 106 of 288 Page 6 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 Table of Contents INTRODUCTORY SECTION Tableof Contents ..........................................................................................................................i FINANCIAL SECTION INDEPENDENT AUDITOR'S REPORT...........................................................................................1 MANAGEMENT'S DISCUSSION AND ANALYSIS......................................................................3 BASIC FINANCIAL STATEMENTS Statementsof Net Position..............................................................................................................10 Statements of Revenues,Expenses and Changes in Net Position.................................................13 Statementsof Cash Flows...............................................................................................................14 Statement of Fiduciary Net Position—Fiduciary Fund...................................................................16 Statement of Changes in Fiduciary Net Position—Fiduciary Fund................................................17 NOTES TO BASIC FINANCIAL STATEMENTS ........................................................................19 REQUIRED SUPPLEMENTARY INFORMATION Cost-Sharing Multiple Employer Defined Benefit Retirement Plan- Schedule of Changes in the Net Pension Liability and Related Ratios ............................ 52 Schedule of Contributions................................................................................................. 53 Post-Retirement Health Care Defined Benefit Plan— Schedule of Changes in the Net OPEB Liability and Related Ratios...............................54 Schedule of Investment Return Rate................................................................................. 54 Schedule of Contributions................................................................................................. 55 i DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 107 of 288 Page 7of85 CENTRAL CONTRA COSTA SANITARY DISTRICT BASIC FINANCIAL STATEMENTS For the Years Ended June 30,20U0and 2087 Table of Contents SUPPLEMENTARY INFORMATION I Combining Schedule ofNet Position— EnterpriseSub-Funds............................................................................................................5N Combining Schedule ofRevenues, Expenses and Changes in Net Position—Enterprise Sub-Funds.........................................59 Schedule of Running Expenses, Comparison ofBudget and Actual Expensesby Department........................................................................................................80 Running Bxoense—Scheduleof Supplemental Net Position Analysis......................................................................................8\ ii DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 108 of 288 Page 8 of 85 MAZE & ASSOCIATES INDEPENDENT AUDITOR'S REPORT To the Board of Directors Central Contra Costa Sanitary District Martinez,California We have audited the accompanying financial statements of the business-type activities and the fiduciary fund, of the Central Contra Costa Sanitary District(District)as of and for the years ended June 30, 2018 and 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the Table of Contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audits. 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective net position of the business-type activities and the fiduciary fund of the Central Contra Costa Sanitary District as of June 30, 2018 and 2017, and the respective changes in net position and cash flows, where applicable, for the years then ended in accordance with accounting principles generally accepted in the United States of America. T 925.930.9992 Accountancy Corporation F 925.939.0135 3478 Buskirk Avenue,Suite 215 E maze0mazeassociates.com DRAFT Pleasant Hill,CA 94523 1 w mazeassociates.com December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 109 of 288 Page 9 of 85 Change in Accounting Principles Management adopted the provisions of Governmental Accounting Standards Board Statement No. 75 — Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions, which became effective during the year ended June 30, 2018 and had material effects on the financial statements as discussed in Note 11 B and Note 10 in the notes to the financial statements. The emphasis of this matter does not constitute a modification to our opinions. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis and other Required Supplementary Information, as listed in the table of contents, 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 financial 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 December 4,2018 DRAFT 2 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 110 of 288 Page 10 of 85 Central Costa Sanitary District Protecting public health and the environment 5019 Imhoff Place,Martinez, CA 94553-4392 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, 2018. This information is presented in conjunction with the audited financial statements, which follow this report. FINANCIAL HIGHLIGHTS The District's 2017-18 financial highlights are listed below. These results are discussed in more detail later in the report. • The District's total ending net position decreased by $5.7 million or -0.90% in 2017-18. This is mainly due to increases in operating and non-operating revenues and capital contributions. • Total revenues in 2017-18 increased by $5.7 million or 5.28%. The total Sewer Service Charge (SSC) rate increased for single family homes by 5.37% to $530 and 5.34% for multi-family homes to $513. Increased property values in the service area lead to an increase in property taxes. • Total 2017-18 expenses increased by $8.1 million or 7.91%. This is mainly due to an increase in additional contributions to the OPEB UAAL and the implementation of GASB 75 which required the District to record a liability and expense to reflect the balance and activity of its total Net OPEB Liability. • Capital Contributions increased in 2017-18 by $5.2 million or 19.53%. The increase is mainly due to an increase in contributions from the City of Concord and a higher allocation of SSC to customer contributions to capital costs. 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. DRAFT 3 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 111 of 288 Page 11 of 85 • 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: Table 1 - Condensed Statement of Net Position % Increase Fiscal Year Ended June 30 (Decrease) FY 17-18 FY 17-18 vs. vs. 2017-18 2016-17 2015-16 FY 16-17 FY 15-16 Cu rrent Assets $ 119,043,984 $ 105,876,117 $ 95,584,553 12.44% 24.54% Capital Assets 652,402,342 632,452,631 616,005,037 3.15% 5.91% Other Non-Current Assets 1114621838 1010571548 715801512 13.97% 51.21% Total Assets 78239093164 7483386,296 71951705102 4.61% 8.86% Deferred Outflows of Resources- Pension & OPEB Related 2135333421 2930783203 3454645472 -25.95% -37.52% Current Liabilities 1414411630 1317201331 10,9861379 5.26% 31.45% Non-Current Liabilities 14019521831 12110551247 12714583808 16.44% 10.59% Total Liabilities 15553945461 13437753578 13854455187 15.30% 12.24% Deferred Inflows of Resources- Pension Related 2830763634 1630513905 2156185960 74.91% 29.87% Net Investment in Capital Assets 623,307,342 600,770,254 581,844,903 3.75% 7.13% Restricted - Debt Service 434213504 434493437 41363,251 -0.63% 1.34% Unrestricted 6,757,356 21,417,325 733621273 -131.55% -191.78% Total Net Position $ 62059715490 $ 62656375016 $ 59355703427 -0.90% 4.62% The total net position of the District increased from $593.6 million in 2015-16 to $626.6 million in 2016-17 and decreased to $621.0 million in 2017-18. The District's total assets have increased by $34.5 million or 4.61% compared to 2016-17, and $63.7 million or 8.86% compared to 2015-16. The total liabilities increased $20.6 million or 15.30% compared to 2016-17, and increased $16.9 million or 12.24% compared to 2015-16. The increase in net position over the three-year period totals $27.4 million or 4.62% and is the result of the combination of net income, capital contributions, and the implementation of GASB 75 which required the District to record the Net OPEB Liability. DRAFT 4 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 112 of 288 Page 12 of 85 By far the largest portion of the District's net position (100.4%) 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 negative balance of$6.8 million in unrestricted net position decreased by $28.2 million from 2016-17 and decreased by $14.1 million from 2015-16 due to increased operating and non- operating revenues and capital contributions, and the implementation of GASB 75 which required the District to record the Net OPEB Liability in the Statement of Net Position. 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: Table 2 - Condensed Statement of Revenues, Expenses, and Changes in Net Position % Increase Fiscal Year Ended June 30 (Decrease) FY 17-18 FY 17-18 vs. vs. 2017-18 2016-17 2015-16 FY 16-17 FY 15-16 Sewer Service Charges SSC $ 9017971844 $ 8619891488 $861147,863 4.38% 5.40% Other Service Charges and Miscellaneous 136981591 136351953 115861673 3.83% 7.05% Total Operating Revenue 929496,435 8836253441 8757349536 4.37% 5.43% Property Tax 17,650,741 16,318,874 14,835,167 8.16% 18.98% Permit& Inspection Fees 215921137 216001888 2,546,723 -0.34% 1.78% Interest and All Other 212991187 117281082 117571403 33.05% 30.83% Total Non-Operating Revenues 2295423065 2096473844 1991399293 9.17% 17.78% Total Revenues 11550389500 10992733285 10698735829 5.28% 7.64% Total Labor and Benefits 6818621484 6213051898 6319881158 10.52% 7.62% Chemicals & Utilities 513743271 631061904 5,053,263 -12.00% 6.35% Repairs and Maintenance 414281947 416621918 4,8911062 -5.02% -9.45% Professional, Legal and Outside Services 219881280 338913224 411961302 -23.20% -28.79% Materials & Supplies 211033331 230081100 2,2511356 4.74% -6.57% Hauling and Disposal 110323064 9993168 889,471 3.29% 16.03% Self-Insurance Expense 788,689 6971792 11600,617 13.03% -50.73% Pension Expense 4,441,205) (41080)5 9,778,389 8.84% -54.58% OPEB Expense 515451563 - - 100.00% 100.00% All Other 114361950 139811186 118151647 -27.47% -20.86% Depreciation Expense 21,561,704 22,892,153 22,885,030 -5.81% -5.78% Total Operating Expenses 109,681,078 10194643785 9717925517 8.10% 12.16% Non-Operating Expense - Interest Expense 15230,680 113139398 194279641 -6.30% -13.80% Total Expenses $110,911,758 $ 102,778,183 $99,220,158 7.91% 11.78% DRAFT 5 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 113 of 288 Page 13 of 85 Table 2 - Condensed Statement of Revenues, Expenses, and Changes in Net Position (Continued) % Increase Fiscal Year Ended June 30 (Decrease) FY 17-18 FY 17-18 vs. vs. 2017-18 2016-17 2015-16 FY 16-17 FY 15-16 Income Before Capital Contributions 49126,742 654955102 796535671 -36.46% -46.08% Customer Contributions SSC 2034253514 1616281105 1139913752 22.84% 70.33% Contributed Sewer Lines 230031614 218991042 137743168 -30.89% 12.93% Capital Contributions- Connection Fees 913311420 710441340 815431758 32.47% 9.22% Total Capital Contributions 3197605548 2655715487 2293099678 19.53% 42.36% Change in Net Position 3598879290 3350665589 2959639349 8.53% 19.77% Beginning Net Position 62696379016 59355705427 56396079078 5.57% 11.18% Prior Period Adjustment- GASB 75 Note 1 M 4195525816 - - - - Ending Net Position $ 62059715490 $ 62656375016 $ 59355705427 -0.90% 4.62% Revenue Total operating revenues increased from $87.7 million in 2015-16 to $88.6 million in 2016-17 and to $92.5 million in 2017-18. Operating revenues increased by $3.9 million or 4.37% compared to 2016-17, and increased by $4.8 million or 5.43% comparing 2017-18 to 2015-16. Total non-operating revenue increased from $19.1 million in 2015-16 to $20.6 million in 2016-17 and to $22.5 million in 2017-18. An increase compared to 2016-17 by $1.9 million or 9.17%, and increased by $3.4 million or 17.78% comparing 2017-18 to 2015-16. Total revenues increased from $106.9 million in 2015-16 to $109.3 million in 2016-17 to $115.0 million in 2017-18. The change in total revenue resulted in an increase of $5.7 million or 5.28% comparing 2017-18 to 2016-17, and increased by $8.1 million or 7.64% comparing 