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HomeMy WebLinkAbout11-06-2013 Administration Committee Agenda Package Wednesday, November 13, 2013 5:30 P.M. Orange County Sanitation District - Administration Building Regular Meeting of the Board Room Administration Committee 10844 Ellis Avenue Fountain Valley, CA 714 593-7130 AGENDA PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: PUBLIC COMMENTS: If you wish to speak, please complete a Speaker's Form and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS: The Committee Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: CONSENT: 1. Approve Minutes of the October 9, 2013 Administration Committee Meeting. NON-CONSENT: 2. Recommend to the Board of Directors to: Authorize the General Manager to solicit proposals and award a Consultant Services Agreement for an OCSD-wide classification and compensation study. 3. Recommend to the Board of Directors to: Receive and file the Sanitation District's Comprehensive Annual Financial Report for the year ended June 30, 2013, prepared by staff and audited by McGladrey, Certified Public Accountants, along with the following reports prepared by McGladrey: 11/13/13 Administration Committee Agenda Page 1 of 2 A. Report to the Administration Committee; and B. Report on Internal Controls; and C. Independent Accountants' Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: The next Administration Committee meeting is scheduled for Wednesday, December 11, 2013, at 5:30 p.m. Accommodations for the Disabled: Meeting Rooms are wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board's office at (714)593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2,this agenda has been posted outside the main gate of the Sanitation District's Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all,or a majority of the Board of Directors,are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Maria E.Ayala Clerk of the Board (714)593-7130 mavalaaocsd.com For any questions on the agenda,Committee members may contact staff at: General Manager James Herberg (714)593-7110 iherbera(Momd.com Assistant General Manager Bob Ghirelli (714)593-7400 rohirelli(o3gcsd.com Director of Finance and Lorenzo Tyner (714)593-7550 Itvnerrgocsd.com Administrative Services Director of Human Resources Jeff Reed (714)593-7144 ireed(a)ocsd.com 11/13/13 Administration Committee Agenda Page 2 of 2 Item No. 1 MINUTES OF THE REGULAR MEETING OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District Wednesday, October 9, 2013, at 5:30 P.M. A regular meeting of the Administration Committee of the Orange County Sanitation District was held on October 9, 2013, at 5:30 p.m., in the Sanitation District's Administration Building. Following the Pledge of Allegiance, a quorum was declared present, as follows: COMMITTEE MEMBERS PRESENT: STAFF PRESENT: Brad Reese, Chair Jim Herberg, General Manager David Benavides Bob Ghirelli, Assistant General Manager Steven Choi Lorenzo Tyner, Director of Finance Tyler Diep & Administrative Services Jim Ferryman Jeff Reed, Director of Human Resources Peter Kim Nick Arhontes, Dir. Of Facilities Support Prakash Narain Services Janet Nguyen Ed Torres, Director of Operations & Joe Shaw Maintenance Teresa Smith Nick Kanetis, Director of Engineering Troy Edgar, Board Chair Kelly Lore, Administrative Assistant John Anderson, Board Vice Chair Rich Castillon, IT Systems & Operations Manager COMMITTEE MEMBERS ABSENT: Marc Dubois Contract& Purchasing Manager John Withers, Vice-Chair Cindi Ambrose, Contracts Supervisor Jennifer Cabral Norbert Gaia Al Garcia OTHERS PRESENT: Brad Hogin, General Counsel PUBLIC COMMENTS: None. REPORT OF COMMITTEE CHAIR: Committee Chair Reese did not give a report. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: Lorenzo Tyner briefly updated the Committee on the Bond refunding which was completed last week. General Manager Jim Herberg reported that an item will be brought to the Steering Committee in the future regarding the backlog of repairs that are needed to OCSD Administrative facilities. CONSENT: 1. MOVED, SECONDED, AND DULY CARRIED: Approve Minutes of the September 11, 2013 Administration Committee Meeting. NON-CONSENT: 2. MOVED, SECONDED, AND DULY CARRIED: Recommend to the Board of Directors to: Approve the purchasing ordinance, Ordinance No. OCSD-XX entitled "Establishing Requirements and Procedures for the Purchase of Goods, Services, and Public Works Projects" for first reading at the October 2013 Board meeting. Lorenzo Tyner, Director of Finance & Administrative Services provided a short presentation to the Committee regarding the background of the current Purchasing Authority and the changes that are to be incorporated into the proposed Ordinance. 3. MOVED, SECONDED, AND DULY CARRIED: A. Waive the one year prohibition in OCSD Personnel Policy 1.4 for James D. Ruth regarding retaining former employees as independent contractors or consultants; and B. Authorize the Board Chair to execute a Consulting Services Agreement with James D. Ruth effective October 1, 2013 for an extension of services relative to labor negotiations at an hourly rate of $200 per hour for a total not to exceed amount of$48,000. Directors Diep, Kim & Narain opposed. Director of Human Resources Jeff Reed, made a brief presentation on the status of Labor Negotiations, and the necessity of the proposed extended service contract. He then responded to questions from the Committee regarding alternative options. The Committee members expressed their support or concerns. 10/09/13 Administration Committee Minutes Page 2 of 3 INFORMATION ONLY: 4. Information Technology Three-Year Strategic Plan FY 2013-2014. Jim Herberg, presented the "Award of Excellence for Information Technology Practices", received from Municipal Information Systems Association of California (MISAC) and awarded to Orange County Sanitation District. He thanked Rich Castillon, IT Systems and Operations Manager for his efforts. Rich Castillon presented the Information Technology Three-Year Strategic Plan and responded to questions from the Committee regarding; the risk of the OCSD system, Homeland Security issues, staff skill levels and Business Continuity. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: None. ADJOURNMENT: Committee Chair Reese declared the meeting adjourned at 6:50 p.m. Submitted by: Kelly A. Lore Administrative Assistant 10/09/13 Administration Committee Minutes Page 3 of 3 ADMINISTRATION COMMITTEE Neebng Dare To ad.of Dir. 11/13/13 -- AGENDA REPORT Item Number Item Number z Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Jeff Reed, Director of Human Resources SUBJECT: CLASSIFICATION AND COMPENSATION STUDY GENERAL MANAGER'S RECOMMENDATION Authorize the General Manager to solicit proposals and award a Consultant Services Agreement for an OCSD-wide classification and compensation study. SUMMARY Organizations conduct comprehensive classification and compensation studies on a regular basis to ensure legal compliance and up-to-date information. Industry standards suggest a five year frequency. OCSD's last comprehensive study was initiated in 2008. OCSD is proposing to begin its next study in 2014 to provide the Board with the most relevant data for making organizational decisions. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION The OCSD periodically conducts a comprehensive classification and compensation study. A classification and compensation study advises an organization on its classification plan and compensation plan. The classification plan covers all of the organization's jobs. The compensation plan provides for how those jobs are paid. The last agency-wide classification and compensation study was initiated in 2008. To ensure up-to-date data is available for decision making, industry standards recommend that such studies be completed every five years. Additionally, since completion of the last study, OCSD has experienced significant organizational change (e.g., "Beyond 2012 Reorganizational Plan"), and new legislation has been adopted affecting public sector benefits (e.g. Public Employees' Pension Reform Act). Therefore, it is recommended that OCSD initiate a new study, beginning in 2014. In general, classification and compensation studies utilize benchmark classifications, which are those common in the labor market for which reliable salary survey data is available, to gauge an organization's market position in relation to other comparable agencies. Additionally, the proposed objectives of OCSD's study would include the following: Page 1 of 3 • Update duties, responsibilities, and minimum qualifications to accurately reflect all current positions and incorporate revisions resulting from organizational changes, technological changes, certification and licensing requirements, and educational requirements. • Update physical demands and essential functions for each class specification in accordance with the Americans with Disabilities Act. • Update essential functions for each class specification relative to the Fair Labor Standards Act exemptions (29 C.F.R. Part 541). • Update job families, classification series, benchmark classifications, number of classifications and classification levels; as necessary and to maintain internal alignment; providing rationale for the changes. • Ensure appropriate and consistent titles for classifications. • Reevaluate and recommend changes, as applicable, to OCSD's existing labor market of the 13 comparison agencies, established in 2002, to determine ongoing relevance and continued appropriateness. • Provide cost-effective recommendations and rationale to align OCSD's compensation structure for all employee groups in consideration of pay practices and policies, internal pay relationships and the external labor market. • Gather salary and total compensation data for benchmark positions and identify market positions and percentile placement. • Conduct a cost analysis and quantify fiscal impact of proposed implementations/recommendations for adjustment of market valued job classifications that may be out of alignment. • Recommend changes to OCSD's compensation plan that support Board direction and align with the future direction of the agency. A Request for Proposals will be distributed through the competitive bid process to professional classification and compensation firms that may potentially conduct the study. Based on the content of the proposals, proposed costs, and subsequent interviews with candidates, as applicable; the most qualified consulting firm will be selected. The Human Resources Department will closely monitor the study and coordinate the consultant services. The consulting firm will be asked to provide a summary of findings to the Administration Committee once the classification and compensation study are complete. It is anticipated that the cost of the contract will not exceed $100,000. This contract amount includes a comprehensive review of OCSD's 128 classifications that comprise the classification plan; an in-depth scope of work regarding OCSD's compensation plan; and estimated consultant time. Page 2 of 3 CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE This item has been budgeted under Human Resources professional services for fiscal year 2013/2014 in the amount of$100,000. Page 3 of 3 ADMINISTRATION COMMITTEE Meeting Date TOBA.of Dir. 11/13/13 I1/2o/13 AGENDA REPORT IemNumbe Item Number 3 Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: ORANGE COUNTY SANITATION DISTRICT COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) FOR THE YEAR END JUNE 30, 2013. GENERAL MANAGER'S RECOMMENDATION Receive and file the Sanitation District's Comprehensive Annual Financial Report for the year ended June 30, 2013, prepared by staff and audited by McGladrey, Certified Public Accountants, along with the following reports prepared by McGladrey: A. Report to the Administration Committee; and B. Report on Internal Controls; and C. Independent Accountants' Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets. SUMMARY The Sanitation District's independent auditors, McGladrey, have completed their examination of the Sanitation District's financial statements for the year ended June 30, 2013, and have issued an unmodified opinion. Each year, the Administration Committee reviews the results of the audit and the corresponding Auditor's report. During their audit, McGladrey, noted no matters involving the internal control over financial reporting and its operations that they consider to be material weakness. McGladrey will attend the meeting to respond to any questions of Directors. Staff has prepared the Comprehensive Annual Financial Report, including the audited financial statements. As the Sanitation District has consistently earned the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association (GFOA), this year's report will be submitted to GFOA for their review. Page 1 of 2 PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION None. ATTACHMENTS The following attachment(s) are included in hard copy, and may also be viewed on-line at the OCSD website(www.ocsd.com) with the complete agenda package and attachments: 1. Report to the Administration Committee (19 pages) 2. Report on Internal Controls (2 pages) 3. Independent Accountants' Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets (3 pages) 4. Comprehensive Annual Financial Report for the Year Ended June 30, 2013. (Separately bound document) (93 pages) JDR:LT:MW:jmf Page 2 of 2 ATTACHMENT NO. 1 Return to Aaenda Reoori Orange County Sanitation District Report to the Administration Committee November 13, 2013 McGladrey Assurance-Tax•Consulting McGladrey LLP Return to Mends Report McGladrey November 13, 2013 Members of the Administration Committee Orange County Sanitation District Fountain Valley, CA We are pleased to present this report related to our audit of the financial statements of the Orange County Sanitation District(the District)as of and for the year ended June 30,2013. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the District's financial reporting process. This report is intended solely for the information and use of the Administration Committee, the Board of Directors and management, and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report.We appreciate the opportunity to continue to be of service to the District. �/G .w cLP Memb rofMo kSmlmemmlonalnet orkofln4p enta¢oumnrytuand mmuNrgfirmz Return to Aaenda Report Contents Recu rec CcTm..n'cate-s 1-2 S.;m Tary o`Slg-i`cant Accou-t❑g Est mates 34 Exhibit—Certain Written Communications Between Management and Our Firm Representation Letter Return to Aaenda Report Required Communications Generally accepted auditing standards(AU-C 260, The Auditors Communication With Those Charged With Governance) require the auditor to promote effective two-way communication between the auditor and those charged with govemance. Consistent with this requirement,the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process: Area Comments Our Responsibilities With Regard to the Our responsibilities under auditing standards generally Financial Statement Audit accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States, have been described to you in our arrangement letter dated June 20,2013. Overview of the Planned Scope and We have issued a separate communication dated Timing of the Financial Statement Audit June 20, 2013 regarding the planned scope and timing of our audit and have discussed with your our identification of,and planned audit response to, significant risks of material misstatement Accounting Policies and Practices Preferability of Accounting Policies and Practices Under generally accepted accounting principles, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice. Adoption of,or Change in,Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the District.The District adopted Governmental Accounting Standards Board(GASB)Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements;GASB Statement No. 63, The Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position;and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The implementation of GASB Statement Nos.62 and 63 impacted certain terminology used, but did not have an impact on the net position at June 30, 2013 or the change in net position during the year then ended.The implementation of GASS Statement No. 65 resulted in a restatement of the prior year net position of approrimately$8.2 million related to the writeoff of debt issuance costs. 1 Return to Aaenda Report Area Comments Accounting Policies and Practices Significant or Unusual Transactions (Continued) We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Management's Judgments and Accounting Estimates Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates is in the attached Summary of Significant Accounting Estimates. Audit Adjustments There were no audit adjustments proposed by us and recorded to the original trial balance presented to us to begin our audit. Uncorrected Misstatements Uncorrected misstatements are summarized in the attached Summary of Uncorrected Misstatements, which is included within the Exhibit. Disagreements With Management We encountered no disagreements with management over the application of significant amounting principles, the basis for management's judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. Consultations With Other Accountants We are not aware of any consultations management had with other accountants about amounting or auditing matters. Significant Issues Discussed With No significant issues arising from the audit were Management discussed or were the subject of correspondence with management. Significant Difficulties Encountered in We did not encounter any significant difficulties in Performing the Audit dealing with management during the audit. Certain Written Communications Between Copies of a certain written communication between Management and Our Firm our Firm and the management of the District,the representation letter provided to us by management, is attached as the Exhibit. 2 Return to Mende Report Orange County Sanitation District Summary of Significant Accounting Estimates Year Ended June 30, 2013 Accounting estimates are an integral part of the preparation of financial statements and are based upon management's current judgment. The process used by management encompasses its knowledge and experience about past and current events and certain assumptions about future events.You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the Districts June 30,2013 financial statements: Basis for Our Conclusions on Managements Reasonableness of Estimate Accounting Policy Estimation Process Estimate Useful Lives of Long- The estimated useful Management reviews We tested the Lived Assets lives of assets for changes in the reasonableness of generally have the useful lives of long- information underlying following ranges: lived assets by management's estimate. sewage collection evaluating prominent Based on our procedures, facilities 50 years; events or changes in we concluded that the sewage treatment circumstances assigned useful lives of facilities 40 years; affecting capital assets capital assets are sewage disposal to determine whether reasonable. facilities 40 years and impairment or change general plant and in the useful life of a administrative facilities capital asset has 11.5 years. These occurred.A capital assets are depreciated asset is considered using the straight-line impaired if both the method. Construction decline in the service in process is not utility of the capital depreciated until ready asset is large in for intended use. magnitude and the event or change in circumstances is outside the normal life cycle of the capital asset Pension Obligations A pension or OPEB For OPEB, We tested the and Postemployment asset is recorded if management utilizes reasonableness of the Benefits Other Than contributions exceed an actuarial consulting information underlying the Pensions (OPES) the annual required firm to perform an actuarial evaluations. contribution.A pension evaluation using the Based on our procedures, or OPEB liability is entry age actuarial cost we concluded that the recorded if the method. Management pension and OPEB costs contributions are less reviewed and approved recorded are reasonable. than the annual the actuarial required contribution. assumptions and calculations used to determine the postemployment benefit costs. 3 Return to Aaenda Report Basis for Our Conclusions on Management's Reasonableness of Estimate Accounting Policy Estimation Process Estimate Pension Obligations For pension obligation, and Postemployment management utilizes Benefits Other Than Orange County Pensions (OPEB) Employees Retirement (Continued) System's(OCERS) actuaries for its defined benefit plan. Management reviewed and approved the actuarial assumptions and calculations used to determine the pension costs. For the Additional Retiree Benefit Account(ARBA) defined benefit plan obligation, management utilizes an actuarial consulting fine to perfomt an evaluation using the projected unit credit cost method. Management reviewed and approved the actuarial assumptions and calculations used to determine the ARBA costs. 4 Exhibit—Certain Written Communications Between Management and Our Firm Orange County Sanitation District Servini 10844 Bill Avenue,Foumain Valley,rA92708 Ana heir, (714)962-2411 wwwocse.�ers.cam Brea Buena Pare October 30, 2013 Fountain Vallcv Garden Grtu� McGladrey LLP 18401 Von Kalman Avenue, 5t" Floor Huntington Beach Irvine, CA 92612 This representation letter is provided in connection with your audit of the to Palma financial statements of the Orange County Sanitation District (the District) as Los Alarnitips of and for the year ended June 30, 2013 for the purpose of expressing opinions on whether the financial statements are presented fairly, in all Newport Beach material respects, in accordance with accounting principles generally accepted in the United States of Amercia (U.S. GAAP). Placenta We confirm, to the best of our knowledge and belief as of October 30, 2013, Santa Ana the following representations made to you during your audit: Seal Beach Financial Statements Stanton Tustin 1.We have fulfilled our responsibilities, as set out in the terms of the audit arrangement letter dated June 20, 2013 and the Professional Consultant Villa Park Services Agreement for Audit of Financial Statements Services Yams Linda (Specification No. CS-2011-473BD), for the preparation and fair County of Orange presentation of the financial statements referred to above in accordance with U.S. GAAP. Costa Mesa Sanitary District 2.We acknowledge our responsibility for the design, implementation and Midway City maintenance of internal control relevant to the preparation and fair Sanitary District presentation of financial statements that are free from material misstatement, whether due to fraud or error. Water District 3.We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud. Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable. We have identified for you all organizations that are a part of our reporting entity or with which we have a relationship, as these organizations are r defined in Section 2100 of the Governmental Accounting Standards s p P Board's (GASB) Codification of Governmental Accounting and Financial nr We protect public health and the environment by providing effective wastewater collection, treatment,and recycling. X Return to Mende Report XE McGladrey LLP October 30, 2013 Page 2 Reporting Standards that are component units in which we participated. In that regard, the Orange County Sanitation District Financing Corporation is a blended component unit of the District. There are no other organizations for which the nature and significance of their relationship with the District are such that exclusion would cause the District's financial statements to be misleading or incomplete or jointly organized organizations in which we participated. 6.All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. 7.The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with U.S. GAAP. 8.The following have been properly recorded and/or disclosed in the financial statements: a. Net position classifications. b. Arrangements with financial institutions involving restrictions on cash balances. c. Security agreements in effect under the Uniform Commercial Code. d. Any other liens or encumbrances on assets or revenues or any assets or revenues that were pledged as collateral for any liability or that were subordinated in any way. e. The fair value of investments. f. Amounts of contractual obligations for construction and purchase of real property or equipment not included in the liabilities or encumbrances recorded on the books. g. Debt issue repurchase options or agreements, or sinking fund debt repurchase ordinance requirements. � 5.1YII�II J RdIO(O to Agenda RdflOfl f 6 IRE FM McGladrey LLP October 30, 2013 Page 3 h. Debt issue provisions. i. All significant estimates and material concentrations known to management that are required to be disclosed. j. Risk financing activities. k. Deposit and investment security categories of risk. I. Arbitrage rebate liabilities. m. Defined pension plan disclosures. 9.We have no plans or intentions that may materially affect the carrying value or classification of assets or liabilities. 10.We are responsible for making the accounting estimates included in the financial statements. Those estimates reflect our judgment based on our knowledge and experience about past and current events and our assumptions about conditions we expect to exist and courses of action we expect to take. In that regard, adequate provisions have been made: a. To reduce receivables to their estimated net collectible amounts. b. For risk retention, including uninsured losses or loss retentions (deductibles) attributable to events occurring through June 30, 2013, and/or for expected retroactive insurance premium adjustments applicable to periods through June 30, 2013. c. For pension obligations, post-retirement benefits other than pensions, and deferred compensation agreements attributable to employee services rendered through June 30, 2013. 11.There are no: a. Material transactions that have not been properly recorded in the accounting records underlying the financial statements. b. Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. In that regard, we specifically x,rx r Return to Aaentla Report a xe rxe h` McGladrey LLP October 30, 2013 Page 4 c. represent that we have not been designated as, or alleged to be, a .'potentially responsible party" by the Environmental Protection Agency in connection with any environmental contamination. d Other material liabilities or gain or loss contingencies that are required to be accrued or disclosed by the Contingencies Topic of the GASS Codification of Governmental Accounting and Financial Reporting Standards. d. Related-party transactions as defined in Section 2100 of the GASB's Codification of Governmental Accounting and Financial Reporting Standards. e. Arrangements with financial institutions involving compensating balances. f. Lines of credit or similar arrangements. g. Authorized but unissued bonds and/or notes. h. Derivative financial instruments. I. Agreements to repurchase assets previously sold. j. Guarantees, whether written or oral, under which the District is contingently liable. k. Significant leases or material amounts of rental obligations under long- term leases. I. Liabilities that are subordinated in any way to any other actual or possible liabilities. m. Special and extraordinary items. n. Obsolete, damaged or excess inventories. o. Investments, intangibles or other assets that have permanently declined in value. XI) ♦ Fz�'" �p Return to Aaentla Report z rME McGladrey LLP October 30, 2013 Page 5 p. Material losses to be sustained in the fulfillment of, or from the inability to fulfill, service commitments. q. Material losses to be sustained as a result of purchase commitments. r. Environmental cleanup obligations. 12.There are no unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with GASB Statement No.10. 13.We have no direct or indirect, legal or moral obligation for any debt of any organization, public or private, that is not disclosed in the financial statements. 14.The District has satisfactory title to all owned assets. 15.We have complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. In connection therewith, we specifically represent that we are responsible for determining that we are not subject to the requirements of the Single Audit Act and Office of Management and Budget Circular No. A-133, because we have not received, expended or otherwise been the beneficiary of the required amount of federal awards during the period of this audit. 