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HomeMy WebLinkAbout98.11-16-2016 Board Item 15 Attachment - Comprehensive Annual Financial Report for Year Ended 6-30-16.pdf OL -Wilk M. Orange County Sanitation District Comprehensive Annual Financial Report for the year ended June 30, 2016 Orange County,California ORANGE COUNTY SANITATION DISTRICT ORANGE COUNTY, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 Prepared By: Administrative Services Department Financial Management Division Michael D.White, CPA Controller (THIS PAGE LEFT INTENTIONALLY BLANK) ORANGE COUNTY SANITATION DISTRICT Comprehensive Annual Financial Report Table of Contents For the Year Ended June 30, 2016 Pace 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........................ 3-9 Basic Financial Statements: Statement of Net Position................................................................................................... 12 Statement of Revenues, Expenses, and Changes in Net Position .................................... 13 Statementof Cash Flows.................................................................................................... 14 Notes to Basic Financial Statements.................................................................................. 15-47 Required Supplementary Information: Proportionate Share of the Net Pension Liability—OCERS Pension Plan......................... 50 Schedule of District Contributions—OCERS Pension Plan ............................................... 51 Net Pension Liability—Additional Retiree Benefit Account................................................ 52 Schedule of Funding Progress—Other Postemployment Benefits.................................... 53 Supplementary Information: Combining Area Schedule of Net Position.......................................................................... 56 Combining Area Schedule of Revenues, Expenses, and Changes in Net Position .......... 57 Combining Area Schedule of Cash Flows.......................................................................... 58 STATISTICAL SECTION: Net Position by Component—Last Ten Fiscal Years.................................................................. 60 Revenues and Gross Capital Contributions by Source—Last Ten Fiscal Years........................ 61 Expenses by Type—Last Ten Fiscal Years................................................................................ 62 Change in Net Position—Last Ten Fiscal Years......................................................................... 63 Cash and Investment Reserve Balances—Last Ten Fiscal Years............................................. 64 Sewer Service Fees—Last Nine Fiscal Years and Next Fiscal Year.......................................... 65 Number of Accounts and Revenues by Customer Class—Last Ten Fiscal Years..................... 66 Principal Sewer Service Customers—Prior Fiscal Year and Nine Years Ago............................ 67 Ratio of Annual Debt Service to Total Expenses—Last Ten Fiscal Years................................. 68 Debt Coverage Ratios—Last Ten Fiscal Years.......................................................................... 69 Computation of Direct and Overlapping Debt 70 Ratios of Outstanding Debt—Last Ten Fiscal Years. 71 Comparison of the Volume of Wastewater Treated—Last Ten Fiscal Years. 72 Authorized Full-time Equivalents by Function—Last Ten Fiscal Years 73 Biosolids Produced—Last Ten Fiscal Years............................................................................... 74 Capital Asset Statistics—Last Ten Fiscal Years 75 Demographic Statistics—Last Ten Fiscal Years......................................................................... 76 Estimated Population Served by Orange County Sanitation District.......................................... 77 Principal Orange County Employers—Prior Fiscal Year and Nine Years Ago........................... 78 OperatingIndicators.................................................................................................................... 79 OTHER DATA S TRENDS: Cash and Investment Portfolio ................................................................................................... 82 Property Tax Rates—Direct and Overlapping Governments—Last Ten Fiscal Years............... 83 Assessed and Estimated Actual Value of Taxable Property—Last Ten Fiscal Years................ 84 Property Tax and User Fee Levies and Collections—Last Ten Fiscal Years............................. 85 Property Value and Construction—Last Ten Fiscal Years 86 Insurance in Force 87 (THIS PAGE LEFT INTENTIONALLY BLANK) Serving.. Orange County Sanitation District Anaheim 108"Ellis Avenue,Fountain Valley,CA 92708 714.962.2411 • www.ocsd.com B Buena October 31, 2016 CY Fountain Vai The Board of Directors of the Orange County Sanitation District, Fulls Orange County, California Garden G Submitted herewith is the Comprehensive Annual Financial Report of the Orange County Sanitation District, Orange County, California for the fiscal year ended June 30, 2016. This report includes the Huntington B financial position and activity of individual revenue areas, as described within the Governmental Structure below,as of June 30,2016 and was prepared by the Financial Management Division of the Sanitation District's Administrative Services Department. La Ha Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the Sanitation District. To the best of our knowledge La Pal and belief,the enclosed data is accurate in all material respects and is reported in a manner designed Los Alam to present fairly the financial position and changes in the financial position of the Sanitation District. All disclosures necessary to enable the reader to gain an understanding of the agency's financial Newport a activities have been included. Ora- Included within the accompanying financial statements are all of the organizations, activities, and functions controlled by the Sanitation District's Board of Directors in accordance with the Pla 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 Santa 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 Seal 8 - 1 of the financial statements. Stan An audit of the books, financial records and transactions of the Sanitation District is conducted annually by independent certified public accountants. The Sanitation District selected the accounting Tu firm of Macias Gini & O'Connell LLP to perform the audit for the year ended June 30, 2016. The auditors' report on the Sanitation District's basic financial statements and supplementary information Villa is located on page 1 within the financial section of this report. This report renders an unmodified opinion on the Sanitation District's basic financial statements for the year ended June 30, 2016. County of Ora Management's discussion and analysis(MD&A)immediately follows the independent auditor's report Costa M and provides a narrative introduction, overview, and analysis of the basic financial statements. The Sanitary Dis MD&A complements this letter of transmittal and should be read in conjunction with it. Midway City Sanitary District GOVERNMENTAL STRUCTURE Irvine Ra Water Dills 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 miles Yorba D and serving a population of approximately 2.6 million, or 81 percent of the County's population. The Water Da 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 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, 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 Our Mission: To protect public health and the environment by providing effective wastewater collection, treatment, and recycling. 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 570 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.2located in the City of Huntington Beach. Plants No. 1 and No. 2 have secondary treatment capacities of 182 million gallons per day(mgd)and 150 mgd, respectively. 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 microfiltralion, 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 65 million gallons (246,000 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 ouffall 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 Chapman University's June 2016 Economic & Business Review forecasts that the real U.S. gross domestic product will grow 2.1 percent in 2016 as compared to 2.4 percent in 2015. The declines forecasted in consumer and investment spending growth overwhelm the relatively smaller positive effects from government and international trade. According to the California Employment Development Department (EDD), Orange County generated an increase of approximately 2.5 percent in payroll jobs from August 2015 to August 2106. During this same time period, unemployment in Orange County decreased to 4.4 percent from 4.6 percent while the unemployment in California as a whole decreased to 5.6 percent from 6.1 percent. Chapman University's June 2016 forecast also calls for Orange County's unemployment rate to decrease from to 4.0 percent by the end of 2016. The county's economy is expected to add 40,600 payroll jobs in 2016, an increase of 2.6 percent. According to Chapman University, residential permit valuation in the County is forecasted to decrease from 11.2 percent growth in 2015 to 4.5 percent growth in 2016. Continued positive, albeit slower,growth will bring residential valuation in 2016 above the$3 billion level for the first time ever. Low mortgage rates and higher median family income coupled with a tight housing supply will keep upward pressure on housing prices. Housing appreciation in Orange County is forecasted to increase from 2.7 percent in 2015 to 4.6 percent in 2016. Since the beginning of the recession-recovery period, the County's housing prices have increased 4.3 percent as compared with a decrease of 5.3 percent in California and an increase of 5.8 percent in the nation. However, Chapman University further notes that the current average price of$712,883 in Orange County compares to the significant lower average prices of$465,187 in California and $217,600 in the U.S.. MAJOR INITIATIVES Following are the District's current major initiatives as outlined in the General Manager's work plan for FY 2016-17: 1. Safety and Security • Cyber Security—Address the top ten longer-term cyber security items/projects. • Safety Engineering Solutions and Physical Site Security—Retain a contractor to begin addressing the 75 high priority items identified in the Safety Study. Implement outstanding high priority physical site security improvements and conduct training for all employees. • Voluntary Protection Plan (VPP)Certification— Implement the recommendations from the feasibility analysis report for obtaining VPP certification from California OSHA. 2. Succession Planning • Labor Negotiations — Complete negotiations with all represented bargaining units and develop a performance based pay structure for unrepresented employees. • Employee Engagement—Conduct follow-up actions to address issues identified during the employee engagement survey and the 2015 EMT/manager leadership training. • Workforce Planning and Development — Address key vulnerabilities identified in the workforce vulnerability and talent readiness assessments conducted during 2015-16 by implementing focused job shadowing, job assignments, training and mentoring. Implement streamlined policies and procedures to more quickly fill vacancies and ensure adequate staffing levels. 