2017-18 to 2015-16. There was a 5.37% rate increase for single family homes and a 5.34% rate increase for multi-family homes in 2017-18, a 6.79% rate increase for single family homes and a 5.18% rate increase for multi-family homes in 2016-17, and a 7.29% rate increase for single family homes and a 5.47% rate increase for multi-family homes in 2015-16. The Sewer Service Charge allocation to cover capital costs increased to 15.70% in 2017-18 from 14.25% in 2016-17 and 10.33% in 2015-16. Property tax revenue increased by $1.3 million or 8.16% from 2017-18 to 2016-17, and $2.8 million or 18.98% comparing 2017-18 to 2015-2016 due to the continued increase in property values. Expenses Total expenses increased from $99.2 million in 2015-16 to $102.8 million in 2016-17 and increased to $110.9 million in 2017-18. In 2017-18, total expenses increased by $8.1 million or 7.91% compared to 2016-17. Comparing 2017-18 to 2015-16, total expenses were $11.7 million or 11.78% higher. Increase from 2015-16 is mainly due to additional contributions to pension and OPEB UAAL, the implementation of GASB 75, and the pension and OPEB expense adjustments. Non-operating expense is mainly driven by debt service interest expense. DRAFT 6 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 114 of 288 Page 14 of 85 Total income before capital contributions went from $7.7 million in 2015-16, to $6.5 million in 2016-17, and $4.1 million in 2017-18. Total capital contributions in 2017-18 were $31.8 million compared to $26.6 million in 2016-17 and $22.3 million in 2015-16. This was mainly due to higher customer contributions SSC in 2017-18 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 $2.8 million or 8.53% when comparing 2017-18 to 2016-17 and increased $5.9 million or 19.77% when comparing 2017-18 to 2015-16. CAPITAL ASSETS Capital assets for fiscal years 2017-18, 2016-17 and 2015-16 totaled $652.4 million, $632.4 million, and $616.0 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, 2018, the District's investment in capital assets totaled $652.4 million, an increase of $20.0 million or 3.15% over the capital asset balance of $632.4 million at June 30, 2017. Capital assets increased by $36.4 million or 5.91% comparing 2017-18 to 2015-16. A comparison of the District's capital assets over the past three fiscal years is presented below: Table 3 - Capital Assets % Increase Fiscal Year Ended June 30 (Decrease) FY 17-18 FY 17-18 vs. vs. 2017-18 2016-17 2015-16 FY 16-17 FY 15-16 Land $ 17,320,570 $ 17,320,570 $ 17,320,570 0.00% 0.00% Sewage Collection System 37912471498 35115031806 341,4121320 7.89% 11.08% Contributed Sewer Lines 159,795,333 1573 791,719 154,863,632 1.27% 3.18% Outfall Sewers 1133713574 1133711574 111371,574 0.00% 0.00% Sewage Treatment Plant 34136753108 333,962,356 323,360,945 2.31% 5.66% Recycled Water Infrastructure 20,292,366 20,292,366 19,215,350 0.00% 5.60% Pumping Stations 5713271020 5712781141 5612701149 0.09% 1.88% Building s 4412381508 4412381508 4214121648 0.00% 4.30% Intangible Assets 439493507 439411707 4,936,407 0.16% 0.27% Furniture & Equipment 1338411424 1410121837 1216271569 -1.22% 9.61% Motor Vehicles 736951424 736141982 713781730 1.06% 4.29% Construction In Progress 35,820,635 33,388,571 24,480,982 7.28% 46.32% Subtotal 1109395749967 1,053,717,137 1501556509876 3.78% 7.67% Less Accumulated Depreciation 44111721625 421,2641506 39916451839 4.73% 10.39% Total Capital Assets (net of depreciation) $ 652,4025342 1 $ 632,4525631 1 $ 616,005,037 3.15% 5.91 The major reasons for the increase in capital assets, net of depreciation, of$20.0 million from 2016-17 to 2017-18 and $36.4 million from 2015-16 to 2017-18, are as follows: DRAFT 7 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 115 of 288 Page 15 of 85 • Sewer pipe ongoing renovations, upgrades, expansion, pumping station improvements, and contributed sewer lines increased by $29.8 million comparing 2017-18 to 2016-17 and $43.8 million comparing 2017-18 to 2015-16. • Treatment plant infrastructure renovations, upgrades, equipment, and improvements increased by $7.8 million comparing 2017-18 to 2016-17 and $18.3 million comparing 2017-18 to 2015-16. • All other asset categories, including construction in progress, increased by $2.3 million comparing 2017-18 to 2016-17 and increased by $14.0 million comparing 2017-18 to 2015-16. • Capital asset increases are offset by an increased subtraction of accumulated depreciation of $20.0 million comparing 2017-18 to 2016-17 and $41.6 million comparing 2017-18 to 2015-16 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 2017-18, 2016-17 and 2015-16 totaled $29.1 million, $31.7 million, and $34.2 million, respectively. As of June 30, 2018, the District's outstanding debt totaled $29.1 million, which is a decrease of$2.6 million or -8.17% over the debt balance of$31.7 million at June 30, 2017. Debt decreased by $5.1 million or -14.83% comparing 2017-18 to 2015-16. 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: Table 4 — Debt Outstanding Outstanding Balance - Fiscal Year Ended June 30 % Increase (Decrease) FY 16-17 FY 16-17 vs. vs. 2017-18 2016-17 2015-16 FY 15-16 FY 14-15 Revenue Bonds $ 29,095,000 $ 31,500,000 $ 33,800,000 -7.63% -13.92% Water Reclamation Loan - 1821377 3603134 -100.00% -100.00% Total Debt Service $ 2930953000 $ 3136823377 $ 3431603134 -8.17% -14.83%- See Note 6 in the audited financial statements. ECONOMIC AND OTHER FACTORS The State of California's economy continues to grow at a modest 2-3% and is currently operating at full employment. California unemployment rate is projected to be between 34% through 2020. Changes in property values and income tax regulations could potentially effect the property tax revenue in the near future. The federal tax reform has been targeted to increase business development which should continue to stimulate growth in the state and local economies. Federal and State economic challenges will continue into the future and could have a trickle-down effect on local government. DRAFT 8 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 116 of 288 Page 16 of 85 Items specifically impacting the District are: • Current and future legislation impacting public employee pensions is still being litigated, currently requiring higher employee contributions and lower pensions by eliminating spiking. • Changes to the healthcare providers in order to reduce operating costs. • The necessary replacement and upgrading of existing infrastructure. • Implementation of the Comprehensive Wastewater Master Plan. • 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 in the near future. 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 was able to refinance the 2009 debt in September 2018 to save a projected $8.2 million in interest costs through 2029. 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: Director of Finance & Administration Philip Leiber, Central Contra Costa Sanitary District, 5019 Imhoff Place, Martinez, CA 94553. DRAFT 9 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 117 of 288 Page 17 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF NET POSITION JUNE 30, 2018 AND 2017 ASSETS 2018 2017 CURRENT ASSETS Cash and cash equivalents(Note 2) $5711371987 $4113461327 Short term investments(Note 2) 3410001000 391000,000 Accounts receivable,net(Note 3) 22196100 19,965,896 Interest receivable 991384 141665 Parts and supplies 212451055 210891765 Prepaid expenses 215991758 31459,464 Total current assets 1191043,984 10518761117 NON-CURRENT ASSETS Restricted cash and cash equivalents(Notes I.F. and 2) 514971153 236,702 Restricted investments(Note 2) 418561450 41856,450 Assessment Districts receivable(Note 4) 11109,235 1,311,825 Net OPEB asset - 316521571 Capital assets: Nondepreciable(Note 5) 581090,712 5516501848 Depreciable,net of accumulated depreciation(Note 5) 594,311,630 57618011783 Total capital assets,net 65214021342 632,4521631 Total non-current assets 663,8651180 64215101179 TOTAL ASSETS 78219091164 74813861296 DEFERRED OUTFLOWS OF RESOURCES Pension related(Note 9) 21,503,021 29,0781203 OPEB related(Note 10) 301400 - Total Deferred Outflows of Resources 2115331421 2910781203 (Continued) See accompanying notes to financial statements DRAFT 10 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 118 of 288 Page 18 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF NET POSITION JUNE 30, 2018 AND 2017 LIABILITIES 2018 2017 CURRENT LIABILITIES Accounts payable and accrued expenses $916641738 $81908,133 Interest payable 534,330 558,380 Refunding Water Revenue Bonds-current portion(Note 6) 2148000 2,4051000 Water Reclamation Loan Contract-current portion(Note 6) - 1821377 Accrued compensated absences-current portion(Note 1.J.) 4641500 4571000 Provision for uninsured claims(Note 7) 8821230 8071079 Refundable deposits 4151832 4021362 Total current liabilities 14,441,630 13,7201331 NON-CURRENT LIABILITIES Refunding Water Revenue Bonds,noncurrent portion(Note 6) 2616151000 2910951000 Accrued compensated absences,noncurrent portion(Note 1.J.) 41181,377 4,113,131 Net pension liability(Note 9) 6318061000 8718471116 Net OPEB liability(Note 10) 4613501454 - Total non-current liabilities 14019521831 121,0551247 TOTAL LIABILITIES 155,3941461 13417751578 DEFERRED INFLOWS OF RESOURCES Pension related(Note 9) 2810761634 16,0511905 Total Deferred Inflows of Resources 28,0761634 1610511905 NET POSITION(Note 11) Net investment in capital assets 623,307,342 60017701254 Restricted for debt service 4,421,504 4,4491437 Unrestricted (61757,356) 2114171325 TOTAL NET POSITION $62019711490 $6261637,016 See accompanying notes to financial statements DRAFT 11 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 119 of 288 Page 19 of 85 This Page Left Intentionally Blank DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 120 of 288 Page 20 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30,2018 AND 2017 2018 2017 OPERATING REVENUES Sewer service charges(SSC) $75,8247)221 $73,13871235 Service charges-City of Concord(Note 8) 1419731623 1318511253 Other services charges 17,0781594 110297,500 Miscellaneous charges 619,997 606,453 Total operating revenues 9214961435 8816251441 OPERATING EXPENSES Sewage collection and pumping stations 157,9541881 1618267,922 Sewage treatment 2610501876 2516311809 Engineering 16,472,501 15,342,640 Recycled water 1710237)757 97071640 Administrative and general 277,5131001 2318817,179 Pension expense adjustments(Note 9) (4,441,205) (4,080,558) OPEB expense adjustments(Note 10) 5,545,563 - Depreciation(Note 5) 21715617)704 227)89271153 Total operating expenses 10916811078 10114641785 OPERATING(LOSSES) (17,184,643) (12,839,344) NONOPERATING REVENUES(EXPENSES) Taxes 17716507)741 167)31871874 Permit and inspection fees 27,5921137 216007,888 Interest earnings 1,223,349 7611838 Interest expense (1,230,680) (1,313,398) Other income(expense),net 1710757)838 96671244 Total nonoperating revenues(expenses),net 21,311,385 1913341446 INCOME BEFORE CAPITAL CONTRIBUTIONS 471126,742 6,49571102 CAPITAL CONTRIBUTIONS City of Concord contributions to capital costs(Note 8) 6713647)725 4747671961 Customer contributions to capital cost(SSC) 1410601789 12,151,144 Contributed sewer lines 27,0031614 218997,042 Capital contributions-connection fees 9,331,420 7,044,340 Total capital contributions 317,7601548 2615717,487 CHANGE IN NET POSITION 351887,290 33,066,589 NET POSITION,BEGINNING OF YEAR 62616371016 59315701427 Prior period adjustment for implementation of GASB Statement 75(Note 1113) (41)552,816) - NET POSITION,END OF YEAR $62019711490 $62616371016 See accompanying notes to financial statements DRAFT 13 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 121 of 288 Page 21 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30,2018 AND 2017 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $8917031121 $87188207 Payments to suppliers (41,555,023) (40,2331129) Payments to employees and related benefits (41,035,510) (42,6461197) Net cash provided(used)by operating activities 711121588 502,761 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Receipt of taxes 17,650,741 16,318,874 Inspection/permit fees and other non-operating income 316671975 3,567,132 Cash flows from noncapital financing activities 21,318,716 190606 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 