16.Net positions (invested in capital assets, net of related debt; restricted; and unrestricted) are properly classified and, if applicable, approved. 17.Capital assets, including infrastructure assets, are properly capitalized, reported and depreciated. 18.The District incurs certain costs that relate to the construction of capital assets. The District capitalizes only those costs that are incremental to the construction of capital assets. 19.Net interest costs of approximately $7.6 million were properly capitalized on projects of the District. All projects included in construction in progress SAM$ Return to Mende Report x McGladrey LLP October 30, 2013 Page 6 for which interest is not being capitalized is due to the assets being ready for their intended use in accordance with U.S. GAAP. 20.In considering the disclosures that should be made about risks and uncertainties, we have concluded that the following are required: All significant estimates and material concentrations known to management, which are required to be disclosed in accordance with the American Institute of Certified Public Accountants' (AICPA) Statement of Position No. 94-6, Disclosure of Certain Significant Risks and Uncertainties. Significant estimates are estimates at the statement of net position date that could change materially within the next year. Concentrations refer to volume of business, revenues, available sources of supply or markets for which events could occur that would significantly disrupt normal finances within the next year. 21.We believe that implementing GASB Statement No. 65 one year early is preferable to continuing to capitalize debt origination costs because the District was already implementing GASB Statement No. 63 this year, and GASB Statement No. 65 seemed to fit in with the changes of GASB Statement No. 63. 22.We agree with the restatement of the previously issued financial statements discussed in Note 10 to the financial statements. In that regard, the restatement accounts for the implementation of GASB Statement No. 65. This restatement was the result of a change from one acceptable accounting principle to another acceptable accounting principle, and was not the result of an error. 23.We are aware of and acknowledge the effect on the financial statements of GASB Statement No. 66, Accounting and Financial Reporting for Pensions—An Amendment of GASB Statement No. 27, which has been issued, but which we have not yet adopted. We have elected to not disclose this in the notes to the financial statements as of June 30, 2013. SV 5.1 HIIgII PAP q Return to Aaentla Report 53 9 � J ? P � 1MF F VS McGladrey LLP October 30, 2013 Page 7 24.We have informed you of all uncorrected misstatements. As of and for the year ended June 30, 2013, management believes that the effects of the uncorrected misstatements aggregated by you and summarized below are immaterial, both individually and in the aggregate, to the financial statements. For purposes of this representation, we consider items to be material, regardless of their size, if they involve the misstatement or omission of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. oM1v ssxtr+r m Return to Aaentla Report a e tw iNE EN1 McGladrey LLP October 30, 2013 Page 8 Effaa--Dabil(Credi$ Descripbon Assets Liabilities Equity Revenue EhMenses Prior Year Misstatements • To adjust COP premiums for Me difference between straight4lne and eflerbw interest method $ - $ 1.810.145 $(1,810,145) $ - $ - • To adjust COP discounts and deferred charges for Me difference between straighHine and effecdw interest in elhod (2.885.420) - 2.885.420 - - • To adjust Cols for the difference between straight-ine and efectiw interest method - - 613,728 - (613.728) • To adjust for Me understatement of investment values based on the leatcnd statements neseiwd by OCSO - - (247288) 247.288 - •To adjust for Me oletslatement of inws"enl values based on fair market values - - 641.344 (641,344) - •To adjust for Me unam odd d goodwill amoNntion related to Me IRM transacton (2,878,566) - 2,878,566 - - •ToatljustforMeel cls ofaddib.nal raphalised interest from Me pnorwar 655.0M) - (655800) - - Current Year Misstatements •To depredate Me effects of additional capitali nd interest from the pnor fear (16,375) - - - 16.325 •To redassity DAB subsidy rebate received from interest aVense to otherincome - - - (5,070.644) 5,070,644 • To adjust COP premiums far the difference between straight-line and effective intereslmeMod - 162,329 - - (162.329) •To adjust COP discounts and deferred charges for Me di6erence between sbaight- line and effective interest method 1,106841 - - - (11W.841) •To adjust for Me current war unamoitimd goodwill am ottindation related to the IRM transaction 667,709 (657,709) Total~ $(3.380,811) $ 1.972,474 4,306.625 S(5.464.700) $ 2.546.412 Cumentwer effect ofcharge in net position (2,918288) B ct on ending net position $ 1.388.337 Information Provided 25.We have provided you with: a. Access to all information of which we are aware that is relevant to the preparation and fair presentation of the financial statements such as records, documentation and other matters. o xp sWi, , Return to Mende Report MS s o� e IMF Exd� McGladrey LLP October 30, 2013 Page 9 b. Additional information that you have requested from us for the purpose of the audit. c. Unrestricted access to persons within the District from whom you determined it necessary to obtain audit evidence. d. Minutes of the meetings of the governing board and committees, or summaries of actions of recent meetings for which minutes have not yet been prepared. 26.All transactions have been recorded in the accounting records and are reflected in the financial statements. 27.We have no knowledge of allegations of fraud or suspected fraud affecting the District's financial statements involving: a. Management. b. Employees who have significant roles in internal control. c. Others where the fraud could have a material effect on the financial statements. 28.We have no knowledge of any allegations of fraud or suspected fraud affecting the District's financial statements received in communications from employees, former employees, analysts, regulators or others. 29.We have no knowledge of noncompliance or suspected noncompliance with laws and regulations whose effects were considered when preparing financial statements. 30.We have disclosed to you all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements. 31.We are aware of no significant deficiencies, including material weaknesses, in the design or operation of internal controls that could adversely affect the District's ability to record, process, summarize and report financial data. Return to Mende Report 9 INF EX� McGladrey LLP October 30, 2013 Page 10 32.We are aware of no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices. Supplementary Information 33.With respect to supplementary information presented in relation to the financial statements as a whole: a. We acknowledge our responsibility for the presentation of such information. b. We believe such information, including its form and content, is fairly presented in accordance U.S. GAAP. c. The methods of measurement or presentation have not changed from those used in the prior period. d. There are no underlying significant assumptions or interpretations regarding the measurement or presentation of such information. In connection with your engagements to perform, in accordance with attestation standards established by the AICPA, specified agreed-upon procedures with respect to certain records and transactions of the District for the year ended June 30, 2013 for the purpose of determining as to whether the District's appropriation limitation calculation was computed in accordance with Article XIII B of the Constitution of the State of California and whether the District's net tangible worth is in compliance with the Interconnection Facilities Agreement between the Southern California Edison Company and the District, we confirm, to the best of our knowledge and belief, the following representations made to you during the course of your engagement: 34.We are responsible for compliance with the appropriation limitation calculation and the tangible net worth calculation. 35.We are responsible for establishing and maintaining effective internal control over our compliance with the appropriation limitation calculation and the tangible net worth calculation. ep xx,qr o � Return to Aaentla Report W •9 i P �M TMF N\O McGladrey LLP October 30, 2013 Page 11 36.There has been no known noncompliance with the appropriation limitation calculation and the tangible net worth calculation during the year ended June 30. 2013 or through the date of this letter. 37.There are no known matters contradicting the calculations or any communication from regulatory agencies affecting the calculations. 38.We have made available to you all records and related data relevant to the subject matter and the agreed-upon procedures. 39.We have responded fully to all inquiries made to us by you during your engagement. 40.During the course of your audit, you may have accumulated records containing data that should be reflected in our books and records. All such data have been so reflected. Accordingly, copies of such records in your possession are no longer needed by us. ORANGE COUNTY SANITATION DISTRICT z m4dk4 Jams Herberg, General M ger Loreyrzo Tyne , Director of Finance ana Administrative Services (&/V A41Y Mike White, Controller H:WepttesdX210\fie1dMMcG1adrey Letter OCSD 13 rep(10-30-13).doax ATTACHMENT NO. 2 e�rr.aR'ua 1 U01 Von xannan,5"Floor Irvine,CA 92612A531 McGladrey 0949.255.6500 F969255.5091 0949,2 5.6500.wm Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Board of Directors Orange County Sanitation District Fountain Valley, CA We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Orange County Sanitation District (the District), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the District's basic financial statements, and have issued our report thereon dated October 30, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control.Accordingly,we do not express an opinion on the effectiveness of the District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identity all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free from material misstatement, we perforn ed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. rn.mee�mme csm imemnwwKmanarma�m:mnaououosm.oe m�:.mms,m:. Return to Aaenda Report Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Districts internal control and compliance. Accordingly, this communication is not suitable for any other purpose. /ITscGrlyII t Gz�- Irvine, CA October 30,2013 Illlo!S��UP ATTACHMENT NO. 3 18401 Von Kannan,5"Floor Irvine,CA 92612-8531 44 255.650 McGladrey 09 ladrey F969.255.5091 0 949 .wm Independent Accountant's Report on Applying Agreed-Upon Procedures Board of Directors Orange County Sanitation District Fountain Valley, CA We have performed the procedures enumerated below to the accompanying Appropriations Limit Calculation of the Orange County Sanitation District (the District) for the year ended June 30, 2013. These procedures, which were agreed to by the District and the League of California Cities (as presented in the publication entitled Agreed-Upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII-B of the California Constitution), were performed solely to assist the District in meeting the requirements of Section 1.5 of Article XIII-B of the California Constitution. The District's management is responsible for the Appropriations Limit Calculation. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the completed internal calculations from management and compared the limit and annual adjustment factors included in those calculations to the limit and annual adjustment factors that were adopted by a resolution of the Board of Directors. We also compared the population and inflation options included in the aforementioned calculations to those that were selected by a recorded vote of the Board of Directors. Finding: No exceptions were noted as a result of our procedures. 2. For the accompanying Appropriations Limit Calculation, we added line A, last year's limit, to line E, total adjustments, and compared the resulting amount to line F, this year's limit. Finding: No exceptions were noted as a result of our procedures. 3. We compared the current year information presented in the accompanying Appropriations Limit Calculation to the supporting calculations described in item 1 above. Finding: No exceptions were noted as a result of our procedures. Membrofthe PSMlnRmatlonal network of loE ,,ert aIXo,ar% xandoonsumr,fir— Return to Agenda Report 4. Ne ccm cared the prior year Aopcp,abons Limit presented in the accompanying Appropriations Limit 'Is c.Ja:ion to the prior year Accropriations Limit adopted by the Board of Directors during the prior yea' Finding: No exceptions wee noted as a result of our procedures. 'Ne were no: engaged to anc C d -a: conduct an audit, the objective of which would be the expression of a-. oc No or the accompany nc Appropriations Limit Calculation of the DistricL Accordingly, we do not excress such ac oC n',oc. rise we performed additional procedures, other matters might have come to our attention tnat wouid nave beer. redo ted to you. No procedures have been performed with respect to the determination of the apprcpria:icns imit for the base year, as defined by Article XIII-B of the California Cc-stitution. This report is intended so e y for the information and use of the Board of Directors and management of the District, and is not intended to be, and should not be, used by anyone other than these specified parties. However,this report is a matter of public record and its distribution is not limited. 4 Irvine, CA October 30,2013 Return to Mende Report Orange County Sanitation District Appropriations Limit Calculation Year Ended June 30, 2013 Amount Source A. Last year's limit $ 81,888,473 B. Adjustment factors: 1. Population change 1.0101 State Finance 2. Per capita change 1.0377 State Finance Total adjustments [(B.1 x B.2)-1.0] 0.0482 C. Annual adjustment 3,945,450 (BxA) D. Other adjustments: 1. Lost responsibility(-) - 2. Transfer to private(-) - 3. Transfer to fees(-) - 4. Assumed responsibility(+) - Subtotal E. Total adjustments 3,945,450 (C+D) F. This years limit $ 85,833,923 (A+E) ATTACHMENT NO. 4 r trangifCounty Sanit tion Distric_ = . Comprehensive Annual ' Financial Reprt . for the period ended June. 0, 2013 fah with comparative totals for June 3Q, 2012 TY We're here for you. Orange County,California Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT ORANGE COUNTY, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2013 WITH COMPARATIVE TOTALS FOR JUNE 30, 2012 Prepared By: Administrative Services Department Financial Management Division Michael D.White, CPA Controller Return to Aaenda Report (THIS PAGE LEFT INTENTIONALLY BLANK) Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Comprehensive Annual Financial Report Table of Contents For the Year Ended June 30, 2013 With Comparative Totals for the Year Ended June 30,2012 Pape INTRODUCTORY SECTION: Letterof Transmittal..................................................................................................................... i-vii GFOA Certificate of Achievement............................................................................................... vill Boardof Directors........................................................................................................................ ix OrganizationChart...................................................................................................................... x Mapof Service Area.................................................................................................................... A FINANCIAL SECTION: Independent Auditor's Report...................................................................................................... 1-2 Management Discussion and Analysis-Required Supplementary Information........................ 3-8 Basic Financial Statements: Statement of Net Position................................................................................................... 10 Statement of Revenues, Expenses, and Changes in Net Position .................................... 11 Statementof Cash Flows.................................................................................................... 12 Notes to Basic Financial Statements.................................................................................. 13-38 Supplementary Information: Combining Area Schedule of Net Position.......................................................................... 40 Combining Area Schedule of Revenues, Expenses, and Changes in Net Position .......... 41 Combining Area Schedule of Cash Flows.......................................................................... 42 STATISTICAL SECTION: Net Position by Component-Last Ten Fiscal Years.................................................................. 44 Revenues and Gross Capital Contributions by Source-Last Ten Fiscal Years........................ 45 Expenses by Type-Last Ten Fiscal Years................................................................................ 46 Change in Net Position-Last Ten Fiscal Years......................................................................... 47 Cash and Investment Reserve Balances-Last Ten Fiscal Years............................................. 48 Sewer Service Fees-Last Nine Fiscal Years & Next Fiscal Year............................................. 49 Number of Accounts and Revenues by Customer Class-Last Ten Fiscal Years..................... 50 Principal Sewer Service Customers-Current Fiscal Year and Nine Years Ago....................... 51 Ratio of Annual Debt Service to Total Expenses-Last Ten Fiscal Years................................. 52 Debt Coverage Ratios-Last Ten Fiscal Years.......................................................................... 53 Computation of Direct and Overlapping Debt-Current Fiscal Year. 54 Ratios of Outstanding Debt-Last Ten Fiscal Years. 55 Comparison of the Volume of Wastewater Treated-Last Ten Fiscal Years. 56 Authorized Full-time Equivalents by Function-Last Ten Fiscal Years...................................... 57 Biosolids Produced-Last Ten Fiscal Years............................................................................... 58 Capital Asset Statistics-Last Ten Fiscal Years......................................................................... 59 Demographic Statistics-Last Ten Fiscal Years......................................................................... 60 Estimated Population Served by Orange County Sanitation District-Current Fiscal Year....... 61 Principal Orange County Employers-Current Fiscal Year and Nine Years Ago....................... 62 OperatingIndicators.................................................................................................................... 63 OTHER DATA&TRENDS: Cash and Investment Portfolio-As of June 30, 2013................................................................ 66 Property Tax Rates-Direct and Overlapping Governments-Last Ten Fiscal Years............... 67 Assessed and Estimated Actual Value of Taxable Property-Last Ten Fiscal Years................ 68 Property Tax and User Fee Levies and Collections-Last Ten Fiscal Years............................. 69 Property Value and Construction-Last Ten Fiscal Years ......................................................... 70 Insurancein Force....................................................................................................................... 71 Return to Aaenda Report (THIS PAGE LEFT INTENTIONALLY BLANK) Orange County Sanitation District 10844 BIG Axrxia.Fixntari Valley.G192708 7149622411Cypress . wwwo6ewascom Brea piece Park October 30, 2013 Foumain Valley Fullerton The Board of Directors of the Garden Grove Orange County Sanitation District, Orange County, California Hkintiagon Beach Submitted herewith is the Comprehensive Annual Financial Report of the Orange County Sanitation District, Orange County, California for the fiscal year ended June 30, 2013. This report includes the La Habra financial position and activity of individual revenue areas, as described within the Governmental Structure below, as of June 30, 2013 and was prepared by the Financial Management Division of La Palm the Sanitation District's Administrative Services Department. LosAiamitris Responsibility for both the accuracy of the data, and the completeness and fairness of the Newport Beach presentation, including all disclosures, rests with the Sanitation District. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a Orange manner designed to present fairly the financial position and results of operations of the Sanitation Placental District. All disclosures necessary to enable the reader to gain an understanding of the agency's financial activities have been included. Santa Ana Included within the accompanying financial statements are all of the organizations, activities, and Seal Beach functions controlled by the Sanitation District's Board of Directors in accordance with the Stanton Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting. For the purpose of this evaluation, control was determined by the Board's responsibility for: (1) adoption of the budget and user charges, (2) taxing authority, and (3) establishment of policies. The reporting entity and its services are described in further detail in Note Villa Park 1 of the financial statements. Yortia Linda An audit of the books, financial records and transactions of the Sanitation District is conducted Countyciforarge annually by independent certified public accountants. The Sanitation District selected the accounting firm of McGladrey LLP to perform the audit for the year ended June 30, 2013. The '- a• auditors'report on the Sanitation District's basic financial statements and supplementary information Sanitary istrict is located on page 1 within the financial section of this report. This report renders an unmodified Midway City opinion on the Sanitation District's basic financial statements for the year ended June 30, 2013. DistrictSanitary Management's discussion and analysis (MD&A) immediately follows the independent auditor's Intme Ranch report and provides a narrative introduction, overview, and analysis of the basic financial Water District statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. GOVERNMENTALSTRUCTURE The Orange County Sanitation District encompasses the Northern section of Orange County. The Sanitation District provides wastewater treatment for an area of the County covering 479 square h miles and serving a population of approximately 2.5 million, or 81 percent of the County's population. The Sanitation District was originally incorporated in 1954 as nine separate public corporations, or districts. In April of 1998, at the Sanitation District's request, the Board of Supervisors of the County of Orange passed Resolution No. 98-140 ordering the consolidation of these nine County Sanitation Districts into a new, single sanitation district, to be known as the ,E Orange County Sanitation District, effective July 1, 1998. This action was recommended to the Board by the Local Agency Formation Commission in order to simplify governance structures, i We protect public health and the environment by providing effective wastewater collection, treatment,and recycling Return to Mends Report reduce the size of the Board, ease administrative processes, streamline decision-making and consolidate accounting and auditing processes. The boundaries of the nine previous districts had remained intact for the purpose of collecting sewer user fees at the previously established rate schedules, and were referred to as nine individual revenue areas through June 30, 2000. Effective July 1,2003, all Revenue Areas, except Revenue Area 14, consolidated user fee rates and all enterprise fund accounting and budgeting activities and are now known as the Consolidated Revenue Area. The Sanitation District is managed by an administrative organization composed of directors appointed by the agencies or cities which are serviced by the Sanitation District. Each of the two remaining Revenue Areas, the Consolidated Revenue Area and Revenue Area 14, has its own budget and is responsible for the construction and maintenance of its own collection system. All Revenue Areas, except Revenue Area 14 and the portion of the Consolidated Revenue Area previously known as Revenue Area 13, receive their own share of the one-percent ad valorem property tax levy. In addition, all Revenue Areas except Revenue Area 14, collect user fees from property owners. Revenue Area 14 receives all of its revenues from service charges to the Irvine Ranch Water District. The purpose of the Sanitation District's wastewater management program is to protect the public's health, preserve the beneficial uses of the coastal waters, and maintain air quality. The objectives of operating the treatment plants are to process and dispose of the treated wastewater and the separated solids in accordance with Federal, state, and local laws including the Environmental Protection Agency. The Sanitation District sewerage system includes approximately 572 miles of sewers that convey wastewater generated within the Sanitation District's boundaries to the Sanitation District's two wastewater treatment plants, Reclamation Plant No. 1 located in the City of Fountain Valley, and Treatment Plant No. 2 located in the City of Huntington Beach. Plants No. 1 and No. 2 have primary treatment capacities, including standby, of 204 million gallons per day (mgd) and 168 mgd, respectively. In fiscal year 2012-13, greater than 98.8 percent of all advanced primary effluent also received secondary treatment. Both plants are master-planned for a future primary and secondary treatment capacity of 235 mgd for a combined total of 470 mgd by the year 2070. After wastewater receives secondary treatment at Plant No. 1, it flows to the Groundwater Water Replenishment System (GWRS) at the Orange County Water District, located adjacent to the Sanitation District, where it undergoes a state-of-the-art purification process consisting of microfiltration, reverse osmosis, and ultraviolet light with hydrogen peroxide. The product water is near-distilled-quality. Approximately 35 million gallons (132,500 cubic meters) per day of the GWRS water are pumped into injection wells to create a seawater intrusion barrier.Another 35 million gallons (132,500 cubic meters)are pumped daily to Orange County Water District's percolation basins in Anaheim where the GWRS water naturally filters through sand and gravel to the deep aquifers of the groundwater basin. Remaining outflows of treated wastewater from Plants 1 and 2 are combined and discharged to the ocean off the Huntington Beach coast through an outfall pipe that is 120 inches in diameter and approximately five miles long. The last mile of the outfall pipe is a diffuser that dilutes the wastewater with seawater in a ratio of 148 parts seawater to one part treated wastewater at an average depth of 185 feet. ECONOMIC CONDITIONS AND OUTLOOK In October 2013, the Institute for Economic and Environmental Studies at the California State University Fullerton Mihaylo College of Business and Economics (CSUF) forecasts that the U.S. gross domestic product (GDP) will grow an average of 1.7 percent this year given the weak first half and the potential damage in the fourth quarter from the government shutdown, and then rise to 2.5 percent in 2014 and 2.9 percent in 2015. The CSUF forecast reported that the construction activity in the Southern California region has continued to improve markedly after a precipitous fall during the recession. Housing starts have grown and permits Return to Aaenda Report have risen from a low of 2,200 in 2009 to 6,900 in 2012 in Orange County. However, the first half of 2013 has shown a much slower pace of increase in permits in all areas of the regions as uncertainty over interests rates and the overall economy appears to have caused builders to become more cautious, especially for the balance of 2013 and early into next year. CSUF is forecasting 2013 to fall to 4,300 but rebound to 7,000 in 2014. Weakened by a sluggish national economy, Orange Countys job growth has slowed this year, but is expected to pick up gradually in 2014 and 2015. Although the"healing process"from the Great Recession has continued, the CSUF forecast concludes that 2013 has faced an unusual array of issues such as political gridlock, geopolitical turbulence, monetary