3. Resource Recovery • Water Recycling — Execute a new agreement with Orange County Water District (OCWD) for the ultimate expansion of the Groundwater Replenishment System. Work with OCWD to secure grant funding and complete preliminary engineering and environmental work on the expanded facilities to recycle effluent from OCSD's Treatment Plant No. 2. • Research— Present findings and recommendations on Super Critical Water Oxidation to the Board of Directors. iii • Monitoring Program — Evaluate the nature and frequency of all of OCSD's current environmental monitoring for the protection of OCSD's collection system and treatment plants;water recycling; ocean discharge;and biosolids recycling. Prepare a plan based on the future monitoring needs of OCSD. 4. Reliability • Planned Maintenance — Complete a gap analysis and implement measures to fully deploy planned maintenance using Maximo and process improvements to improve reliability. • Civil Assets Maintenance— Implement the operational housekeeping program, and develop a multi- year program for condition assessment and maintenance of civil assets. • Operational Resiliency—Present the results of the business continuity plan to the Board of Directors. Identify the most critical functions to keep OCSD operating in the event of a major event. • Seismic—Conduct an updated study of the seismic safely needs of OCSD's Plant Facilities. 5. Operational Optimization • Rates—Conduct planning studies including the Odor Control, Biosolids, and Facilities Master Plans to develop updated 20 year cost projections. The outcomes of these studies will be used next fiscal year to complete a rate study to determine the proper allocation of costs among user types and a recommended future rate structure. • OCSD Headquarters Building — Study site location options and make final site selection to begin preparing environmental documentation to comply with CECA. Strategic Planning In December 2015, the Board of Directors approved the biennium update to the rolling five-year strategic plan. This is a comprehensive strategic plan to steer OCSD's efforts and engage the organization to envision service levels and operational needs for the next five years. This annual process begins with the General Manager's Office initiating the planning effort with the Executive Management Team, and then soliciting input and ideas from managers and supervisors. A draft of the updated five-year strategic plan is then presented to the Board of Directors during a workshop, where Board Members discuss and deliberate changes and additions to the plan. Driven by our Mission, Vision and Core Values, the 2015 Strategic Plan update maintains the District's aggressive efforts to meet the sanitation, health, and safety needs of the 2.6 million people being served in a cost effective manner, while protecting the environment where we live. Since implementation of the first comprehensive strategic plan in 2007, 40 strategic goals has been established and completed. In December 2015, the District updated the Five-Year Strategic Plan and, as part of the strategic planning process, reaffirmed the following goals: • Completion of the Odor Control Master Plan; • Development of Future Biosolids Management Options; • Research new energy efficiency and conversion technologies; • Complete the transfer of 174 miles of local sewers to a local agency; • Determine partnerships, needs, strategies, benefits and costs associated with recycling of Plant No.2 effluent water;and • Workforce planning and development to ensure that the right people with the right skills and abilities, are in the right place, at the right time. iv This Strategic Plan continues to chart a focused roadmap of success for the future of the Orange County Sanitation District. It addresses critical operations and construction issues, financial and budgeting challenges, and gives a clear and concise direction to staff, ratepayers, regulatory agencies, and the general public. SERVICE EFFORTS AND ACCOMPLISHMENTS The following service efforts and accomplishments were achieved by the Sanitation District during the year ended June 30, 2016: • Wastewater Conveyance Project of the Year for the Santa Ana Regional Interceptor Line by the American Society of Civil Engineers • Certificate of Achievement for Excellence in Finance Reporting by the Government Finance Officers Association • Excellence in Environmental Engineering and Science - Environmental Sustainability, Honor Award for Central Generation Emissions Control by the American Academy of Environmental Engineers&Scientists • Excellence in Environmental Engineering and Science - Design Honor Award for the Groundwater Replenishment System Initial Expansion by the American Academy of Environmental Engineers&Scientists • Excellence in Environmental Engineering and Science - Research Honor Award for the Sanitation District's Critical Assessment of Process Odorants by the American Academy of Environmental Engineers&Scientists • Gold Peak Performance Award for Plant No. 1 and Plant No. 2 for Excellence in Permit Compliance by the National Association of Clean Water Agencies • American In-House Graphic Design Award -Annual Report by Graphic Design USA • Membrane Facility Award by Membrane Technology Association/American Water Works Association • 2015 Collection System of the Year by the California Water Environment Association • Recycled Water Agency of the Year by the Water Reuse Association • Golden Hub of Innovation Award for the Newport Beach Outreach Program by the Association of California Cities-Orange County 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 v 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 tax 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$6.2 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 $3.09 billion for the collection facilities and $3.11 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. 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, 2016 was $25.0 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$117 million at June 30,2016. Accumulated funds exceeding the levels specified by District 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. vi As of June 30, 2016, the Sanitation District was in compliance with the Accumulated Funds and Reserves Policy with designated cash and investments totaling $545 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 $181 million Designated For Self-Insurance 57 million Designated For Capital Improvements 190 million Designated For Debt Service Requirements 117 million Total Designated Cash and Investments $ 545 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, 2015. This was the twenty-first 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 continues 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 Line 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, A& Michael D. White, CPA Controller vii G� 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, 2015 Executive Director/CEO viii ORANGE COUNTY SANITATION DISTRICT Board of Directors As of June 30, 2016 Aaencv Active Director Alternate Director Cities: Anaheim Lucille Kring James Vanderbilt Brea Glenn Parker Cecilia Hupp Buena Park Fred Smith Virginia Vaughn Cypress Mariellen Yarc Stacy Barry Fountain Valley Steve Nagel Cheryl Brothers Fullerton Gregory Sebourn Doug Chaffee Garden Grove Steve Jones Kris Beard Huntington Beach Jim Katapodis Erik Peterson Irvine Steven Choi Lynn Schott La Habra Tom Beamish Tim Shaw La Palma Peter Kim Michele Steggell Los Alamitos Richard Murphy Shelley Hasselbrink Newport Beach Keith Curry Scott Peotter Orange Teresa Smith Mark Murphy Placentia Chad Wanks Constance Underhill Santa Ana Sal Tinajero David Benavides Seal Beach Ellery Deaton Sandra Massa-Lavitt Stanton David Shawver Carol Warren Tustin John Nielsen Allan Bernstein Villa Park Greg Mills Diana Fascenelli Sanitary Water Districts: Costa Mesa Sanitary District James M. Ferryman Robert Ooten Midway City Sanitary District Joy Neugebauer Al Krippner Irvine Ranch Water District John Withers Douglas Reinhart Yorba Linda Water District Robert Kiley Michael Beverage County Areas: Member of the Board Michelle Steel Shawn Nelson of Supervisors ix ORANGE COUNTY SANITATION DISTRICT Organizational Chart As of June 30, 2016 - cenerel counsel ors EM WD M n oam� Erg ahtiy Fia�oal M2mt Falio3 Sup ��bv Plaaig RbIic ARais Contraar. Epaprred- p W.2 Rod PucM1asin98 p w opn !mimed Malenals Maragemenl RMSesirn phmNo.f a, .ga Mai,tavre Cnnlnvlion T-hm im TecM1ndo3y GA. Emimnrra,W ,a..sisi I� r g dv aya Ganpla,o 0—Xbribnug CW 8 fnnmv� CdecEma X ORANGE COUNTY SANITATION DISTRICT Map of Service Area As of June 30, 2016 LA HABRA BREA } FULLER YORBA Orange County LINDA . e`�.„°eW� PLAC TIA LA B IENA PL K RE ANANEIM VILLA PA NTO A MITOS gRDE ORANGE � ROSEAL V BEACH MINS ER Pc� m AN UNTA " ANA USFIN ALLE NUBTI GTO �/. �,. IRVINE COSTA P2 MESA Ereo,o,owmi N ,.5 mile lay A ssloo,a�ame,e� NEWPORT N BEACH o 1 2 < Service area boundary OffshoreP(e- 5mileslong duauM[n:Mappeparmduc Sewer pipelines mrad eiame,er aensecwmysanlauon om�ar.me man e imageora�aenn�irewese�ueo�w+,. SReclamation Plant No.I(Pi) noierneras��aryrser��m.a. Treatment Plant No.2(P ) wnakmm.aamee waeunw,an ¢e^8•Mirermmmeum xgn�,na 4 Pump and lit stations sera uoxRro ..MXV5 a�...ee. flFa5f6.C&2018 O unincorporated Orange County(white areas) XI (THIS PAGE LEFT INTENTIONALLY BLANK) xii Certified cenwyan- Public Accountants Has Arco,, laewpooa acn Oakland Sacramento San Oleo Independent Auditor's Report San Francisco walnut Creek To the Board of Directors woodland Mlle Orange County Sanitation District Fountain Valley,California Report on the Financial Statements We have audited the accompanying financial statements of the Orange County Sanitation District (the District)m of and for the year ended June 30,2016,and the related notes to the financial statements,which collectively comprise the District's basic financial statements,as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of 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 auditing standards generally accepted in the United States of America. 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. Opinion In oar opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the District,as of June 30, 2016,and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Macias Cini&O'Connell LLP 0675 MacArthur Court,SuRe 600 session Beady.CA92560 www.mgocpa.com t Emphasis of Matter As discussed in Note 1 to the financial statements, the District implemented Governmental Accounting Standards Board(GASB) Statement No.73,Accounting and Financial Reportingfor Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, effective July 1, 2015. The implementation of this Statement resulted in a restatement of net position as of July 1, 2015, in the amount of$6,840,809. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, Schedule of Proportionate Share of Net Pension Liability, Schedule of District Contributions, Schedule of Net Pension Liability — Additional Retiree Benefit Plan, and Schedules of Funding Progress,as listed in the table of contents,be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational,economic,or historical context.We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements.We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that 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 underlying 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 auditing standards generally accepted in the United States of America.In our opinion,the"Combining Area" financial statements are fairly stated, 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. /'V// t / 'atLlars �h� C�'Cal�ell t Newport Beach,California October 31,2016 2 Management Discussion and Analysis June 30,2016 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, 2016. 