22,429,128 19,527,147 Connection fees 9,331,420 7,044,340 Acquisition and construction of capital assets (41,511,415) (39,5951091) Proceeds from disposal of capital assets - 255,344 Interest paid on long-term debt (1,254,730) (1,347,398) Principal payments on long-term debt (2,587,377) (2,477,757) Cash flows(used for)capital and related financing activities (13,592,974) (16,5931415) CASH FLOWS FROM INVESTING ACTIVITIES Redemption of investments 72,075,151 43071079 Acquisition of investments (67,000,000) (44,000,000) Interest received 1,138,630 92800 Cash flows from(used for)investing activities 61213,781 735,959 NET INCREASE(DECREASE)IN CASH 21,052,111 9,031,311 Cash,beginning of year 41,583,029 32,5511718 Cash,end of year $62,635,140 $41,583,029 (Continued) See accompanying notes to financial statements DRAFT 14 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 122 of 288 Page 22 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30,2018 AND 2017 2018 2017 Reconciliation of operating(loss)to net cash provided by operating activities: Operating(losses) ($17,184,643) ($12,839,344) Adjustments to reconcile operating losses to cash flows from operating activities: Depreciation 21,561,704 22,892,153 Changes in assets and liabilities: Receivables,net (2,793,314) (743,354) Parts and supplies (155,290) 56,407 Prepaid expenses 859,706 (673,057) Net OPEB asset 3,652,571 (2,544,327) Accounts payable and accrued expenses 75605 2,733,908 Accrued payroll and related expenses 751746 92,589 Refundable deposits 131470 1081344 Net pension liability (4,441,205) (4,080,558) Net OPEB liability 4,767,238 - Net cash provided(used)by operating activities $7,112,588 $5,002,761 SCHEDULE OF NON CASH ACTIVITY Change in fair value of investments $1,138,630 $928,880 Capital asset donations 210031614 2,899,052 Total non cash activity $311421244 $3,827,932 CASH AND CASH EQUIVALENTS,AS PRESENTED ON STATEMENT OF NET POSITION: Unrestricted cash and cash equivalents $5711371987 $411346,327 Restricted cash and cash equivalents 5,497,153 236,702 Total cash and cash equivalents at end of year $62,635,140 $41,583,029 See accompanying notes to financial statements DRAFT 15 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 123 of 288 Page 23 of 85 CENTRAL CONTRA COUNTY SANITARY DISTRICT STATEMENTS OF FIDUCIARY NET POSITION FIDUCIARY FUND OTHER POST-EMPLOYMENT BENEFIT TRUST FUND JUNE 30,2018 AND 2017 2018 2017 ASSETS Investments with Trustees: Cash equivalents(Note 2) $116351346 $111371442 Equity securities 151961,335 26,5641682 Equity mutual funds 4119991998 2416261243 Total investments 5915961679 52,328,367 Total Assets $5915961679 $52,328,367 NET POSITION Net position held in trust for OPEB benefits $591596,679 $52,3285367 See accompanying notes to basic financial statements DRAFT 16 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 124 of 288 Page 24 of 85 CENTRAL CONTRA COUNTY SANITARY DISTRICT STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUND OTHER POST-EMPLOYMENT BENEFIT TRUST FUND FOR THE YEARS ENDED JUNE 30,2018 AND 2017 2018 2017 ADDITIONS Contributions: District $319461500 $510281700 Total contributions 319461500 510281700 Investment income: Net appreciation in fair value of investments 21500,297 3021694 Interest,dividends and other 9591972 9321882 Less: investment expenses (138,457) (139,063) Total net investment income 313211812 4,596,513 Total additions 712681312 916251213 Change in net position 712681312 9,625,213 NET POSITION Beginning of year 521328,367 42,7031154 End of year $591596,679 $52,3281367 See accompanying notes to basic financial statements DRAFT 17 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 125 of 288 Page 25 of 85 This Page Left Intentionally Blank DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 126 of 288 Page 26 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 1—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. B. Basis of Accounting 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. DRAFT 19 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 127 of 288 Page 27 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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. DRAFT 20 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 128 of 288 Page 28 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The District reports its Other Post-Employment Benefit Trust Fund as a fiduciary fund. The Fund consists of the Public Agencies Post-Retirement Health Care Plan,which was established in 2005, amended and restated in 2007. The fundamental purpose of the trust is to fund post- employment benefits (other than pension benefits), such as medical, dental, vision, life insurance, long-term care and similar benefits. C. Investments Investments held at June 30, 2018 and 2017 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. F. 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. DRAFT 21 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 129 of 288 Page 29 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Parts and Supplies Parts and supplies are valued at average cost and are used primarily for internal purposes. H. Property,Plant, and Equipment Purchased capital assets are stated at historical cost. Capital assets contributed to the District are reported at acquisition value. 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 taxes for 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 bills 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 11/2 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. DRAFT 22 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 130 of 288 Page 30 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 1—DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. The changes in compensated absences were as follows for fiscal years ended June 30: 2018 2017 Beginning Balance $4,5701131 $4,4771542 Additions 3261791 6271663 Payments (251,045) (535,074) Ending Balance $4,6451877 $4,5701131 Current Portion $4641500 $4571000 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. DRAFT 23 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 131 of 288 Page 31 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 1–DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) M. Implementation of Governmental Accounting Standards Board(GASB)Pronouncements GASB Statement No. 75 Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for post-employment benefits other than pensions (other post-employment 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 post-employment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This statement required the District to make a prior period adjustment. As a result, the beginning net position was reduced by $41,552,816. GASB Statement No. 81 –Irrevocable Split-Interest Agreements. This Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. The implementation of this pronouncement did not have a financial impact on the District. GASB Statement No. 85 – Omnibus. The objective of this Statement is to address practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits [OPEB]). This statement was implemented by the District in the current year. See Note 10 for additional information. GASB Statement No. 86 – Certain Debt Extinguishment Issues. The primary objective of this Statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources—resources other than the proceeds of refunding debt—are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The implementation of this pronouncement did not have a financial impact on the District. DRAFT 24 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 132 of 288 Page 32 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 2—CASH AND INVESTMENTS A. Summary of Cash and Investments Cash and investments as of June 30, are classified in the accompanying financial statements as follows: 2018 2017 Cash and cash equivalents $5711371987 $41,346,327 Short term investments 3410001000 3910001000 Restricted cash and cash equivalents 1001000 2361702 Restricted investments 418561450 418561450 Total District Cash and Investments 9610941437 8514391479 Cash and investments held with Pension trust 513971153 Cash and investments held with OPEB trust 5915961679 52,328,367 Total Cash and Investments $16110881269 $13717671846 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. DRAFT 25 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 133 of 288 Page 33 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 2—CASH AND INVESTMENTS (Continued) C. Genual Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: District District California State Limits Policy Policy Maximum Maximum Maximum Maximum Percentage Minimum Remaining Percentage Investment of Portfolio Credit Authorized Investment Type 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% N/A Money Market Funds N/A 20% 10% 10% A Negotiable Certificates of Deposit 5 years 30% 30% 30% AA Banker's Acceptances 180 40% 40% 5% N/A Commercial Paper(1) 270 25% 10% 5% A-1 Medium Term Notes 5 years 30% 5% 5% AA Collateralized Certificates of Deposit(2) 5 years 30% None 30% Aaa Supranationals 5 years 30% 5% 5% AA County Pooled Investment Funds N/A None None 100% N/A Local Agency Investment Fund(LAIF) N/A None $65 million 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. DRAFT 26 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 134 of 288 Page 34 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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, 2018: 2018 Investment Type Level 2 Total Investments Reported at Fair Value: U.S.Federal Agency Securities-FHLB $190000 $190000 Commercial Paper-General Electric 7,50000 7,50000 Commercial Paper-Mitsubishi UFGUnion Bank 2,50000 2,50000 Commercial Paper-Chevron 50000 50000 Total Investments $340000 340000 Investments Measured at Cost: Certificates of Deposit-Non-Negotiable 4,856450 Investments Exempt from Fair Value Hierarchy: California Local Agency Investment Fund 520000 Total Investments 9018561450 Cash and investments held with Pension trust 513971153 Cash and investments held with OPEB trust 59,596,679 Cash in bank 512371987 Total Cash and Investments $16110881269 U.S. Federal Agency Securities and Commercial Paper totaling $19 million and $15 million, 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. DRAFT 27 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 135 of 288 Page 35 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 2—CASH AND INVESTMENTS (Continued) The following is a summary of the fair value hierarchy of the fair value of investments of the District as of June 30, 2017: 2017 Investment Type Level 1 Level Total Investments Reported at Fair Value: U.S.Federal Agency Securities-FHLB $20,000,000 $20,000,000 U.S.Treasury Notes $15,000,000 15,000,000 Commercial Paper-BNP Paribas 4,000,000 4,000,000 Total Investments $15,000)000 $24,000,000 39,000,000 Investments Reported at Cost: Certificates of Deposit-Non-Negotiable 4,856,450 Investments Uncategorized: California Local Agency Investment Fund 30,200,000 Total Investments 74,056,450 Cash and investments held with OPEB trust 52,328,367 Cash in bank 11,383,029 Total Cash and Investments $137,767,846 U.S. Treasury Notes totaling $15 million, classified in Level 1 of the fair value hierarchy are valued using a quoted price in an active market for an identical asset. U.S. Federal Agency Securities and Commercial Paper totaling $20 million and $4 million, 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. E. 