policy uncertainty and fiscal tightening, culminating in the government shutdown. The CSUF forecast predicts an average Orange County payroll job growth of 2.0 percent this year, a drop from last year's 2.3 percent. However by 2015,job growth is expected to rise to 2.8 percent. The unemployment rate in Orange County is steadily declining. The CSUF forecast predicts a drop this year to an average of 6.1 percent from 7.6 percent last year. By 2015, unemployment in the county should dip to 5.1 percent. From 2010 through August of this year, Orange County gained 80,200 payroll jobs, a rise of 6.0 percent. The growth, however, has been "uneven across the industry segments" as construction employment is building momentum with a 15.9 percent rise over the last four years while professional and business services added only 3,100 jobs in the last 12 months, compared to a gain of 11,400 over the previous 12 months. Retail trade actually showed a loss of 1,500 jobs compared to a gain of 1,100 jobs in 2012. Many Orange County businesses are delaying hiring and investment because of concerns about whether Congress and the White House can agree on a budget and how long the Federal Reserve will continue its bond-buying stimulus. Orange Countys median single-family home price remains at least 15 percent below its 2006 peak, at the height of the real estate bubble. But the forecast concludes that a rapid price rise over the past year bodes well for future consumer spending. The CSUF forecast predicts a tempering in housing price appreciation due to uncertainty over interest rates and the overall economy. MAJOR INITIATIVES Meeting Full Secondary Treatment Standards The Sanitation District's Board of Directors decided in July 2002 to voluntarily give up its modified ocean discharge permit, issued under section 301(h) of the Federal Clean Water Act, which allowed the Sanitation District to discharge a higher level of Suspended Solids and Biochemical Oxygen Demand than otherwise required by the Act if adequate environmental and public health protection was demonstrated. To obtain a renewal of its ocean discharge permit at secondary treatment standards without the modification (often referred to as a "waiver") and , the Sanitation District undertook a massive capital improvement program ("CIP")of building new, and rehabilitating existing, facilities in order for the Sanitation District to operate its facilities in a manner that will allow it to achieve secondary treatment standards as defined by the Act. Permits are issued for a five (5) year duration, and the U.S. Environmental Protection Agency (EPA) has no authority to waive the discharge limits requirements or grant a longer permit (except per Sec. 301(h)). In November 2004, a consent decree was signed by EPA and filed with the U.S. District Court that approved the construction schedule and decrees that no penalties will be imposed for discharges that exceed the secondary treatment limits during the period of construction. Seven milestones towards achieving secondary treatment standards were identified within the consent decree along with due dates, as follows: • March 15, 2006—Completion of the new$44.4 million "Trickling Filter Facility'at Plant 1. • November 15, 2006 — Completion of the design and advertising for construction of the "New Activated Sludge System"at Plant 1. iii Return to Aaenda Report • January 15,2007—Completion of the design and advertising for construction of Trickling Filters at P2. • March 28, 2008—Completion of construction for Rehabilitation of Activated Sludge Plant at Plant 2. • February 15,2011 —Complete construction of Plant No. 2 secondary treatment expansion. • July 10,2012—Complete construction of Plant No. 1 secondary treatment expansion. • December 31, 2012—Compliance with Code of Federal Regulations secondary treatment requirement. The District is in compliance with the Consent Decree and has successfully completed all seven milestones within the specified deadlines as required. The District completed the final milestone on December 29, 2012. Strategic Planning In November 2007, the Board of Directors adopted a new comprehensive strategic plan to steer OCSD's efforts and engage the organization to envision service levels and operational needs for the next five years. In continuing to look at the five-year horizon, the Strategic Plan has been updated on an annual basis. Each of these strategic plan annual updates has followed a similar process that had been established when the original November 2007 had been adopted with the General Managers Office initiated the planning effort with the Executive Management Team, and then soliciting input and ideas from managers and supervisors. In October 2013, the staff-generated ideas were presented to the Board of Directors during a workshop, where Board Members discussed and deliberated changes and additions to the plan. Driven by the Sanitation District's mission, vision and core values, the 2013 Strategic Plan update maintains an aggressive effort to meet the sanitation, health, and safety needs of the 2.5 million people being served in a cost effective manner,while protecting the environment where we live. Since 2007, 90 percent of the strategic goals identified have been completed. Eleven new goals were added in the 2013 update and the continuation of four previous goal was included in the plan. The New Goals include: • Legislative Advocacy and Public Outreach Efforts — Position the District as a leader in innovative solutions to infrastructure issues, pursue available government subsidies for funding District programs, and educate the public as to the District's purpose, mission, and services provided. • Identify Potential Biosolids Management Options—The District will have a clear mid-term and long-term strategy for biosolids management following FY 2016-17 when the existing composting contract expires and biosolids production will be reduced by one-third. (The reduction in biosolids will occur when centrifuges are constructed and placed into service that will reduce the volume of water in the biosolids production). • Odor Control—Completion of an Odor Control Master Plan to ensure that the District is limiting offsite odor impacts in a comprehensive and cost effective manner and to ensure that the District's investment in current and potentially future process systems will produce the benefits intended. • Energy Efficiency -Reaffirm the District's commitment to leadership in energy efficiency and energy conservation from organic sludge to electricity,gas, and useful heat. • Future Water Recycling Options—The District will begin to plan for the highest and best utilization of effluent water at Treatment Plant No. 2. • Cessation of Disinfection of the District's Ocean Discharge—Seek to remove the requirement to disinfect the outfall effluent from the ocean discharge permit and to recover full marine life around the ocean outfall. v Return to Aaerda Report • Transfer of Local Sewers—Obtain Board's direction as to whether local sewers(as opposed to regional sewer) should be maintained by member cities and local sewer agencies. • Workforce Planning &Workforce Development(WFPD)— Integrate WFPD efforts to ensure workforce capabilities match work required to meet the District's mission and levels of service. • Asset Management Update and Action Plan—Maintain resilient, cost effective infrastructure which protects public health and the environment. • Business Risk Management and Safety and Security—The District is in a continually state of readiness and is always in a position to provide its critical services to the public. • Operational Efficiencies—Safe and cost-effective operation and maintenance of District facilities while meeting all levels of service expectations. Continuation of previous Goal: • SARI Line Relocation — Work in conjunction with the County of Orange and the Federal Government to relocate the Santa Ana River Interceptor Line from the flood plain of the Santa Ana River by December 31,2013. • Engine Emission Compliance — Implement capital improvements or operational modifications to achieve engine emission compliance of the District's cogeneration engines. • Fuel Cell Evaluation — Evaluate the cost feasibility of replacing or supplementing cogeneration engines with fuel cell technology. • Odor Control — Implement odor control projects at Plant No. 1 (trickling filters) and Plant No. 2 (solids loading facility)by 2018. This strategic plan continues to chart a focused roadmap of success for the future of the Orange County Sanitation District. It addresses critical issues and challenges,and communicates clear and concise future direction to Sanitation District staff. SERVICE EFFORTS AND ACCOMPLISHMENTS In July 2012, the Sanitation District received the Gold Peak Performance Award from the National Association of Clean Water Agencies covering Reclamation Plant No. 1 and Treatment Plant No. 2 for outstanding compliance with the National Pollutant Discharge Elimination System (NPDES) permit limits for 2011-12. In September 2012, the Sanitation District received the National Water Research Institute Award of Excellence for the successful completion of its full secondary treatment program. In November 2012, the Sanitation District received the Engineering News-Record California Best Civil Works/Infrastructure Project Award of Merit for the Bitter Point Pump Station Project. In December 2012, the Sanitation District was awarded the National Water Research Institute's Award of Excellence for leadership and commitment in completing the ten-year secondary treatment program and ensuring that only the highest quality water is released into the ocean and recycled by the Groundwater Replenishment System. In January 2013, the Sanitation District received the California Water Environment Association Engineering Achievement Award for the Ocean Ouffall and Ocean Outfall Booster Station Piping Rehabilitation. v Return to Aaenda Report ACCOUNTING AND BUDGETARY CONTROLS The Sanitation District's accounting records are maintained on the accrual basis. In developing and evaluating the Sanitation District's accounting system, consideration is given to the adequacy of internal accounting controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from unauthorized use or disposition; and (2) the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the evaluation of costs and benefits requires estimates and judgments by management. We believe that the Sanitation District's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Each year the Sanitation District's Board of Directors adopts an annual operating plan. A joint works budget is first prepared that identifies the specific capital projects and operating activities to be undertaken by the Sanitation District during the year. The budgetary level of control, the level at which expenses cannot exceed budget, is exercised at the individual district, or fund level. The Sanitation District has adopted a Uniform Purchasing Policy that identifies the agreed upon purchasing standards. ACCUMULATED FUNDS AND RESERVES POLICY The Board of Directors of the Orange County Sanitation District has established the following Accumulated Funds and Reserves Policy: Cash Flow Reserve: is established to fund operations, maintenance and certificates of participation expenses for the first half of the fiscal year, prior to the receipt of the first installment of the property lax allocation and the sewer service user fees which are collected as a separate line item on the property tax bill. The level of this reserve will be established as the sum of an amount equal to six months operations and maintenance expenses and the total of the annual debt(COP) service payments due in August each year. Operating Contingency Reserve: is established to provide for non-recurring expenditures that were not anticipated when the annual budget and sewer service fees were considered and adopted. The level of this reserve will be established at an amount equal to ten percent of the annual operating budget. Capital Improvement Reserve: is established to fund annual increments of the capital improvement program. The long-term target is for one half of the capital improvement program to be funded from borrowing and for one half to be funded from current revenues and reserves. With this program in mind, the target level of this reserve has been established at one half of the average annual capital improvement program through the year 2020. Levels higher and lower than the target can be expected while the long- term financing and capital improvement programs are being finalized. Catastrophic Loss or Self-Insurance Reserves: are established for property damage including fire, flood and earthquake; for general liability; and for workers'compensation. These reserves are intended to work with purchased insurance policies, FEMA disaster reimbursements and State disaster reimbursements. Based on the current infrastructure replacement value of$6.26 billion, the reserve level has been set to fund the District's non-reimbursed costs, estimated to be$57 million. Capital Replacement/Renewal Reserve Policy: is established to provide thirty percent of the funding to replace or refurbish the current collection and treatment and disposal facilities at the end of their useful economic lives. The current replacement value of these facilities is estimated to be $3.14 billion for the collection facilities and $3.12 billion for the treatment and disposal facilities. The initial reserve level was established at $50 million, which will be augmented by interest earnings and a small portion of the annual sewer user fees in order to meet projected needs through the year 2030. vi Return to Aaenda Report Debt Service Reserves: Provisions of the various Certificate of Participation (COP) issues require debt service reserves to be under the control of the Trustee for that issue. These reserve funds are not available for the general needs of the District and must be maintained at specified levels. The level of required COP service reserves at June 30, 2013 was$45.2 million. In addition, the District's Debt Service Reserve policy requires total debt service reserves to be ten percent of the total outstanding COP debt, or $135 million at June 30, 2011 Accumulated funds exceeding the levels specified by Dismct policy will be maintained in a rate stabilization fund. These funds will be applied to future years' needs in order to maintain rates or to moderate annual fluctuations. There is no established target for this reserve. As of June 30, 2013, the Sanitation District was in compliance with the Accumulated Funds and Reserves Policy with designated cash and investments totaling $500 million, and have been earmarked for the following specific purposes in accordance with the Sanitation District's reserve policy. Designated Cash and Investments Designated For Cash Flow Contingency $174 million Designated For Self-Insurance 57 million Designated For Capital Improvements 234 million Designated For Debt Service Requirements 135 million Total Designated Cash and Investments 8 500 million CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers' Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Orange County Sanitation District for the Sanitation District's comprehensive annual financial report for the year ended June 30, 2012. This was the nineteenth consecutive year that the Sanitation District has received this award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report confinues to meet the Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. ACKNOWLEDGMENTS This report could not have been accomplished without the dedicated services of the Financial Management Division staff, and I would like to especially express my appreciation to Lina Hsiao, Accounting Supervisor, who assisted in its preparation. I would also like to thank the Sanitation District's Board of Directors, the General Manager, and the Director of Finance and Administrative Services for their interest and support in conducting the financial operations of the Sanitation District in a responsible and progressive manner. Respectfully submitted, Michael D. White, CPA Controller vii Return to Mende Report G�9 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to Orange County Sanitation District, California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012 Executive Director/CEO viii Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Board of Directors As of June 30, 2013 Aaencv Active Director Alternate Director Cities: Anaheim Lucille Kring Jordan Brandman Brea Brett Murdock Roy Moore Buena Park Fred Smith Steve Berry Cypress Prakash Narain Doug Bailey Fountain Valley Steve Nagel Mark McCurdy Fullerton Gregory Seboum Jan Flory Garden Grove Steve Jones Kris Beard Huntington Beach Joe Shaw Joe Carchio Irvine Steven Choi Christina Shea La Habra Tom Beamish Rose Espinoza La Palma Peter Kim Gerard Goedhart Los Alamitos Troy Edgar Richard Murphy Newport Beach Keith Curry Rush Hill Orange Teresa Smith Mark Murphy Placentia Scott Nelson Constance Underhill Santa Ana David Benavides Sal Tinajero Seal Beach Michael Levitt Gordon Shanks Stanton David Shawver Carol Warren Tustin John Nielsen Allan Bernstein Villa Park Brad Reese Greg Mills Yorba Linda John Anderson Gene Hernandez Sanitary Water Districts: Costa Mesa Sanitary District James M. Ferryman Robert Ooten Midway City Sanitary District Tyler Diep Allan P. Krippner Irvine Ranch Water District John Withers Douglas Reinhart County Areas: Member of the Board Janet Nguyen Shawn Nelson of Supervisors ix Return to Anenda Report ORANGE COUNTY SANITATION DISTRICT Organizational Chart As of June 30,2013 Genaral Cwnsel Olfi Mminisbeure FM Ecol SeeN SeMua SaM'ns Adiat OSMMmn Main Iii Mi FetlPoea Sababrt O�pematl�owt nMbi10 Public Aflaio Conbeee. Epbop - PMM 2 A" A Puchlxli ReBUM Operaava MwOerrata Mebaels ORm MareEemant li MSum. Me1M.Malnt. 6'G�teerb➢fl CoreaufM IMalmaon Txnroloar FetiHles NstrurenleEmB EmlmtlalW FnplxaNB FJeMuIAIVm C pYarc4 PosF Meugem nu Sakry Sluice Enmm�mnMl InpeMlm laEwetoryfl omnMWhnng DWII ubn GYYmme X Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Map of Service Area As of June 30, 2013 ArM HA BRA BREA ` YORBA cawmrry FULLER UNDA mod PUKE NI LA B K P RE ANAIll VILLA PA LOS ORANGE �--� A M?OS AROE ROV SEAL :BEACH /N fR i a _ N ANA UMA (ALLEY HUNTI TO B 'a^ IRVINE COSTA MESA �NEWPORT BEACH N Seryiee area hountlary 1 2 a Sewer pipelines SReclamation Plant No.S(PI) Treatment Plant No.2(P2) rye m,•.m mM«.•.•enm.� •m.sua:,we..e,m m,•., (gvyiml Hvnvnnmp„/id q ReN / Pump and lift stations amrrmnawp•w>eme- 1-1 Unincorporated Orange County(white areas) a"wurznvm xi Return to Aaenda Report (THIS PAGE LEFT INTENTIONALLY BLANK) A �liodrin,11.1.1if 18,401 Von Karman,5"Floor Irvi CA 92612-8531 0919.2556500 F9,19.255.5091 M cG l a d rey www mcgladmymm Independent Auditor's Report Board of Directors Orange County Sanitation District Fountain Valley, CA Report on the Financial Statements We have audited the accompanying financial statements of the Orange County Sanitation District (the District) as of and for the year ended June 30, 2013, 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 (U.S. GAAP); this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with sodding standards generally accepted in the United States of America (U.S. GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 financial position of the District as of June 30, 2013, and the changes in its financial position and its cash flows for the year then ended in accordance with U.S. GAAP. 1 meoo .lafm.RMimemnw"a mrvrk of lnp f,ma¢ouRunquaandBoniumrgfi— Return to Amenda Report Other Matters Required Supplementary Information U.S. GAAP requires that the management's discussion and analysis 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, which 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 U.S. GARS, 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 comprise the District's basic financial statements. The separate'Combining Area'financial statements, introductory section, statistical section, and other data and trends are presented for purposes of additional analysis and are not a required part of the basic financial statements. The "Combining Area' financial statements are the responsibility of management and were derived from and relate directly to the undedying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with U.S. GARS. In our opinion, the'Combining Area'financial statements are fairly staled in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections and other data and trends have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Pnor-Year Comparative Information We have previously audited the District's June 30, 2012 financial statements, and we expressed an unmodified audit opinion on the respective financial statements in our report dated November 5, 2012. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2012 is consistent, in all material respects, with the audited financial statements from which it has been derived. Irvine, CA / October 30,2013 2 Return to Aaenda Report Management Discussion and Analysis June 30, 2013 This section of the financial statements of the Orange County Sanitation District (District) is management's narrative overview and analysis of the financial activities of the District for the fiscal year ended June 30, 2013. The information presented here is to be considered in conjunction with additional information provided within the letter of transmittal located in the Introductory Section of this report. Financial Highlights • As of June 30, 2013, the assets and deferred outflows of the District exceeded its liabilities by $1,700.7 million (net position). Of this amount, $520.4 million represents unrestricted net position, which may be used to meet the District's ongoing obligations to citizens and creditors. • The District's total net position increased$103.1 million,or 6.5 percent over the prior year. • Net Capital Assets, consisting of non-depreciable capital assets and depreciable capital assets net of accumulated depreciation, increased$17.9 million, or 0.7 percent over the prior year. • Net investment in capital assets increased$54.3 million, or 4.8 percent. • Unrestricted Net Assets increased$48.8 million, or 10.3 percent from the prior year. • The District's total outstanding bonded debt decreased by$61.0 million over the prior year to $1.275 billion. Overview of the Basic Financial Statements The District operates as a utility enterprise and presents its financial statements using the economic resources measurement focus and the full accrual basis of accounting. As an enterprise fund, the District's basic financial statements are comprised of two components: financial statements and notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. In accordance with the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards and the current years implementation of GASB Statement No. 63, "Financial Reporting of Deferred Outflows of Resources, Defamed Inflows of Resources, and Net Position", the District's financial statements include a Statement of Net Position; Statement of Revenues, Expenses and Changes in Net Position; and a Statement of Cash Flows. The Statement of Net Position includes all of the District's assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to District creditors (liabilities). It also provides the basis for computing the rate of return, evaluating the capital structure of the District, and assessing the liquidity and financial flexibility of the District. The Statement of Revenues, Expenses, and Changes in Net Position accounts for the current year's revenues and expenses. This statement measures the success of the District's operations over the past year and can be used to determine the District's creditworthiness. It also highlights the District's dependency on property tax revenues in supplementing user fees and other charges for recovering total cost. The final required financial statement, the Statement of Cash Flows, reports rash receipts, cash payments, and net changes in cash resulting from operations and investments of the reporting period. Net Position As previously noted, net position increased $103.1 million, or 6.5 percent over the net position for FY 2011-12 (restated due to the impacts from the implementation of GASB Statement No. 65 — 'Items Previously Reported as Assets and Liabilities"), to $1,700.7 million in Fiscal Year 2012-13. In comparison, net position increased $96.1 million, or 6.4 percent in FY 2011-12 over Fiscal Year 2010-11, to$1,597.6 million. 3 Return to Mende Report (Dollars in thousands) June 30, Percentage June 30, 2012 Increase Increase 2013 (as restated) (Decrease) (Decrease) Assets Current and other assets $ 691,853 $ 644,771 $ 47,082 7.3% Capital assets, net 2,432,214 2,414,269 17,945 0.7% Deferred outflow of resources 20,723 24,492 (3,769) -15.4% Total assets 3,144,790 3,083,532 61,258 2.0% Liabilities Current liabilities 278,265 276,972 1,293 0.5% Noncurrent liabilities 1,165,800 1,208,942 (43,142) -3.6% Total liabilities 1,444,065 1,485,914 (41,849) -2.8% Net position: Net investment in capital assets 1,180,298 1,125,967 54,331 4.8% Unrestricted 520,427 471,651 48,776 10.3% Total net position $ 1,700,725 $ 1,597,618 $ 103,107 6.5% Current and other assets increased $47.1 million, or 7.3 percent, due primarily to net rash provided by operations of$165.5 million, proceeds from property taxes of$79.4 million, and receipt of capital facilities capacity charges of $12.8 million offset by capital outlays of $97.6 million, interest expense of $42.3 million, certificates of participation (COP) principal payments of $42.6 million, and contributions to other governments of$26.6 million representing a return of part of the equity share ownership of Irvine Ranch Water District(IRWD) based on decreased flows discharged to the District. Capital assets, net increased $17.9 million, or 0.7 percent, due mostly to the ongoing capital improvement program capital additions of$97.6 million in FY 2012-13 less depreciation of$63.9 million, the write down of discontinued capital projects of $8.9 million, and the expensing of $5.1 million of feasibility studies previously recorded as capital assets. Included in total capital outlays was the New Secondary Treatment System at Plant No. 1. This project was one of several capital improvements that were necessary to achieve secondary treatment standards by December 31, 2012 in accordance with a consent decree signed by EPA and filed with the U.S. District Court. This project included construction of aeration basins, clarifiers, a blower building, and waste sludge pumping stations, that now provide additional secondary treatment capacity of 60 million gallons per day(MGD)at Plant No. 1. Capital outlays of$1.4 million were incurred in FY 2012-13 bringing total project outlays to$254.0 million. Another completed secondary treatment construction project was the Trickling Filters at Plant No. 2. This project included the construction of three trickling filters, a solids contact basin, and six clarifiers for additional secondary treatment capacity of 60 MGD at Plant No. 2. Final capital outlays of $0.3 million were incurred in FY 2012-13 bringing total project outlays to$220.0 million. The completion of the Headworks Improvements at Plant No. 2 in FY 2012-13 was another project with significant outlays. This project has replaced the existing headworks due to failing gates and the ineffectiveness of the bar screens and grit chambers that are allowing grit screenings to pass through into the downstream processes causing increased operating costs. This project includes an influent diversion and metering structure, bar screens, influent pump station, vortex grit chambers, primary influent splitter and metering structure, ferric chloride feed facilities, headworks and trunk line odor control facilities, screenings handling building including a washer/compactor, grit handling building, and an electrical building that includes standby power. In FY 2012-13, $6.1 million of the total $257.3 million in capital outlays was incurred. 