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, 2016, the District's assets and deferred outflows of resources exceeded its liabilities and deferred inflows of resources by $1,918.6 million (net position). Of this amount, $489.3 million represents unrestricted net position, which may be used to meet the District's ongoing obligations to citizens and creditors. • Total net position increased$156.7 million,or 8.9 percent over the prior year. • Net Capital Assets, consisting of non-depreciable capital assets and depreciable capital assets net of accumulated depreciation, increased $64.5 million, or 2.6 percent over the prior year. • Net investment in capital assets increased $101.9 million, or 7.7 percent. • Unrestricted Net Position increased $54.8 million,or 12.6 percent from the prior year. • Total outstanding bonded debt decreased by$46.3 million over the prior year to$1.116 billion. • The FY 2015-16 beginning net position of $1,755.0 million has been restated from the FY 2014-15 ending net position of $1,761.8 million due to the implementation of GASB Statements No. 73, and the recognition of an additional net pension liability of$6.8 million as of June 30, 2015, restated. 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, 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, deferred outflow of resources, liabilities, and deferred inflows of resources; 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 cash receipts, cash payments, and net changes in cash resulting from operations, investments, and financial activities of the reporting period. As indicated in Note 1 of the accompanying financial statements, the District implemented GASB Statement No. 73 — Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 in its financial statements for the year ended June 30, 2016 that required the reporting of an 3 additional net pension liability of$6.8 million as of June 30, 2015 and the restatement of the District's net position from$1,761.8 million to$1,755.0 million on this date. Net Position As previously noted, net position increased $156.7 million, or 8.9 percent over the net position for FY 2014-15, to$1,918.6 million in Fiscal Year 2015-16. (Dollars in thousands) Percentage June 30, June 30, Increase Increase 2016 2015 (Decrease) (Decrease) Assets and deferred outflow of resources Assets Current and other assets $ 609,676 $ 604,005 $ 5,671 0.9% Net Capital assets 2,569,440 2,504,980 64,460 2.6% Total assets 3,179,116 3,108,985 70,131 2.3% Deferred outflows of resources 90,762 52,949 37,813 71.4% Total Assets and deferred outflows of resources 3,269,878 3,161,934 107,944 3.4% Liabilities Current liabilities 102,319 105,031 (2,712) -2.6% Noncurrent liabilities 1,225,948 1,269,553 (43,605) -3.4% Total liabilities 1,328,267 1,374,584 (46,317) -3.4°/, Deferred inflows of resources 23,039 25,506 (2,467) -9.7% Total Liabilities and deferred inflows of resources 1,351,306 1,400,090 (48,794) 3.5% Net position: Net investment in capital assets 1,429,269 1,327,384 101,885 7.7% Unrestricted 489,303 434,460 54,843 12.6% Total net position $ 1,918,572 $ 1,761,844 $ 156,728 8.9% Current and other assets increased $5.7 million, or 0.9 percent, due primarily to net cash provided by operations of $89.3 million, proceeds from property taxes of $84.5 million, receipt of capital facilities rapacity charges of $15.6 million, contributions from other governments of $13.1 million, investment income of $9.2 million, and other government repayments of $6.4 million offset by capital outlays of $123.0 million, interest expense of$51.5 million, and bonded debt retirements of$37.5 million. Net Capital assets increased $64.5 million, or 2.6 percent, due mostly to the ongoing capital improvement program construction in progress additions of$153.4 million less depreciation of$90.5 million. Included in total capital outlay additions is the Sludge Dewatering and Odor Control Project at Plant No. 1 and Plant No. 2 with total project budgets of $172.0 million and $86.5 million, respectively. These projects 4 construct primary sludge thickening facilities to improve solids handling capacity, replace aging sludge dewatering facilities, reduce biosolids handling and disposal, and rehabilitate obsolete solids handling odor control equipment. In FY 2015-16, the District incurred project costs of$44.7 million at Plant No. 1 and $10.2 million and Plant No. 2 bringing the total cost-to-date to $152.1 million and $26.0 million, respectively, with completion scheduled in FY 2017-18. Another solids handling project underway is the Solids Thickening and Processing Upgrades at Plant No. 2. This project consists of the rehabilitation and upgrades to the four existing dissolved air flotation thickeners (DAFTs) to treat the current activated sludge plant solids as well as the additional solids that will be generated from the new secondary trickling filter/solids contractor process. In FY 2015-16, $5.7 million of the total project budget of$51.2 million was incurred bringing the cost-to-date to$46.8 million with completion scheduled in FY 2017-18. One large collection system project, Newport Force Main Rehabilitation, with total project budget of$64.0 million, incurred outlays of$15.2 million in FY 2015-16. This project will rehabilitate approximately 28,000 feet of the Newport Force Main system located on Pacific Coast Highway in Newport Beach between the Bitter Point Pump Station and Dover Drive. The force main system consists of two parallel, interconnected pipelines, varying in size from 22 to 36 inches. More than half of the force main system will be rehabilitated rather than replaced to minimize impacts to the community, businesses, tourism, and the environment with completion scheduled for FY 2016-17. See page 8 for the Schedule of Capital Assets and listing of other major capital additions for FY 2015-16. Deferred Outflows of Resources increased $37.8 million, or 71.4 percent over the prior year primarily due to pension investment earnings underperforming the actuarial valuation projection by $26.7 million and the difference between the acquisition price of Certificates of Participation (COP) Series 2016A and carrying amount of the retired debt, COP Series 2009A, in the amount of$14.9 million. Deferred Inflows of Resources decreased $2.5 million, or 9.7 percent over the prior year is primarily due to the decrease in pension expense resulting from the change in actuarial assumptions. Net Investment in capital assets increased $101.9 million, or 7.7 percent over the prior year primarily as a result of the net increase in capital assets of $64.5 million coupled with the $37.4 million decrease in related debt. The net increase in capital assets consists mostly of the $153.4 million increase in construction in progress offset by capital asset depreciation for the year of$90.5 million. Unrestricted net position increased $54.8 million, or 12.6 percent due to the overall increase in net position of$156.7 million offset by the increase in net investment in capital assets of$101.9 million. Changes in Net Position Net position increased $156.7 million in FY 2015-16, or 8.9 percent over the prior year. 5 (Dollars in thousands) Percentage June 30, June 30, Increase Increase 2016 2015 (Decrease) (Decrease) Revenues: Operating revenues Service Charges $ 314,477 $ 301,549 $ 12,928 4.3% Permit and inspection fees 951 902 49 5.4% Total operating revenues 315,428 302,451 12,977 4.3% Non-operating revenues Property taxes 84,407 79,835 4,572 5.7% Investment and interest income 9,183 4,806 4,377 91.1% Contrib. from other government 13,103 8,555 4,548 53.2% Other 1,555 1,441 114 7.9% Total non-operating revenues 108,248 94,637 13,611 14.4% Total revenues 423,676 397,088 26,688 6.7% Expenses: Operating expense other than depreciation and amortization 153,501 149,227 4,274 2.9% Depreciation and amortization 90,502 94,186 (3,684) -3.9% Non-operating expense 34,078 37,280 (3,202) -8.6% Total expenses 278,081 280,693 (2,612) -0.9% Income before capital contributions 145,595 116,395 29,200 25.1% Capital facilitites capacity charges 17,974 17,656 318 1.8% Increase in net position 163,569 134,051 29,518 22.0% Beginning net position (1) 1,755,003 1,627,793 127,210 7.8% Ending net position 1,918,572 1,761,844 $ 156,728 8.9% (1)-The FY 2015-16 beginning net position of$1,755,003 million has been restated from the FY 2014-15 ending net position of $1,761,844 million due to the implementation of GASS Statements No.73,and the recognition of an increase in net pension liability of$6.8 million as of July 1,2015. As previously stated, 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 and maintenance expenses and capital outlays for providing wastewater management services. Property tax revenues are dedicated for the payment of debt service. In FY 2015-16, operating revenues increased $13.0 million, or 4.3 percent over the prior year that is reflective of a $16.2 million increase in service charges paid to the District from property owners. Of this increase, $11.7 million, or 3.8 percent is reflective of the decrease in rebates to property owners. In FY 2015-16, $15.2 million was rebated to property owners as opposed to $26.9 million in FY 2014-15. This increase from the decline in rebates made to property owners was supplemented by the 1.9 percent increase in the average sewer user fee rate over the prior year. 6 Sources of Revenue Functional Expenses ■Collections June 30, 2016 June 30, 2016 19% 10% 3% % ■Treatment& 7'" 2% ■Interest Disposal ■User Fees ❑Depreciation& Amortization ❑Other ❑Interest []Taxes Levied a4°� 44% Expense 72 ■Other The $13.6 million, or 14.4 percent increase in non-operating revenues primarily consists of a $4.6 million, or 5.7 percent increase in property tax revenues, a $4.5 million, or 53.2 percent increase in contributions from other governments, and a $4.4 million, or 91.1 percent increase in investment and interest income. The increase in property tax revenue is primarily the result of the increase in total assessed valuation of over the prior year of 6.2 percent over the prior year. The increase in contributions from other governments is reflective of the increase in capital contributions from the Irvine Ranch Water District. The increase in investment and interest income is attributable to higher yields earned on investments offset somewhat by lower cash and investments balances. Yields earned on investments increased from a 0.8 percent in FY 2014-15 to a 1.7 percent in FY 2015-16 while cash and investment balances decreased from $556.9 million at June 30, 2015 to$544.8 million at June 30, 2016. Operating expense before depreciation and amortization increased $4.3 million or 2.9 percent over the prior year. The majority of this increase is attributable to the $3.4 million, or 55.7 percent increase in feasibility studies, a $3.1 million, or 61.4 percent in other operating expenses, and a $1.1 million, or 4.3 percent increase in contractual services that were somewhat offset by the 54.2 million, or 5.3 percent decrease in salaries and benefits. Feasibility studies are done to determine the necessity and the preferred designs of future potential construction projects. The increase in other operating expenses is attributable to the negative adjustment in the Irvine Business Complex wastewater flows of $1.3 million recorded in FY 2014-15 against the FY 2015-16 actual expenses of$255,000, and the increase to claims and adjustments of $1.4 million. The increase in Contractual Service is attributable to the increase in manhole rehabilitation projects, sewer line cleanings,and CCTV inspections. Operating salaries and benefits decreased by $4.2 million to $75.6 million, a 5.3 percent decrease from the prior year. The operating salaries and benefits costs are part of the overall decrease of$1.2 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 $93.0 million, a 1.3 percent decrease from the prior year total of$94.2 million. This decrease is reflective of the $3.1 million, or 14.5 percent decrease in retirement premiums as a result of the $125 million pay down against the District's unfunded actuarial accrued pension liability (UAAL) in November 2014. This pay down resulted in a UAAL premium rate decrease