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. DRAFT 28 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 136 of 288 Page 36 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 2—CASH AND INVESTMENTS (Continued) 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: 2018 12 Months More than Investment Type or less 12 Months Maturity Certificates of Deposit-Debt Reserve $4,856,450 4/28/20 Commercial Paper-General Electric $2,500,000 7/25/18 Commercial Paper-Mitsubishi UFG Union Bank 2,500,000 7/27/18 Commercial Paper-General Electric 5,000,000 9/6/18 Commercial Paper-Chevron 5,000,000 9/6/18 U.S Federal Agency Securities-FHLB 4,000,000 7/18/18 U.S Federal Agency Securities-FHLB 5,000,000 7/25/18 U.S Federal Agency Securities-FHLB 5,000,000 12/5/18 U.S Federal Agency Securities-FHLB 5,000,000 5/25/19 California Local Agency Investment Fund 52,000,000 Total Investments 86,000,000 4,856,450 Cash and investments held with Pension trust 5,397,153 Cash and investments held with OPEB trust 59,596,679 Cash in bank 5,237,987 Total Cash and Investments $156,231,819 $4,856,450 2017 12 Months More than Investment Type or less 12 Months Maturity Certificates of Deposit-Debt Reserve $4,856,450 4/28/20 Commercial Paper-BNP Paribas New York $4,000,000 7/19/17 U.S.Treasury Notes 15,000,000 12/7/17 U.S Federal Agency Securities-FHLB 20,000,000 7/20/17 California Local Agency Investment Fund 30,200,000 Not applicable Total Investments 69,200,000 4,856,450 Cash and investments held with OPEB trust 52,328,367 Cash in bank 11,383,029 Total Cash and Investments $132,911,396 $4,856,450 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 as provided by Moody's investment rating system, of which a P -1 rating is the top rating for short term investments. DRAFT 29 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 137 of 288 Page 37 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 2—CASH AND INVESTMENTS (Continued) Totals Investment Type 2018 2017 Rated P-1: U.S.Federal Agency Securities-FHLB $19001000 $20,000,000 Commercial Paper-General Electric 7,50000 Commercial Paper-Mitsubishi UFGUnion Bank 2,50000 Commercial Paper-Chevron 50000 Commercial Paper-BNP Paribas New York 4100000 Total Rated Investments 340000 240000 Not rated: Certificates of Deposit-non-negotiable 4,856450 41856450 California Local Agency Investment Fund 520000 30,20000 U.S.Treasury Notes 150000 Cash and investments held with Pension trust 5,397,153 Cash and investments held with OPEB trust 59,596,679 52,328,367 Cash in Bank 5,237,987 11,383,029 Total Cash and Investments $16108,269 $1371767,846 G. Concentration of Credit Risk 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, 2018 and 2017,these investments matured in an average of 193 and 194 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. DRAFT 30 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 138 of 288 Page 38 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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: 2018 2017 City of Concord(see Note 8) $21,338,348 $18,328,214 Household Hazardous Waste Partners 821,874 75306 All Other 801,578 8831996 Total Accounts Receivable $22,9611800 $19,9651896 NOTE 4—ASSESSMENT DISTRICTS RECEIVABLE 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, 2018 and 2017 was $162,781 and $217,778, respectively. The District also established the Alhambra Valley Assessment District (AVAD) to provide 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, 2018 and 2017 was $946,454 and$1,094,047, respectively. The total receivable balance at June 3 0, 2018 and 2017 for CAD and AVAD was $1,109,23 5 and $1,311,825, respectively, and is shown as a non-current asset on the Statement of Net Position. DRAFT 31 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 139 of 288 Page 39 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 5—CAPITAL ASSETS Property, plant and equipment, and construction in progress are summarized below for the year ended June 30, 2018: Balance at Transfers& Balance at June 30,2017 Additions Retirements Adjustments June 30,2018 Capital assets not being depreciated: Land $17,320,570 $17,320,570 Easements(intangible) 4,941,707 $7,800 4,949,507 Construction in Progress 33,388,571 $39,507,801 (37,075,737) 35,820,635 Total nondepreciated assets 55,650,848 39,507,801 (37,067,937) 58,090,712 Capital assets being depreciated: Sewage collection system 351,503,806 ($364,004) 28,107,696 379,247,498 Contributed sewer lines 157,791,719 2,003,614 159,795,333 Outfall sewers 11,371,574 11,371,574 Sewage treatment plant 333,962,356 7,712,752 341,675,108 Recycled water infrastructure 20,292,366 20,292,366 Pumping stations 57,278,141 48,879 57,327,020 Buildings 44,238,508 44,238,508 Furniture and equipment 14,012,837 (1,264,023) 1,092,610 13,841,424 Motor vehicles 7,614,982 (25,558) 106,000 7,695,424 Total depreciated assets 998,066,289 2,003,614 (1,653,585) 37,067,937 1,035,484,255 Less accumulated depreciation: Sewage collection system 68,942,762 4,947,051 (364,004) 73,525,809 Contributed sewer lines 59,361,001 2,130,488 61,491,489 Outfall sewers 3,616,981 151,395 3,768,376 Sewage treatment plant 220,382,147 8,427,628 228,809,775 Recycled water infrastructure 8,866,352 813,973 9,680,325 Pumping stations 33,104,637 2,183,806 35,288,443 Buildings 12,876,506 1,278,155 14,154,661 Furniture and equipment 9,260,262 1,239,776 (1,264,023) 9,236,015 Motor vehicles 4,853,858 389,432 (25,558) 5,217,732 Total accumulated depreciation 421,264,506 21,561,704 (1,653,585) 441,172,625 Total capital assets being depreciated,net 576,801,783 (19,558,090) 37,067,937 594,311,630 Capital assets,net $632,452,631 $19,949,711 $652,402,342 DRAFT 32 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 140 of 288 Page 40 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 5—CAPITAL ASSETS (Continued) Property, plant and equipment, and construction in progress are summarized below for the year ended June 30, 2017: Balance at Transfers& Balance at June 30,2016 Additions Retirements Adjustments June 30,2017 Capital assets not being depreciated: Land $17,320,570 $17,320,570 Easements(intangible) 4,936,407 $5,300 4,941,707 Construction in Progress 24,480,982 $36,696,049 ($255,344) (27,533,116) 33,388,571 Total nondepreciated assets 46,737,959 36,696,049 (255,344) (27,527,816) 55,650,848 Capital assets being depreciated: Sewage collection system 341,412,320 (335,000) 10,426,486 351,503,806 Contributed sewer lines 154,863,632 2,899,042 (5,440) 34,485 157,791,719 Outfall sewers 11,371,574 11,371,574 Sewage treatment plant 323,360,945 (550,000) 11,151,411 333,962,356 Recycled water infrastructure 19,215,350 1,077,016 20,292,366 Pumping stations 56,270,149 1,007,992 57,278,141 Buildings 42,412,648 1,825,860 44,238,508 Furniture and equipment 12,627,569 (159,988) 1,545,256 14,012,837 Motor vehicles 7,378,730 (223,058) 459,310 7,614,982 Total depreciated assets 9681912,917 2,899,042 (1,273,486) 27,527,816 998,066,289 Less accumulated depreciation: Sewage collection system 64,587,611 4,690,151 (335,000) 68,942,762 Contributed sewer lines 57,268,867 2,097,574 (5,440) 59,361,001 Outfall sewers 3,465,586 151,395 3,616,981 Sewage treatment plant 210,866,708 10,065,439 (550,000) 220,382,147 Recycled water infrastructure 8,060,811 805,541 8,866,352 Pumping stations 30,884,104 2,220,533 33,104,637 Buildings 11,617,825 1,258,681 12,876,506 Furniture and equipment 8,188,890 1,231,360 (159,988) 9,260,262 Motor vehicles 4,705,437 371,479 (223,058) 4,853,858 Total accumulated depreciation 399,645,839 22,892,153 (1,273,486) 421,264,506 Total capital assets being depreciated,net 569,267,078 (19,993,111) 27,527,816 576,801,783 Capital assets,net $616,005,037 $16,702,938 ($255,344) $632,452,631 DRAFT 33 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 141 of 288 Page 41 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 6—LONG-TERM DEBT A. Summary of Activity The changes in the District's long-term obligations during the year ended June 30, 2018 consisted of the following: Original Amount Issue Balance Balance due within Amount June 30,2017 Retirements June'30,2018 one year 2009 Series A Certificates of Participation Wastewater Revenue 3 % due 9/1/2029 $1965000 $1965000 $1965000 , , , , , , , 2009 Series B Certificates of Participation Wastewater Revenue .40-3.79%,due 9/1/2029 3414901000 11186500 $2140500 9,46000 $2,4801000 1999 State Water Resources Control Board Water Reclamation Loan 2.60%,due 3/31/2018 219161872 182,377 182,377 Total Long-Term Debt 311682,377 $21587,377 29,09500 $2,4801000 Less Current Portion (21587,377) (2,480,000) Long Term Portion $29109500 $26,61500 The changes in the District's long-term obligations during the year ended June 30, 2017 consisted of the following: Original Amount Issue Balance Balance due within Amount June 30,2016 Retirements June 30,2017 one year 2009 Series A Certificates of Participation Wastewater Revenue 3.45-3.78%,due 9/1/2029 $1916351000 $1916351000 $1916351000 2009 Series B Certificates of Participation Wastewater Revenue .40-3.79%,due 9/1/2029 34,49000 14,165,000 $2,3001000 11051000 $2,4051000 1999 State Water Resources Control Board Water Reclamation Loan 2.60%,due 3/31/2018 219161872 3601134 1771757 1821377 1821377 Total Long-Term Debt 34,160,134 $21477,757 311682,377 $21587,377 Less current portion (2,477,756) (2,587,377) $31,682,378 $29,09500 DRAFT 34 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 142 of 288 Page 42 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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 2019 $1,190,840 $2,480,000 $329,483 $ 2,480,000 $1,520,323 (416,794.00) $3,583,529 2020 1,190,840 2,580,000 226,950 2,580,000 1,417,790 (416,794) 3,580,996 2021 $1,660,000 1,118,907 1,025,000 175,583 2,685,000 1,294,490 (391,617) 3,587,873 2022 1,715,000 1,028,060 1,070,000 124,167 2,785,000 1,152,227 (359,821) 3,577,406 2023 1,775,000 931,413 1,125,000 68,375 2,900,000 999,788 (325,995) 3,573,793 2024-2028 9,920,000 2,931,816 1,180,000 9,833 11,100,000 2,941,649 (1,026,135) 13,015,514 2029-2030 4,565,000 202,450 4,565,000 202,450 (70,858) 4,696,592 Total $19,635,000 $8,594,326 $9,460,000 $934,391 $29,095,000 $9,528,717 ($3,008,014) $35,615,703 As part of the Federal budget sequestration, the Internal Revenue Service (IRS) has announced that, as of March 1, 2018, credit payments claimed by issuers of certain tax credit bonds, including Build America Bonds,may be subject to a reduction of 6.6%. 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 $19,6315,000 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. The District must repay advances from the Board over a 20-year period beginning March 31, 1999,with an interest rate of 2.60%. As of June 30, 2018 the last payment consisting of$182,377 in principal and$4,742 of interest for a total of $187,119, was paid off. DRAFT 35 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 143 of 288 Page 43 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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: Self Insured Deductible Per Type of Coverage Insurer Limits Occurrence All-Risk Property: Special Form Property Alliant Property Insurance Program $554,248,174 $250,000 Crime National Union Fire Ins.Co. 1,000,000 2,500 Liability: Fiduciary Liability Insurance RLI Insurance Company 1,000,000 - Pollution-General Liability Aspen Specialty Ins.Co. 1,00OW 500 Commercial Environment Excess Aspen Specialty Ins.Co. 100000 5000 Special Excess Liability Coverage-ANML Security National Ins.Co. - 50000 Excess Following Form Liability Policy Allied World Assurance Company(U.S),Inc. 5,000,000 100000 Employment Practice Liability Hiscox Insurance Co.(Bermuda)Ltd. 1,00000 3500 Workers'Compensation: Excess Workers'Compensation Safety National Casualty Corporation Statutory - DRAFT 36 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 144 of 288 Page 44 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 7—RISK MANAGEMENT (Continued) 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, 2018 to be $882,230. 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, 2018, 2017, and 2016, settlements have not exceeded insurance coverage. Changes in the District's estimated liability for retained losses are summarized as follows as of June 30: 2018 2017 2016 Beginning balance $807,079 $1,000,000 $1,000,000 Provisions for claims incurred in the current year and changes in the liability for retained- losses incurred in prior years 243,897 (127,214) 888,745 Claims paid and/or adjustments (168,746) (65,707) (888,745) Ending balance $882,230 $807,079 $1,000,000 NOTE 8—AGREEMENT WITH THE CITY OF CONCORD 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 $14,973,623 and $6,364,725 respectively, for the year ended June 30, 2018, for a total of$21,338,348. Service charges and contributions to capital costs from the City totaled $13,581,253 and $4,476,961, respectively, for the year ended June 30, 2017, for a total of$18,058,214. DRAFT 37 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 145 of 288 Page 45 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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, 2017. 