4 Return to Mende Report See page 7 for the Schedule of Capital Assets and a listing of the other major capital additions for FY 2012-13. Net Investment in capital assets increased $54.3 million, or 4.8 percent over the prior year primarily as a result of the $17.9 million increase in net capital assets coupled with a decrease of $36.4 million in net related debt. Unrestricted net assets increased S48.8 million, or 10.3 percent over the prior year, due to the overall increase in net position of $103.1 offset by the increase in net investment in capital assets of $54.3 million. Changes in Net Position Net position increased $103.1 million in FY 2012-13, a 6.5 percent increase over the prior year. (Dollars in thousands) June 30, Percentage June 30, 2012 Increase Increase 2013 (as restated) (Decrease) (Decrease) Revenues: Operating revenues Service Charges $ 303,400 $ 259,491 $ 43,909 16.9% Permit and inspection fees 1,176 1,030 146 14.2% Total operating revenues 304,576 260,521 44,055 16.9% Non-operating revenues Property taxes 79,240 67,882 11,358 16.7% Investment and interest income (3,913) 15,747 (19,660) -124.8% Contrib.from other government 2,054 7,723 (5,669) -73.4% Other 1,727 763 964 126.3% Total non-operating revenues 79,108 92,115 (13,007) -14.1% Total revenues 383,684 352,636 31,048 8.8% Expenses: Operating expense other than depreciation and amortization 149,817 172,319 (22,502) -13.1% Depreciation and amortization 63,907 56,051 7,856 14.0% Non-operating expense 79,650 37,133 42,517 114.5% Total expenses 293,374 265,503 27,871 10.5% Income before capital contributions 90,310 87,133 3,177 3.6% Capital facilitites capacity charges 12,797 8,936 3,861 43.2% Increase in net position 103,107 96,069 7,038 7.3% Beginning net position 1,597,618 1,501,549 96,069 6.4% Ending net position $ 1,700,725 $ 1,597,618 $ 103,107 6.5% 5 Return to Aware Rom Sources of Revenue Functional Expenses June 30,2013 June 30,1013 ■Collections 1% 21% 13% 9% -1% ■Treatment& M Interest Disposal ■User Fees is% ❑Depreciation& ❑Other Amortization ❑Taxes Levied 40% ❑Interest Expense 23% ■Other As previously slated, an enterprise fund is used to account for the operations of the District, which is financed and operated in a manner similar to private business enterprises. This allows the District to determine that the costs (expenses, including depreciation and amortization) of providing wastewater management services on a continuing basis are financed or recovered primarily through user charges. Sewer service user fees are evaluated annually based primarily on budget requirements for total operation, maintenance and capital expenditures for providing wastewater management services. Property tax revenues are dedicated for the payment of debt service. In FY 2012-13, operating revenues increased $44.1 million, or 16.9 percent over the prior year that is predominately reflective of the$27.2 million, or 11.7 percent increase in service charges and $14.7 million recognized in solids capital lease revenue from IRWD under a newly established agreement. The increase in service charges is primarily due to the 10.1 percent increase in the average sewer user fee rate over the prior year. The$13.0 million, or 14.1 percent decrease in non-operating revenues primarily consists of a $19.7 million, or 124.8 percent decrease in investment and interest income, a$5.7 million, or 73.4 percent decrease in contributions from other governments that is partially offset by a$11.4 million, or 16.7 percent increase in property tax revenues, and a$1.0 million, or 126.3 percent increase in other non-operating revenues. The decrease in investment and interest income is attributable to lower yields earned on investments as cash and investments balances grew. The total return earned on investments decreased from 2.8 percent in FY 2011-12 to-0.6 percent in FY 2012-13 as an unrealized loss of$14.4 million was recorded in FY 2012-13 due to declines in the bond market at year-end. However,this unrealized loss reflects mark-to-market price declines and not the permanent impairment of bond investments. The District is sufficiently liquid within its short-term portfolio to meet its obligations without having to force a sale of the underperforming bonds at a loss. The District's investment portfolio balance increased during this same time period from$577 million to$600 million. The decrease in contributions from other governments is reflective of the decrease in capital contributions from IRW D. This decrease is reflective of decline in IRWD's equity share ownership based on decreased flows discharged to the District. The increase in property lax revenue is primarily the result of the increase in total assessed valuation of 1.9 percent over the prior year and one-time redevelopment dissolution proceeds. The increase in other non- operating revenues is mostly reflective of the$800,000 received on a settlement claim resulting from equipment failure and $500,000 earned in federal grants from the U.S. Bureau of Reclamation. Operating expense before depreciation and amortization decreased $22.5 million or 13.1 percent over the prior year. The majority of this decrease is attributable to the $23.6 million decrease in feasibility studies, of which $27.4 million was incurred prior to FY 2011-12 but expensed in FY 2011-12. Previously, feasibility studies had been recorded as construction in progress, a Non-depreciable Capital Asset on the Statement of Net Position. Although not deemed material in prior years, management made the decision 6 Return to Aaenda Report to expense the costs in FY 2011-12 to conform to generally accepted accounting principles in regards to the accounting for feasibility studies. Excluding feasibility studies, operating expense before depreciation and amortization increased $1.0 million or 0.8 percent over the prior year. Operating salaries and benefits totaling $76.9 million increased $1.2 million, or 1.6 percent over the prior year. The operating salaries and benefits costs are part of the overall increase of $0.4 million in total salaries and benefits when including the salaries and benefits capitalized within the capital improvement program. Overall, total District salaries and benefits were $90.7 million, a 0.1 percent increase over the prior year total of $90.6 million. This increase is mostly attributable to the $0.8 million, or 2.9 percent increase in benefits, as salaries and wages alone decreased $0.7 million, or 1.2 percent. Legal services increased $1.1 million, or 194.3 percent over the prior year primarily due to increased costs for arbitration, contracts and employee relation services. Somewhat offsetting the increased cost in personnel services and legal services was the decreases of $1.0 million, or 13.5 percent in utilities and $0.9 million, or 5.2 percent in biosolids disposal. The major decrease in utilities was in power that decreased $0.8 million from the prior year due to rate increases being less than what was anticipated. The biosolids disposal cost decrease was primarily due to the termination of an agreement with a private company contracted to process biosolids into an energy fuel. Non-operating expense increased $42.5 million, or 114.5 percent and is primarily reflective of the increase in capital distribution back to the Irvine Ranch Water District (IRWD) in FY 2012-13 of $22.0 million over the prior year, as $26.6 million of capital distribution was owed back to IRWD in FY 2012-13, as opposed to $4.6 million in FY 2011-12. The decline in the reduction is reflective of IRWD's volume of sewage flow contributions coming into alignment with their corresponding equity share in the District's treatment plant. In addition, debt service interest payments totaling $42.3 million increased $13.6 million, or 47.4 percent over the prior year Capital Facility Capacity Charges increased $3.9 million, or 43.2 percent over the prior year due to the rebound in the economy and the increase activity in construction as total the total building permit valuation in Orange County increased 16.9 percent in Fiscal Year 2012-13 over the prior year. Capital Assets At June 30, 2013, the District had a net investment of$2.432 billion in capital assets. This represents a net increase(including additions and deletions)of$17.9 million or 0.7 percent over the prior year. (Dollars in thousands) Percentage June 30, June 30, Increase Increase 2013 2012 (Decrease) (Decrease) Land $ 15,960 $ 15,960 $ - 0.0% Construction in Progress 1,197,777 1,271,217 (73,440) -5.8% Sewage collection facilities 351,731 337,561 14,170 4.2% Sewage treatment facilities 738,893 660,728 78,165 11.8% Effluent disposal facilities 40,902 42,490 (1,588) -3.7% Solids disposal facilities 336 346 (10) -2.9% General and administrative facilities 84,394 83,088 1,306 1.6% Assets acquired in excess of book value 2,221 2,879 (658) -22.9% Capital assets, net $ 2,432,214 $ 2,414,269 $ 17,945 0.7% Major capital asset additions for the current fiscal year included the following: 7 Return to Agenda Report • $10.9 million—Sludge Digester Rehabilitation at Plant No. 1 • $ 9.3 million—Outfall Land Pipe and Outfall Overflow Booster Station Pipe Rehabilitation • $ 7.3 million—Rehabilitation of Solids Storage Silos A&B at Plant No. 2 • $ 6.5 million—Sludge Dewatering and Odor Control at Plant No. 1 • $ 6.4 million—Central Generation Engines Cooling Water System Replacement More detailed information about the District's capital assets is provided in Notes 1 and 3 of Notes to the Financial Statements. Debt Administration At June 30, 2013,the District had $1.275 billion outstanding in COP debt, a net decrease of$61.0 million, or 4.6 percent over the prior year. Other than the schedule of debt service payments, this decrease is due to the refunding of$91.9 million of Series 2000 A and B variable rate debt with the issuance of$66.9 million in fixed rate debt, Series 2012B Wastewater Refunding Revenue Obligations. In addition, Revenue Refunding Certificate Anticipation Notes, Series 2012C Certificates of Anticipation Notes (CANS) fixed rate debt was issued in the amount of$131.7 million in October 2012 to refund the $143.2 million outstanding principal balance of the CANS Series 2011 B fixed rate debt. Both Standard and Poor's Corporation and Fitch Ratings reaffirmed their AAA rating of the Orange County District in the past fiscal year. The District's long-range financing plan is designed to maintain this high rating. Over the next five years, the District is projecting an additional$1.0 billion in future treatment plant and collection system capital improvements. In accordance with the District's long-term debt fiscal policy, the District will restrict long-term borrowing to capital improvements that cannot be financed from current revenue. However, no new debt issuances is being proposed over the next five years to assist with the funding of the system improvements scheduled over this time period. For more information on long-term debt activities, see Note 4 of the Notes to Basic Financial Statements. Economic Factors and Next Year's Budgets and Rates • The unemployment rate within the County of Orange is currently 6.1 percent, a decrease from the rate of 7.9 percent a year ago. • Inflation for Orange County in FY 2012-13 increased 2.0 percent based on the actual percentage change in the consumer price index according to the June 2013 Economic and Business Review report prepared by Chapman University. • The actual rate of return on investments decreased from the 2.8 percent earnings rate in FY 2011-12 to-0.6 percent for FY 2012-13. All of these factors were considered in preparing the District's biennium budget beginning July 1,2013. The District's user fee schedule was increased by 4.8 percent for FY 2013-14 over the prior year. The annual fee applicable to the District's largest customer base and the underlying basis for all other user rates: the single-family residential fee, increased by$14.00, from $294.00 to $308.00. This rate increase was necessary to finance the District's cash flow needs as capital improvement outlays alone are projected to be$141.6 million in FY 2013-14 and are projected to total $2.1 billion over the next 10 years in order to rehabilitate and upgrade existing facilities and provide for full secondary treatment standards. Requests for Information The financial report is designed to provide a general overview of the District's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Financial Management Division, Orange County Sanitation District, 10844 Ellis Avenue, Fountain Valley, CA 92708-7018. 8 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT BASIC FINANCIAL STATEMENTS 9 ORANGE COUNTY SANITATION DISTRICT Return to Mends Report Statement of Net Position June 30, 2013 (With Comparative Data for June 30, 2012) 2013 2012(as restated) Current assets: Cash and cash equivalents $ 208,278,072 $ 135,014,420 Investments 339,152.573 378,937,214 Accounts receivable,net of allowance for uncolleclibles$19,091 9,757.514 9,452,589 Accrued interest receivable 1,596.362 1,576,247 Connection fees receivable 1,565,534 647,485 Property tax receivable 1,363,536 1,542,223 Inventories 5,689,074 5,696,197 Prepaid expenses 600.214 858,826 Prepaid retirement 17,555,710 14,937,778 Total current assets 585,558.589 548,562,979 Noncurrent assets: Restricted: Cash and cash equivalents 36,118,018 36,541,736 Investments 16,940,965 26,829,427 Accrued interest receivable 230,648 239.070 Unrestricted: Non-depreciable capital assets 1,213,736,882 1,287,176,876 Depreciable capital assets, net of accumulated depreciation 1,218,477,069 1,127.092,227 Prepaid insurance on outstanding debt payable 1,658,521 1.734.762 Due from other governmental agency 51,336,000 30,852,290 Other noncurrent assets, net 10,344 10,344 Total noncurrent assets 2,538,508,447 2,510,476,732 Total assets 3,124,067,036 3.059,039,711 Deferred outflow of resources: Deferred charges on refunding debt 20,722,872 24.491.763 Total assets and deferred outflow,of resources 3,144,789,908 3.083.531.474 Current liabilities: Accounts payable 11,485,962 12.232.536 Accrued expenses 8,123,120 7,410,100 Retentions payable 8,286,811 2,045,987 Interest payable 23,153,100 21,839.400 Due to other governmental agency 48,700,573 47,659,381 Current portion of long-term obligations 178,515,737 185,784,283 Total current liabilities 278,265,303 276,971,687 Noncurrent liabilities: Noncurrent portion of long-term obligations 1,166,799,690 1,208,942,170 Total liabilities 1,444.064,993 1,485,913,857 Net position: Net investment in capital assets: Collection system 608,994,825 517,578,982 Treatment and disposal-Land 4,475.751 4,475,761 Treatment and disposal system 1.918.743,375 1,892,214,370 Capital assets related debt (1,251,916,008) (1,288,302,786) Subtotal 1,180,297,943 1,125,955,317 Unrestricted 520,426,972 471,661,300 Total net position $ 1,700,724,915 $ 1,597,617.617 See Accompanying Notes to Basic Financial Statements. 10 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2013 (With Comparative Data for the Year Ended June 30, 2012) 2013 2012(as restated) Operating revenues: Service charges $ 303,399.529 $ 259.490,532 Permit and inspection fees 1,176,106 1,030,329 Total operating revenues 304,575,635 260,520,861 Operating expenses other than depreciation and amortization: Salaries and benefits 76,878,551 75,641,767 Utilities 6,403.013 7,405,843 Supplies, repairs and maintenance 24,093,927 24,254,601 Contractual services 26,791.095 26,698,372 Directors'fees 144,713 145,562 Meetings and training 719,521 742,765 Feasibility studies 10.646.100 34,198,026 Other 4,140,333 3,232,535 Total operating expenses other than depreciation and amortization 149,817,253 172,319,471 Operating income before depreciation and amortization 154,758,382 88,201,390 Depreciation and amortization 63,906,848 56.051,029 Operating income 90.851.534 32,150,361 Non-operating revenues: Property taxes 79,239,497 67.882,072 Investment and interest income (3,912,925) 15,747,493 Contributions from other government 2.054.154 7,722,571 Other 1.727,320 763,161 Total non-operating revenues 79,108,046 92,115,297 Non-operating expenses: Interest 42.314,928 28,700,431 Contributions to other government 26,590,533 4,615,468 Other 54,549 58,701 Loss on disposal of assets 10,689,755 3,758,398 Total non-operating expenses 79,649,765 37,132.998 Income before capital contributions 90,309,815 87,132,660 Capital Contributions; Capital facilities capacity charges 12,797,483 8,936,033 Change in net position 103,107,298 96,068,693 Total net position-beginning,as restated 1,597,617,617 1,501,548,924 Total net position-ending $ 1,700,724.915 $ 1,597,617,617 See Accompanying Notes to Basic Financial Statements. 11 ORANGE COUNTY SANITATION DISTRICT Return to Aaenda Report Statement of Cash Flows For the Year Ended June 30,2013 (With Comparative Data for the Year Ended June 30.2012) 2013 2012(as restated) Cash flows from operating activities: Receipts from customers and users $ 305,300,505 $ 251,972.581 Payments to employees (77,697,268) (73,257.661) Payments to suppliers (68.387.501) (72,465,597) Net cash provided by operations 159,215.736 106.249,323 Cash flows from nuncepital financing activities: Proceeds from property taxes 79,418,183 67,748,326 Proceeds from various resources 1,674,942 729,471 Net cash provided by nonwpital financing activities 81,093,125 68,477,797 Cash flows from capital and related financing activities: Capital facilities capacity charges 11,879,435 8,674,313 Additions to property,plant and equipment (109,353,843) (73,861,468) Interest paid (51,970,472) (51,661,572) Principal payments on debt obligation (259.070,000) (462,635.000) Proceeds from debt issuances 216.506,206 401,099,196 Debt issuance costs (838,884) (824,812) Net cash used in capital and related financing activities (192,847,558) (179,209.343) Cash flaws from investing activities: Proceeds from the sale of investments 8,932,206,118 8,625,518,492 Purchases of investments (8,896,971,673) (8,710,267,505) SARI project(advance)/payments (20,483.710) 5,147,710 Interest received 10.627,896 7,646,487 Net cash provided by(used in)investing activities 25,378,831 (71,954,816) Net increase(decrease)in cash and cash equivalents 72,839,934 (76,437,039) Cash and cash equivalents,beginning of year 171,556,156 247,993,195 Cash and cash equivalents,end of year $ 244,396.090 $ 171,556,156 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 90,851,534 $ 32,150.361 Adjustments to reconcile operating income to net cash provided by operations: Depreciation and amortization 63,906.848 56,051.029 Bad debt expense(Net recoveries) 11.398 (29.691) Feasibility studies 6,058,284 28,979.182 (Increase)/decrease in operating assets: Accounts receivable (316,323) 988,449 Inventories (30,340) 992.447 Prepaid and other assets (2,359,320) (709.697) Increase/(decrease)in operating liabilities: Accounts payable (746,578) (2,490,064) Accrued expenses 733,795 499.985 Retentions payable - (214.439) Due to other governmental agency 1,041,192 (9,536,729) Pension/OPEB/Catastrophe leave payable 347,732 360,710 Compensated absences (136,296) (212.750) Other payable (277,285) 116,907 Claims and judgments 131,095 (696.377) Net cash provided by operations $ 159.215.736 $ 106.249,323 Noncesh Activities: Unrealized gain(loss)on the fair value of investments $ (14,438,658) $ 8,236,187 Contributions from(to)other government (24,536,380) 3,107,103 Capital facilities capacity contribution 7,450,400 2,184,800 Feasibility studies with no cash effect 6,032,722 21,909,604 See Accompanying Notes to Basic Financial Statements. 12 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 (11 Summary of Significant Accounting Policies Reporting Entity The Orange County Sanitation District(OCSD) is a public agency which owns and operates certain wastewater facilities in order to provide regional wastewater collection, treatment, and disposal services to approximately 2.5 million people in the northern and central portion of the County of Orange, California. OCSD is managed by an administrative organization comprised of directors appointed by the agencies and cities which are serviced by OCSD. OCSD's service area was originally formed in 1954 pursuant to the County Sanitation District Act and consisted of seven independent special districts. Two additional districts were formed and additional service areas were added in 1985 and 1986. These special districts were jointly responsible for the treatment and disposal facilities which they each used. In April of 1998, the Board of Supervisors of Orange County passed Resolution 98-140 approving the consolidation of the existing nine special districts into a new, single sanitation district. This action was taken in order to simplify the governance structures, reduce the size of OCSD's Board of Directors, ease administrative processes, streamline decision-making and consolidate accounting and auditing processes. Pursuant to the Resolution and Government Code Section 57500, the predecessor special districts transferred and assigned all of their powers, rights, duties, obligations, functions and properties to OCSD, including all assets, liabilities, and equity. Effective July 1, 1998, the organization became known as the Orange County Sanitation District. The boundaries of one of the previous districts, now known as Revenue Area No. 14, have been maintained separately because their use of OCSD's collection, treatment, and disposal system is funded by the Irvine Ranch Water District(IRWD). The boundaries of the other eight districts have been consolidated and are collectively referred to as the Consolidated Revenue Area. OCSD utilizes joint operating and capital outlay accounts to pay joint treatment, disposal, and construction costs. These joint costs are allocated to each revenue area based on gallons of sewage flow. The supplemental schedules and statements show internal segregations and are not intended to represent separate funds for presentation as major or non-major funds in the basic financial statements. The accompanying financial statements present OCSD and its blended component unit, the Orange County Sanitation District Financing Corporation. The Corporation is a legally separate entity although in substance it is considered to be part of OCSD's operations. OCSD is considered to be financially accountable for the Corporation which is governed by a board comprised entirely of OCSD's board members. There is no requirement for separate financial statements of the Corporation; consequently, separate financial statements for the Corporation are not prepared. The Corporation had no financial activity during the fiscal year ended June 30, 2013, other than principal and interest payments on outstanding certificates of participation/revenue obligations and notes (see Note 4). OCSD is independent of and overlaps other formal political jurisdictions. There are many governmental entities, including the County of Orange, that operate within OCSD's jurisdiction; however, financial information for these entities is not included in the accompanying financial statements in accordance with the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. Comparative Information The financial statements include partial prior-year comparative information which has been restated for the adoption of GASB Statement No. 65. Such information does not include all of the 13 Return to Agenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the government's financial statements for the year ended June 30, 2012, from which such partial information was derived. Measurement Focus and Basis of Accountino OCSD operates as an enterprise activity. Enterprise funds account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the Board of Directors is that the costs (expenses, including depreciation and amortization) of providing services to the general public on a continuing basis be financed or recovered primarily through user charges. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Enterprise funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred, regardless of the timing of related cash flows. The accounting policies of the District conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles in the United States. Operating Plans Each year, OCSD staff prepares an annual operating plan which is adopted by the Board of Directors. The annual operating plan is used to serve as a basis for monitoring financial progress, estimating the levy and collection of taxes, and determining future service charge rates. During the year,these plans may be amended as circumstances or levels of operation dictate. Cash and Cash Equivalents Investments with original maturities of three months or less when purchased are considered to be cash equivalents. Investments All investments are stated at fair value (the value at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale). Changes in fair value that occur during the fiscal year are reported as part of investment and interest income. Investment and interest income includes interest earnings and realized and unrealized gains or losses in fair value. Accounts Receivable Accounts receivable is shown net of the allowance for uncollectible receivables. Uncollectible receivables were $19,091 at June 30, 2013. Unbilled sewer services through June 30, 2013 are recorded as revenue and receivables. Management determines the allowance for uncollectible receivables by evaluating individual accounts receivable at least one year past due and considering a customer's financial condition, credit history and current economic conditions. Accounts receivables are written off when deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when received. 14 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Inventory Inventory, which is held for consumption and not resale, is stated at cost on a weighted-average basis, and then is expensed when used. Capital Assets Outlays for property, plant, equipment, and construction in progress are recorded in the revenue area which will use the asset. Such outlays may be for individual revenue area assets or for a revenue area's share of joint assets. Capital assets of property, plant, and equipment are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life of at least three years. Such assets are recorded at cost, except for assets acquired by contribution, which are recorded at fair market value at the time received. Cost includes labor; materials; outside services;vehicle and equipment usage; other ancillary costs consisting of direct charges such as engineering, purchasing, supervision, or fringe benefits. Net interest costs are capitalized on projects. During the fiscal year ended June 30,2013, net interest costs of$7.6 million were capitalized. Depreciation of plant and equipment is provided for over the estimated useful lives of the assets using the straight-line method in accordance with generally accepted accounting principles. OCSD also considers the guidelines of estimated useful lives as recommended in the State of California Controller's Uniform System of Accounts for Waste Disposal Districts, which range from 3 to 75 years. The following are estimated useful lives for major classes of depreciable assets: Sewage collection facilities — 50 years, Sewage treatment facilities — 40 years, Sewage disposal facilities—40 years,and General plant and administrative facilities—11.5 years. Amortization Amortization of the excess purchase price over the book value of assets acquired is provided using the straight-line method over an estimated useful life of 30 years. Premiums and discounts on certificate anticipation notes and wastewater refunding revenue obligations are amortized to interest expense over the respective terms of the installment obligations based on the effective interest method (note 4). Restricted Assets Certain assets are classified as restricted because their use is limited by applicable debt covenants. Specifically, the assets are restricted for installment payments due on certificates of participation and revenue obligations or are maintained by a trustee as a reserve requirement for the certificates of participation and revenue obligations. When both restricted and unrestricted resources are available for use, it is OCSD's policy to use restricted resources first, then unrestricted resources as they are needed. Deferred Outflows of Resources For advance refundings resulting in defeasance of debt, the difference between the reacquisitions price and the net carrying amount of the old debts (i.e. defamed charges) is reported as a defamed outflow of resources and amortized to interest expense based on the effective interest method over the remaining life of the old debt or the life of the new debt,whichever is shorter. OCSD's deferred charges on the refunding debts at June 30, 2013 are$20,722,872. 