from 25.6 percent in FY 2014-15 to 7.86 percent in FY 2015-16. Non-operating expense decreased $3.2 million, or 8.6 percent, and is primarily reflective of the decrease in interest expense of $6.5 million to $27.6 million, a 19.1 percent decrease from the prior year as the District continues to pay down on its long-term bonded debt; and to the decrease in the loss on disposal of assets of $3.1 million from the prior year. Conversely, the District recognized pollution remediation expenses of$6.4 million due to contamination within its underground storage fuel tanks. Capital Facility Capacity Charges increased a modest$0.3 million, or 1.8 percent over the prior year due to the slowdown in the economy and the modest increase activity in construction as total the total building permit valuation in Orange County increased 6.3 percent in Calendar Year 2015 over the prior year. 7 Capital Assets At June 30, 2016, the District had a net investment of$2.569 billion in capital assets. This represents a net increase(including additions and deletions)of$64.5 million or 2.6 percent over the prior year. (Dollars in thousands) Percentage June 30, June 30, Increase Increase 2016 2015 (Decrease) (Decrease) Land $ 15,960 $ 15,960 $ - 0.0% Construction in Progress 499,376 392,209 107,167 27.3% Sewage collection facilities 447,377 442,183 5,194 1.2% Sewage treatment facilities 1,496,469 1,536,861 (40,392) -2.6% Effluent disposal facilities 36,155 37,726 (1,571) -4.2% Solids disposal facilities 307 316 (9) -2.8% General and administrative facilities 73,549 78,820 (5,271) -6.7% Assets acquired in excess of book value 248 905 (657) -72.6% Capital assets, net $ 2,569,441 $ 2,504,980 $ 64,461 2.6% Major capital asset additions for the current fiscal year included the following: • $44.7 million—Sludge Dewalering and Odor Control at Plant No. 1 • $15.2 million—Newport Force Main Condition Assessment • $10.2 million—Sludge Dewatering and Odor Control at Plant No. 2 • $ 7.5 million—Newhope-Placentia Trunk Replacement • $ 7.3 million—Effluent Sampler and Building Area Upgrades • $ 5.7 million—Solids Thickening and Processing Upgrades at Plant No.2 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, 2016, the District had $1.116 billion outstanding in bonded debt, a net decrease of $46.3 million, or 4.0 percent from the prior year. This reduction consisted of the accumulation of principal payments made in accordance with the schedule of debt service payments and the partial refunding of $162.8 million of Series 2009A Certificates of Participation (COP) with Series 2016A Wastewater Refunding Revenue Obligations in the amount of$145.9 million issued in March 2016. 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 over$900 million 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 are 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. 8 Economic Factors and Next Year's Budgets and Rates • The unemployment rate within the County of Orange is currently 4.4 percent, a slight increase from the rate of 4.0 percent a year ago. • Inflation for Orange County in 2015 increased 1.9 percent over the prior year based on the actual percentage change in the consumer price index according to the June 2016 Economic and Business Review report prepared by Chapman University. • The actual rate of return on investments increased from the 0.8 percent earnings rate in FY 2014-15 to 1.7 percent for FY 2015-16. All of these factors were considered in preparing the District's biennium budget beginning July 1, 2016. The District's user fee schedule was increased by 1.6 percent for FY 2016-17 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 $5.00, from $322.00 to $327.00. This rate increase was necessary to finance the District's cash flow needs as capital improvement outlays alone are projected to be $171.3 million in FY 2016-17 and are projected to total $2.4 billion over the next 10 years in order to rehabilitate and upgrade existing facilities and maintain 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. 9 (THIS PAGE INTENTIONALLY LEFT BLANK) 10 ORANGE COUNTY SANITATION DISTRICT BASIC FINANCIAL STATEMENTS 11 ORANGE COUNTY SANITATION DISTRICT Statement of Net Position June 30, 2016 2016 Current assets: Cash and cash equivalents $ 125,552,927 Investments 394,422,940 Accounts receivable,net of allowance for uncollectibles$98,917 19,365,166 Accrued interest receivable 1,492,193 Connection fees receivable 2,982,914 Property tax receivable 1,060,830 Inventories 6,853,403 Due from other governmental agency 5,770,279 Prepaid expenses 1,464,651 Total current assets 558,965,303 Noncurrent assets: Restricted: Cash and cash equivalents 10,394,727 Investments 14,442,500 Accrued interest receivable 218,957 Unrestricted: Non-depreciable capital assets 515,335,618 Depreciable capital assets,net of accumulated depreciation 2,054,105,261 Prepaid insurance on outstanding debt payable 182,452 Due from other governmental agency 24,730,127 Net OPEB asset 731,700 Other noncurrent assets, net 10,344 Total noncurrent assets 2,620,151,686 Total assets 3,179,116,989 Deferred outflows of resources: Deferred losses on defeasances 41,494,547 Deferred outflows related to pensions 49,267,156 Total deferred outflow of resources 90,761,703 Total assets and deferred outflows of resources 3,269,878,692 Current liabilities: Accounts payable 9,523,100 Accrued expenses 15,610,020 Retentions payable 5,067,902 Interest payable 18,107,550 Current portion of long-term obligations 54,010,437 Total current liabilities 102,319,009 Noncurrent liabilities: Noncurrent portion of long-term obligations 1,165,194,834 Net pension liability 60,752,882 Total noncurrent liabilities 1,225,947,716 Total liabilities 1,328,266,725 Deferred inflows of resources: Deferred inflows related to pensions 23,039,510 Total liabilities and deferred inflows of resources 1,351,306,235 Net position: Net investment in capital assets 1,429,269,263 Unrestricted 489,303,194 Total net position $ 1,918,572,457 See Accompanying Notes to Basic Financial Statements. 12 ORANGE COUNTY SANITATION DISTRICT Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2016 2016 Operating revenues: Service charges $ 314,477,433 Permit and inspection fees 950,802 Total operating revenues 315,428,235 Operating expenses other than depreciation and amortization: Salaries and benefits 75,576,332 Utilities 7,245,613 Supplies, repairs and maintenance 25,320,733 Contractual services 27,823,896 Feasibility studies 9,410,726 Other 8,123,628 Total operating expenses other than depreciation and amortization 153,500,928 Operating income before depreciation and amortization 161,927,307 Depreciation and amortization 90,502,342 Operating income 71,424,965 Non-operating revenues: Property taxes 84,407,129 Investment and interest income 9,182,807 Contributions from other government 13,103,035 Other 1,555,440 Total non-operating revenues 108,248,411 Non-operating expenses: Interest 27,596,931 Pollution remediation 6,356,904 Other 80,650 Loss on disposal of assets 44,121 Total non-operating expenses 34,078,606 Income before capital contributions 145,594,770 Capital contributions; Capital facilities capacity charges 17,974,042 Change in net position 163,568,812 Total net position-beginning, as restated 1,755,003,645 Total net position-ending $ 1,918,572,457 See Accompanying Notes to Basic Financial Statements. 13 ORANGE COUNTY SANITATION DISTRICT Statement of Cash Flows For the Year Ended June 30, 2016 2016 Cash flows from operating activities: Receipts from customers and users $ 291,895,424 Payments to employees (118,716,990) Payments to suppliers (83,871,604) Net cash provided by operating activities 89,306,830 Cash flows from noncapital financing activities: Proceeds from property taxes 84,467,857 Payments for pollution remediation and other obligation (4,881,665) Net cash provided by noncapital financing activities 79,586,192 Cash flows from capital and related financing activities: Capital facilities capacity charges 15,609,869 Additions to capital assets (123,016,534) Interest paid (51,538,331) Principal payments on debt obligation (29,405,000) Proceeds released to escrow account on defeased debts (162,780,000) Proceeds from debt issuances 155,481,198 Debt issuance costs (834,338) Net cash used in capital and related financing activities (196,483,136) Cash flows from investing activities: Proceeds from the sale of investments 389,293,257 Purchases of investments (313,097,922) SARI project payments 6,350,808 Interest received 6,628,427 Net cash provided by investing activities 89,174,570 Net increase in cash and cash equivalents 61,584,456 Cash and cash equivalents,beginning of year 74,363,198 Cash and cash equivalents,end of year $ 135,947,654 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 71,424,965 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 90,502,342 Bad debt expense(net recoveries) 66,073 (Increaseydecrease in operating assets: Accounts receivable (14,893,203) Inventories (109,855) Prepaid and other assets (247,567) Increase/(decrease)in operating liabilities: Accounts payable (14,513,135) Accrued expenses 6,524,017 Due to other governmental agency (8,639,608) Net pension liability (32,647,071) Pension/OPEB/accrued leave payable (10,454,905) Compensated absences 186,736 Other payable 87,581 Claims and judgments 2,020,460 Net cash provided by operating activities $ 89,306,830 Noncash activities: Unrealized gain on the fair value of investments $ 2,533,731 Receivable from non-operating activities 2,771,980 Capital assets acquired through accounts payable 4,577,212 See Accompanying Notes to Basic Financial Statements. 14 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (11 Summary of Significant Accountina Policies Reoortina 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 2.6 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, 2016, 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 (GASS) Codification of Governmental Accounting and Financial Reporting Standards. Measurement Focus and Basis of Accountina 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 15 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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 OCSD conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governments. The Governmental Accounting Standards Board (GASS) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles in the United States. Ooeratina 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 and money market funds and external investment pools that can be withdrawn on demand are considered to be cash equivalents. Investments Except for certain investments in monies held by fiscal agent as disclosed in Note 2, section "Fair Value of Investment", all other investments are stated at fair value (the price that would be received to sell an asset in an orderly transaction between market participants acting in their economic best interest at the measurement date). 