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 94520-5728 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 30,2018,are summarized as follows: NEseellaneous On or after Membership 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 11.85% 11.70% Required employer contribution rates 53.39% 48.01% 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 part 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, 2018, the contributions to the Plan were $17,113,394. DRAFT 38 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 146 of 288 Page 46 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 9—PENSION PLANS (Continued) Pension Liabilities,Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions-As of June 30, 2018,the District reported net pension liabilities for its proportionate share of the net pension liability of the Plan as follows: Proportionate Share of Net Pension Liability 2018 2017 Miscellaneous $6318061000 $8718471116 Total Net Pension Liability $6318061000 $8718471116 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, 2017, 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, 2016 rolled forward to December 31, 2017 using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension 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, 2016, 2017, and 2018 were as follows: Proportionate share of the Plan Fiduciary Net Reporting Date for Proportion of the Proportionate share Net Pension Liability as a Pension as a Employer under GASB 68 Net Pension of Net Pension Covered percentage of its covered percentage of the Total as of December 31 Liability Liability Payroll payroll Pension Liability 2016 6.088% $91174608 $29,0611743 315.70% 74.14% 2017 6.273% 8718471116 31,584,169 278.14% 76.44% 2018 7.863% 6318061000 33,3061938 191.57% 83.58% For the year ended June 30, 2018, the District recognized negative pension expense of $414411205. At June 30, 2018, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $8,5331670 Differences between expected and actual experience $612901561 Changes of assumptions or other inputs 0241151 782 Change in proportion and differences between employer contributions and proportionate share of contributions 1110451200 513341713 Net difference between projected and actual earnings on pension plan investments 1614501578 Total $21,5031021 $28,0761634 DRAFT 39 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 147 of 288 Page 47 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 9—PENSION PLANS (Continued) At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $904,848 Differences between expected and actual experience $7,205,850 Changes of assumptions or other inputs 2,541,979 1,661 Change in proportion and differences between employer contributions and proportionate share of contributions 2,0231895 8,8441394 Net difference between projected and actual earnings on pension plan investments 15,5071481 Total $29,078,203 $16,051,905 The $8,533,670 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, 2019. 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 2019 ($3,599,296) 2020 (208,682) 2021 (51236,162) 2022 (6,0631143) DRAFT 40 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 148 of 288 Page 48 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 9—PENSION PLANS (Continued) Actuarial Assumptions — The total pension liabilities in the December 31, 2016 actuarial valuations were determined using the following actuarial assumptions: Miscellaneous Valuation Date December 31,2016 Measurement Date December 31,2017 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 Discount Rate — The discount rate used to measure the total pension liability was 7.0% 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, 2017. DRAFT 41 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 149 of 288 Page 49 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 9—PENSION PLANS (Continued) The long-term expected rate of return on pension plan investments was determined in 2018 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: Long-Term Target Expected Real Asset Class 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% 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: Miscellaneous 1%Decrease 6.00% Net Pension Liability $1161617,009 Current Discount Rate 7.00% Net Pension Liability $6318061000 1%Increase 8.00% Net Pension Liability $20,709,123 DRAFT 42 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 150 of 288 Page 50 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 9—PENSION PLANS (Continued) 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 $2,034,759 and $1,964,899 to the Plan during the years ended June 30, 2018 and 2017,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. NOTE 10—POST EMPLOYMENT HEALTH CARE BENEFITS A. General Information about the District's Other Post Employment Benefit(OPEB)Plan Plan Description — The District's defined benefit post employment healthcare plan (DPHP) provides medical benefits to eligible retired District employees and beneficiaries. DPHP is part of the Public Agency portion of the Public Agency Retirement System (PARS), an agent multiple- employer plan through PARS, which acts as a common investment agent for participating public employees within the State of California. The District is the plan administrator. A menu of benefit provisions as well as other requirements is established by the State statute with the Public Employees' Retirement Law. DPHP 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 Karman Ave., Suite 100, Newport Beach, CA 92660, by calling 1(800) 540-6369, or by emailing info@pars.org. DRAFT 43 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 151 of 288 Page 51 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 10—POST EMPLOYMENT HEALTH CARE BENEFITS (Continued) Benefit Terms — Post-employment healthcare and similar benefit allowances are provided to eligible employees who retire from the District or to their surviving spouses. Employees Covered by Benefit Terms—Membership in the plan consisted of the following at the measurement date of June 30,2018 June 30,2018: Active employees 274 Inactive employees or beneficiaries currently receiving benefit payments 278 Inactive employees entitled to but not yet receiving benefit payments 0 Total 552 B. Net OPER Liability Actuarial Methods and Assumptions— The District's net OPEB liability was measured as of June 30, 2018 and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation dated July 1, 2016 that was rolled forward using standard update procedures to determine the $105,947,197 total OPEB liability as of June 30, 2018, based on the following actuarial methods and assumptions: Actuarial Assumptions Valuation Date July 01,2016 Measurement Date June 30,2018 Actuarial Cost Method Entry Age Normal,Level Dollar Actuarial Assumptions: Contribution and Funding District contributes full ADC less benefit payments to PARS trust Benefits payments paid outside the trust PARS portfolio:Moderate Long-Term Expected Rate of Return on Investments 6.25%at June 30,2018,net of investment expenses Discount Rate 6.25%at June 305 2018 6.25%at June 30,2017 Crossover analysis showed benefit payments always fully funded by plan assets General Inflation 3.00%per annum Mortality,Disability,Termination, Retirement CCCERA 2012-2014 Experience Study Mortality Improvement Mortality improvement projected generationally with Scale MP-15 Medical Trend Pre-Medicare-7.0%for 2017/18,decreasing to 5.0%for 2021/22 and later Medicare-7.2%for 2017/18,,decreasing to 5.0%for 2021/22 and later Dental Trend 4.0% Healthcare Participation for future Retirees Currently Covered:100% Currently Waived Coverage:95% Self-Pay Board Members:50% DRAFT 44 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 152 of 288 Page 52 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 10—POST EMPLOYMENT HEALTH CARE BENEFITS (Continued) The underlying mortality assumptions were based on the mortality improvement projected generationally with Scale MP-15 and all other actuarial assumptions used in the July 1, 2016 valuation were based on the results of a July 1, 2016 actuarial experience study for the period of July 1, 2017 to June 30, 2018 The long-term expected rate of return on OPEB plan investments was determined using a building- block method in which expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Target Expected Real Asset Class Component Allocation Rate of Return Global Equity 48.0% 4.82% Fixed Income 45.0% 1.47% REIT's 2.0% 3.76% Cash 5.0% 0.06% Total 100.0% Discount Rate — The discount rate used to measure the total OPEB liability was 6.25%. The projection of cash flows used to determine the discount rate assumed that District contributions will be made at rates equal to the actuarially determined contribution rates.Based on those assumptions, the OPEB plan's fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. DRAFT 45 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 153 of 288 Page 53 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 10—POST EMPLOYMENT HEALTH CARE BENEFITS(Continued) C. Changes in Net OPER Liability The changes in the net OPEB liability follows: Increase (Decrease) Total OPEB Plan Fiduciary Net OPEB Liability Net Position Liability/(As s e t) (a) (b) (a)-(b) Balance at 6/30/17 $102,75208 $52,328,367 $50424,241 Changes Recognized for the Measurement Period: Service Cost 2,370,276 2,370,276 Interest on the total OPEB liability 6,396,063 6,396,063 Changes in benefit terms Differences between expected and actual experience Changes of assumptions Contributions from the employer 9,649,750 (9,649,750) Contributions from the employee Net investment income 3,354,822 (3,354,822) Administrative expenses (5,571,750) (5,571,750) Benefit payments (164,446) 164446 Net changes 3,194,589 7>8n376 (4,073,787) Balance at 6/30/18 $105,947,197 $59,596,743 $46,350454 D. Sensitivity of the Net OPER Liability to Changes in the Discount Rate and Healthcare Cost Trend Rates The following presents the net OPEB liability of the District, as well as what the District's net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.25%)or 1-percentage-point higher(7.25%)than the current discount rate: Net OPEB Liability/(Asset) Discount Rate -1% Discount Rate Discount Rate +1% (5.25 %) (6.25%) (7.25%) $59,893,914 $4613501454 $35,19904 The following presents the net OPEB liability of the District, as well as what the District's net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1-percentage- point lower or 1-percentage-point higher than the current healthcare cost trend rates: Net OPEB Liability/(Asset) Current Healthcare Cost 1% Decrease Trend Rates 1% Increase $331053,134 $461350,454 $621640,542 DRAFT 46 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 154 of 288 Page 54 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 10—POST EMPLOYMENT HEALTH CARE BENEFITS (Continued) E. OPER Expense and Deferred Outflows/Inflows of Resources Related to OPER For the year ended June 30, 2018, the District recognized OPEB expense of$5,545,563. At June 301 2018,the District reported deferred outflows and inflows of resources related to OPEB from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Employer contributions made subsequent to the measurement date Differences between actual and expected experience 0 0 Changes of assumptions 0 0 Net differences between projected and actual earnings on plan investments $30,400 0 Total $30,400 $0 $30,400 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the OPEB liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as part of OPEB expense as follows: Year Annual Ended June 30 Amortization 2019 $71600 2020 7,600 2021 7,600 2022 7,600 $30,400 OPER Liabilities, OPER Expenses and Deferred Outflows/Inflows of Resources Related to OPER - For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the District's OPEB Plan and additions to/deductions from the OPEB Plan's fiduciary net position have been determined on the same basis as they are reported by the District's defined benefit post employment healthcare plan (DPHP). For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. F. Annual Money-Weighted Rate of Return on Investments For the years ended June 30, 2018 and 2017, the annual money-weighted rate of return on investments,net of investment expense,were 5.96% and 