15 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Compensated Absences OCSD's employees, other than operations and maintenance personnel, are granted vacation and sick leave in varying amounts with maximum accumulations of 200 hours and 560 hours for vacation and sick days earned but unused, respectively. Operations and maintenance personnel accrue between 80 and 250 personal leave hours per year depending on years of service. Personal leave can be accumulated up to a maximum of 440 hours. Vacation and sick leave benefits and personal days are recorded as an expense and liability when earned by eligible employees. The distribution between current and long-term portions of the liability is based on historical trends. Claims and Judaments OCSD records estimated losses, net of any insurance coverage under its self-insurance program when it is probable that a claim liability has been incurred and when the amount of the loss can be reasonably estimated. Claims payable includes an estimate for incurred but unreported claims. The distribution between current and long-term portions of the liability is based on historical trends. Property Taxes The County is permitted by State law (Proposition 13) to levy taxes at one percent of full market value (at time of purchase) and can increase the assessed value no more than two percent per year. OCSD receives a share of this basic levy, proportionate to what was received in the 1976 to 1978 period. Property taxes are determined annually as of January 1 and attached as enforceable liens on real property as of July 1 and are payable in two installments which become delinquent after December 10 and April 10. The County bills and collects the property taxes and remits them to OCSD in installments during the year. Property tax revenues are recognized when levied for. The Board of Directors has designated property tax revenue to be used for the annual debt service requirements prior to being used as funding for current operations. Capital Facilities Capacity Charges Capital facilities capacity charges represent fees imposed at the time a structure is newly connected to the District's system, directly or indirectly, or an existing structure or category of use is increased. This charge is to pay for District facilities in existence at the time the charge is imposed or to pay for new facilities to be constructed that are of benefit to the property being charged. Operating and Non-operating Revenues and Expenses Operating revenues and expenses result from collecting, treating, and disposing of wastewater and inspection and permitting services. OCSD's operating revenues consist of charges to customers for the services provided. Operating expenses include the cost of providing these services, administrative expenses, and depreciation and amortization expenses. All revenues and expenses not meeting these definitions and which are not capital in nature are reported as non-operating revenues and expenses. Construction Commitments OCSD has active construction projects to add additional capacity, improve treatment, or replace/rehabilitate existing assets. At June 30, 2013, the outstanding commitments with contractors totaled$176.0 million. 16 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Self-Insurance Plans For the year ended June 30, 2013, OCSD was self-insured for portions of workers' compensation, property damage, and general liability. The self-insurance portion of the workers' compensation exposure is the $750,000 deductible per occurrence under the outside excess insurance coverage to statutory levels. The self-insurance portion of the property damage exposure covering fire and other perils is the $250,000 per occurrence deductible (for most perils) under the outside excess property insurance coverage to $1 billion. The self-insurance portion of the property damage exposure covering Flood is the $100,000 per occurrence deductible with outside excess property insurance coverage to $300 million. OCSD is self-insured for virtually all property damage from the peril of earthquake. The self-insurance portion of the boiler & machinery exposure is the deductible ranging from $25,000 to $350,000 under the outside excess boiler & machinery insurance coverage to $100 million per occurrence combined limit. The self-insurance portion of the general liability exposure is the $250,000 per occurrence deductible ($500,000 for employment practices liability) under the outside excess liability coverage to $30 million per occurrence and aggregate. The self-insurance portion of the pollution liability exposure is the $100,000 per loss deductible under the outside pollution liability insurance coverage to $10 million. There are no significant changes in insurance coverage during the fiscal year ended June 30, 2013. During the past three fiscal years there have been no settlements in excess of covered amounts. Claims against OCSD are processed by outside insurance administrators. These claims are charged to claims expense based on amounts which will ultimately be paid. Claims incurred but not yet reported have been considered in determining the accrual for loss contingencies. OCSD management believes that there are no unrecorded claims as of June 30, 2013 that would materially affect the financial position of OCSD. Deferred Compensation Plan OCSD offers its employees a deferred compensation plan established in accordance with Internal Revenue Code Section 457. The plan permits all employees of OCSD to defer a portion of their salary until future years. The amount deferred is not available to employees until termination, retirement, death or for unforeseeable emergency. The assets of the plan are held in trust for the exclusive benefit of the participants and their beneficiaries. Since the plan assets are administered by an outside party and are not subject to the claims of OCSD's general creditors, in accordance with GASB Statement 32, the plan's assets and liabilities are not included within OCSD's financial statements. Accounting Changes The accompanying financial statements reflect the implementation of GASS Statements Nos. 63 and 65. Significant impacts of GASB Statement No. 63 include changing the title of the statement of net assets to the statement of net position and reformatting the statement of net position to add separate sections for deferred inflows of resources and deferred outflows of resources. Significant impacts of GASB Statement No. 65 include reclassifying as deferred inflows of resources and deferred outflows of resources certain balances that were previously reported as assets and liabilities. GASB Statement No. 65 also required that debt issuance costs (other than prepaid debt insurance) be reported as expense when incurred. The retroactive effect of implementing this change in reporting debt issuance costs resulted in a restatement of the beginning net position as described further in note 10. The effect on the previously issued financial statement as of June 30, 2011 resulted in an adjustment to ending net position from $1,510,486,121 to$1,501,548,924. 17 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 (2) Cash and Investments Cash and investments as of June 30, 2013 are classified within the accompanying Statement of Net Position as follows: Statement of Net Position: Current, Unrestricted: Cash and cash equivalents $208,278,072 Investments 339,152,573 Subtotal -current, unrestricted 547,430,645 Restricted: Cash and cash equivalents 36,118,018 Investments 16,940.965 Subtotal -restricted 53,058,983 Total cash and cash equivalents and investments $600,489,628 Cash and investments consist of the following as of June 30, 2013: Cash on hand $ 3,000 Deposits with financial institutions 6,049,686 Managed portfolio-cash and investments 541,377,959 Subtotal -unrestricted cash and investments 547,430,645 Monies held by trustees: Cash and cash equivalents $ 36,118,018 Investment contracts 16,940,965 Subtotal - monies held by trustees 53,058,983 Grand total cash and investments $600,489,628 Investments Authorized by the California Government Code and OCSD's Investment Policv The following table identifies the investment types that are authorized by the California Government Code and OCSD's investment policy. This table, and the subsequent tables on pages 19-22 also identifies certain provisions of either the California Government Code or OCSD's investment policy (whichever is more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. 18 Return to Aoentla Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Authorized Maximum by OCSD's Maximum Investment Investment Type-Authorized by the Investment Maximum Percentage in a Single California Government Code Policy? Maturity (1)(3) of Portfolio(1) Issuer 1 Local Agency Bonds Yes 5 years No limit No limit U.S. Treasury Obligations Yes 5 years No limit No limit California State Treasury Obligations Yes 5 years No limit No limit U.S. Agency Securities Yes 5 years No limit No limit Banker's Acceptances Yes 180 days 40% 30% Commercial Paper Yes 270 days/31 days 15% / 25% 10% Negotiable Certificates of Deposit Yes 5 years 30% No limit Repurchase Agreements Yes 1 year No limit No limit Reverse Repurchase Agreements Yes 90 days (2) No limit No limit Corporate Medium-Tenn Notes Yes 5 years No limit No limit Mutual Funds Yes N/A No limit 10% Money Market Mutual Funds Yes N/A 15% (2) No limit Mortgage Pass-Through Securities/CMO Yes 5 years 20% No limit County Investment Pools Yes N/A No limit No limit Local Agency Investment Fund (LAIF) Yes N/A No limit No limit Not,, (1) Restrictions are in acmrdancs with the California Government Code unless indicated otherwise. (2) The restriction is in accordance with OCfiD's Investment Policy which is more restrictive than the California Government Code. (3) As allowed by Call(omia Government Code section 53601.the Board of Directors has adopted a policy of no maximum maturity for investments purchased by OCSD's external money manager for the long-teem investment portfolio. However,the duration of the long-term investment portfolio can never exceed 60 months. Investments purchased for the short-term portfolio are subject to the maturity restrictions noted in this table. Investments Authorized by Debt Agreements The investment of debt proceeds held by trustees is governed by provisions of the debt covenant agreements, rather than the general provisions of the California Government Code or OCSD's investment policy. The following table identifies the investment types that are authorized for investments held by OCSD's debt trustees. This table, and the subsequent tables on pages 20-23 also identifies certain provisions of the debt covenant agreements that address interest rate risk, credit risk, and concentration of credit risk. 19 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Maximum Maximum Investment Type -Authorized by the Maximum Percentage Investment in a Debt Covenant Agreement Maturity of Portfolio Single Issuer State and Local Agency Bonds 5 years No limit No limit U.S. Treasury Obligations 5 years No limit No limit U.S. Agency Securities 5 years No limit No limit Banker's Acceptances 180 days 40% 10% Commercial Paper 270 days 131 days 15% / 30% 10% Negotiable Certificates of Deposit 5 years 30% 10% Repurchase Agreements 1 year No limit No limit Corporate Medium-Tenn Notes 5 years 30% No limit Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% No limit Local Agency Investment Fund (LAIF) N/A No limit No limit Guaranteed Investment Contracts N/A No limit No limit Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer an investment has before maturity, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that OCSD manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time, as necessary to provide the cash flow and liquidity needed for operations. OCSD monitors the interest rate risk inherent in its managed portfolio by measuring the modified duration of its portfolio. The duration of monies held for shorter term purposes is recommended by OCSD's Treasurer and is based on OCSD's cash flow requirements in meeting current operating and capital needs. The average duration of monies invested for shorter term purposes may never exceed 180 days. The duration of monies held for longer term purposes is recommended annually by OCSD's Treasurer and is based on OCSD's five-year cash flow forecast. The average duration may not exceed 120 percent nor be less than 80 percent of the recommended duration. The average duration of monies invested for longer term purposes may never exceed 60 months. There is no stated maximum maturity for the Money Market Mutual Funds. The money market mutual funds for Blackrock Institutional Fund and the US Bank Money Market Fund are daily liquid funds available on demand. Following is a table which summarizes OCSD's managed portfolio investments by purpose with the modified duration as of June 30, 2013. 20 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Modified Modified Duration Duration Investment Type Fair Value in ears in months Short-Term Portfolio: U.S. Treasury Bills $ 36,537,817 0.230 2.76 U.S. Agency Securities 16,790,972 0.260 3.12 U.S. Treasury Notes 16,105,676 0.510 6.12 Repurchase Agreements 900,000 0.010 0.12 Local Agency Investment Fund (LAIF) 27,156,672 0.760 9.26 Money Market Mutual Funds 612,616 0.070 0.84 Short-term portfolio subtotal $ 98,103,753 0.430 5.16 Long-Term Portfolio: U.S. Treasury Bills $ 91,872,291 0.180 2.16 U.S. Treasury Notes 178,738,469 3.432 41.18 U.S. Treasury Inflation-Protected Securities (TIPS) 26,086,223 12.460 149.52 U.S. Agency Securities 70,489,383 0.400 4.80 U.S. GoA. Backed Mortgage Pools 414,131 3.640 43.68 Taxable Municipal Bonds 19,128,800 9.220 110.64 Tax-Exempt Municipal Bonds 570,525 13.270 159.24 Corporate Medium-Term Notes 38,350,969 3.230 38.76 Repurchase Agreements 8,800,000 0.010 0.12 Money Market Mutual Funds 601,502 0.080 0.96 Mortgage Pass-Through Securities1CM0 8,221,913 3.440 41.28 Long-term portfolio subtotal $443,274,206 2.980 35.76 Total Portfolio $541,377,959 OCSD monitors the interest rate risk inherent in its other investments using specific identification of the investments. Following is a table of these investments all held by trustees, as of June 30,2013. Fair Value Maturities Cash equivalents held by fiscal agents: Money Market Mutual Funds: Blackrock Institutional Funds $ 32,271 56 days US Bank Cash 23 NIA US Bank Commercial Paper 31,632 WA US Bank Money Markel Fund 75,039 NIA Local Agency Investment Fund (LAIF) 35,979,053 278 day average Investments held by fiscal agents: Guaranteed Investment Agreements: FSA Capital Management Services LLC-2007A COP 9,518,000 January 29, 2030 Bayerische Landesbank Girozentrale-2009A COP 7,422,965 August 1, 2016 Fair Value of Investments Held by Fiscal Agents $ 53,058,983 21 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Investments with Fair Values Hiahly Sensitive to Interest Rate Fluctuations OCSD's investments (including investments held by trustees) include the following investments that are highly sensitive to interest rate fluctuations (to a greater degree than already indicated in the information provided above): Mortgage-backed securities: These securities are subject to early payment in a period of declining interest rates. The resulting reduction in expected total cash flows affects the fair value of these securities, making them highly sensitive to change in interest rates. At fiscal year end, the fair value of investments in mortgage-backed securities totaled $8,432,892 including $4,765,783 of mortgage pass-through securities and $3,667,109 of U.S. agency securities. Disclosures Relatina to Credit Risk Generally, 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. The following table presents the minimum rating as required by the California Government Code, OCSD's investment policy, or debt agreements, and the actual rating as of year-end for each investment type: 22 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Investment Type and Me Low est Rating Reported at Year End Fair Value Investments w ith no legal minimum rating&no required disclosure: U.S.Treasury Obligations $ 349,340,476 U.S.Agency Securities-GI," 414,131 Subtotal $ 349,754,607 Investments w iM no legal Anil rating: U.S.Agency Seour'Aies(other than GNMA): Rating of AA-(Standard&Poor's) 87,662,294 Not rated at fiscal year end (281,939) Minicipal Bonds: Rating of Aaa(Nbody's) 1,358,868 Rating of Aal (Nbody's) 1,482,362 Rating of Aa2(vb dy's) 1.508,312 Rating of Aaa(Moody's) 6.065,251 Rating of AA-(Standard&Poor's) 440,504 Rating of Al (Nbody's) 1,570,231 Rating of A2(Ivbody's) 361,752 Rating of A3(Ivbody's) 4.965,060 Rating of A-(Fitch) 1,946,985 Repurchase Agreements: Not rated at fiscal year end 9,700,000 Local Agency Investment Fund(LAIF): Not rated at fiscal year end 63.135,725 Investnents w ith fiscal agents-Guaranteed investment Contracts: Not rated at fiscal year end 16,940,965 Subtotal 196,756,370 Investments w ith a legal cininum rating(or its equivalent)of A: Corporate klediurr,Temn Notes: Rating of A(Fitch) 6,444,107 Rating of A2(Ivbody's) 5,642,996 Rating of A3(Ivbody's)` 7.080,056 Rating of Baal (Moody's)" 1.780,522 Rating of BBB+(Filch)' 3,488,932 Rating of Baal(Moody's)' 8,698,869 Rating of BBB(Fitch)' 2,443,010 Rating of Baal(Moody's)" 1,402,961 Not rated at fiscal year end 1,369,516 Commercial Raper: Rating of P-1 (Moody's) 31,655 Money b§rket Ivblual Funds: Rating of Aaa(Moody's) 1.087,615 Rating of P-1 (Moody's) 80,910 Not rated at fiscal year end 45,593 Invested w ith fiscal agents: Rating of Aaa-mf(Ivbody's) 32,271 Rating of R1 (Nbody's) 75,039 Subtotal 39,704,052 Investments w ith a legal mninum rating(or its equivalent)of AA: Ivlortgage Pass-Through Securities/CM Rating of Aaa(Moody's) 243,707 Rating of AA+(Standard&Poor's) 7,412,034 Rating of BBB(Fitch)' 120,205 Rating of BB(Fitch)' 445,967 Subtotal 8,221,913 Total $ 594,436,942 'Investment w as In compliance w Rh legal requirements at Me time it w as purchased. 23 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Concentration of Credit Risk Limitations on the amount that OCSD is allowed to invest in any one issuer have been identified previously in the section "Investments Authorized by the California Government Code and OCSD's Investment Policy" and in the section "Investments Authorized by Debt Covenant Agreements" OCSD follows whichever guideline is the most restrictive. Custodial Credit Risk Custodial credit risk for deposits is the risk that in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The California Government Code and OCSD's investment policy contain legal requirements that limit the exposure to custodial credit risk for deposits as follows: a financial institution must secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Custodial credit risk for investments is the risk that in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and OCSD's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. As of June 30, 2013, in accordance with OCSD's investment policy, none of OCSD's investments were held with a counterparty. All of OCSD's investments were held with an independent third party custodian bank registered in the name of the District. OCSD uses Bank of New York (BNY) Mellon as a third party custody and safekeeping service for its investment securities. Investment in State Investment Pool OCSD is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of OCSD's investment in this pool is reported in the accompanying financial statements at amounts based upon OCSD's pro-rats 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. Included in LAIF's investment portfolio are mortgage-backed securities, other asset-backed securities, loans to certain state funds, securities with interest rates that vary according to changes in rates greater than a one-for-one basis, and structured notes. The amounts invested in LAIF are recorded as rash and cash equivalents at June 30, 2013. 24 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 (3) Capital Assets Capital asset activity for the year ended June 30,2013 is as follows: Balance at Balance at June 30,2012 Additions Deletions June 30,2013 Capital assets not depreciated: Cost Land $ 15,959,559 $ - $ - $ 15,959,559 Construction in progress 1,271,217,317 97,589,532 (171,029,526) 1,197,777,323 Total nondepreciable assets 1,287,176,876 97,589,532 (171,029,526) 1,213,736,882 Depreciable capital assets: Cost Sewage collection facilities 604,574,936 30,229,828 (256,629) 634,548,135 Sewage treatment facilities 1,198,682,634 116,537,480 - 1,315,220,114 Effluent disposal facilities 97,014,820 - - 97,014,820 Solids disposal facilities 3,463,236 - - 3,463,236 General and administrative facilities 211,535,601 8,549,941 (284,302) 219,801,240 Excess purchase price over book value on acquired assets 19,979,000 19,979,000 Subtotal 2,135,250,227 155,317,249 (540,931) 2,290,026,545 Accumulated depreciation: Sewage collection facilities (267,013,496) (16,034,892) 231,070 (282,817,318) Sewage treatment facilities (537,954,196) (38,372,708) - (576,326,904) Effluent disposal facilities (54,524,921) (1,588,010) - (56,112,931) Solids disposal facilities (3,117,378) (9,719) - (3,127,097) General and administrative facilities (128,447,575) (7,243,810) 284,302 (135,407,083) Excess purchase price over book value on acquired assets (17,100,434) (657,709) 17,758,143 Subtotal (1,008,158,000) (63,906,848) 515,372 1,071,549,476 Net depreciable assets 1,127,092,227 91,410,401 (25,559) 1,218,477,069 Net capital assets $2,414,269,103 $188,999,933 $(171,055,085) $2,432,213,951 Capital asset additions for the fiscal year ended June 30, 2013 are $15.7 million less than the amount deleted from Construction in Progress primarily due to $8.9 million of accumulated costs for canceled projects and $5.1 million for feasibility studies that were removed from Construction in Progress and recorded as expense in accordance with generally accepted accounting principles. 25 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 (4) Lono-Term Liabilities The following is a summary of the changes in long-term liabilities for the year ended June 30,2013: Certificates of Participation/ Arbitrage Conpensated pains and Revenue Obligations Net Pension Net OP® Payable Absences Judgrrents and Notes Obligation Obligation Totals Balance,July 1 $407,272 $7,599,881 $1,446,941 $1,335,965,000 $8,082,368 $ 785,207 $1,354,286,669 Additions 181,144 6,543.632 298.026 198,095,000 969,200 888,217 206.975,219 Deletions (458,429) (6,678,447) (166,931) (259,070,000) (421,650) (1,089,516) (267,884,973) Balance,June 30 129,987 7,465.066 1,578,036 1.274,990,000 8,629,918 583,908 1.293,376,915 Due within one year - (6,809,017) (416.720) (171.290,000) - - (178.515,737) Unam Oized (discount)/prenium - - - 50,938,512 - - 50,938,512 Long-lermamount $129,987 $ 656,049 $1,161,316 $1,154,638,512 $8,629,918 $ 583,908 $1,165,799,690 Arbitrage Payable The Tax Reform Act of 1986 (the Act) requires OCSD to calculate and remit rebatable arbitrage earnings to the Internal Revenue Service. Certain of OCSD's debt and interest earnings on the proceeds thereof are subject to the requirements of the Act. OCSD's liability at June 30, 2013 is $129,987. Compensated Absences OCSD's policies related to compensated absences are described in Note 1. OCSD's liability at June 30, 2013 is$7,465,066 with an estimated $6,809,017 to be paid or used within the next fiscal year. Claims and Judgments Payable OCSD is self-insured in a number of areas as described in Note 1. The following is a summary of the change in claims and judgments payable for the years ended June 30, 2013 and 2012: 2012-13 2011-12 Claims and judgments payable at July 1 $1,446,941 $2,143,318 Claims incurred during the fiscal year 298,026 (297,894) Payments on claims during the fiscal year (166,931) 398,483 Claims and judgments payable at June 30 1,578,036 1,446,941 Less: current portion (416,720) 491,870 Total long-teml claims and judgments payable $1,161,316 $ 955,071 Certificates of Participation/ Revenue Obligations and Notes OCSD issues certificates of participation, revenue obligations and notes in order to finance construction of the treatment facilities. Each issuance represents a direct and proportionate interest in the semi-annual interest payments. Installment payments for the issues are payable from any source of lawfully available funds of OCSD. Certificates of participation, revenue obligations, and notes at June 30, 2013 are summarized as follows: 26 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Amount 2007A refunding certificates of participation $ 92,620,000 2007E certificates of participation 273,400,000 2008A refunding certificates of participation 19,195,000 2008B refunding certificates of participation 26,075,000 2009A certificates of participation 187,765,000 2010A wastewater revenue obligations 80,000,000 2010C wastewater revenue obligations 157,000,000 2011A wastewater refunding revenue obligations 140,195,000 2012A wastewater refunding revenue obligations 100,645,000 2012E wastewater refunding revenue obligations 66,395,000 2012C revenue refunding certificate anticipation notes 131,700,000 Total certificates of participation, revenue obligations and notes $ 1,274,990,000 Outstanding Certificates of Participation/Revenue Obligations and Notes All of the outstanding debt of OCSD is senior lien debt with rate covenants that require a minimum coverage ratio of 1.25. The minimum coverage ratio is the ratio of net annual revenues available for debt service requirements to total annual debt service requirements. As of June 30, 2013, the coverage ratio for senior lien debt was 3.01. August 2000 Refunding Certificates of Participation. Series 2000 On August 31, 2000, OCSD completed the sale of $218,600,000 of refunding certificates of participation. The certificates were issued to refund the remaining outstanding principal balance of the 1990-92 Series A, B, and C certificates of participation and to reimburse OCSD for improvements made to the wastewater system. On October 3, 2011, $89,800,000 of the outstanding principal balance of the 2000 series A and B certificates was advance-refunded with the proceeds of the October 3, 2011 wastewater refunding revenue obligations series 2011A (see below) in a transaction accounted for as an in-substance defeasance. All of the $89.8 million is held in an escrow account that is not reflected on OCSD's financial statements because it has been legally defeased. At June 30, 2013, this $89,800,000 represents the amount still outstanding on certificates of participation considered defeased. On August 16, 2012, $91,900,000 of the outstanding principal balance of the 2000 series A and B certificates was advance-refunded with the proceeds of the August 16, 2012 wastewater refunding revenue obligations series 2012B (see below) in a transaction accounted for as an in-substance defeasance. All of the $91.9 million is held in an escrow account that is not reflected on OCSD's financial statements because it has been legally defeased. At June 30, 2013, this $91,900,000 represents the amount still outstanding on certificates of participation considered defeased. May 2007 Refunding Certificates of Participation. Series 2007A On May 22, 2007, OCSD completed the sale of $95,180,000 of refunding certificates of participation. The certificates were issued to refund $88,500,000 of the outstanding principal balance of the 2003 Series certificates of participation. The interest rate on the refunding certificates is fixed and ranges from 4.00 percent to 4.5 percent. Annual principal payments are due on February 1, beginning February 1, 2008. 27 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2013 reserve of $9,518,000 is held by Union Bank,the trustee, and meets the reserve requirement. December 2007 Certificates of Participation. Series 2007B On December 20, 2007, OCSD completed the sale of $300,000,000 of certificates of participation. The certificates were issued to finance and to reimburse OCSD for the acquisition, construction, and installation of additional improvements made to the wastewater system. The interest rate on the refunding certificates is fixed and ranges from 4.00 percent to 5.25 percent. Annual principal payments are due on February 1, beginning February 1, 2008. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2013 reserve of$19,845,935 is held by Union Bank,the trustee, and meets the reserve requirement. May 2008 Refunding Certificates of Participation. Series 2008A On May 29, 2008, OCSD completed the sale of $77,165,000 of refunding certificates of participation. The certificates were issued to refund the $85,505,000 outstanding principal balance of the 1992 Series certificates of participation. The interest rate on the refunding certificates is fixed and ranges from 2.95 percent to 4.0 percent. Annual principal payments are due on February 1, beginning February 1, 2009. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2013 reserve of $7,728,142 is held by US Bank,the trustee, and meets the reserve requirement. September 2008 Refunding Certificates of Participation. Series 2008B On September 11, 2008, OCSD completed the sale of$27,800,000 of refunding certificates of participation. The certificates were issued to refund the $26,900,000 outstanding principal balance of the 1993 Series certificates of participation. The interest rate on the refunding certificates is fixed and ranges from 2.80 percent to 3.0 percent. Annual principal payments are due on August 1, beginning August 1,2009. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2013 reserve of $2,784,195 is held by US Bank,the trustee, and meets the reserve requirement. May 2009 Certificates of Participation. Series 2009A On May 7, 2009, OCSD completed the sale of $200,000,000 of certificates of participation. The certificates were issued to finance and to reimburse OCSD for the acquisition, construction, and installation of additional improvements made to the wastewater system. The interest rate on the certificates is fixed and ranges from 3.00 percent to 5.00 percent. Annual principal payments are due on February 1, beginning February 1, 2010. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2013 reserve of $13,134,823 is held by US Bank,the trustee, and meets the reserve requirement. 28 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 May 2010 Wastewater Revenue Obligations. Series 2010A On May 18, 2010, OCSD completed the sale of $80,000,000 of wastewater revenue obligations under the federally taxable Build America Bonds program. The obligations were issued to finance and to reimburse OCSD for the acquisition, construction, and installation of additional improvements made to the wastewater system. The stated interest rate on the obligations is fixed and ranges from 5.56 percent to 5.58 percent, however, in accordance with their designation as Build America Bonds, OCSD expects to receive a cash subsidy from the United States Treasury equal to 35 percent of the interest payable with respect to these revenue obligations. Thus, the net interest rate on the obligations is fixed and ranges from 3.614 percent to 3.627 percent. Annual principal payments are due on February 1, beginning February 1, 2034. The trust agreement for the revenue obligations does not require the establishment of a reserve. December 2010 Wastewater Revenue Obligations. Series 2010C On December 8, 2010, OCSD completed the sale of $157,000,000 of wastewater revenue obligations under the federally taxable Build America Bonds program. The obligations were issued to finance and to reimburse OCSD for the acquisition, construction, and installation of additional improvements made to the wastewater system. The stated interest rate on the obligations is fixed and ranges from 6.35 percent to 6.40 percent, however, in accordance with their designation as Build America Bonds, OCSD expects to receive a cash subsidy from the United States Treasury equal to 35 percent of the interest payable with respect to these revenue obligations. Thus, the net interest rate on the obligations is fixed and ranges from 4.1275 percent to 4.16 percent. Annual principal payments are due on February 1, beginning February 1, 2031. The trust agreement for the revenue obligations does not require the establishment of a reserve. October 2011 Wastewater Refunding Revenue Obligations, Series 2011A On October 3, 2011, OCSD completed the sale of $147,595,000 of wastewater refunding revenue obligations. The obligations were issued to refund $89,800,000 of the outstanding principal balance of 2000 Series A and B refunding certificates of participation, and $83,320,000 of the outstanding principal balance of 2003 certificates of participation. The stated interest rate on the obligations is fixed and ranges from 3 percent to 5 percent. Annual principal payments are due on August 1 and February 1, beginning August 1, 2012. The trust agreement for the revenue obligations does not require the establishment of a reserve. March 2012 Wastewater Refunding Revenue Obligations, Series 2012A On March 22, 2012, OCSD completed the sale of $100,645,000 of wastewater refunding revenue obligations. The obligations were issued to refund the $108,180,000 outstanding principal balance of the 2003 certificates of participation. The stated interest rate on the obligations is fixed and ranges from 3 percent to 4 percent. Annual principal payments are due on February 1, beginning February 1, 2031. The trust agreement for the certificates does not require the establishment of a reserve. 29 Return to Agenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Auaust 2012 Wastewater Refundina Revenue Obligations, Series 2012B On August 16, 2012, OCSD completed the sale of $66,395,000 of wastewater refunding revenue obligations. The obligations were issued to refund the remaining $91,900,000 outstanding principal balance of the Series 2000A and 2000E refunding certificates of participation. The stated interest rate on the obligations is fixed and ranges from 3 to 5 percent. Annual principal payments are due on February 1, beginning February 1,2019. The aggregate difference in debt service between the refunding debt and the refunded debt is a positive amount of approximately $1.3 million. The total future payments for the new debt provide a net present value gain of approximately $1.4 million to refund the old debt in payments. The trust agreement for the certificates does not require the establishment of a reserve. October 2012 Revenue Refunding Certificate Anticipation Notes, Series 2012C On October 30, 2012, OCSD completed the sale of $131,700,000 of revenue refunding certificate anticipation notes. The notes were issued to refund the $143,205,000 outstanding principal balance of the 2011 Series B revenue refunding certificate anticipation notes. The interest rate on the notes is fixed at 2.0 percent. The notes will mature on October 30, 2013. OCSD expects the principal and interest on the notes to be paid from proceeds of the sale, prior to the maturity date, of a future series of certificates of participation, notes or other obligations. The aggregate difference in debt service between the refunding debt and the refunded debt is a negative amount of approximately $31,000. The total future payments for the new debt provide a net present value loss of approximately $274,000 to refund the old debt in payments. The trust agreement for the certificates does not require the establishment of a reserve. Annual Amortization Requirements The annual requirements to amortize all debt related to certificates of participation, revenue obligations, and anticipation notes as of June 30, 2013, including the Revenue Refunding Certificate Anticipation Notes, Series 2012C that currently matures in October 2013,are as follows: There is no future revenue pledged to make the debt service payments. Year Ending June 30, Principal Estimated Interest Total 2014 $ 171,290,000 $ 52,856,296 $ 224,146,296 2015 27,875,000 48,998,310 76,873,310 2016 29,405,000 47,833,915 77,238,915 2017 35,575,000 46,463,482 82,038,482 2018 33,170,000 44,865,681 78,035,681 2019-2023 164,725,000 201,988,082 366,713,082 2024-2028 181,515,000 161,657,089 343,172,089 2029-2033 298,610,000 112,243,731 410,853,731 2034-2038 226,820,000 47,119,421 273,939,421 2039-2043 103,525,000 8,812,095 112,337,095 2044 2,480,000 59,711 2,539,711 Total $ 1,274,990,000 $ 772,897,813 $ 2,047,887,813 30 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Certificates of Participation Defeasance for Fiduciary Activities In prior years, various certificates of participation were defeased by placing the proceeds of revenue refunding obligations in an escrow account to provide for all future debt service payments on the old debts. Accordingly, the escrow account assets and the related liabilities for these defeased debts are not reflected in the Sanitation District's financial statements. At June 30, 2013, the following represents the amounts still outstanding on debt obligations considered defeased: $280,000,000 August 2003 Certificates of Participation, Series 2003 (5) Net Position The difference between assets and deferred outflows and liabilities and deferred inflows is reported as net position. Net position is classified as restricted, unrestricted, or net investment in capital assets. Net position at June 30,2013 consisted of the following: June 30, 2013 Net investment in capital assets: Capital assets, net of accumulated depreciation $2,432,213,951 Outstanding debt issued to acquire capital assets, net of. unamortized bond discount, deferred amount on refundings, and unspent proceeds (1,251,916,008) Subtotal 1,180,297,943 Unrestricted: All other unrestricted 520,426,972 Total net position $ 1 700 724 915 (6) Pension Benefits OCSD has two pension plans for retirees: a defined benefit pension plan maintained through and by the Orange County Employees' Retirement System (OCERS)and the Additional Retiree Benefit Account(ARBA)administered directly by OCSD. Pension Plan OCSD participates in the Orange County Employee's Retirement System (OCERS), a cost-sharing multiple-employer, defined benefit pension plan which is governed and administered by a nine member Board of Retirement. OCERS was established in 1945 under the provisions of the County Employees Retirement Law of 1937, and provides members with retirement, death, disability, and cost-of-living benefits. OCERS issues a stand-alone comprehensive annual financial report which can be obtained from OCERS at 2223 Wellington Avenue, Santa Ana, California 92701. Benefits: All OCSD employees except for interns and the Board of Directors participate in OCERS. Employees who retire at or after age 50 with five or more years of service are entitled to an annual retirement allowance. The amount of the retirement allowance is based upon the member's age at retirement, the member's"final compensation"as defined in Section 31462 of the Retirement Law of 1937, the total years of service under OCERS, and the Plan under which the employee is covered. OCERS also provides death and disability benefits. 31 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 Eligible employees are covered under one of four plans, depending on their entry date into the plan. Plans G and H provide 2.5% of final average compensation per year of service at age 55; Plan B provides 1.667% per year of service at age 57.5; Plan U provides 2.5% per year of service at age 67. Plan G members' retirement benefit are calculated using the highest single year of compensation, while Plans B and H are based on the average of the highest three consecutive years of compensation. Plan U retirement benefits are based on the highest three consecutive years of compensation, with a cap for each year equal to 120% of the maximum wages subject to Social Security Tax for that calendar year. Contributions: As a condition of participation under the provisions of the County Employees Retirement Law of 1937, members are required to contribute a percentage of their annual compensation to OCERS. Employees covered by Plans B, G, H, and U are required to contribute 5.76% - 11.58%, 8.28% - 14.51%, 7.92% - 14.51%, and 5.50% - 12.25%, respectively, of their annual compensation to OCERS. OCSD is required to make periodic contributions to OCERS in amounts that are estimated to remain a constant percentage of covered employees' compensation such that, when combined with covered employees' contributions, will fully provide for all covered employees' benefits by the time they retire. For the fiscal years ended June 30, 2013, 2012, and 2011, the "Annual Required Contribution" equaled the contributions actually made. Required contributions,which are actuarially determined, are set by OCERS. The following table provides salary and contributions requirements for the two previous fiscal years and the current year. For the Fiscal Year Ending June 30,2011 June 30,2012 June 30 2013 Total payroll costs $62,107,324 $62,603,878 $61,878,748 Payroll costs of employees covered by OCERS 59,787,560 60,419,910 59,832,408 Contribution requirements: Contributed by employees 4,422,908 4,566,386 4,462,869 Contributed bythe Districton behalf of employees 2,078,679 2,089,868 1,923,875 Total employee required contribution 6,501,587 6,656,254 6,386,744 District required contribution 14,370,158 15,767.050 16,363,917 Total contribution $20,871,745 $22,423,304 $22,750,661 Total actual contribution as a percentof the "Annual Required Contribution (ARC)" 100.00% 100.00% 100.00% Employee required contribution as a percent of covered payroll 10.87% 11.02% 10.67% District required contribution as a percent of covered payroll 24.04% 26.10% 27.35% Total contribution as a percent of all participating entities'confributions 3.66% 3.60% 3.90% Additional Retiree Benefit Account(ARBA) The OCSD AREA plan is a single-employer defined benefit plan which was administered by OCERS until February 29, 2008, when OCSD began direct administration. This benefit was established by the OCSD Board of Directors on October 25, 1992. It provides a monthly payment to retirees towards the premium costs of health insurance for the retiree and eligible dependents. The retiree is not required to use this amount for health insurance premium or to remain on the 32 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 OCSD medical plan. The plan is currently paying benefits to 188 retirees. The plan is included in OCSD's financial statements; stand-alone financial statements are not issued for the plan. Benefits: Employees who retire receive$10 per month for every year of service up to a maximum of 25 years, or $250 per month. This amount is independent of salary and is fixed at retirement. Because the District cannot ensure the use of the benefit for payment of eligible health insurance expenditures, the benefit is taxable to the retiree. Survivor benefits are provided in the event that a retiree pre-deceases his/her spouse. For retirees hired prior to July 1, 1988, OCSD provides health insurance coverage for 2%months per year of service (see Note 7—Other Postemployment Benefits). ARBA benefits begin immediately after this benefit ends. For those hired on or after July 1, 1988, ARBA benefits begin immediately upon retirement and continue for life. Employees hired into the OCEA bargaining group after August 1, 2011 are ineligible for this benefit. Funding: There are no employee contributions for this plan; OCSD covers 100% of the cost. An actuarial evaluation was performed as of July 1, 2011, using the Projected Unit Credit Cost method. This method represents the present value of benefits earned to date assuming that an employee earns benefits ratably over his/her career. An investment rate of return of 5.0% per year and an inflation rate of 2.5% were used; no salary adjustment was used due to the flat dollar nature of the benefit. The unfunded actuarial liability was amortized on a level dollar basis over an open period of 30 years. OCSD utilizes a pay-as-you-go method for funding the plan. Trend Information and Funding Progress: Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. The District's trend information follows. Annual Pension Cost Annual Pension Percentage of Net Pension Fiscal Year Cost (APC) APC Contributed Obligation 6/30111 842,288 39.0% 7,471,180 6/30112 978,398 37.5% 8,082,368 6/30113 969,200 43.5% 8,629.918 The Schedule of Funding Progress shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. This schedule presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Entry Age UAAL as a Actuarial Actuarial Actuarial Percentage Valuation Accrued Value of Unfunded Funded Covered of Covered Date Liability (AAL) Assets AAL (UAAL) Ratio Payroll Payroll 6/30/2005 ' N/A NIA NIA NIA NIA N/A 6/30/2007 7,395,472 - 7,395,472 - 49,788,835 14.9% 6/30/2009 8,904,499 - 8,904,499 - 57.681,058 15.4% 6/30/2011 10,753,718 10,753,718 60,419,910 17.8% 'Actuarial valuation not performed for this year. 33 Return to Agenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 The annual pension cost and net pension obligation for the year ended June 30, 2011, 2012 and 2013 were as follows: For the Fiscal Year Ending June 30, 2011 June 30, 2012 June 30, 2013 Annual required contribution $ 946,999 $ 1,090,849 $ 1,090,849 Interest on net pension obligation 347,849 373,559 404,118 Adjustment to annual required contribution (452,560) (486,010) 525,767 Annual pension cost 842,288 978,398 969,200 Contributions made (328,083) (367,210) 421,650 Increase in net pension obligation 514,205 611,188 547,550 Net pension obligation, beginning of year 6,956,975 7,471,180 8,082,368 Net pension obligation, end of year $ 7,471,180 $ 8,082,368 $ 8,629,918 The net pension obligation is reported in the noncurrent portion of long-term obligations on the Statement of Net Position. (7) Other Postemolovment Benefits OCSD offers medical insurance to active and retired employees, as well as their qualified dependents. This is a single-employer defined benefit plan administered by OCSD. All retirees may choose coverage in an OCSD medical plan, with retirees paying the full premium. However, for employees hired prior to July 1, 1988, medical benefits begin immediately at retirement with OCSD paying 2.5 months of premium for each year of continuous service toward the cost of coverage under OCSD medical plans. At the termination of this period the retiree may elect to continue coverage at his/her own expense. This plan was established and may be modified only by action of the OCSD Board of Directors. The plan is included in the OCSD financial statements; stand-alone financial statements are not issued. As of the date of the latest actuarial valuation (7/1111), there were 593 active employees, 72 retirees paying premiums, and 64 retirees whose premium is fully paid by OCSD. Premiums ranged between $171 and $3,368 per month, depending on the plan and number of dependents covered. Funding Policy: There are no employee contributions to this plan; OCSD covers 100% of the cost. Retirees opting to remain with the plan after employment pay 100% of the premium cost, except for those for whom the District pays for a period (see above). An actuarial evaluation was performed as of July 1, 2011, using the Projected Unit Credit Cost method. This method represents the present value of benefits earned to date, assuming that an employee earns benefits ratably over his/her career. An investment rate of return of 5.0% per year was used. The rate of increase for healthcare premium was set as 7.0% for the 2012-13 fiscal year, and 7.0% for years thereafter. The unfunded actuarial liability was amortized on a level dollar basis over an open period of 30 years. OCSD utilizes a pay-as-you-go method for funding the plan. For fiscal year 2012-13, OCSD contributed $1,089,516 and retirees contributed $506,749 to cover current year expenditures. Annual OPEB Cost and Net OPEB Obligation: The annual OPEB cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASS Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize the unfunded actuarial liabilities over 30 years. 34 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 The following OPEB cost and net OPEB obligation was determined for the years ended June 30,2013,2012, and 2011: June 30, 2011 June 30, 2012 June 30, 2013 Annual required contribution $ 819,692 $ 900,035 $ 900,035 Interest on net OPEB obligation 41,579 51,784 39,260 Adjustment to annual required contribution 54,096 67,373 51,078 Annual OPEB cost 807,175 8B4,446 888,217 Contributions made 603,074 1,134,925 1,089,516 Increase(decrease) in net OPEB obligation 204,101 (250,479) (201,299) Net OPEB obligation, beginning ofyear 831,585 1,035,686 785,207 Net OPEB obligation, end of year $ 1,035,686 $ 785,207 $ 583,908 The District's annual OPEB cost contributed and the net OPEB obligation for the years ended 2013, 2012, and 2011 are shown in the following table. Annual OPEB Cost Percentage Annual of OPEB Fiscal OPEB Actual Cost Net OPEB Year Cost Contributions Contributed Obligation 6130/11 807,175 603,074 74.7% 1,035,686 6130112 884,446 1,134,925 128.3% 785,207 6130/13 888,217 1,089,516 122.7% 583,908 The net OPEB obligation is reported in the noncurrent portion of long-term obligations on the Statement of Net Position. Funded Status and Progress: The funding status of the plan as of the most recent actuarial valuation dates are as follows: Unfunded AAL Actuarial as a Actuarial Actuarial Accrued Unfunded Percentage of Valuation Value of Liability AAL Funded Covered Covered Date Assets (AAL) (UAAL) Ratio Payroll Payroll 7/1/2005* N/A N/A N/A N/A N/A N/A 7/1/2007 - 9,949,638 9,949,638 0% 49,788,835 19.98% 7/1/2009 - 8,799,624 8,799,624 0% 57,684,058 15.25% 7/1/2011 10,706,789 10,706,789 0% 60,419,910 17.72% *GASB Statement 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions was implemented on June 30, 2008 and thus earlier valuations were not done. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially 35 Return to Amenda Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented above, compares whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial liabilities for benefits. Actuarial methods and assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing the benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The ARC for the current year was determined as part of the 7/1111 actuarial valuation using the Projected Unit Credit cost method. The actuarial assumptions include a 5% investment rate of return (changed from 6% for the 7/1107 valuation), an annual rate of inflation of 2.5%, and an annual healthcare cost trend rate of 7%. The UAAL is being amortized ratably over 30 years. Inflation assumptions are included as part of the healthcare cost trend. No benefit increase is anticipated and the benefit is unaffected by changes in salary. (8) Transactions with Irvine Ranch Water District—Revenue Area No. 14 Formation of Revenue Area No. 14&Excess Purchase Price Over Book Value of Acquired Assets On July 1, 1985, Revenue Area No. 14 was formed as an independent special district as a result of a negotiated agreement between OCSD and Irvine Ranch Water District (IRWD). At the time of Revenue Area 14's creation, OCSD consisted of eight independent special districts (see Note 1 — Reporting Entity). The eight existing districts sold a portion of the joint treatment facilities and land to the newly created district and recorded capacity rights revenue at the time of the sale. In accordance with the negotiated agreement between OCSD and IRWD, IRWD paid OCSD $34,532,000 for an initial 15,000,000 gallons per day capacity in OCSD's joint treatment facilities (with an ultimate collection capacity of 32,000,000 gallons per day) and for a pro-rata interest in real property (based on flow of 32,000,000 gallons per day). The book value of the assets acquired was determined to be $14,553,000 as of June 30, 1986; these assets were recorded at book value in Revenue Area 14. The excess of the purchase price over the assets' book value was $19,979,000 and was recorded as an intangible asset in Revenue Area 14. The excess of the purchase price over the assets' book value is being amortized over the remainder of the useful lives of the original assets acquired. As of June 30, 2013, after recognizing current year amortization of$657,709,the unamortized amount of the excess of purchase price over the assets' book value was$2,220,857. Annual Transactions IRWD entered into a separate agreement with Revenue Area 14 on January 1, 1986 whereby IRWD agreed to fund quarterly payments of Revenue Area 14's proportionate share of OCSD's joint capital outlay revolving fund budget requirements and certain capital improvements during the term of the agreement, which contribution of$2,054,153 was recorded in 2013. IRWD also agreed to fund the annual integration adjustment of Revenue Area 14's equity share in OCSD's Joint Works Treatment Facilities based on the flows discharged to OCSD. As the flows decreased during the year, a return of capital contributions of $26,590,533 to Revenue Area 14 was recognized and reported as contributions to other government in 2013. These capital contributions 36 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 received from or credited to IRWD for their agreed-upon share of capital assets and equity share in OCSD's Joint Works Treatment Facilities are calculated as prescribed in the agreements. In addition, a separate agreement for transfer of IRWD's wastewater solids residuals to OCSD was entered on April 28, 2010. IRWD agreed to pay OCSD a charge for interim solids handling charge which include annual capital and quarterly operating expense components designed to compensate OCSD for IRWD's share of the cost of operating and maintaining the existing facilities for the treatment of solids. As a result, a total of $14,764,044 in solids handling charges was reported as operating revenue in Consolidated Revenue Area in 2013. Any amounts credited to IRWD are not refunded in cash but are held as a credit to satisfy future contributions required of IRWD resulting in a balance due to other governmental agency of $48,700,573 as of June 30, 2013. Annual Cash Reserve Requirement The cash reserve contribution requirement from IRWD at June 30, 2013; in accordance with Amendment No. 2 to the Agreement between IRWD and OCSD Acquiring Ownership Interests, Assigning Rights, and Establishing Obligations; is $8.8 million. This cash reserve requirement is recognized as a liability to IRWD. (9) Commitments. Due From Other Governmental Agency. and Contingencies Relocation of the Santa Ana Regional Interceptor: On June 29, 2010, the District entered into an agreement to lend the Orange County Flood Control District (OCFCD) 60 percent of the amount of the contract awarded to design and construct the relocation of the Santa Ana Regional Interceptor, but not to exceed $72 million. On December 18, 2012, a new agreement was executed that superseded the prior agreement and reduced the District's maximum loan obligation to $59,036,400 based on lower than expected construction costs. OCFCD agrees to repay the loan from any subvention funds received by OCFCD, with the total balance repaid by no later than July 1, 2022. Repayment installments will be made within 30 days equal to 60 percent of any subvention funds received by OCFCD. Interest shall accrue on the unpaid balance from July 1, 2018 at an annual interest rate of two percent until the unpaid balance has been repaid. As of June 30, 2013, $51,336,000 has been loaned to OCFCD, leaving the District with an outstanding obligation to loan an additional amount not to exceed$7,700,400. Litigation: Certain claims involving disputed construction costs have arisen in the ordinary course of business. Additionally, the District is a defendant in lawsuits. Although the outcome of these matters is not presently determinable, management does not expect that the resolution of these matters will have a material adverse impact on the financial condition of the District. 37 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2013 (10) Restatement-adoption of new accountina standard During the year ended June 30, 2013, OCSD implemented GASB Statement No. 65. The implementation of GASB Statement No. 65 required that debt issuance costs (other than prepaid bond insurance) be reported as expense when incurred. The retroactive effect of implementing this change in reporting debt issuance costs resulted in a restatement of the beginning net position. The following is a summary of the effect of this adjustment: For the Fiscal Year Ended June 30, 2012 Deferred charges -beginning, as previously reported $ 9,934,078 Debt issuance costs adjustment (8,199,316) Deferred charges -beginning, as restated $ 1,734,762 Interest expenses, as previously reported $ 29,438,312 Debt issuance costs amortization (737,881) Interest expenses, as restated $ 28,700,431 Total net position - beginning, as previously reported $1,605,816,933 Debt issuance costs adjustment (8,199,316) Total net position - beginning, as restated $1,597,617,617 (11) Subsequent Events On October 16, 2013, the District issued Revenue Refunding Certificate Anticipation Notes (CANS) Series 2013A, in the amount of $129,625,000. The notes were issued to pay off all of the CANS Series 2012C. The true interest cost on the CANS Series 2013A, maturing on October 16, 2014, is 0.173756%. 