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. Investment and interest income are recorded as revenues and receivables when declared and realized gains or losses are recorded when the investment is sold. Accounts Receivable Accounts receivable is reported net of the allowance for uncollectible receivables. Uncollectible receivables were $98,917 at June 30, 2016. Unbilled sewer services through June 30, 2016 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. Inventories Inventories, which is held for consumption and not resale, is stated at cost on a weighted-average basis, and then is expensed when used. 16 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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. Interest costs, net of interest earnings, are capitalized on projects. During the fiscal year ended June 30, 2016, net interest costs of$13,786,670 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, General plant and administrative structures — 40 years, and other General plant and administrative facilities and equipment—4 to 25 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 Charges on Defeasances For advance refundings resulting in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt (i.e. deferred charges) is reported as a deferred 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 defamed charges on the refunding debt at June 30,2016 are$41,494,547. Net Position Net position represents the total of assets and deferred outflows of resources less liabilities and deferred inflows of resources, and is classified into two categories: Net Investment in Capital Assets — This amount consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, 17 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 construction or improvement of those assets and excludes unspent debt proceeds. Deferred outflows of resources that are attributable to the acquisition, construction or improvement of those assets or related debt also are included in this component of net position. Unrestricted—This amount represents the residual of amounts not classified in the other category and represents the net equity available for OCSD. 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 Judgments OCSD records estimated losses 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. Pensions 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. For purposes of measuring the net pension liability, deferred outflows of resources, deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of OCSD's cost sharing multiple- employer plan with the OCERS plans (Plans) and additions to/deductions from the Plans'fiduciary net position have been determined on the same basis as they are reported by OCERS. Benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit term. Investments are reported at fair value. A deferred outflow of resources and deferred inflow of resources related to pensions result from changes in the components of the net pension liability and are applicable to a future reporting period. OCSD's deferred outflows related to pensions, deferred inflows related to pensions, and net pension liability for OCERS at June 30, 2016 are $48,088,910, $23,039,510, and $42,439,760, respectively. OCSD's deferred outflows related to pensions, deferred inflows related to pensions, and net pension liability for ARBA at June 30, 2016 are $1,178,246, $0, and $18,313,122, respectively. In aggregate for both plans, OCSD's total deferred outflows related to pensions, deferred inflows related to pensions, and net pension liability at June 30, 2016 are $49,267,156, $23,039,510, and $60,752,882, respectively. 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 18 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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 and attached as enforceable liens on real property as of January 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. 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 OCSD'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, 2016, the outstanding commitments with contractors totaled$100,566,972. Self-Insurance Plans For the year ended June 30, 2016, 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 $1,000,000 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. The self-insurance portion of the property damage exposure covering earthquake is the 5% per structure, minimum $5,000,000 deductible with outside excess insurance coverage to $25 million on covered structures. OCSD has insured a number of key structures against the peril of earthquake, all other structures are completely self- insured. 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 $500,000 per occurrence deductible under the outside excess liability coverage to $40 million per occurrence and aggregate. The self-insurance portion of the pollution liability exposure is the$75,000 per loss deductible under the outside pollution liability insurance coverage to $10 million. There were no significant changes in insurance coverage during the fiscal year ended June 30,2016. 19 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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 estimated or known amounts which will ultimately be paid. Claims incurred but not yet reported have been considered in determining the accrual for loss contingencies. Workers' compensation reserves are actuarially determined and general liability estimated loss accruals are estimated using past experience adjusted for current trends and any other factors that would modify past experience. The estimate of the claims liability also includes any amounts for incremental and nonincremental claim adjustment expenses. OCSD management believes that there are no unrecorded claims as of June 30, 2016 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 GASS 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 GASB Statement No. 73 - Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The retroactive effect of implementing this change in reporting pension expenses and obligations resulted in a restatement of the beginning net position as described further in Note 9. The effect on the previously issued financial statement as of June 30, 2015 resulted in an adjustment to ending net position from$1,761,844,454 to$1,755,003,645. (2) Cash and Investments Cash and investments as of June 30, 2016 are classified within the accompanying Statement of Net Position as follows: Statement of Net Position: Current, Unrestricted: Cash and cash equivalents $125,552,927 Investments 394,422,940 Subtotal -current, unrestricted 519,975,867 Restdcted: Cash and cash equivalents 10,394,727 Investments 14,442,500 Subtotal - restricted 24,837,227 Total cash and cash equivalents and investments $544,813,094 20 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 Cash and investments consist of the following as of June 30, 2016: Cash on hand $ 3,000 Deposits with financial institutions (426,695) Managed portfolio-cash and investments 520,399,562 Subtotal - unrestricted cash and investments 519,975,867 Monies held by trustees: Cash and cash equivalents $ 10,394,727 Investment contracts 14,442,500 Subtotal - monies held by trustees 24,837,227 Grand total cash and investments $544,813,094 Investments Authorized by the California Government Code and OCSD's Investment Policy 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 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. Authorized Maximum by OCSD's Maximum Investment Investment Type-Authorized by Investment Maximum Percentage in a Single the California Government Code Policy? Maturity in of Portfolio(p Issuer(p Local Agency Bonds Yes 5 years 10% (2) 5% (2) 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 20% (2) Banker's Acceptances Yes 180 days 40% 5% (2) Commercial Paper Yes 270 days 25% 5% (2) Negotiable Certificates of Deposit Yes 5 years 30% 5% (2) Repurchase Agreements Yes 1 year 20% (2) 5% (2) Reverse Repurchase Agreements Yes 90 days (2) 5% (2) 5% (2) Corporate Medium-Tenn Notes Yes 5 years 30% 5% (2) Mutual Funds Yes N/A 20% 10% Money Market Mutual Funds Yes N/A 20% 20% Mortgage Pass-Through Securities/ CMO/Asset-Backed Securities Yes 5 years 20% 5% (2) County Investment Pools Yes N/A 15% (2) 15% (2) Local Agency Investment Fund (LAIF) Yes N/A 15% (2) 15% (2) Supranational Obligations Yes 5years 30% 5% (2) Notes (p Restrictions are in accoNence Wth the CalHomia Govemment Code unless indloated othemise. (2)The restriction Is in acco mane eith OCSD's Investment Pollcyehich Is more restrictive than the CalBornia Govemment Code. (3)As allowed by California Government Code Section W1,the Board of Directors has adopted ape licy of a imamate maturity of 5 years for Investments purchased by OCSD's internal monsymanagerforthe long-tem,investment portfolio. The duration of the long-termimestmentportfolio can never emesd6g months.lmestments Wrehasedfortheshort-term portfolio ate subject to the matudtyrestrictlon,noted In this table. 21 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 Investments Authorized by Debt Aareements 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 identifies certain provisions of the debt covenant agreements that address interest rate risk, credit risk, and concentration of credit risk. 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% 30% Commercial Paper 270 days 40% 10% Negotiable Certificates of Deposit 5 years 30% 30% Repurchase Agreements 1 year No limit No limit Corporate Medium-Tenn Notes 5 years 30% 30% Mutual Funds N/A 20% 10°% Money Market Mutual Funds N/A 20% 20% 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. 22 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 Following is a table which summarizes OCSD's managed portfolio investments by purpose with the modified duration as of June 30,2016. Modified Modified Duration Duration Investment Type Fair Value (in years) (in months) Short-Term Portfolio: U.S. Treasury Bills $ 50,079,810 0.041 0.49 Local Agency Investment Fund 45,928,514 0.458 5.49 U.S. Agency Securities 38,664,264 0.128 1.54 Corporate Medium-Tenn Notes 15,534,495 0.345 4.13 U.S. Treasury Notes 14,037,510 0.241 2.90 Supmnationals 12,999,219 0.114 1.36 Commercial Paper 5,876,610 0.206 2.47 Money Market Mutual Funds 2,002,201 0.083 1.00 Short-term portfolio subtotal $ 185,122,623 0.214 2.57 Long-Term Portfolio: U.S. Treasury Notes $ 98,225,722 1.993 23.92 U.S. Agency Securities' 97,433,624 2.702 32.42 Corporate Medium-Tenn Notes 68,706,425 2.947 35.36 Asset Backed Securities/CMO" 26,488,906 1.095 13.14 Suprenationals 15,048,600 1.259 15.11 Commercial Paper 11,591,907 0.358 4.30 U.S. Treasury Inflation-Protected Securities (TIPS)" 10,583,199 7.943 95.32 Taxable Municipal Bonds 4,761,833 3.538 42.45 Money Market Mutual Funds 2,175,126 0.082 0.98 U.S. Govt. Backed Mortgage Pools (GNMA)' 261,597 3.696 44.36 Long-term portfolio subtotal $335,276,939 2.433 29.20 Total Portfolio $520,399,562 Includes highly sensitive securities. The investments duration in excess offive years was permitted b y OCSO's Investment Policy atthe lime itwas purchased. 23 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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, 2016. Fair Value Maturities Cash equivalents held by fiscal agents: US Bank Cash $ 26 N/A Money Market Mutual Funds: US Bank Money Market Fund 45,471 N/A Federated Govemment Obligations Fund 23,863 38 days First American Govemment Obligations Fund 23,240 26 days Blackrock Institutional Funds 1,406 42 days Local Agency Investment Fund (LAIF) 10,300,721 167 day average Investments held by fiscal agents: Guaranteed Investment Agreements: FSA Capital Management Services LLC-2007A COP 9,518,000 January 30, 2030 Bayerische Landesbank Girozentrale-2009A COP 4,924,500 August 1, 2016 Total Fair Value of Investments Held by Fiscal Agents $ 24,837,227 Investments with Fair Values Highly 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 $5,727,914 including $3,475,796 of mortgage pass-through securities, $1,990,521 of U.S. agency securities, and $261,597 of U.S. government backed mortgage pools. Fair Value of Investments OCSD measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follows: Level 1: Quoted prices for identical investments in active markets; Level 2: Observable inputs other than quoted market prices; and Level 3: Unobservable inputs. 