6.25%. The money-weighted rate of return expresses investment performance net of investment expense, adjusted for the changing amounts actually invested. DRAFT 47 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 155 of 288 Page 55 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 NOTE 11—NET POSITION A. Net Position Net Position is the excess of all the District's assets and deferred outflows of resources over all its liabilities and deferred inflows of resources, 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. B. Net Position Restatements Management adopted the provisions of the following Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (OPEB), which became effective during the year ended June 30, 2018. In June 2015, GASB issued Statement No. 75 and the intention of this Statement is to improve the usefulness of information for decisions made by the various users of the financial reports of governments whose employees — both active employees and inactive employees — are provided with postemployment benefits other than pensions by requiring recognition of the entire net OPEB liability and a more comprehensive measure of OPEB expense. The implementation of the Statement required the District to make prior period adjustments. As a result,the beginning net position was restated and reduced by $41,552,816. See Note 10. NOTE 12—LEASE COMMITMENTS The District leases various facilities and equipment under operating leases. Following is a summary of operating lease commitments as of June 30, 2018: Fis cal Year Office Ending Equipment Facilities Total 2019 $3421106 $1301873 $4721979 Total $342,106 $1301873 $472,979 Total rental expense for the fiscal years ended June 30, 2018 and 2017 was $313,492 and $168,336 respectively. DRAFT 48 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 156 of 288 Page 56 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS For the Years Ended June 30,2018 and 2017 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$17,997,738 and $16,006,727 as of June 30, 2018 and 2017,respectively. NOTE 14—SUBSEQUENT EVENTS On September 13, 2018 the District issued two Wastewater Revenue Refunding Bonds (Bonds). The 2018 Wastewater Revenue Refunding Bonds, Series A and B (federally taxable)were issued for $15,1315,000 and $4,315,000, respectively. The Bonds were issued to defease and refund all of the District's outstanding obligations with respect to the $19,635,000 original principal amount of 2009 Wastewater Revenue Certificates of Participation, Series A and all of the District's outstanding obligations with respect to the $34,490,000 original principal amount of 2009 Wastewater Revenue Certificates of Participation, Series B, and pay costs issuing the Bonds. The two bonds total $19,450,000 and are secured by a pledge of tax and net revenues of the wastewater system. Principal payments begin annually on September 1, 2020 and 2019 for the Series A and B Bonds, respectively, with semi-annual interest payments due on September 1 and March 1 of each year. Yields range from 1.396% to 2.34% and 2.62% to 3.12% for the Series A and Series B Bonds, respectively. DRAFT 49 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 157 of 288 Page 57 of 85 This Page Left Intentionally Blank DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 158 of 288 Page 58 of 85 REQUIRED SUPPLEMENTARY INFORMATION DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 159 of 288 Page 59 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT C o s t-Sharing M ultiple E mploye r D e fine d B e ne fit Re tire me nt Plan As of fis cal ye ar a nde d June 30,2018 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS Last 10 Ye ars* 2018 2017 2016 2015 Net Change in Total Pension Liability Service Cost $16,824,515 $12,802,725 $11,744,271 $14,396,402 Interest on the Total Pension Liability 48,499,837 37,390,012 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 2,760,509 327,813 (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 (515,890) (275,839) (836,604) (2,988,813) Expensed portion of current-period changes of assumptions or other inputs 972,205 (1,231) Member contributions (7,646,322) (5,608,003) (5,196,358) (5,860,025) Projected earnings on plan investments (40,879,748) (30,774,476) (30,472,528) (34,980,271) Expensed portion of current-period differences between actual and projected earnings on plan investments (7,365,020) (83,909) 5,198,286 (200,059) Administrative expense 724,963 536,021 494,025 522,670 Other 96,447 (563,858) 40,685 Recognition of beginning of year deferred outflows of resources as pension expense 8,034,476 6,402,259 Recognition of beginning of year deferred inflows ofresources as pension expense (4,917,635) (3,558,862) (2,593,424) Net amortization of defen-ed amounts from changes in proportion and differences between employer's contributions and proportionate share of contributions (2,648,365) (2,976,178) 533,503 Net change in total pension liability $12,967,767 $13,617,705 $11,824,671 $13,446,697 Reconciliation of Net Pension Liability Beginning Net Pension Liability $87,847,116 $91,746,888 $89,535,510 $110,183,830 Pension expense 12,967,767 13,617,705 11,824,671 13,446,697 Employer contributions (17,880,152) (18,043,391) (22,752,611) (24,451,234) New net deferred inflows/outflows (31,306,965) (1,320,379) 21,270,461 (11,564,393) Change in allocation of prior deferred inflows/outflows 2,764,089 543,221 2,163,011 New net deferred flows due to change in proportion 9,882,621 1,170,291 (12,354,075) 1,920,610 Recognition of prior deferred inflows/outflows (3,116,841) (2,843,397) 2,593,424 Recognition of prior deferred flows due to change in proportion 2,648,365 2,976,178 (533,503) Net pension liability-ending $63,806,000 $87,847,116 $91,746,888 $89,535,510 Plan fiduciary net position as a percentage of the total pension liability 83.58% 76.44% 74.14% 73.86% Covered payroll $33,306,938 $31,584,169 $29,601,743 $27,930,233 Net pension liability as percentage of covered payroll 191.57% 278.14% 315.70% 332.77% Notes to Schedule: Changes in assumMfions-In 2017,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 four years are shown. DRAFT 52 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 160 of 288 Page 60 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT Cost-Sharing Multiple Employer Defined Bene fit Retirement Plan As of fiscal year ending June 30,2018 SCHEDULE OF CONTRIBUTIONS Last 10 Years* 2018 2017 2016 2015 Actuarially determined contribution $ 17,880,152 $ 18,043,391 $ 22,752,611 $ 24,451,234 Contributions in relation to the actuarially determined contributions 17,880,152 18,043,391 22,752,611 24,451,234 Contribution deficiency(excess) - - - - Covered payroll $ 33,306,938 $ 31,584,169 $ 29,601,743 $ 27,930,233 Contributions as a percentage of covered-employee payroll 53.68% 57.13% 76.86% 87.54% Notes to Schedule Measurement Date: 12/31/2017 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age Amortization method Level percentage of payroll,closed Remaining amortization period 6 years** Asset valuation method 5-year semi-annually Inflation 2.75% Salary increases 4%-13.25% Investment rate of return 7.0%,net of pension 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 1st year of implementation,therefore only four years are shown. **Remaining balance of December 31,2007 UAAL is amortized over a fixed(decreasing or closed)period with 6 years remaining as of December 31,2016. Any changes in UAAL after December 31,2007 will be separately amortized over a fixed 18-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. DRAFT 53 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 161 of 288 Page 61 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT POST-RETIREMENT HEALTH CARE DEFINED BENEFIT PLAN SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS Single Employer Last 10 fiscal years* Measurement Date 6/30/18 6/30/17 Total OPEB Liability Service Cost $2,370,276 $2,295,667 Interest 61396,063 6,203,230 Changes in benefit terms Differences between expected and actual experience Changes of assumptions Benefit payments (5,571,750) (5,404,627) Net change in total OPEB liability 31194,589 3,094,270 Total OPEB liability-beginning 102,75208 99,658,338 Total OPEB liability-ending(a) $105,947,197 $102,75208 Plan fiduciary net position Contributions-employer $9,649,750 $10,433,327 Contributions-employee Net investment income 3,354,822 4,735,576 Administrative expense (164,446) (5,404,627) Benefit payments (5,571,750) (139,063) Net change in plan fiduciary net position 71268,376 9,625,213 Plan fiduciary net position-beginning 52,328,367 42,703,154 Plan fiduciary net position-ending(b) $59,596,743 $52,328,367 Net OPEB liability-ending(a)-(b) $46,350,454 $50,424,241 Plan fiduciary net position as a percentage of the total OPEB liability 56.25% 50.93% Covered-employee payroll $36,638,935 $32,501,073 Net OPEB liability as a percentage of covered-employee payroll 126.51% 155.15% Notes to schedule: *Fiscal year 2017 was the first year of implementation,therefore only two years are shown. CENTRAL CONTRA COSTA SANITARY DISTRICT POST-RETIREMENT HEALTH CARE DEFINED BENEFIT PLAN SCHEDULE OF INVESTMENT RETURN RATE 2018 2017 Annual money weighted rate of return, net of investment expense 5.96% 6.25% DRAFT 54 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 162 of 288 Page 62 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT POST-RETIREMENT HEALTH CARE DEFINED BENEFIT PLAN SCHEDULE OF CONTRIBUTIONS Single Employer Last 10 fiscal years* Fiscal Year Ended June 30, 2018 2017 Actuarially determined contribution $7,524,000 $7,866,000 Contributions in relation to the actuarially determined contribution 91649,750 10,4331327 Contribution deficiency(excess) ($2,1251750) ($2,567,327) Covered-employee payroll $361638,935 $32,501,073 Contributions as a percentage of covered-employee payroll 26.34% 32.10% Notes to Schedule Methods and assumptions used to determine contribution rates: Valuation Date 7/l/2016 Actuarial Cost Method: Entry Age Normal, Level Dollar Amortization Method: Level dollar over closed 18 year period Asset Valuation Method: Investment gains and losses spread over 5-year rolling period not less than 80%nor greater than 120% of market value Actuarial Assumptions: Discount Rate 6.25% General Inflation 3.00% Medical Trend Pre-Medicare- 7.0%for 2017/18, decreasing to 5.0% for 2021/22 and later Medicare- 7.2% for 2017/18, decreasing to 5.0%for 2021/22 and later Dental Trend 4.00% Mortality Rate CCCERA 2012-2014 Experience Study Mortality Improvement Mortality improvement projected generationally with Scale MP-15 * Fiscal year 2017 was the first year of implementation,therefore only two years are shown. DRAFT 55 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 163 of 288 Page 63 of 85 This Page Left Intentionally Blank DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 164 of 288 Page 64 of 85 SUPPLEMENTARY INFORMATION DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 165 of 288 Page 65 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT COMBINING SCHEDULE OF NET POSITION ENTERPRISE SUB-FUNDS JUNE 30,2018 Running Sewer Self Debt Expense Construction Insurance Service Elimination Total ASSETS CURRENT ASSETS: Cash and cash equivalents $29,683,539 $20,285,073 $7,169,375 $57,137,987 Short term investments 14,000,000 20,000,000 34,000,000 Accounts receivable 16,398,841 6,562,959 22,961,800 Interest receivable $99,384 99,384 Parts and supplies 2,245,055 2,245,055 Prepaid expenses 2,599,758 2,599,758 Total current assets 64,927,193 46,848,032 7,169,375 99,384 - 119,043,984 NON-CURRENT ASSETS: Restricted cash and equivalents 5,497,153 5,497,153 Restricted investments 4,856,450 4,856,450 Assessment Districts receivable 1,109,235 1,109,235 CAPITAL ASSETS Nondepreciable 58,090,712 58,090,712 Depreciable,net of accumulated depreciation 594,311,630 594,311,630 Total capital assets,net 652,402,342 - - - - 652,402,342 Total non-current assets 657,899,495 1,109,235 - 4,856,450 - 663,865,180 TOTAL ASSETS 722,826,688 47,957,267 7,169,375 4,955,834 - 782,909,164 DEFERRED OUTFLOWS OF RESOURCES Pension related 21,503,021 - - - - 21,503,021 OPEB related 30,400 - - - - 30,400 Total deferred outflows 21,533,421 21,533,421 LIABILITIES CURRENT LIABILITIES: Accounts payable and accrued expenses 2,967,496 