38 Return to Aaenda Reoorl ORANGE COUNTY SANITATION DISTRICT SUPPLEMENTARY INFORMATION 39 Return to Anemia Report ORANGE COUNTY SANITATION DISTRICT Combining Area Schedule of Net Position June 30,2013 With Comparative Totals for June 30,2012 Revenue Consolidated Totals Area No. 14 Revenue Area 2013 2012(as restated) Current assets: Cash and cash equivalents $ 18,528,852 $ 189.749.220 $ 208,278,072 $ 135,014,420 Investments 30,171,721 308,980,852 339,152,573 378,937,214 Accounts receivable,net of allowance for uncollectibles$19,091 - 9,757,514 9,757,514 9,452,589 Accrued interest receivable - 1,596,362 1,596,362 1,576,247 Connection fees receivable - 1,565,534 1,565,534 647,485 Property tax receivable - 1,363,536 1,363,536 1,542,223 Inventories - 5,689,074 5,689,074 5,596,197 Prepaid expenses - 600,214 600,214 858,826 Prepaid retirement 17,555,710 17,555,710 14,937,778 Total current assets 48,700,573 536,858,016 585,558,589 548,562,979 Noncurrent assets: Restricted: Cash and cash equivalents - 36,118,018 36,118,018 36,541,736 Investments - 16,940,965 16,940,965 26,829,427 Accrued interest receivable - 230,648 230,648 239,070 Unrestricted: Non-depreciable capital assets 19,101,581 1,194,635,301 1,213,736,882 1,287,176,876 Depreciable capital assets, net of accumulated depreciation 28,617,766 1,189,859,303 1,218,477,069 1,127,092,227 Prepaid insurance on outstanding debt payable - 1,658,521 1,658,521 1,734,762 Due from other governmental agency - 51,336,000 51,336,000 30,852,290 Other noncurrent assets,net 10,344 10,344 10,344 Total noncurrent assets 47,719,347 2,490,789,100 2,538,508,447 2,510,476,732 Total assets 96,419,920 3,027,647,116 3,124,067,036 3,059,039,711 Deferred outflow of resources: Deferred charges on refunding debt 20,722,872 20,722,872 24,491,763 Total assets and deferred outflow of resources 96,419,920 3,048,369,988 3,144,789,908 3,083,531,474 Current liabilities: Accounts payable - 11.485,962 11,485,962 12,232,536 Accrued expenses - 8,123,120 8,123,120 7,410,100 Retentions payable - 8.286.811 8,286,811 2,045,987 Interest payable - 23,153,100 23,153,100 21,839,400 Due to other governmental agency 48,700,573 - 48,700,573 47,659,381 Current portion of long-term obligations 178.515,737 178,515,737 185,784,283 Total current liabilities 48,700,573 229,564,730 278,265,303 276,971,687 Noncurrent liabilities: - Noncurrent portion of long-term obligations 1,165,799,690 1,165,799,690 1,208,942,170 Total liabilities 48,700,573 1,395,364,420 1,444,064,993 1,485,913,857 Net position: Net investment in capital assets: Collection system 17,791,272 491,203,553 508,994,825 517,578,982 Treatment and disposal-Land 406,846 4,068,905 4,475,751 4,475,751 Treatment and disposal system 29,521,229 1,889,222,146 1,918,743,375 1,892,214,370 Capital assets related debt (1,251,916,008) (1,251,916,008) (1,288,302,786) Subtotal 47,719,347 1,132,578,596 1,180,297,943 1,125,966,317 Unrestricted 520,426,972 520,426,972 471,651,300 Total net position $47,719.347 $1,653,005,568 $1,700,724,915 $1,597,617,617 40 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT Combining Area Schedule of Revenues, Expenses,and Changes in Net Position For the Year Ended June 30,2013 With Comparative Totals for June 30,2012 Revenue Consolidated Totals Area No. 14 Revenue Area 2013 2012(as restated) Operating revenues: Service charges $ 8,772,327 $ 294,627,202 $ 303,399,529 $ 259,490,532 Permit and inspection fees 8,106 1,168,000 1,176,106 1,030,329 Total operating revenues 8,780,433 295,795,202 304,575,635 260,520,861 Operating expenses other than depreciation and amortization: Salaries and benefits 1,035,499 75,843,052 76,878,551 75,641,767 Utilities 125,837 6,277,176 6,403,013 7,405,843 Supplies,repairs and maintenance 716,679 23,377,248 24,093,927 24,254,601 Contractual services 7,399,831 19,391,264 26,791,095 26,698,372 Direclors'fees 16,163 128,550 144,713 145,562 Meetings and training 10,312 709,209 719,521 742,765 Feasibility studies 105,596 10,540,504 10,646,100 34,198,026 Other 50,804 4,089,529 4,140,333 3,232,535 Total operating expenses other than depreciation and amortization 9,460,721 140,356,532 149,817,253 172,319,471 Operating income(loss)before depreciation and amortization (680,288) 155,438,670 154,758,382 88,201,390 Depreciation and amortization 2,567,791 61,339,057 63,906,848 56,051,029 Operating income(loss) (3,248,079) 94,099,613 90,851,534 32,150,361 Non-operating revenues: Property taxes 1,977,025 77,262,472 79,239,497 67,882,072 Investment and interest income (355,267) (3,557,658) (3,912,925) 15,747,493 Contributions from other government 2,054,154 - 2,054,154 7,722,571 Other 13,161 1,714,159 1,727,320 763,161 Total nonopereting revenues 3,689,073 75,418,973 79,108,046 92,115,297 Non-operating expenses: Interest - 42,314,928 42,314,928 28,700,431 Contributions to other government 26,590,533 - 26,590,533 4,615,468 Other 698 53,851 54,549 58,701 Loss on disposal of assets 208,392 10,481,363 10,689,755 3,758,398 Total non-operating expenses 26,799,623 52,850,142 79,649,765 37,132,998 Income(loss)before transfer and capital contributions (26,358,629) 116,668,444 90,309,815 87,132,660 Capital Contributions: Capital facilities capacity charges - 12,797,483 12,797,483 8,936,033 Change in net position (26,358,629) 129,465,927 103,107,298 96,068,693 Total net position-beginning,as restated 74,077,976 1,523,539,641 1,597,617,617 1,501,548,924 Total net position-ending $ 47,719,347 $1.653,005,568 $1,700,724,915 $1,597,617,617 41 Return to Acenda Rom ORANGE COUNTY SANITATION DISTRICT Combining Area Schedule of Cash Flows For the Year Ended June 30,2013 With Comparative Totals for June 30,2012 Revenue Consolidated Totals Area No.14 Revenue Area Eliminations 2013 2012(as restated) Cash Bows from operating activities: Receipts from customers and users $ 9.821,625 $ 295.478,880 $ - $ 305,300,505 $ 251.972,581 Payments to employees (1,051,662) (76,645,606) - (77,697,268) (73,257,661) Payments to suppliers (8,362,571) (60,024,930) (68,38],501) (72,465,597) Net cash provided by operations 407,392 1R$808,344 159,215,736 106,249,323 Cash Bows from noncapital financing actvites: Proceeds from properly taxes 1.977,025 77,441,158 - 79.418.183 67,748,326 Proceeds from various resources 14,633 1,660,309 1,674,942 729,471 Net cash provided by noncapital financing activities 1,991,658 79.101,467 81,093,125 68.477.797 Cash Bows from capital and related financing activities: Capital facilities capacity charges - 11,879,435 - 11,879,435 8,674,313 Additions to properly,plant and equipment 23.533789 (87.370.048) (45.517.583) (109.353.843) (73,861,468) Disposal of property,plant,and equipment - (20.981,203) 20,1 -Interest paid - (51,970,472) - (51,970,472) (51,661,572) Principal payments on debt obligation - (259,070,000) - (259,070,000) (462,635,000) Proceeds from debt issuances - 216,506.206 - 216,506,206 401,099,196 Debt issuance costs - (838,884) - (838,884) (824.812) Contribution to other government (24,536,380) 24,536,380 Net cash used in capital and related finanang activities (1,002,591) (191,844,961) (19$84],558) (179,209,343) Cash Bows from Investing aclivitles: Proceeds from the sale of investments 804,410,561 8,127,795,657 - 8,932,206,118 8,625,518,492 Purchases of investments (800,727,451) (8,01 - (8,896.971,673) (8,710,267,505) SARI project(advanceypsyments - (20.483710) - (20483710) 5.147,710 Interest received 929,226 9,698,670 10,627,896 ],646,48] Net cash provided by(used in)investng activities 4,612,336 20766,295 25,378,631 (71.954,816) Net increase(decrease)in cash and cash equivalents 6,008,795 66,831,139 - 72,839,934 (76,437,039) Cash and cash equivalents,beginning of year 12,520,057 159,036,099 171,556,156 247,993,195 Cash and cash equivalents,and of year $ 18,528,852 $ 225,867,238 $ $ 244,396,090 $ 171,556,156 Reconciliation 0f operating income(loss)t0 net cash provided by operating activities: Operating income(loss) $ (3,248,079) $ 94,099,613 $ - $ 90,851,534 $ 32,150,361 Adjustments to reconcile operating income(loss) to net cash provided by Dperafi0ns: Depreciation and amortiza8on 2,567,791 61,339,057 - 63,901 56,051,029 Bad debt expense(Net recoveries) - 11,398 - 11,398 (29,691) Feasibility studies 46,488 6,011,796 6,058,284 28,979,182 (Increase idecrease in operating assets: Accounts receivable - (316,323) - (316,323) 1 Inventories - (31 - (30,340) 992,447 Prepaid and other assets - (2,359,320) - (2,359,320) (709,697) Incressel(decrease)in operating liabilities: Accounts payable - (746,578) - (746,578) (2,490,064) Accrued expenses - 733,795 - 733,795 499,986 Retentions Payable - - - - (214,439) Due to other governmental agency 1,041,192 - - 1,041,192 (9,536729) PenslonlOPEBICatestrophe leave payable - 34],]32 - 34],]32 360,710 Compensated absences - (136,296) - (136,296) (212750) Other payable - (277,285) - (277,285) 116,907 Claims and ludgmems 131,095 131.095 (696,3]T1 Net cash provided by operations $ 407392 $ 158,801 $ $ 159,215736 $ 106,249,323 Noncash Activities: unrealized gain(loss)on the fair value of investments $ (1,284,493) $ (13,154,165) $ (14,438,658) $ 8,236,187 Contributions from(to)other government (24,536,380) - (24,536,380) 3,107,103 Capital facilities contribution - 7,450,400 7,450,400 2,184,800 Feasibility studies with no cash effect 46,486 5,986,236 6,032722 21,909,604 42 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT STATISTICAL SECTION This part of the comprehensive annual financial report of the Orange County Sanitation District (OCSD) presents detailed information as a content for understanding what the information in the financial statements, note disclosures, and required supplementary information says about OCSD's overall financial health. Contents Pages Financial Position and Trends These schedules contain current and trend information to help the reader understand OCSD's financial position and how OCSD's financial performance and well-being have changed over time. 44-48 Revenue Capacity These schedules contain information to help the reader assess OCSD's most significant revenue source of sewer service fees. 49-51 Debt Capacity These schedules present information to help the reader assess the affordability of OCSD's current levels of outstanding debt and OCSD's ability to issue additional debt in the future. All of OCSD's debt is recorded in a proprietary fund; consequently,many 52-55 of the schedules which are applicable to governmental funds are not presented. Operating Information These schedules contain data to help the reader understand how the information in OCSD's financial report relates to the services it provides and the activities it performs. 56-59 Demographic and Economic Factors These schedules offer demographic information to help the reader understand the environment within which OCSD's financial activities take place. 60-63 43 Return to Aaerda Report ORANGE COUNTY SANITATION DISTRICT Net Position by Component (Dollars in Thousands) Last Ten Fiscal Years $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 ONet investment in Capital Assets ■ResMcted for Debt Service&Capital Acquisition OUnrestricted Restricted for Debt Service Net Investment in &Capital Fiscal Year Capital Assets Acquisition Unrestricted Total Net Position 2003-04 $ 418,267 $88,519 $ 517,346 $1,024,132 2004-05 558,391 64,514 418,342 1,041,247 2005-06 664,060 3,003 422,036 1,089,099 2006-07 886,463 3,904 299,370 1,189,737 2007-08 847,426 - 428,561 1,275,987 2008-09 948,869 - 399,452 1,348,321 2009-10 1,121,057 - 310,016 1,431,073 2010-11 1,131,063 - 379,423 1,510,486 2011-12 1,125,966 - 471,651 1,597,617 2012-13 1,180,298 - 520,427 1,700,725 (1) Beginning net position restated due to implementation of GASS 65. Source: Orange County Sanitation DistricCs Financial Management Division. 44 Return to Aaenna Report ORANGE COUNTY SANITATION DISTRICT Revenues and Gross Capital Contributions by Source (Dollars in Thousands) Last Ten Fiscal Years $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0 -$25,000 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 GOpemting Revenue ■Non-Operating Revenue ■Capital Contnbutions Operating Revenue Non-Operating Revenue Permit& Total Fiscal Service Inspection Total Property Non- Capital Year Charges Fees Operating Taxes Interest Other Operating Contributions 2003-04 $ 101,995 $ 332 $ 102,327 $ 46,943 $ 6,786 $ 928 $ 54,657 $18,243 2004-05 120,917 498 121,415 35,764 15,118 1,051 51,933 19,350 2005-06 154,291 874 155,165 39,958 10,426 3,477 53,861 32,990 2006-07 167,790 1,866 169,656 60,565 22,243 1,068 83,876 50,207 2007-08 184,180 1,196 185,376 65,210 20,235 13 85,458 35,408 2008-09 206,422 895 207,317 66,427 14,836 1,634 82,897 17,937 2009-10 225,059 629 225,688 64,759 19,166 6,939 90,864 (2,406) 2010-11 244,465 794 245,249 64,307 10,092 11,015 85,414 9,800 2011-12 259,491 1,030 260,521 67,882 15,747 8,486 92,115 8,936 2012-13 303,400 1,176 304,576 79,240 (3,913) 3,781 79,108 12,797 Source: Orange County Sanitation District's Financial Management Division. 45 Return to Aaerde Report ORANGE COUNTY SANITATION DISTRICT Expenses by Type (Dollars in Thousands) Last Ten Fiscal Years $2s0,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $W,000 $25,000 $0 - 2003-0 20 05 2005.06 2006-07 2007- 2008-09 2009-10 2010-11 2011-12 2012-13 NOperating Expense ■Non-0perating Expense Operating Expense Non-Operating Expense Fiscal Salaries& Maint& Depr& Total Interest Total Non. Year Benefits Utilities Other Amort Operating Expense Other Operating 2003-04 $ 48,711 $ 5,408 $ 41,284 $ 44,412 $ 139,815 $ 15,524 $ 6,102 $ 21,626 2004-05 53,048 6,473 42,325 48,095 149,941 17,470 8,172 25,642 2005-06 53,246 7,563 44,823 49,887 155,519 20,078 18,567 38,645 2006-07 57,802 8,072 46,281 53,111 165,266 21,747 16,089 37,836 2007-08 67,629 8.092 56,169 47,767 179,657 22,517 17,818 40,335 2008-09 67.498 7,242 89,816 32,520 197,076 24,899 13,942 38,741 2009-10 69,652 6,934 61,499 52,036 190,121 27,537 13,736 41,273 2010-11 73,112 6.948 63,328 49,288 192,676 29,129 39,245 68,374 2011-12 75,642 7.405 89,272 56,051 228,370 28,700 8,433 37,133 2012-13 76.878 6,403 66,536 63,907 213,724 42,315 37,335 79,650 Source: Orange County Sanitation Districts Financial Management Division. 46 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Change in Net Position (Dollars in Thousands) Last Ten Fiscal Years $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Ending Net Position by Fiscal Year Fiscal Total Total Change in Beginning Ending Year Revenues Expenses Net Position Net Position Net Position 2003-04 $175,227 $ 161,441 $ 13,786 $1,010,347 $ 1,024,133 2004-05 192,698 175,583 17,115 1,024,133 1,041,248 2005-06 242,016 194,164 47,852 1,041,248 1,089,100 2006-07 303,739 203,102 100,637 1,089,100 1,189,737 2007-08 306,242 219,992 86,250 1,189,737 1,275,987 2008-09 308,151 235,817 72,334 1,275,987 1,348,321 2009-10 314,146 231,394 82,752 1,348,321 1,431,073 2010-11 340,463 261,050 79,413 1,431,073 1,510,486 2011-12 361,572 265,503 96,069 1,501,549 (1) 1,597,618 2012-13 396,481 293,374 103,107 1,597,618 (1) 1,700,725 t11 Beginning net position restated due to implementation of GASS 65. Source: Orange County Sanitation District's Financial Management Division. 47 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Cash and Investment Reserve Balances (Dollars in Millions) Last Ten Fiscal Years Capital Debt Cash Flow Self- Improvement Service Fiscal Year Contingency Insurance Program Requirements Total 2003-04 $ 71 $ 57 $ 390 $ 88 $ 606 2004-05 71 57 242 65 472 2005-06 132 57 196 105 490 2006-07 132 57 104 79 372 2007-08 149 57 219 108 533 2008-09 172 57 172 133 534 2009-10 185 57 102 129 473 2010-11 187 57 176 141 561 2011-12 196 57 186 138 577 2012-13 174 57 234 135 600 Notes: The Cash Flow Contingency Reserve is to fund operations, maintenance, and certificates of participation debt service expenses for the first half of the fiscal year, prior to the receipt of the first installment of the property tax allocation and sewer service user fees. The Self-Insurance Reserve is to provide requirements for property damage including fire,flood and earthquake,general liability and workers'compensation. The Capital Improvement Program Reserve is to fund annual increments of the capital improvement program with a target level at one half of the average annual capital improvement program through the year 2020. The Debt Service Required Reserves are monies held and controlled by a trustee pursuant to the provisions of certificates of participation issues, and the monies are not available for the general needs of the District. Source: Orange County Sanitation District's Financial Management Division. 48 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Sewer Service Fees Single Family Residence Rate Last Nine Fiscal Years and Next Fiscal Year Sewer service fees are comprised of three categories: residential customers, commercial customers, and industrial customers. Although the majority of sewer service fee revenues are from residential and commercial customers (see the schedule of Number of Accounts and Revenues by Customer Class), the fee paid by each residential and commercial customer is less than the individual fees paid by industrial customers. The rates for commercial and industrial customers are derived from the base sewer service fee charged for a single-family residence and are based on the type of business and the strength and volume of waste that is discharged into the sewer system. Due to the complexity of the rate structure for commercial and industrial customers and since the rates are derivatives of the single-family residence rate, only the single-family residence rate is presented within the statistical section. Sewer Service Fiscal Year Charge 2004-05 $ 115.00 2005-06 151.00 2006-07 165.80 2007-08 182.00 2008-09 201.00 2009-10 221.00 2010-11 244.00 2011-12 267.00 2012-13 294.00 2013-14 308.00 Annual Sewer Service Fees Single Family Residence 350 300 LL 250 200 W 150 m 00 50 0 2004-05 2005-06 2006-07 2007-08 2008-09 2OW10 2010-11 2011-12 2012-13 2013-14 Fiacal Year Source: Orange County Sanitation Districfs Financial Management Division. 49 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Number of Accounts and Revenues by Customer Class (Dollars in Millions) Last Ten Fiscal Years Residential/Commercial Industrial Number of Total Percentage Total Percentage Equivalent Sewer Svc. of Sewer Number of Sewer Svc. of Sewer Single-Family Charge Service Charge Customer Charge Service Charge Fiscal Dwellings Revenue Revenues Accounts Revenue Revenues 2003-04 860,156 86.0 92% 530 7.5 8% 2004-05 860,634 99.0 90% 568 10.5 10% 2005-06 872,859 132.0 92% 557 12.2 8% 2006-07 867,035 143.8 91% 531 13.4 9% 2007-08 875,739 159.4 93% 520 12.1 7% 2008-09 882,747 177.4 95% 515 9.9 5% 2009-10 875,442 193.5 95% 487 10.8 5% 2010-11 874,130 213.3 95% 479 10.1 5% 2011-12 869,709 232.2 96% 516 9.5 4% 2012-13 879,443 258.6 96% 527 10.8 4% $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 ■Residential/Commercial Users ■Industrial Users Source: Orange County Sanitation Districts Financial Management Division. 50 Return to Aaende Report ORANGE COUNTY SANITATION DISTRICT Principal Sewer Service Customers For the Current Fiscal Year and Nine Years Ago Fiscal Year Ended 6130/13 Fiscal Year Ended 6130104 Industrial Industrial Permittee %to Total Permittee %to Total Service Service Charge Service Service Charge User Charges Rank Revenue Charges Rank Revenue Stremicks Heritage Foods, LLC $ 986,405 1 0.33% $ 510,594 2 0.50% House Foods America Corp. 953,542 2 0.31% 385,662 5 0.38% Kimberly-Clark Worldwide, Inc. 903,947 3 0.30% 368,243 6 0.36% Dean Foods Co. of CA Inc. 890,943 4 0.29% MCP Foods, Inc. 870,130 5 0.29% 454,965 4 0.45% Pulmuone Wildwood, Inc. 574,797 6 0.19% Schreiber Foods Inc. 473,289 7 0.16% Jazz Semiconductor 446,894 8 0.15% Nor-Cal Beverage Co. Inc(NCB) 416,000 9 0.14% Pepsi-Cola Bottling Group 394,930 10 0.13% Alstyle Apparel-Activewear Mfg. 583,330 1 0.57% Disneyland Resort&Park 458,792 3 0.45% U.S. Dyeing&Finishing, Inc. 290,228 7 0.28% Disneyland Resort—DCA 252,466 8 0.25% Van Law Food Products, Inc. 237,297 9 0.23% Knotts Berry Farm Foods 189,281 10 0.19% $ 6,910,877 2.29% $ 3,730,858 3.66% Although the majority of sewer service fee revenues are from residential and commercial customers (see the schedule of Number of Accounts and Revenues by Customer Class), the fee paid by each residential and commercial customer is less than the individual fees paid by industrial customers. Consequently, this schedule shows the largest sewer service fee customers. Source: Orange County Sanitation District's Financial Management Division. 51 Return to Aaeoda Report ORANGE COUNTY SANITATION DISTRICT Ratio of Annual Debt Service to Total Expenses (Dollars in Thousands) Last Ten Fiscal Years 60% 50% 40% 30% 20% 10% 0% 2003-04 20N 05 2905-06 2006-07 2007-08 2000-09 2009-10 2010-11 2011-12 2012-13 Ratio of Debt Total Service to Total Fiscal Principal Total Debt Operating Operating Year (1) Interest Service(3) Expenses(2) Expenses 2003-04 $ 11,610 $ 22,508 $ 34,118 $ 95,403 35.76% 2004-05 12,040 25,871 37,911 101,846 37.22 2005-06 12,755 29,563 42,318 105,632 40.06 2006-07 13,465 32,673 46,138 112,155 41.14 2007-08 11,025 36,484 47,509 131,890 36.02 2008-09 21,305 40,840 62,145 164,556 37.77 2009-10 24,030 46,052 70,082 138,085 50.75 2010-11 25,895 49,426 75,321 143,388 52.53 2011-12 14,370 50,975 65,345 172,319 37.92 2012-13 23,965 53,640 77,605 149,817 51.80 Notes (1)-Excludes principal reductions due to advanced refunding. (2)-Excludes depreciation and amortization expense. (3)-Debt consists of certificates of participation, revenue obligations, and anticipation notes. Source: Orange County Sanitation District's Financial Management Division. 52 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Debt Coverage Ratios (Dollars in Millions) Last Ten Fiscal Years The Orange County Sanitation District has no legal debt limits as imposed by State legislation. The District does have contractual covenants within the existing Certificates of Participation indenture agreements which require minimum coverage ratios of 1.25. The coverage ratio is calculated as the ratio of net annual revenues available for debt service payments to total annual debt service requirements. 3,50 3.00 2 50 2 00 1 50 1 00 0.50 2003-04 2004-05 2005-06 2006-07 200708 200809 2009-10 2010-11 2011-12 2012 13 Fiscal Year Ending June 30, 20N 2005 2006 2007 20M 2009 2010 2011 2012 2013 Operating&Non-operating Revenues: Service Charges,Net of Refunds-Regional $ 86.0 $ 99.0 $ 132.0 $ 143.8 $ 159.4 $ 177.4 E193.5 $ 213.3 $ 232.2 E 258.6 Service Charges,Netof Refunds-Loral - - - - - 5.6 5.6 5.7 5] 5.8 Industrial Sewer Service Charges TS 10.5 12.2 13.4 12A 9.9 10.8 10.1 9.5 10.8 Revenue Area No.14 Fees 5.8 6.9 5.3 5.2 7.1 10.3 10.2 21.4 18.0 12.5 Ad Malorem Taxes 46.9 35 8 40.0 Wa 65.E 66.4 64.8 64.3 67.9 77.3 Interest Earnings 6.8 15.1 10.4 22.2 20.2 14.8 19.2 10.1 15.7 (3.6) Other Revenues 13.0 6.1 9.2 8.3 6.9 5.8 12.5 5.7 3.6 22.3 Total Revenues 166.0 173.4 209.1 253.E 270.9 290.2 316.6 330.E 352.6 383.7 Operating Expenses(1) 954 1018 105.6 112.2 131A 1646 138.1 1434 1723 149.8 Net Revenues $ 70S $ 718 $ 103S $ 141.3 $ 1390 $ 1258 $ 178.5 $ 187.2 $ 1803 $ 233.9 Debt Service Requirements Pnncipal Payments 116 120 12.8 13.6 11.0 21.3 24.0 25.9 144 24.0 Interest Payments 16S 25.9 29.1 35.3 31.8 36.3 43.1 46.5 51.0 53.6 Total Debt Service Requirements $ 28.4 It 37.9 It 41.9 $ t8.8 $ 42.8 It 5T6 $ 67.1 $ n.4 It 65A $ 77.6 Coverage Ratios 2.49 1.89 2.47 2.90 3.25 2.18 2.66 2.69 2.76 3.01 Ending Reserves(2) $ 518.0 $ 407.0 $ 385.0 $ 293.0 $ 425.0 $ 401.0 $344.0 $ 420.0 $ 439.0 $ 465.0 Notes (1)-Operating expenses exclude depreciation and amodization expenses. (2)-Excludes debt service reserves In accordance with the Districts reserve policy. Source:Orange County Sanitation District's Financial Management Division. 53 Return to AOence Report ORANGE COUNTY SANITATION DISTRICT Computation of Direct and Overlapping Debt June 30,2013 2012-13Aaesad Valuafim(Lmd B:lmo eats Ovlr)'. S3163e3.025.518 OVERLAPPLG TAX AND ASSESSMENT DEBT(Bash no all aeouerry a onaed%nlmfion d5321.2)).0i9.2291: Trial Delta Olarld's Blaineof &MM %Amv11nb4111 DWg NI0eg3 Metrgditm Rater Di acid of Sn6 mCalifduia S165,085,0W 15188% S 25,238,195 ana cmmumn'cal',,Disnid 648,598,698 99359 644,411,180 North Geroge ComnJdo,C®moat,Cdlege Diarid 213,3M,001 9]46) 207,999,731 Ramto Saufitt,Cmnmow tv College Diaid 293,2Q944 98999 290,282,217 Brea-Misda and Lagona Beanh Unified Stool Dianids 49,844,029 99.997R 15W8 24,7558,213 Gmden Grme Unified Sdiool DiaMd I27,OW,IW IN, 127,WO,160 Los Mamitm Unified Srbod EKS0 t Stall Facihties lmprdemem Dinned No.1 68,521,137 %331 66,178,390 Veapmt Men Unified Sdwal Diarid 241,]]9,150 IN 241,))9,150 Recantis-t'mba Linda Unified Schad Diaid 263,061.9% 99979 %0,376,133 Saddeback Vallev Unified Schad DlsMct 121,645,OW 121" 14,918,543 Sand Ana Unified Srtool Distiid 2%,779,272 IN. 296,]]9,272 Tannin Unified SdrodDiarid Sdmd Fadhfiea Ite,a.eni Dialrid No,2W2-1 55,441.785 99.961 55,420,163 Town Unified Sd,od Diarid Srbod Facilities lmlrmemm[Diarid No 2M-I ]2,)25,0W 99960 72,05,910 Taatin Unified Sdto Diarid Sdand Facilities Ize a emem Diarid No.2012-1 33,000,OW 99974 34,"0."0 Anaheim Unim High Sehml Diarid 105,123,955 IN 105,183,%5 Fullerton Rant Unim High Schad Dishid 52,312,910 91374 47,%5,024 Huntington Beast Com High Stlmd Diarid 210,5M,9ft 99.015 208,M5,785 Schad Diahida 429.195,970 97.430-IW. 428,497,707 Qu,efAnaham 2,605,OW 99117 2,584,603 ]nine Raud,water District Ize a mem Dinrida 323,674,320 vmiona 325,673,054 Hosmox cmmudnSenices Dlaaid Spedal Tax Oweation, 355,00) IN 355,W0 Bonin Cans. Commudty Fatalities Diadd No.98-1 3),]35,OW IN. 3),]35,WO Inia Unified Stud Dlahlct Cammunin'Facilifin Distrida 391,373,130 IN. 391,373,130 Tannin Unified Sdod Diarid C®unit,Fadfifiea Diattida 249,552,675 IN. 248,552,675 Q!,ofTuaiv Ce®t®n Fadines Districts 77,570,OW IN, 77,570,WO othn community Fannitiea Disuida 335,761,820 W993-IW- 333,)62,N) Omvee Comn Aafemmevt 2Gneica 88,7082% IN 99,709,296 Qn of1t,ine 1915 Ad Bonds 810,693.OW IN. 810,693,W0 Olhn 191 a Ad bonds 17,558,436 IN. 17,558.436 TOTAL Oi'ERLAPRNG TAX AND ASSESSMFNTDEBT S5,689,4)5,4)9 DIXECT AND OVERLAPPING GEVF.HAI.FUNT)DEBT_ craves Cmvn cannel Food odipfim, siw smi3OW MCM415 S 143,098,613 Onnee Conan Pmvm Odieadms 306,287,2N )S.W4 230,W3,343 Orange Comt,Bond ofEddan.Cerfificates aPmtidPad. 15,))0,OW )5.091 11,1112,324 Brea-0inda Unified Sidd Uisaid Certificates oflir .,Ian 24,285,OW 99.9)) 24,279,414 Omvge Unified Srbod Diserid Ceetificates of Peniapatidi andeeafit ow,,diom 123,333,644 9]H3) 121,215,741 Pladatia-Dada Linda Unified Shoal District Certificates of Panidpmim 107.915,670 98979 106,833,N7 Sanm Ave Unified Shoo)District Certificate ofP dadim 78,885,880 IN 78,885,880 Cher Unified Stool Diarid Certificates of1tadidpatim 57,9%,650 vine. 56,419,472 union High Sehod Dlanld Cefificates of Parfiapatim 119,201,185 vafdu 116,736,%3 Shod Disfild Certificates of Partidlmtton U,IW,320 Varidm 67,650,266 a1v ofAmbam GmeN Fund Wligatims 539.0)]465 "217 534,856,488 Cin ofeoaa Mesa General Fund Obligations 30,435,0W IN 30,411,00 ON aGerdev Grd'e General Fund Obligations 18,410,OW IN 18,410,WO Qnd'Hmtivnon Bead Gevml Fund and ludamevt Oblieatioas 50,1%,OW 98769 49,576,112 Qt,of La Hach Geaeml Fund Obligations 19,035,OW IN. 19,035,W0 Qn ol'Smta Am Geaeml Fund Obligations 88,BW,OW IN. 88,%O,WO Other ON General Fund obligations 239,IW,034 Vannes 219,429,274 orangee96an sanitation Dined 0 IW- 0 (2) Muoidpal Watin District aQavae Cavvty Rater FaaGties Cd oratim 10,035,01M) 70,195 7 044Wg TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $1,923,590,625 Lea: Qtrof Anahennsefsuppochngodiganions 524,914,%5 Meer Qtr self-apyortiug obliganions 28,507,522 M%T20e Rain F.dh,in empmatim(1 W%self-wppot ine ]W4 M8 TOTAL NET O%'E FPINI-G cii E F MDFBT $1363,124,00 OVERLAPRING TAX INCREMENT DEBT. S1,223,3N,604 58.173-100. % SL216,282,420 GROSS COMBINID TOTAL DEBT S8,829,348,524 (3) NET OOMBINED TOTAL DEBT S8,268,881,989 (1) the pernnye oFvyMappwg 6ebt aDg4eatluv M1e6mria is ntimee6vs6pmtle nsnae6pgerty rake. Appliclle pertemµn won esumue6 by Mmm'ry M1e pxcvddtheewature, uecu cesdpr echariswiJ msLvdwsiea cceh aavnofp6iauinochwbyshedlwiaedw&sWeaaea rave. (3) Eackdn wmeean rcrmuecnti6cmeeb,potene.m. An'imaly dmade6 n2ficnn of puudptivehn'e bem rnlmaifiedm 6iauin m'evve mpvtM issues and ue vvlonger=ande,luded uenuctuthehb[sent®eat. (3) Excludes mrm6mxvue mturity vvtn,ntm3dse m'mue,mmppem mue m6 my-Mvded capNleme vtligativva.QuaifiM 2me AnhmyHmda me uckhd boned m pnvcryi rive n maveiry. Ration tot Taal Oaedapping Tad and Asnesnuent lndemenl Debt Gres Cambived Trial lad Net C®tined Total Debt Land and lmfroemmt Adeened Valwnion IW. 2.79% 261% All Property Asavd Valuation NSA 175% 2.57% Rede,elaFmeot NaemmW Veluatim(54003),068}21) 304°a MA NIA Sdasa:Canifarnia Mmiapni Sacafica 54 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Ratios of Outstanding Debt Last Ten Fiscal Years Debt as a (5) (3) Percentage Total Median of Median (4) Debt Fiscal Outstanding Family Family Population per Year Debt Income(1) Income Estimate(2) Capita 2003-04 $ 632,515,587 $ 74,200 0.012% 2,441,350 259,08 2004-05 620,520,145 75,700 0.012% 2,467,850 251.44 2005-06 807,809,704 78,300 0.010% 2,481,540 325.53 2006-07 801,389,769 78,700 0.010% 2,505,180 319.89 2007-08 1,096,049,542 84,100 0.008% 2,522,820 434.45 2008-09 1,262,936,747 86,100 0.007% 2,539,990 497.22 2009-10 1,306,255,753 87,200 0.007% 2,563,170 509.63 2010-11 1,427,792,453 84,200 0.006% 2,457,571 580.98 2011-12 1,376,404,782 85,300 0.006% 2,472,122 556.77 2012-13 1,325,928,512 84,100 0.006% 2,491,268 532.23 Notes & Data Sources (1)- Data is for the entire County of Orange. (2)- Data is for the estimated population served by the Orange County Sanitation District. (3)- Data Source: U.S. Department of Housing and Urban Development. (4)- Data Source: Demographic Research Unit, California Department of Finance. (5)- Data Source: Orange County Sanitation District. Debt includes certificates of participation, revenue obligations, and anticipation notes and is presented net of original issuance discounts and premiums. 