24 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 At June 30, 2016, OCSD had the following fair value measurements for its managed investment portfolio: Quoted Prices in Active Significant Other Markets for Cleanable Unobservable Identical Assets Inputs Inputs Investment Type Fair Value Leee11 Lesel2 Le�el3 Investments in Short-Term Portfolio: U.S.Treasury Bills $ 50.079,810 $ - $ 50,079,810 $ - U.S.Agency Securities 38,664,264 - 38,664,264 - Corporate Medium-term Notes 15.534,495 - 15,534,495 - U.S.Treasury Notes 14,037,510 - 14,037,510 Supmrationals 12,999,219 - 12,999,219 - Commercial Paper 5.876,610 - 5.876,610 Money Market Mutual Funds 2,002,201 - 2,002,201 - In%stments in Long-Term Portfolio: U.S.Treasury Notes 98,225,722 - 98,225,722 - U.S.Agency Securities 97,433,624 - 97,433,624 - Corporate Medium-term Notes 68,706,425 - 68,706,425 - Asset Backed Securities/CMO 26,488,906 - 26,488,906 - Supmnationals 15,048,600 - 15,048,600 Commercial Paper 11,591,907 - 11,591,907 - US Treasury Inflation Protected Securities(TIPS) 10.583,199 - 10.583,199 Taxable Municipal Bonds 4,761,833 - 4,761,833 - Money Market Mutual Funds 2,175,126 - 2,175,126 - U.S. Go emment Backed Mortgage Pools 261,597 - 261,597 Fair Value Hierarchy Totals $ - $ 474,4 11,048 $ - Investments Not Subject To Fair Value Hierarchy Local Agency Investment Fund(LAIF)` 45,928,514 Total Portfolio $520.399,562 -Invesfedio Short-Term Pordblio The Bank of New York Mellon is the custodial bank for all of OCSD's investments shown above in the managed portfolio, except for LAIF. Investments classified as Level 2 are valued using the Bank of New York Mellon's fair value hierarchy matrix based on the asset type classification. The fair value hierarchy level matrix is based on discussions with (1) pricing vendors, (2) broker/dealers, (3) investment managers, (4) industry groups, and (5) independent accounting firms. Monies held by trustees (fiscal agents) that are invested in cash accounts, money market mutual funds and LAIF are reported at carrying cost. Monies held by trustees that are invested in guaranteed investment agreements are exempt from fair value reporting and are reported based on the face value of the contracts. Disclosures Relating 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. 25 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 Investment Type and the Lowest Rating Reported at Year End Fair Value Investments with no legal minimum rating&no required disclosure: U.S.Treasury Obligations $172,926,241 U.S.Agency Securities-GNMA 261,597 Subtotal $173,187,838 Investments with no legal minimum rating: U.S.Agency Securities(other than GNMA): Rating of AA-(Standard&Poor's) 136,097,888 Municipal Bonds: Rating ofAal (Moodys) 1,537,046 Rating ofAa3(Moodys) 3,224,787 Local Agency Investment Fund(LA1F): Not rated 56,229,235 Investments with fiscal agents-Guaranteed Investment Contracts: Not rated 14,442,500 Subtotal 211,531,456 Investments with a legal minimum rating(or its equivalent)of A Corporate Medium-Term Notes: Rating ofAal (Moodys) 5,117,880 Rating ofA4+(Standard&Poor's) 3,093,150 Rating of AA-(Standard&Poor's) 5,050,375 Rating of At (Moodys) 20,441,950 Rating ofA+(Fitch) 4,004,880 Rating ofA(Standard&Poor's) 5,272,216 Rating ofA2(Moodys) 21,641,078 Rating ofA3(Moodys)' 8,416,874 Rating of Baal (Moodys)' 4,022,072 Rating of BBB+(Standard&Poofs)" 7,004,195 Not rated 176,250 Money Market Mutual Funds: Rating ofAaa(Moodys) 4,148,543 Not rated 28,784 Invested with fiscal agents: Rating of Aaa-mf(Moodys) 48,509 Rating of P-1 (Moodys) 45,497 Subtotal 88,512,253 Investments with a legal minimum rating(or its equivalent)ofM Asset Backed Securities/CMO: Rating of Ass(Moodys) 22,973,531 Rating ofA4+(Standard&Poor's) 3,391,430 Rating of BBB(Fitch)' 123,945 Supranational Obligations: Rating ofAaa(MDodys) 20,052,875 Rating of P-1 (Moodys) 7,994,944 Subtotal 54,536,725 Investments with a legal minimum rating(or its equivalent)of"Prime": Commercial Paper: Rating of P-1 (Moodys) 8,896,217 Rating ofA-1 (Standard&Poor's)' 1,796,783 Rating of A(Fitch)' 6,775,517 Subtotal 17,468,517 Total $545,236,789 Ineestnent was in compliance with legal requirements at the time it was purchased. 26 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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 Agreements." OCSD follows whichever guideline is the most restrictive. As of June 30, 2016, OCSD had the following investments representing five percent or more of total investments: Name of Issuer Fair Value % of Total Federal Home Loan Mortgage Corporation (FHLMC) $ 89,941,364 16.50% Federal National Mortgage Association(FNMA) $ 48,920,090 8.97% 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, 2016, in accordance with OCSD's investment policy, none of OCSD's investments were held with a counlerparty. All of OCSD's investments were held with an independent third party custodian bank registered in the name of OCSD. 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-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. 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 cash and cash equivalents at June 30, 2016. 27 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (31 Capital Assets Capital asset activity for the year ended June 30, 2016 is as follows: Beginning Ending Balance at Additions/ Deletions/ Balance at July 1,2015 Transfers Transfers June 30,2016 Capital assets not depreciated: Cost: Land $ 15,959,559 $ - $ - $ 15,959,559 Construction in progress 392,209,225 153,408,102 (46,241,268) 499,376,059 Total nondepreciable assets 408,168,784 153,408,102 (46,241,268) 515,335,618 Depreciable capital assets: Cost: Sewage collection facilities 758,158,102 22,980,656 - 781,138,758 Sewage treatment facilities 2,255,777,614 22,862,744 (504,354) 2,278,136,004 Effluent disposal facilities 97,014,820 - - 97,014,820 Solids disposal facilities 3,463,236 - - 3,463,236 General and administrative facilities 227,945,470 2,149,095 (648,121) 229,446,444 Excess purchase price over book value on acquired assets 19,979,000 19,979,000 Subtotal 3,362,338,242 47,992,495 (1,152,475) 3,409,178,262 Accumulated depreciation: Sewage collection facilities (315,974,770) (17,787,222) - (333,761,992) Sewage treatment facilities (718,917,465) (63,253,514) 504,354 (781,666,625) Effluent disposal facilities (59,288,947) (1,571,107) - (60,860,054) Solids disposal facilities (3,146,534) (9,718) - (3,156,252) General and administrative facilities (149,125,455) (7,223,072) 451,719 (155,896,808) Excess purchase price over book value on acquired assets (19,073,561) (657,709) - (19,731,270) Subtotal (1,265,526,732) (90,502,342) 956,073 (1,355,073,001) Netdepreciable assets 2,096,811,510 (42,509,847) (196,402) 2,054,105,261 Net capital assets $2,504,980,294 $110,898,255 $(46,437,670) $2,569,440,879 Capdal essotadMonsforthe fiscal yeersnded Jone 30,2016 are$1.]million more than the amount tlelefed Imm ConsW coon in Pmgmwdue focapitalequpmentpumhasesof$19mdlbn,padi ffyoffsetby$0.2mil4on ofpbrcapdalpmpcfexpenses thatw re w Hen off asexpense. 28 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (4) Lona-Term Liabilities The following is a summary of the changes in long-term liabilities for the year ended June 30,2016: Beginning Ending Duewbin Long-term Balance,July1 Additions Deletions Balance,June 30 one year amount Arbitrage payable $ 274,948 $ 87,581 $ - $ 362,529 $ 362,529 $ Ccopensated absences 7,362,602 7,344,126 (7,157,390) 7,549,338 6,914,502 634,836 Clain¢and judgments 2,550,597 2,713,076 (692,616) 4,571,057 540,640 4,030,417 Certdicates of participation, revenue obligations&notes 1,162,355,000 M5,880,000 (1)2,185,000) 1,116,050,000 35,575,000 1,080,475,000 Unannrdzeci previum(discount) 78.785,357 28,988,588 (17,101,598) 90,672,347 10,617,766 80,054.581 Totals $1,251,328,504 $185,013,371 $(211,136,604) $1,219,205,271 $54,010,437 $1,165,194,834 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, 2016 is $362,529. Compensated Absences OCSD's policies related to compensated absences are described in Note 1. OCSD's liability at June 30, 2016 is$7,549,338 with an estimated $6,914,502 to be paid or used within the next fiscal year. Claims and Judaments 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, 2016 and 2015: 2015-16 2014-15 Claims and judgments payable at July l $2,550,597 $1,896,152 Claims incurred during the fiscal year 2,713,076 1,286,106 Payments on claims during the fiscal year (692,616) (631,661) Claims and judgments payable at June 30 4,571,057 2,550,597 Less: current portion (540,640) (467,110) Total long-term claims and judgments payable $4,030,417 $2,083,487 29 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 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 30,2016 are summarized as follows: Amount 2007A refunding certificates of participation $ 91,885,000 2007E certificates of participation 7,110,000 20088 refunding certificates of participation 8,815,000 2009A certificates of participation 13,405,000 2010A wastewater revenue obligations 80,000,000 2010C wastewater revenue obligations 157,000,000 2011A wastewater refunding revenue obligations 111,465,000 2012A wastewater refunding revenue obligations 100,645,000 2012E wastewater refunding revenue obligations 66,395,000 2014A wastewater refunding revenue obligations 85,090,000 2014E revenue refunding certificate anticipation notes 120,850,000 2015A wastewater refunding revenue obligations 127,510,000 2016A wastewater refunding revenue obligations 145,880,000 Total certificates of participation, revenue obligations, and notes $1,116,050,000 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, 2016, the coverage ratio for senior lien debt was 3.39. 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 will range from 4.00 percent to 4.5 percent. Annual principal payments are due on February 1, beginning February 1, 2008 through February 1, 2030. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2016 reserve of$9,518,026 is held by Union Bank, the trustee,and meets the reserve requirement. December 2007 Certificates of Participation. Series 2007E 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 will range from 4.00 percent to 5.25 percent. Annual principal payments are due on February 1, beginning February 1, 2008 through February 1, 2017. 30 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 On August 7, 2014, $93,930,000 of the outstanding principal balance of the 2007 Series B certificates was advance-refunded with the proceeds of the August 7, 2014 wastewater refunding revenue obligations Series 2014A (see below) in a transaction accounted for as an in-substance defeasance. These funds are held in an escrow account that is not reflected on OCSD's financial statements because it has been legally defeased. At June 30, 2016, this $93,930,000 represents the amount still outstanding on bonds considered defeased. On February 12, 2015, $152,990,000 of the outstanding principal balance of the 2007 Series B certificates was advance-refunded with the proceeds of the February 12, 2015 wastewater refunding revenue obligations Series 2015A (see below) in a transaction accounted for as an in-substance defeasance. These funds are held in an escrow account that is not reflected on OCSD's financial statements because it has been legally defeased. At June 30, 2016, this $152,990,000 represents the amount still outstanding on bonds considered defeased. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2016 reserve of$7,518,822 is held by Union 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 will range from 2.80 percent to 3.0 percent. Annual principal payments are due on August 1, beginning August 1, 2009 through August 1, 2016. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2016 reserve of $2,785,786 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 will range from 3.00 percent to 5.00 percent. Annual principal payments are due on February 1, beginning February 1, 2010 through February 1, 2019. On March 30, 2016, $162,780,000 of the outstanding principal balance of the 2009 Series A certificates was advance-refunded with the proceeds of the March 30, 2016 wastewater refunding revenue obligations Series 2016A (see below) in a transaction accounted for as an in-substance defeasance. These funds are held in an escrow account that is not reflected on OCSD's financial statements because it has been legally defeased. At June 30, 2016, this $162,780,000 represents the amount still outstanding on bonds considered defeased. The trust agreement for the certificates requires the establishment of a reserve which was funded from certificate proceeds. The June 30, 2016 reserve of $4,967,336 is held by US Bank,the trustee, and meets the reserve requirement. 