6,690,144 7,098 9,664,738 Interest payable 534,330 534,330 Refunding Water Revenue Bonds-current portion 2,480,000 2,480,000 Accrued compensated absences-current portion 464,500 464,500 Liability for uninsured claims 882,230 882,230 Refundable deposits 155,011 260,821 415,832 Total current liabilities 3,587,007 6,950,965 889,328 3,014,330 - 14,441,630 NON-CURRENT LIABILITIES: Refunding Water Revenue Bonds,noncurrent portion 26,615,000 26,615,000 Accrued compensated absences,noncurrent portion 4,181,377 4,181,377 Net pension liability 63,806,000 63,806,000 Net OPEB liability 46,350,454 46,350,454 Total noncurrent liabilities 114,337,831 - - 26,615,000 - 140,952,831 TOTAL LIABILITIES 117,924,838 6,950,965 889,328 29,629,330 - 155,394,461 DEFERRED INFLOWS OF RESOURCES Pension related 28,076,634 - - - - 28,076,634 NET POSITION Net investment in capital assets 652,402,342 (29,095,000) 623,307,342 Restricted for debt service 4,421,504 4,421,504 Unrestricted (54,043,705) 41,006,302 6,280,047 (6,757,356) TOTAL NET POSITION $598,358,637 $41,006,302 $6,280,047 ($24,673,496) - $620,971,490 DRAFT 58 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 166 of 288 Page 66 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT COMBINING SCHEDULE OF REVENUES,EXPENSES,AND CHANGES IN NET POSITION ENTERPRISE SUB-FUNDS FOR THE YEAR ENDING JUNE 30,2018 Running Sewer Self Debt Expense Construction Insurance Service Elimination Total OPERATING REVENUES Sewer service charges(SSC) $75,824,221 $75,824,221 Service charges-City of Concord 14,973,623 14,973,623 Other services charges 1,078,594 1,078,594 Miscellaneous charges 619,997 619,997 Total operating revenues 92,496,435 - - - - 92,496,435 OPERATING EXPENSES Sewage collection and pumping stations 15,954,881 15,954,881 Sewage treatment 26,050,876 26,050,876 Engineering 16,472,501 16,472,501 Recycled water 1,023,757 1,023,757 Administrative and general 27,845,484 $788,689 ($1,121,172) 27,513,001 Pension expense (4,441,205) (4,441,205) OPEB expense 5,545,563 5,545,563 Depreciation 21,561,704 21,561,704 Total operating expenses 110,013,561 - 788,689 - (1,121,172) 109,681,078 OPERATING INCOME(LOSS) (17,517,126) - (788,689) - 1,121,172 (17,184,643) NONOPERATING REVENUES(EXPENSES) Taxes $13,918,715 $3,732,026 17,650,741 Permit and inspection fees 2,215,920 376,217 2,592,137 Interest earnings 268,195 777,226 91,898 86,030 1,223,349 Interest expense (1,230,680) (1,230,680) Other income(expense),net 1,054,830 21,008 1,121,172 (1,121,172) 1,075,838 Total nonoperating revenues 3,538,945 15,093,166 1,213,070 2,587,376 (1,121,172) 21,311,385 NET INCOME(LOSS)BEFORE CAPITAL (13,978,181) 15,093,166 424,381 2,587,376 - 4,126,742 CONTRIBUTIONS AND TRANSFERS CAPITAL CONTRIBUTIONS AND TRANSFERS City of Concord contributions to capital costs 6,364,725 6,364,725 Customer contributions to capital cost(SSC) 14,060,789 14,060,789 Contributed sewer lines 2,003,614 2,003,614 Capital contributions-connection fees 9,331,420 9,331,420 Transfers In(Out) 39,280,146 (39,249,198) (3,016) (27,932) Total capital contributions and transfers 41,283,760 (9,492,264) (3,016) (27,932) - 31,760,548 CHANGE IN NET POSITION 27,305,579 5,600,902 421,365 2,559,444 35,887,290 NET POSITION,BEGINNING OF YEAR 612,605,874 35,405,400 5,858,682 (27,232,940) - 626,637,016 Prior period adjustment (41,552,816) (41,552,816) NET POSITION,END OF YEAR $598,358,637 $41,006,302 $6,280,047 ($24,673,496) - $620,971,490 DRAFT 59 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 167 of 288 y CENTRAL CONTRA COSTA SANITARY DISTRICT Schedule of Running Expenses Comparison of Budget and Actual Expenses by Department For the Year Ended June 30,2018 Sewage Variance Sewage Treatment Pumping Recycled Favorable Administration Engineering Collection Plant Station Water Total Budget (Unfavorable) Salaries and Wages $6,401,312 $9,828,945 $6,131,155 $10,123,952 $970,127 $391,983 $33,847,474 $34,797,628 $950,154 Employee Benefits 17,454,730 7,149,700 4,894,560 7,815,438 737,446 300,452 38,352,326 36,752,619 (1,599,707) Less Capitalized Overhead and Benefits (36,334) (3,114,993) (27,133) (158,856) - - (3,337,316) (3,972,203) (634,887) Total Salaries and Benefits 23,819,708 13,863,652 10,998,582 17,780,534 1,707,573 692,435 68,862,484 67,578,044 (1,284,440) Directors'Fees and Expense 138,462 - - - - - 138,462 168,631 30,169 Chemicals - - - 840,117 115,950 69,061 1,025,128 1,482,000 456,872 Utilities 119,789 180,978 151,034 3,195,408 532,526 169,408 4,349,143 4,639,790 290,647 Repairs and Maintenance 829,433 104,634 1,047,768 2,247,081 195,120 4,911 4,428,947 5,299,754 870,807 Hauling and Disposal - 514,212 128,592 379,069 10,191 - 1,032,064 1,023,975 (8,089) Professional and Legal Services 507,411 165,023 922 2,743 - (12,395) 663,704 807,600 143,896 Outside Services 1,264,858 767,580 63,001 126,754 47,080 55,303 2,324,576 3,452,717 1,128,141 Self Insurance 585,000 - - - - - 585,000 585,000 - Materials and Supplies 114,260 367,396 738,815 840,126 42,057 677 2,103,331 2,059,325 (44,006) o Other 466,563 509,026 122,047 639,044 53,623 44,357 1,834,660 2,616,751 782,091 Total $27,845,484 $16,472,501 $13,250,761 $26,050,876 $2,704,120 $1,023,757 $87,347,499 $89,713,587 $2,366,088 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 168 of 288 Page 68 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT RUNNING EXPENSE SCHEDULE OF SUPPLEMENTAL NET POSITION ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 3012018 Prior Year Balance $12,9211800 2017-2018 Revenue $9610351380 2017-2018 Expense (110,013,561) Add Back Depreciation Expense 2115611704 715831523 Net Position Attributed to General Operations 2015051323 Net Position Attributed to All Other 577,853,314 Running Expense Net Position $59813581637 DRAFT 61 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 169 of 288 Page 69 of 85 This Page Left Intentionally Blank DRAFT December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 170 of 288 Pa e 70 of 85 ATTACHMENT 2 CENTRAL CONTRA COSTA SANITARY DISTRICT MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS FOR THE YEAR ENDED JUNE 309 2018 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 171 of 288 Page 71 of 85 This Page Left Intentionally Blank December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 172 of 288 Page 72 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS For the Year Ended June 30,2018 Table of Contents Pau Memorandum on Internal Control....................................................................................................l Scheduleof Other Matters........................................................................................................3 Required Communications ................................................................................................................9 SignificantAudit Findings...........................................................................................................9 AccountingPolicies.................................................................................................................9 Unusual Transactions, Controversial or Emerging Areas......................................................9 AccountingEstimates............................................................................................................10 Disclosures .............................................................................................................................10 Difficulties Encountered in Performing the Audit..............................................................10 Corrected and Uncorrected Misstatements............................................................................10 Disagreements with Management..........................................................................................10 Management Representations ...............................................................................................11 Management Consultations with Other Independent Accountants.....................................11 Other Audit Findings or Issues ..............................................................................................11 Other Information Accompanying the Financial Statements...............................................1 l December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 173 of 288 Page 73 of 85 This Page Left Intentionally Blank December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 174 of 288 Page 74 of 85 MAZE . ASS 0 C IA.TE MEMORANDUM ON INTERNAL CONTROL To the Board of Directors Central Contra Costa Sanitary District Martinez, California In planning and performing our audit of the financial statements of the District as of and for the year ended June 30, 2018, 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. 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 material weaknesses. 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 material weaknesses. 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. Management written responses included in this report have not been subjected to the audit procedures applied in the audit of the financial statements and, accordingly,we express no opinion on them. 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 December 4, 2018 T 925,930,0902 Accountancy Corporation F 925.930.01 4 78 Buskirk irks Avenue,Suite 215 r. me e )ma7eassociete .corn Pleasant Hill,CA 94523 w mazea ssooiates.com December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 175 of 288 Page 75 of 85 This Page Left Intentionally Blank December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 176 of 288 Page 76 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 309 2018 2018-01 Accrued Invoices that have Previously been Paid Criteria: As part of the year-end closing procedures, the District should ensure that all accounts payable and the related accruals are being properly recorded in the General Ledger. Condition: During our testing of accounts payable, we noted that the District had an invoice estimate in the amount $500,000 which they accrued. However, upon further testing we noted that the invoice should have not been accrued and the expense was already recorded. Cause: When finance notified the departments to complete submission forms for any invoices which they have not been received but need to be accrued, the Engineering staff completed the form. However, the department did not realize at the time that the invoice was already paid and that the invoice was for services performed during fiscal year 2017-18. Effect: The District's accounts payable was overstated. Recommendation: We recommend that the District ensure their accounts payable balances properly reflect their current year accruals. Management Response: The project manager submitted an accrual estimate for a progress payment invoice which they assumed would not be received by the District before the July 20th deadline for submission to accounting staff. However, the invoice was received and processed by accounting staff, but they did not check the project number from the accrual estimate on the year end accrual memo received by the project manager to the actual payment. Going forward, all accrual estimates for project payments will be checked to the actual payments processed during period 12 and accounting staff will further communicate with project managers to ensure that project payment activity is properly recorded at year end. 3 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 177 of 288 Page 77 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 309 2018 2018-02 New GASB Pronouncements Not Yet Effective The following comment represents new pronouncements taking effect in the next few years. We have cited them here to keep you abreast of developments: EFFECTIVE FISCAL YEAR 2018/19: GASB 83— Certain Asset Retirement Obligations This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability based on the guidance in this Statement. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This Statement requires that recognition occur when the liability is both incurred and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a government to perform asset retirement activities. Laws and regulations may require governments to take specific actions to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing ARO. This Statement requires the measurement of an ARO to be based on the best estimate of the current value of outlays expected to be incurred. The best estimate should include probability weighting of all potential outcomes, when such information is available or can be obtained at reasonable cost. If probability weighting is not feasible at reasonable cost, the most likely amount should be used. This Statement requires that a deferred outflow of resources associated with an ARO be measured at the amount of the corresponding liability upon initial measurement. This Statement requires the current value of a government's AROs to be adjusted for the effects of general inflation or deflation at least annually. In addition, it requires a government to evaluate all relevant factors at least annually to determine whether the effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays. A government should remeasure an ARO only when the result of the evaluation indicates there is a significant change in the estimated outlays. The deferred outflows of resources should be reduced and recognized as outflows of resources (for example, as an expense) in a systematic and rational manner over the estimated useful life of the tangible capital asset. 4 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 178 of 288 Page 78 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 309 2018 A government may have a minority share (less than 50 percent)of ownership interest in a jointly owned tangible capital asset in which a nongovernmental entity is the majority owner and reports its ARO in accordance with the guidance of another recognized accounting standards setter. Additionally, a government may have a minority share of ownership interest in a jointly owned tangible capital asset in which no joint owner has a majority ownership, and a nongovernmental joint owner that has operational responsibility for the jointly owned tangible capital asset reports the associated ARO in accordance with the guidance of another recognized accounting standards setter. In both situations, the government's minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability measurement and recognition requirements of this Statement. In some cases, governments are legally required to provide funding or other financial assurance for their performance of asset retirement activities. This Statement requires disclosure of how those funding and assurance requirements are being met by a government, as well as the amount of any assets restricted for payment of the government's AROs, if not separately displayed in the financial statements. This Statement also requires disclosure of information about the nature of a government's AROs, the methods and assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible capital assets. If an ARO (or portions thereof) has been incurred by a government but is not yet recognized because it is not reasonably estimable, the government is required to disclose that fact and the reasons therefor. This Statement requires similar disclosures for a government's minority shares of AROs. GASB 88—Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements The primary objective of this Statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. It also clarifies which liabilities governments should include when disclosing information related to debt. This Statement defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. This Statement requires that additional essential information related to debt be disclosed in notes to financial statements, including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related to significant events of default with finance-related consequences, significant termination events with finance-related consequences, and significant subjective acceleration clauses. For notes to financial statements related to debt, this Statement also requires that existing and additional information be provided for direct borrowings and direct placements of debt separately from other debt. 5 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 179 of 288 Page 79 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 309 2018 GASB 88 — Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements (Continued) How the Changes in This Statement Improve Financial Reporting The requirements of this Statement will improve financial reporting by providing users of financial statements with essential information that currently is not consistently provided. In addition, information about resources to liquidate debt and the risks associated with changes in terms associated with debt will be disclosed. As a result, users will have better information to understand the effects of debt on a government's future resource flows. EFFECTIVE FISCAL YEAR 2019/20: GASB 84— Fiduciary Activities The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. Governments with activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary net position. An exception to that requirement is provided for abusiness-type activity that normally expects to hold custodial assets for three months or less. This Statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should combine its information with its component units that are fiduciary component units and aggregate that combined information with the primary government's fiduciary funds. This Statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or condition is required to be taken or met by the beneficiary to release the assets. 6 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 180 of 288 Page 80 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 309 2018 GASB 90-Maiority Equity Interests an amendment of GASB Statements No. 14 and No. 61) The primary objectives of this Statement are to improve the consistency and comparability of reporting a government's majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government's holding of the equity interest meets the definition of an investment. A majority equity interest that meets the definition of an investment should be measured using the equity method, unless it is held by a special- purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or permanent fund. Those governments and funds should measure the majority equity interest at fair value. For all other holdings of a majority equity interest in a legally separate organization, a government should report the legally separate organization as a component unit, and the government or fund that holds the equity interest should report an asset related to the majority equity interest using the equity method. This Statement establishes that ownership of a majority equity interest in a legally separate organization results in the government being financially accountable for the legally separate organization and, therefore, the government should report that organization as a component unit. This Statement also requires that a component unit in which a government has a 100 percent equity interest account for its assets, deferred outflows of resources, liabilities, and deferred inflows of resources at acquisition value at the date the government acquired a 100 percent equity interest in the component unit. Transactions presented in flows statements of the component unit in that circumstance should include only transactions that occurred subsequent to the acquisition. The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. The requirements should be applied retroactively, except for the provisions related to (1) reporting a majority equity interest in a component unit and (2) reporting a component unit if the government acquires a 100 percent equity interest. Those provisions should be applied on a prospective basis. 7 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 181 of 288 Page 81 of 85 CENTRAL CONTRA COSTA SANITARY DISTRICT SCHEDULE OF OTHER MATTERS FOR THE YEAR ENDED JUNE 309 2018 EFFECTIVE FISCAL YEAR 2020/21: GASB 87—Leases The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. A lease is defined as a contract that conveys control of the right to use another entity's nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this Statement. GASB 89-Accounting for Interest Cost Incurred before the End of a Construction Period The objectives of this Statement are (1)to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. Such interest cost includes all interest that previously was accounted for in accordance with the requirements of paragraphs 5-22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which are superseded by this Statement. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. This Statement also reiterates that in financial statements prepared using the current financial resources measurement focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis consistent with governmental fund accounting principles. 8 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 182 of 288 Page 82 of 85 IV 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, 2018. 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: The following Governmental Accounting Standards Board (GASB) pronouncement became effective and did have a material effect on the financial statements as discussed in Note 11B: GASB 75 Accounting and Financial Reporting or Post-employment Benefits Other Than Pensions - The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for post-employment benefits other than pensions (other post-employment 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 post-employment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This pronouncement required the District to make a prior period adjustment. As a result, the beginning net position of the District was restated and reduced by $41,552,816. See Note 10 and Note 11 B for additional information. GASB 85—Omnihus 2017.- The objective of this Statement is to address practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits [OPEB]). 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. T 925.930.0902 Accountancy Corporation F 925.930.0135 3473 Buskirk Avenue,Suite 215 E mazeOrnazeasscciates.ccm Pleasant Hill,CA 94523 9 w mazeassociates.com December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 183 of 288 Page 83 of 85 Accounting 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 net other post-employment benefits liability. 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, 2018. 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, 2018. 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. 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. We did not propose any audit adjustments that, in our judgement, could have a significant effect, either individually or in the aggregate, on the District's financial reporting process. Professional standards require us to accumulate all known and likely uncorrected misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. We have no such misstatements to report to the Board of Directors. 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. 10 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 184 of 288 Page 84 of 85 Management Representations We have requested certain representations from management that are included in a management representation letter dated December 4, 2018. Managements Consultations 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. Other Information Accompanying the Financial Statements We applied certain limited procedures to the required supplementary information that accompanies and supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the required supplementary information and do not express an opinion or provide any assurance on the required supplementary information. We were engaged to report on the supplementary information, which accompany the financial statements but are not required supplementary information. With respect to this supplemental information, 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 supplemental information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. 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. lv7t,s, Xu Pleasant Hill, California December 4, 2018 11 December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 185 of 288 Page 85 of 85 This Page Left Intentionally Blank December 18, 2018 Regular FINANCE Committee Meeting Agenda Packet- Page 186 of 288