55 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Comparison of the Volume of Wastewater Treated With Revenues and Expenses Last Ten Fiscal Years Millions of Gallons of Collection, Waste- Treatment water &Disposal Total Total Total Total Treated Cost per Operating Non-Operating Operating Non-Operating Fiscal Per Million Costs Costs Revenues Revenues Year Day Gallons (In Thousands) (In Thousands) (In Thousands) (In Thousands) 2003-04 238 1,068.43 $ 139,815 $ 21,626 $ 102,327 $ 54,657 2004-05 243 1,095.79 149,941 25,642 121,415 51,933 2005-06 235 1,216.77 155,519 38,645 155,165 53,861 2006-07 229 1,268.38 165,266 37,836 169,656 83,876 2007-08 221 1,541.18 179,657 40,335 185,376 85,458 2008-09 211 1,576.67 197,076 38,741 207,317 82,897 2009-10 196 1,588.72 190,121 41,273 225,688 90,864 2010-11 207 1,816.62 192,676 68,374 245,249 85,414 2011-12 201 1,871.47 228,370 37,133 260,521 92,115 2012-13 200 1,906.01 213,724 79,650 304,576 79,108 A Facilities Master Plan to the year 2030 was completed in December 2009 that projects wastewater treatment flows to increase to 279 millions of gallons per day(mgd) in 2020,to 286 mgd in 2025, and to 294 mgd in the year 2030. The anticipated need to meet the projected flows is included in the overall CIP program of$2.0 billion out to 2021-22. Total expenses in FY 2012-13 increased$131.9 million,or 81.7 percent since FY 2003-04, primarily as a result of(1) OCSD's decision beginning in FY 2002-03 to maximize existing secondary treatment facilities as OCSD moved from a 50/50 mix of primary and secondary effluent treatment to meeting secondary treatment standards as of December 31, 2012,and(2)OCSD's decision to eliminate most bacteria from the ocean outfall discharge by disinfecting the effluent beginning in FY 2002-03 at an additional cost in chemicals of$7 million annually. Maintenance, chemicals, utilities,and other operating costs represent 20 percent of the increase,primarily due to the increase in the levels of treatment referred to above and an increase of feasibility studies in FY 2012-13. Depreciation expense represents another 15 percent of the increase as a result of the previous expansion in capital facilities and the financing associated with the expansion. In FY 2012-13, personnel expenses rose 1.6 percent over the prior year. This increase is mainly due to increases in health insurance and retirement premiums. The full-time equivalent positions authorized decreased by 9 in FY 2012-13. As depicted from the chart above, actual wastewater treatment flows have generally remained between 221 mgd and 243 mgd in the past. Due to unusually dry weather conditions during the last five years, FY 2008-09, FY 2009-10, FY 2010-11 FY 2011-12, and FY 2012-13 had flows of only 211 mgd, 196 mgd, 207 mgd, 201 mgd and 200 mgd respectively. Source:Orange County Sanitation District. 56 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Authorized Full-lime Equivalents by Function Last Ten Fiscal Years 300 250 200 150 100 50 iv 1 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GGeneral Management ■Human Resources oAdministrdlive Services GFacilities Support Services wTechnical Services •Engineering •Operations and Maintenance Fiscal Year Ending June 30, 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 General Management 17 17 2 25 30 30 15 15 13 14 Human Resources 25 27 28 19 16 16 17 27 20 16 Administrative Services 91 96 117 83 82 81 92 85 111 111 Facilities Support Services 61 62 62 51 57 68 71 70 84 81 Technical Services 100 112 114 119 109 107 105 102 - - Engineering 80 95 99 98 93 98 96 112 128 125 Operations and Maintenance 224 220 222 249 247 241 245 230 281 281 Total FTE's 598 629 644 644 634 641 641 641 637 628 Source: Orange County Sanitation District's Financial Management Division. 57 Return to Aaeoda Report ORANGE COUNTY SANITATION DISTRICT Biosolids Produced Last Ten Fiscal Years 300,000 250,000 200,000 150,000 100,000 50,000 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 OWet Tonnage ■Dry Tonnage Fiscal Year Wet Tonnage Dry Tonnage 2003-04 239,426 50,519 2004-05 246,194 51,700 2005-06 233,996 49,554 2006-07 236,460 49,184 2007-08 248,717 50,884 2008-09 249,202 51,342 2009-10 245,668 50,799 2010-11 253,557 49,133 2011-12 280,572 47,556 2012-13 274,957 43,365 Source:Orange County Sanitation Districfs Environmental Compliance&Regulatory Affairs Division. 58 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT Capital Asset Statistics Last Ten Fiscal Years Miles of Number Primary Secondary Trunk& of Treatment Treatment Fiscal Subtrunk Pump Capacity Capacity Year Sewers Stations (1) (1) 2003-04 650 20 276 170 2004-05 620 18 306 170 2005-06 584 16 366 200 2006-07 581 16 372 200 2007-08 568 17 372 200 2008-09 582 17 372 212 2009-10 579 17 372 212 2010-11 587 17 372 212 2011-12 572 17 372 332 2012-13 572 17 372 332 Notes (1) -Capacity is presented as million gallons treated per day. Source: Orange County Sanitation District 59 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Demographic Statistics Covering The Entire County of Orange(1) Last Ten Fiscal Years Total (5) (6) (2) Personal Per Capita Median Public (7) Fiscal Population Income Personal Family School Unemployment Year Estimates (in thousands) Income Income Enrollment Rate 2003-04 3,017,000 $ 130,621,396 (3) $ 43,295 $ 74,200 517,000 3.6% 2004-05 3,047,000 139,408,948 (3) 45,753 75,700 514,000 3.9% 2005-06 3,072,000 150,598,354 (3) 49,023 78,300 510,114 3.7% 2006-07 3,090,000 153,446,641 (3) 49,659 78,700 503,955 3.9% 2007-08 3,108,000 155,925,156 (3) 50,169 84,100 503,492 5.3% 2008-09 3,135,000 145,247,447 (3) 46,331 86,100 504,136 9.3% 2009-10 3,166,000 147,138,449 (3) 46,475 87,200 502,239 9.5% 2010-11 3,030,000 154,131,535 (3) 50,868 84,200 502,903 9.2% 2011-12 3,056,000 160,482,000 (4) 52,514 85,300 502,195 7.9% 2012-13 3,082,000 168,966,400 (4) 54,824 84,100 501,801 6.1% Notes and Data Sources (1) - The Orange County Sanitation District services 479 square miles or 60% of the total 799 square miles that make up the boundaries of the County of Orange. (2)-Data Source: Demographic Research Unit, California Department of Finance. (3)-Data Source: Bureau of Economic Analysis, U.S. Department of Commerce. (4)-Data Source:A. Gary Anderson Center for Economic Research, Chapman University. (5)-Data Source: U.S. Department of Housing and Urban Development. (6)-Data Source: California Department of Education, Educational Demographics Unit. (7)-Data Source: State of California, Employment Development Department as of June 30 of each fiscal year. (8)-Forecasted number 60 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Estimated Population Served by the Orange County Sanitation District June 30, 2013 Population as of January 1,2013 Anaheim 345,432 Brea 41,319 Buena Park 82,034 Costa Mesa 111,335 Cypress 48,571 Fountain Valley 56,182 Fullerton 138,283 Garden Grove 173,081 Huntington Beach 192,672 Irvine 230,647 La Habra 61,174 La Palma 15,825 Los Alamitos 11,526 Newport Beach 86,436 Orange 139,049 Placentia 51,910 Santa Ana 330,004 Seal Beach 23,961 Stanton 38,428 Tustin 77,951 Villa Park 5,899 Westminster 90,931 Yorba Linda 66,523 Subtotal Cities 2,419,173 Estimated Population Served in Unincorporated Areas 72,095 2,491,268 Source: Center for Demographic Research, California State University, Fullerton. 61 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Principal Orange County Employers(1) Forthe Current Fiscal Year and Nine Years Ago Fiscal Year Ended 6130/13 Fiscal Year Ended 6/30/04 Percentage of Percentage of Number of Total County Number of Total County Employers Employees(2) Rank Employment(3) Employees(2) Rank Employment(4) Walt Disney Co. 25,000 1 1.63% 21,000 1 1.40% University of California, Irvine 21,800 2 1.42% 15,500 3 1.03% County of Orange 17,257 3 1.13% 17,597 2 1.17% St.Joseph Health System 11,679 4 0.76% 8,975 5 0.60% Boeing Co. 6,873 5 0.45% 11,160 4 0.74% Kaiser Permanents 6,300 6 0.41% Bank of America Corp. 6,000 7 0.39% Memorial Care Health System 5,545 8 0.36% Target Corp. 5,400 9 0.35% 5,436 10 0.36% Cedar Fair LP 5,200 10 0.34% Albertsons Inc. 8,700 6 0.58% Tenet Healthcare Corp. 8,389 7 0.56% YUMI Brands Inc. 6,500 8 0.43% SBC Communications, Inc. 5,658 9 0.38% Total 111,054 7.240/6 108,915 7.25% Notes&Data Sources (1)-Data is for the entire County of Orange. (2)-Data Sources: Orange County Business Journal Book of Lists,County of Orange (3)-Data Source:State of California,Employment Development Department. -Percentage is calculated by dividing employees by total employment of 1,533,100 as of June 2013. (4)-Data Source: State of California, Employment Development Department. -Percentage is calculated by dividing employees by total employment of 1,498,600 as of June 2004. 62 Return to Aaenda Report ORANGE COUNTY SANITATION DISTRICT Operating Indicators June 30, 2013 District Organization: The Orange County Sanitation District is one consolidated district made up of two revenue areas which service unincorporated county areas and twenty-three cities and related special districts, as follows: Consolidated Revenue Area County of Orange(unincorporated areas) Cities: Anaheim Huntington Beach Santa Ana Brea Irvine Seal Beach Buena Park La Habra Stanton Costa Mesa La Palma Tustin Cypress Los Alamitos Villa Park Fountain Valley Newport Beach Westminster Fullerton Orange Yorba Linda Garden Grove Placentia Special Districts: Midway City Sanitary Districl Costa Mesa Sanitary District Revenue Area No. 14 County of Orange(unincorporated areas) Cities: Irvine Orange Tustin Special District: Irvine Ranch Water District Governing Body: 25-member Board of Directors Authorized Full-Time Equivalent Employees: 628 Operational Date: July 1, 1954 Authority: Califomia Health & Safety Code Section 4700 at. seq. Services: Wastewater collection,treatment,and disposal Service Area: 479 square miles Population Served: 2.5 million Total Miles of Sewers (including force mains): 572 miles Number of Pumping Stations: 17 Wastewater System Treatment Capacities (Million Gallons per Day) Existing Primary Existing Secondary Actual Flows Treatment Capacity Treatment Capacity Plant 1 97 204 182 Plant 2 103 168 150 Total ZQQ ,M Source: Orange County Sanitation District's Financial Management Division. 63 Return to Aaenda Report (THIS PAGE INTENTIONALLY LEFT BLANK) 64 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT OTHER DATA &TRENDS Information within this section consists of other data and trends including additional annual disclosures as required by the Sanitation District's debt covenants beyond what is allowed to be reported in the Statistical Section. 65 Return to Amends Report ORANGE COUNTY SANITATION DISTRICI Cash and Investment Portfolio As of June 30,2013 Net Unrealized Cost Market Value Gainl(Loss) Shares Par Base Base %of Total Base INVESTMENT PORTFOLIO: CASH&CASH EQUIVALENTS(U.S.DOLLAR): CASH EQUIVALENTS $ 104,812.50 $ 104,812.50 $ 45,593.44 0.01% $ (59,219.06) FEDERAL HOME LOAN BANK-1 VR OR LESS 27,000,000.00 26,997,978.75 26,997,978.76 6.25% - FEDERAL HOME LOAN MORTGAGES-1 YR OR LESS 6,122,000.00 6.116,097.37 6,116,097.37 1.19% - FNMA ISSUES-1YR OR LESS 50,200,000.00 60,181,546.50 50,181,546.50 9.76% - REPURCHASE AGREEMENTS 18,300,000.00 18,300,000.W 18,300,000.00 3.56% - SHORT TERM INVESTMEN T FUNDS(US REGU IATED) 1,087,614.64 1,087,614.64 1,087,614.64 0.21% - TREASURY BILLS-1YR OR LESS 130,531,000.00 130,509,993.61 130,509,993.61 25.38% - CASH - 80,909.74 80,909.74 0.02%PENDING TRADES (28,653,458.77) (28,653.458.77) -SST% SUBTOTAL-CASH&CASH EQUIVALENTS 233,345,427.14 204,725,494.34 204,61i8,275.28 39.80% (69,219.06) FIXED INCOME SECURITIES(U.S.DOLLAR): ASS-HOME EQUITY 825,321.91 737,083.91 809,878.42 0.16% 72,794.51 ASS-SMALL BUSINESS ADMINISTRATION 412,610.32 412,610.32 451,049.10 0.09% 38,438.78 ASS-STUDENT LOANS 281,566.57 280,881.03 282,504.16 0.05% 1.623.13 AUTOMOBILES &COMPONENTS 1,545,000.00 1,763,478.45 1,677,321.40 0.31% (186,157.05) BANKING&FINANCE 27,300,000.00 28,119,783.26 26,995,1TT.93 5.25% (1,124,605.33) CMO-US AGENCIES 89,873.85 89,873.85 90,777.08 0.02% 903.23 COLLATERALIZED MORTGAGE OBLIGATION COMM 626,050.80 627,664.83 634,014.17 0.12% 6,349.34 COMMIT TO PURCHASE FNMA POOLS 18,400,000.00 18,712,812.50 18,430,874.00 3.68% (281,938.60) FHLMC MULTICLASS 2,534,428.62 2,782,944.12 2,810,384.04 0.55% 27,439.92 FHLMC POOLS 4,806.54 4,689.39 5,123.00 0.00% 433.61 FNMA POOLS 4,083,272.07 4,080,452.86 4,261,525.44 0.83% 181,072.58 FNMAREMIC 2,165,008.47 2,192,277.85 2,217,904.46 0.43% 25,626.61 FOOD BEVERAGE&TOBACCO 11600,000.00 1,854,144.00 1,844,528.00 0.36% (9,616.W) GNMA MULTI FAMILY POOLS 397,037]6 396,949.81 414,131.16 0.08% 17,181.34 HEALTH CARE 11300,000.00 1.318,052.00 1,326,884.00 0.26% 8,832.00 INSURANCE 1,400,000.00 1,655,274.W 1,641,801.00 0.32% (13,473,W) MUNI•MEDICAL 500,000.00 508,595.W 570,525.00 0.11% 61,930.00 OIL&GAS 100,000.00 100,000.00 100,356.00 0.02% 356.00 TAXABLE MUNICIPALS 16,440,000.00 16,738,875.89 19,128,799.80 3.72% 2.389,923.91 U.S.TIPS 22,394,914.50 29,588,673.87 26,086,223.37 6.07% (3,502,450.60) US GOVERNMENTS 196,610.000.00 198,766,956.80 194,844,144.60 3T.89% (3,922,812.20) UTILITY•ELECTRIC 2,697,000.00 2,983,751.61 2,956,105.00 0.67% (27,646.61) UTILITY•TELEPHONE 11000,000.00 1.077,847.33 1,170,530.00 0.23% 92,682.67 WHOLE LOAN-CMO-COLLATERAUZED MTG OBLIG 904,595.11 904,591.01 904,4W.37 0.18% (140.64) SUBTOTAL-FIXED INCOME SECURITIES 303,611.486.52 315,698,263.69 309,555,011.49 60.20% (6,143,252.20) TOTAL INVESTMENT PORTFOLIO $538.956.913.66 520,423,758.03 614,221,286.77 100.00% $(6.2024]1.261 DEMAND DEPOSITS AND CASH ON HAND 6,052,686.44 6,052,686.44 MONIES HELD WITH FISCAL AGENTS 53,058,983.21 53,058,983.21 MONIES WITH THE LOCAL AGENCY INVESTMENT FUND 27,149,254,88 27,156,672.24 TOTAL CASH AND INVESTMENTS $606,684,682.56 $600 489.628 66 Sourv, BNYMelloa Tmg and OrongeConnry Sanitation Dislrio[s Financial Management Division. 66 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT Property Tax Rates-Direct and Overlapping Governments Last Ten Fiscal Years Tax Rate OCSD 1958 OCSD's General Average Fiscal Basic Obligation Total Share of Year Levy Bonds Tax Rate Basic Levy 2003-04 1.00% 0.00% 1.00% 1.68% 2004-05 1.00% 0.00% 1.00% 1.67% 2005-06 1.00% 0.00% 1.00% 1.65% 2006-07 1.00% 0.00% 1.00% 1.65% 2007-08 1.00% 0.00% 1.00% 1.63% 2008-09 1.00% 0.00% 1.00% 1.64% 2009-10 1.00% 0.00% 1.00% 1.63% 2010-11 1.00% 0.00% 1.00% 1.64% 2011-12 1.00% 0.00% 1.00% 1.64% 2012-13 1.00% 0.00% 1.00% 1.64% Notes In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount of assessed value. This 1.00% is shared by all taxing agencies within which the subject property resides. In addition to the 1.00% fixed amount, property owners were charged taxes as a percentage of assessed property values for the payment of OCSD general obligation bonds (which were paid in full in fiscal year 1998-99). Source:County of Orange Auditor-Controller's Office. 67 Return to Amoda Report ORANGE COUNTY SANITATION DISTRICT Assessed and Estimated Actual Value of Taxable Property (Dollars In Thousands) Last Ten Fiscal Years asso,mo,000 Esw,mo.o� Exw,mo.000 Exoo,moAoo E�w,mo.000 SEDD,�O 000 lsos,om 2003-04 2006-06 2006-06 2006-07 2007-08 2001 2009-10 201041 2011-12 201243 oSecured o0nsecured Percent Changein Fiscal Assessed Year Secured Unsecured Total Value 2003-04 197,143,000 4,309,000 201,452,000 6.66% 2004-05 214,529,000 4,743,000 219,272,000 8.85% 2005-06 236,826,573 5,023,423 241,849,9% 10.30% 2006-07 264,241,033 6,452,111 270,693,144 11.93% 2007-08 288,051,467 4,681,838 292,733,305 8.14% 2008-09 301,717,479 5,894,003 307,611,482 5.08% 2009-10 299,038,654 6,116,530 305,155,184 -0.80% 2010-11 298,099,034 6,238,834 304,337,868 -0.27% 2011-12 302,526,970 6,163,979 308,690,949 1.43% 2012-13 310,451,986 5,901,040 316,353,026 2.48% In 1978,the voters of the Stale of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an inflation factor which is limited to a maximum increase of 2%. With few exceptions, property is only reassessed at the time that it is sold to a new owner. Al that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. Consequently,the assessed and estimated values are the same. Source: Orange County Auditor-Controllers Office. 68 Return to Mends Report ORANGE COUNTY SANITATION DISTRICT Property Tax and User Fee Levies and Collections (Dollars in Thousands) Last Ten Fiscal Years $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 8- 2008-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 OTowl Tax antl USer Fee L.W ETotal T....d USer Fee C011.0.n (1) Total Tax Current Tax Percent Total Tax %of Total %of RDA Pass. Fiscal and User ERAF III and User Fee of Levy Delinquent and User Fee Collodion 01S Dellquencies Through Year Fee Levy Deduction Collodion Collected Collection Collection to Lovy Delinquencies to Tax Levy Payments 2003-04 $134,389 $ - $ 134,132 99.81 $ 94 $ 134,226 99.88 $ 241 0.18 $ - 2004-05 153,187 (16,198) 152.745 99.71 92 152,837 99.77 257 0.17 - 2005-06 191,711 (16,198) 191,290 99.78 122 191,412 99.84 421 0.22 - 2006-07 209,766 - 209,206 99.73 215 209,421 99.84 No 0.27 - 2007-08 228,622 - 228,635 100.01 329 228,964 100.15 (13) (0.01) - 2008-09 254,092 - 254,106 100.01 395 254,501 100.16 (14) (0.01) - 2009-10 272,050 - 272,110 100.02 226 272,336 100.11 (60) (0.02) - 2010-11 292,646 - 292,689 100.01 120 292,809 100.06 (43) (0.01) - 2011-12 314,077 - 314,133 100.02 121 314,254 100.06 (56) (0.02) 3,116 2012-13 340,298 - 340,156 99.96 64 340,220 Was 142 0.04 14,687 Notes (1)Upon dissolution of California redevelopment agencies during fiscal year 2011-12,property tax increment formerly remitted to OCSD by its member city redevelopment agencies was instead deposited into the newly formed Redevelopment Property Tax Trust Fund(RPTTF) from which the Auditor/Controller makes disbursements on behalf of the successor agencies. Source:Orange County Auditor-Controller's Office. 69 Return to Mende Rom ORANGE COUNTY SANITATION DISTRICT Property Value and Construction Covering The Entire County of Orange(1) (Dollars In Thousands) Last Ten Fiscal Years Non- Assessed Residential Residential Property Value(2) Construction (3) Construction(3) Total Fiscal Calendar No.of Construction Year Value Year Value Units Value Value(3) 2003-04 $ 287,923,828 2004 $ 1,132,848 9,322 $ 2,243,642 $ 3,376,490 2004-05 311,802,395 2005 1,494,759 7,206 2,100,436 3,595,195 2005-06 342,576,859 2006 2,400,569 8,371 2,316,948 4,717,517 2006-07 381,007,391 2007 2,005,198 7,072 1,792,270 3,797,468 2007-08 412,669,779 2008 1,439,120 3,159 1,037,713 2,476,833 2008-09 428,809,224 2009 952,480 2,200 855,193 1,807,673 2009-10 422,965,596 2010 1,151,929 3,091 1,029,407 2,181,336 2010-11 420,751,575 2011 1,300,019 4,807 1,236,973 2,536,992 2011-12 424,769,642 2012 1,269,448 6,862 1,627,262 2,896,710 2012-13 432,902,274 2013 1,351,842 8,931 1,949,511 3,301,353 (4) Notes and Data Sources (1) -The Orange County Sanitation District services 479 square miles or 60% of the total 799 square miles that make up the boundaries of the County of Orange. (2)-Data Source: Orange County Auditor-Controller's Office. (3)-Data Source: A. Gary Anderson Center for Economic Research, Chapman University. (4)-Forecasted numbers. 70 Return to Aaerda Report ORANGE COUNTY SANITATION DISTRICT Insurance in Force As of June 30, 2013 Type Insurer Deductible Limit All-Risk Property Fire and Other Perils Public Entity Property $250,000 per $1 billion/occurrence Insurance Program occurrence (Lexington and others) Flood Public Entity Property $100,000 per $300 million/occurrence Insurance Program occurrence Earthquake Not Applicable Not Applicable Self-insured Boller&Machine ry Public Entity Properly $25,000 to $100 million/occurrence Insurance Program $350,000 (Lexington and others) Crime Insurance National Union Fire $25,000 $5 million Excess Security National Insurance $250,000 $30 million/occurrence General Liability (first$10 million layer); $500,000 for and annual aggregate Starr Indemnity&Liability EPLI ($20 million layer excess$10 million) Travel&Accident Chubb Group of Insurance None Accidental Death&Dismemberment: Companies Class 1: Elected Officials, $500,000 per occurrence Class 2: Employees, 10X annual salary, up to$500,000 per occur. Excess Workers' CSAC Excess Insurance $750,000 Unlimited statutory coverage Compensation Authority Program Each Accident each accident,each employee $5 million employer's liability Pollution Liability CSAC Excess Insurance $100,000 $10,000,000 per loss Authority Program Watercraft Liability Northern Assurance Co. of Am. $15,000 $10 million Hull&Machinery Northern Assurance Co. of Am. $15,000 $1.3 million Pollution Liability Great American Ins. Co, None $5 million OCIP Main Basket("OCIP"=Owner Controlled Ins. Program for Construction) Workers Comp. Liberty Mutual $250,000/occur. Unlimited statutory coverage General Liability Liberty Mutual $250,000/occur. $2 million/occurrence;$4 million agg. OCIP Excess Liability AIG $10,000 $100 million OCIP Pollution Liability Liberty Surplus $250,000 $10 million Source: Orange County Sanitation Districfs Risk Management Office. 71 Return to Aaenda Report (THIS PAGE INTENTIONALLY LEFT BLANK) 72 Return to Mende Report ORANGE COUNTY SANITATION DISTRICT FINANCIAL MANAGEMENT DIVISION 10844 Ellis Avenue Fountain Valley, California 92708-7018 714.962.2411 www.oGsewers.com 06/30/13 ORANGE COUNTY SANITATION DISTRICT Agenda Terminology Glossary AQMD Air Quality Management District ASCE American Society of Civil Engineers BOO Biochemical Oxygen Demand CARB California Air Resources Board CASA California Association of Sanitation Agencies CCTV Closed Circuit Television CEQA California Environmental Quality Act CRWQCB California Regional Water Quality Control Board CWA Clean Water Act CWEA California Water Environment Association EIR Environmental Impact Report EMT Executive Management Team EPA U.S. Environmental Protection Agency FOG Fats, Oils, and Grease FSSD Facilities Support Services Department gpd Gallons per day GWR System Groundwater Replenishment System (also called GWRS) LOS Level of Service MGD Million gallons per day NACWA National Association of Clean Water Agencies NPDES National Pollutant Discharge Elimination System NWRI National Water Research Institute O&M Operations and Maintenance OCCOG Orange County Council of Governments OCHCA Orange County Health Care Agency OCSD Orange County Sanitation District OCWD Orange County Water District OOBS Ocean Outfall Booster Station OSHA Occupational Safety and Health Administration POTW Publicly Owned Treatment Works ppm Parts per million RFP Request For Proposal RWQCB Regional Water Quality Control Board SARFPA Santa Ana River Flood Protection Agency SARI Santa Ana River Inceptor SARWQCB Santa Ana Regional Water Quality Control Board SAWPA Santa Ana Watershed Project Authority SCADA Supervisory Control and Data Acquisition system SCAP Southern California Alliance of Publicly Owned Treatment Works SCAQMD South Coast Air Quality Management District SOCWA South Orange County Wastewater Authority SSMP Sanitary Sewer Management Plan SSO Sanitary Sewer Overflow SWRCB State Water Resources Control Board TDS Total Dissolved Solids TMDL Total Maximum Daily Load TSS Total Suspended Solids WDR Waste Discharge Requirements WEF Water Environment Federation WERF Water Environment Research Foundation Activated-sludge process — A secondary biological wastewater treatment process where bacteria reproduce at a high rate with the introduction of excess air or oxygen, and consume dissolved nutrients in the wastewater. Biochemical Oxygen Demand (BOD)—The amount of oxygen used when organic matter undergoes decomposition by microorganisms. Testing for BOD is done to assess the amount of organic matter in water. Biosolids — Biosolids are nutrient rich organic and highly treated solid materials produced by the wastewater treatment process. This high-quality product can be recycled as a soil amendment on farm land or further processed as an earth-like product for commercial and home gardens to improve and maintain fertile soil and stimulate plant growth. Capital Improvement Program (CIP) — Projects for repair, rehabilitation, and replacement of assets. Also includes treatment improvements, additional capacity, and projects for the support facilities. Coliform bacteria—A group of bacteria found in the intestines of humans and other animals, but also occasionally found elsewhere used as indicators of sewage pollution. E. coli are the most common bacteria in wastewater. Collections system — In wastewater, it is the system of typically underground pipes that receive and convey sanitary wastewater or storm water. Certificate of Participation (COP) — A type of financing where an investor purchases a share of the lease revenues of a program rather than the bond being secured by those revenues. Contaminants of Potential Concern (CPC) — Pharmaceuticals, hormones, and other organic wastewater contaminants. Dilution to Threshold (DR) — the dilution at which the majority of the people detect the odor becomes the D(f for that air sample. Greenhouse gases — In the order of relative abundance water vapor, carbon dioxide, methane, nitrous oxide, and ozone gases that are considered the cause of global warming ("greenhouse effect'). Groundwater Replenishment (GWR) System — A joint water reclamation project that proactively responds to Southern California's current and future water needs. This joint project between the Orange County Water District and the Orange County Sanitation District provides 70 million gallons a day of drinking quality water to replenish the local groundwater supply. Levels of Service (LOS)—Goals to support environmental and public expectations for performance. NOMA— N-Nitrosodimethylamine is an N-nitrosoamine suspected cancer-causing agent. It has been found in the Groundwater Replenishment System process and is eliminated using hydrogen peroxide with extra ultra-violet treatment. National Biosolids Partnership (NBP) — An alliance of the National Association of Clean Water Agencies (NACWA) and Water Environment Federation (WEF), with advisory support from the U.S. Environmental Protection Agency (EPA). NBP is committed to developing and advancing environmentally sound and sustainable biosolids management practices that go beyond regulatory compliance and promote public participation in order to enhance the credibility of local agency biosolids programs and improved communications that lead to public acceptance. Plume—A visible or measurable concentration of discharge from a stationary source or fixed facility. Publicly-owned Treatment Works (POTW)— Municipal wastewater treatment plant. Santa Ana River Interceptor (SARI) Line — A regional brine line designed to convey 30 million gallons per day (MGD) of non-reclaimable wastewater from the upper Santa Ana River basin to the ocean for disposal, after treatment. Sanitary sewer — Separate sewer systems specifically for the carrying of domestic and industrial wastewater. Combined sewers carry both wastewater and urban run-off. South Coast Air Quality Management District (SCAQMD) — Regional regulatory agency that develops plans and regulations designed to achieve public health standards by reducing emissions from business and industry. Secondary treatment — Biological wastewater treatment, particularly the activated-sludge process, where bacteria and other microorganisms consume dissolved nutrients in wastewater. Sludge—Untreated solid material created by the treatment of wastewater. Total suspended solids (TSS)—The amount of solids floating and in suspension in wastewater. Trickling filter — A biological secondary treatment process in which bacteria and other microorganisms, growing as slime on the surface of rocks or plastic media, consume nutrients in wastewater as it trickles over them. Urban runoff — Water from city streets and domestic properties that carry pollutants into the storm drains, rivers, lakes, and oceans. Wastewater—Any water that enters the sanitary sewer. Watershed —A land area from which water drains to a particular water body. OCSD's service area is in the Santa Ana River Watershed.