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 31 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 additional improvements made to the wastewater system. The stated interest rate on the obligations is fixed and will range 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. The expected net interest rate on the obligations is fixed and will range from 3.614 percent to 3.627 percent. Annual principal payments are due on February 1, beginning February 1, 2034 through February 1,2040. The trust agreement for the revenue obligations does not require the establishment of a reserve. December 2010 Wastewater Revenue Obligations, Series 201 OC 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 will range 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. The expected net interest rate on the obligations is fixed and will range from 4.1275 percent to 4.16 percent. Annual principal payments are due on February 1, beginning February 1, 2031 through February 1, 2044. 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 will range from 3 percent to 5 percent. Annual principal payments are due on August 1 and February 1, beginning August 1, 2012 through February 1,2026. The trust agreement for the revenue obligations does not require the establishment of a reserve. March 2012 Wastewater Refundina 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 will range from 3 percent to 4 percent. Annual principal payments are due on February 1, beginning February 1, 2031 through February 1, 2033. The trust agreement for the revenue obligations does not require the establishment of a reserve. August 2012 Wastewater Refunding 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 32 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 outstanding principal balance of the Series 2000A and 2000E refunding certificates of participation. The stated interest rate on the obligations is fixed and will range from 3 to 5 percent. Annual principal payments are due on February 1, beginning February 1, 2019 through February 1, 2026. The trust agreement for the revenue obligations does not require the establishment of a reserve. August 2014 Wastewater Refunding Revenue Obligations, Series 2014A On August 7, 2014, OCSD completed the sale of $85,090,000 of wastewater refunding revenue obligations. The obligations were issued to partially refund an amount of$93,930,000 of the outstanding principal balance of 2007 Series B certificates of participation. The stated interest rate on the obligations is fixed at 5 percent. Annual principal payments are due on February 1, beginning February 1, 2018 through February 1, 2027. The Trost agreement for the revenue obligations does not require the establishment of a reserve. October 2014 Revenue Refunding Certificate Anticipation Notes, Series 2014B On October 8, 2014, OCSD completed the sale of $120,850,000 of revenue refunding certificate anticipation notes. The notes were issued to fully refund the $129,625,000 outstanding principal balance of the 2013 Series A revenue refunding certificate anticipation notes. The interest rate on the notes is fixed at 4 percent. The notes will mature on November 15, 2016. 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 trust agreement for the certificates does not require the establishment of a reserve. February 2015 Wastewater Refunding Revenue Obligations. Series 2015A On February 12, 2015, OCSD completed the sale of $127,510,000 of wastewater refunding revenue obligations. The obligations were issued to partially refund an amount of $152,990,000 of the outstanding principal balance of 2007 Series B certificates of participation. The stated interest rate on the obligations is fixed at 5 percent. Annual principal payments are due on February 1, beginning February 1,2028 through February 1, 2037. The trust agreement for the revenue obligations does not require the establishment of a reserve. March 2016 Wastewater Refunding Revenue Obligations, Series 2016A On March 30, 2016, OCSD completed the sale of $145,880,000 of wastewater refunding revenue obligations. The obligations were issued to partially refund an amount of $162,780,000 of the outstanding principal balance of 2009 Series A certificates of participation. The stated interest rate on the obligations is fixed and will range from 4 to 5 percent. Annual principal payments are due on February 1, beginning February 1, 2020 through February 1, 2039. The aggregate difference in debt service between the refunding debt and the refunded debt is a positive amount of approximately$18.7 million. The total future payments for the new debt provide a net present value gain of approximately$18.8 million to refund the old debt. 33 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 The trust agreement for the revenue obligations 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, 2016, including the Revenue Refunding Certificate Anticipation Notes, Series 2014E that currently matures in November 2016, are as follows: Year Ending June 30, Principal Estimated Interest Total 2017 $ 156,425,000 $ 45,181,495 $ 201,606,495 2018 32,415,000 42,379,797 74,794,797 2019 31,940,000 41,285,797 73,225,797 2020 33,025,000 39,691,647 72,716,647 2021 34,675,000 38,043,347 72,718,347 2022-2026 157,455,000 167,656,716 325,111,716 2027-2031 217,555,000 125,903,445 343,458,445 2032-2036 263,540,000 72,253,679 335,793,679 2037-2041 164,315,000 22,128,077 186,443,077 2042-2046 24,705,000 1,641,536 26,346,536 Total $1,116,050,000 $ 596,165,534 $ 1,712,215,534 (5) 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 (A) General Information about the Pension Plan Plan Description: All qualified permanent and probationary employees are eligible to participate in OCSD's Employee Pension Plan (Plan), which is a cost-sharing multiple employer defined benefit pension plan administered by the Orange County Employees Retirement System (OCERS). OCERS was established in 1945 under the provisions of the County Employees Retirement Law of 1937 (CERL). The Plan operates under the provisions of the California County Employees' Retirement Law of 1937 (CERL), the California Public Employees' Pension Reform Act of 2013 (PEPRA), and the regulations, procedures and policies adopted by OCERS' Board of Retirement. The Plan's authority to establish and amend the benefit terms are set by the CERL and PEPRA and may be amended by the California state legislature. The Plan is a tax qualified plan under Section 401(a) of the Internal Revenue Code Benefits Provided: OCERS provides service retirement, disability, death and survivor benefits to plan members who may be public employees or beneficiaries. The CERL and PEPRA establish benefit terms. Benefits are based on years of credited service equal to one year of full time employment. Members of plans B, G and H with ten years of service credit are entitled to receive a retirement allowance beginning at age 50; members of plan U with 5 years of service are eligible to receive a 34 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 retirement allowance at age 52. Members attaining age 70 are eligible to retire regardless of credited service. Benefits are determined by plan formula, age, years of service and final average salary (FAS) as follows: Plan G Plan H Plan S Plan U After 9121/79 Prof/Sup:After 10/1/10 Hire Date Prior to 9121/79 ProUSup':Before 10/1/10 OCEA:After 811/11 On or after 1/1/2013 OCEA': Before 8/1111 601:A8er7/1/11 501': Before 7/1/11 All Before 1/1/2013 Final Average Highest 12 months Highest 36 months Highest 36 months Highest 36 months Compensation(FAS) Normal Retirement Age Age 55 Age 55 Age 57.5 Age 67 Service Requirement Age 70,any years Age 70,any years Age 70,any years Age 70,any years Eligibility Age 50, 10 years Age 50, 10 years Age 50, 10 years Age 52,5 years Benefit percent per 2.5%per year of FAS 2.5%per year of 1.667%per year of 2.5%per year of year of service for for every year of FAS for awry year of FAS for awry year of FAS for every year normal retirement age service credit seMce credit seMce credit of seMce credit Benefit Adjustments Reduced before age Reduced before age Reduced before age Reduced before age 55 55 57.5 67 Public Employees Intemal Revenue Code Internal Revenue Code Internal Revenue Code Pension Reform Act FAS Limitation Section 401(aX17) Section 401(aX17) Section 401(a)(17) (PEPRA): 120%of Social Security wage base per year Prof/Sup:Professional and SupeMsor employee groups,bargaining unit SPMO. OCEA Administratiw,Clerical,Engineering,and Technical SerNces employee groups,bargaining unit OCEA '501:Operaflons and Maintenance employee groups,bargaining unit International Union of operating Engineers Local 501. A cost of living adjustment is provided to benefit recipients based on changes in the Consumer Price Index (CPI) up to a maximum of 3% per year. Any increase greater than 3% is banked and may be used in years when the CPI is less than 3%. The increase is established and approved annually by the Board of Retirement. The Plan also provides disability and death benefits to eligible members and their beneficiaries, respectively. For retirees the death benefit is determined by the retirement benefit option chosen. For all other members the beneficiary is entitled to benefits based on the member's years of service and whether or not the cause of death is service related. At June 30,2016, the following employees were covered by the benefit terms: Inactive Employees or Beneficiaries currently receiving benefits 410 Inactive Employees entitled to but not yet receiving benefits 99 Active Employees 572 Total 1,081 35 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (B) Contributions: Participating employers and active members are required by statute to contribute a percentage of covered salary to the Plan. CERL requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and be effective on the July 1 following notice of a change in rate. Funding contributions are determined annually on an actuarial basis as of December 31 by OCERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the Plan from OCSD were $12,222,849 for the year ended June 30, 2016. An additional$50,000,000 was contributed to pay down OCSD's Net Pension Liability. Contribution rates in effect for the fiscal year ended June 30, 2016 are as follows: Plan G Plan H Plan B Plan U Employer Contribution Rate, 7/1/15-6/30/16 120.75% 20.75% 18.39% 1 17.52% Employee Contribution Rate, 7/1/15-6/30116(2) 7.07-12.53%(1) 6.60-12.53%(1) 7.40-12.62% 7.21-13.14% Paid by Employer for Employee 3.50% 3.50% 0.00% 1 0.00% (1)Net of employer paid portion of 3.5% (2)Employee rates are determined bythe age of entryinto the retirement system. For the measurement period ended June 30, 2016, the contributions and average employer's contribution rate as a percentage of annual payroll were as follows: Average Employee (Paid Employer Employer by Employer) Contribution Plans Contributions Contributions Rate (%) Plan G $ 23,830 $ 4,020 0.05% Plan H 10,086,350 1,690,059 19.43% Plan B 925,955 - 1.53% Plan U 1,186,713 - 1.96% Total $ 12.222,849 $ 1,694,079 (C) Pension Liabilities: As of June 30, 2016, OCSD reported net pension liability of$42,439,760 for its proportionate share of OCERS' net pension liability. The net pension liability was measured as of December 31, 2015 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. OCSD's proportion of the net pension liability was based on a projection of OCSD's long-term share of contributions to the pension plan relative to the projected contribution of all participating employers, actuarially determined. At December 31, 2015, OCSD's proportion of the net pension liability was 0.742%, which was a decrease of 0.388% from its proportion measured as of December 31, 2014. The change in OCSD's proportion of the net pension liability during the fiscal year ended June 30, 2016 was caused by the contributions and projections noted above and an additional contribution of $50,000,000 in September 2015 by OCSD to the plan. 36 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (D) Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2016, OCSD recognized pension expense of $14,823,759 for its proportionate share of the pension expense. At June 30, 2016 OCSD reported its share of deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of of Resources Resources Difference between expected and actual experience $ - $ 14,164,115 Net difference between projected and actual investment earnings on pension plan investments 33,392,920 - Changes of Assumptions (1) - 8,661,357 Changes in proportion and differences between employer contributions and proportionate share of contributions 2,143,993 214,038 Employer contributions paid to OCERS subsequent to the measurement date 12,551,997 Total $ 48,088,910 $ 23,039,510 (1) The monetary effects of changes in actuarial assunptions and method totals$8,661,357. These changes include: • adjustments to the=daliry tables. • retirement assmrptions for deferred vested members(age at retirement 58,increase of 4.25%in reciprocity,and an increase in compensation increases), • %in the rate of oerriage for«ale and female menters at relienenl or pre-retirement death, • au increase in the Consumer Rice Index of 3.0%per year,maxinumincrease is 3%, • and a slight increase of.50%in salaries per year. Detail for these changes is available in the Segal Actuarial Valuation for Decanter 31,2015,Section 3. This report is available on the OCERS w abate at ww w.ocers.org. The amount $12,551,997 reported as deferred outflows of resources related to pensions resulting from OCSD's contributions to OCERS subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OCERS pensions will be recognized in pension expense as follows: Year ended June 30 Amount 2017 $ 3,730,264 2018 3,730,264 2019 3,730,264 2020 2,339,161 2021 (1,023,092) 2022 (9,458) Thereafter 37 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (E) Actuarial Assumptions and Methods: The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Investment rate of return 7.25% of net pension plan investment expenses, including inflation Discount rate 7.25% Inflation rate 3.00% Projected salary increases 4.25% to 13.5% Cost of living adjustment 3.0% of retirement income The mortality assumptions used in the total pension liability at December 31, 2015 were based on the RP-2000 Combined Healthy Mortality Table projected with the Society of Actuaries Scale BB to 2020. For healthy general members, no adjustments are made. For disabled general members the ages are set forward six years for males and three years for females. The basis for determining the mortality assumptions used were based on the results of the actuarial experience study for the period January 1, 2011 through December 31, 2013. Further details of the Experience Study can be found in the OCERS CAFR, available on their website at www.ocers.org. (F) Long-Temt Expected Real Rate of Return The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. These returns are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and deducting expected investment expenses. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table for the calendar year ended December 31,2015: Weighted Average Long- Target Term Expected Real Rate Asset Class Allocation of Return(Arithmetic) Large Cap U.S. Equity 14.90% 5.92% Small/Mid Cap US Equity 2.73% 6.49% Developed International Equity 10.88% 6.90% Emerging International Equity 6.49% 8.34% Core Bonds 10.00% 0.73% Global Bonds 2.00% 0.30% Emerging Markets Debt 3.00% 4.00% Real Estate 10.00% 4.96% Diversified Credit(US Credit) 8.00% 4.97% Diversified Credit(Non-US Credit) 2.00% 6.76% Hedge Funds 7.00% 4.13% Global Tactical Asset Allocation 7.00% 4.22% Real Return 10.00% 5.86% Private Equity 6.00% 9.60% Total 100.00% 38 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (G) Discount Rate: The discount rate used to measure the total pension liability was 7.25% for the year ended December 31, 2015. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially determined contribution rates. For this purpose, only employer contributions that are intended to fund benefits for current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments for current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability as of December 31, 2015. (H)Sensitivity of the Proportionate Share of Net Pension Liability to Changes in the Discount Rate: The following table represents OCSD's proportionate share of the net pension liability calculated using the discount rate of 7.25%, as well as what OCSD's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower(6.25%) or 1 percentage point higher(8.25%)than the current rate: 1% Decrease Current Discount Rate 1% Increase Net Pension Liability (6.25%) (7.25%) (8.25%) December 31, 2015 $ 123,781,728 $ 42,439,759 $ (24,490,282) (1) Pension Plan Fiduciary Net position: Detailed information about OCERS' fiduciary net position is available in a separately issued OCERS comprehensive annual financial report. That report may be obtained from OCERS at 2223 Wellington Avenue, Santa Ana, California 92708 or at their web site(www.ocers.org). Additional Retiree Benefit Account(ARBA) The OCSD ARBA 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 OCSD medical plan. The plan is currently paying benefits to 267 retirees. The ARBA plan is not subject to the reporting requirements of GASB 68 and 71 because a trust has not been set up for the plan. However, GASB 73 has been implemented for the ARBA plan in the fiscal year ended June 20, 2016. The plan is a funded on a pay-as-you-go plan from general funds and is administered by OCSD. The 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 OCSD cannot ensure the use of the benefit for payment of eligible health insurance expenses, 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 6—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. 39 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 Benefits are determined by hire date, bargaining unit and years of service as follows: Hire date All: Prior to 7/1/88 All: After 7/1/88 OCEA': Before 8/1/11 Benefit amount per $10 per month x years of service up to $10 per month x years of serNce up to year of seMce for a maximum of 25 years a maximum of 25 years normal retirement age Service requirement Age 50 or over with 10 or more years Age 50 or over with 10 or more years Any age with 30 or more years Any age with 30 or more years eligibility Age 70 or over, any years Age 70 or over, any years Benefit payments Monthly for life Monthly for life Immediately after retiree health Benefit schedule Immediately upon retirement insurance coverage ends 'OCEA: AdmnisbaMe,Clerical,Engineering,and Technical services er ployee groups,bargaining unit OCEA. No cost of living adjustment is provided to benefit recipients. At June 30,2016, the following employees were covered by the benefit terms: Inactive Employees or Beneficiaries currently receiving benefits 267 Inactive Employees entitled to but not yet receiving benefits 66 Active Employees 546 Total 879 Contributions: There are no employee contributions for this plan; OCSD covers 100% of the cost. OCSD utilizes a pay-as-you-go method for funding the plan. Contributions to the Plan from OCSD were$565,380 for the year ended June 30, 2016. Pension Liabilities: As of June 30, 2016, OCSD reported net pension liability of$18,313,122 for its ARBA plan. The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of July 1, 2015. The actuarial evaluation performed as of July 1, 2015, used the Entry Age, Level Percent of Pay Cost Method. This method represents the present value of all benefits accrued through the valuation date assuming that each employee's liability is expensed from hire date until retirement date as a level percentage of pay. 40 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 The following table shows the changes in the Net Pension Liability: Increase(Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) (a) (b) (c)_ (a)-(b) Beginning Balance at July 1, 2015 $ 16,680,614 $ - $ 16,680,614 Changes in the year: Service Cost 270,223 - 270,223 Interest on Total Pension Liability 626,386 - 626,386 Changes of Benefit Terms - - - Changes of Assumptions 1,230,327 - 1,230,327 Benefit Payments(1) (494,428) - (494,428) Net changes 1,632,508 - 1,632,508 Ending Balance at June 30, 2016 $ 18,313,122 $ $ 18,313,122 (1)As part of the July 1,2015 actuarial valuation report,Denney,Filliger 8 Associates prepared a projection of the expected annual cost to the District to pay ARBA benefits. Pension Expense and Deferred Outflows/Inflows of Resources Related to Pension: For the year ended June 30, 2016, OCSD recognized pension expense of $1,019,642 for its ARBA plan. At June 30, 2016 OCSD reported its share of deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Difference between expected and actual experience $ - $ - ChangesofAssumptions (1) 1,107,294 Net difference between projected and actual investment earnings on pension plan imuestments - - Employer contributions over actuary projections 70,952 Total $ 1,178,246 $ (1)The monetary effects of changes in actuarial assunplions and method totals$1,107,294. These changes include a change in the discount rate from 3.75%as of the valuation date to 3.25%as of the statement data. 41 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 The amount of $70,952 reported as deferred outflows of resources related to pensions resulting from OCSD's contributions over actuary projections as of July 1, 2015 valuation date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources related to ARBA pensions will be recognized in pension expense as follows: Year ended June 30 Amount 2017 $ 123,033 2018 123,033 2019 123,033 2020 123,033 2021 123,033 2022 123,033 2023 123,033 2024 123,033 2025 123,033 Actuarial Assumptions and Methods: The total pension liability in the July 1, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Investment rate of return 3.75% per annum as of July 1, 2015(Valuation Date) 3.25% per annum as of June 30, 2016 Measurement Dale Discount rate 3.25% Inflation rate 2.50% per annum Projected salary increases 3.00% per annum (for service cost only; benefits not pay-related) The mortality assumptions used in the total pension liability at July 1, 2015 were based on the RP- 2014 Employee and Health Annuitant Mortality Tables for Males or Females, as appropriate, without projection. Discount Rate: The discount rate used to measure the Total Pension Liability was 3.75%as of the valuation date, July 1, 2015, and 3.25% as of the measurement date, June 30, 2016. Because there are no assets held in a trust that meets GASS 68 or 71, the discount rate is based on the 20 year,tax exempt general obligation municipal bonds with an average rating of AA or higher. Sensitivity of the Total Pension Liability to Changes in the Discount Rate: The following table represents the Total Pension Liability calculated using the discount rate of 3.25% as of the measurement date, as well as what Total Pension Liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.25%) or 1 percentage point higher (4.25%) than the current rate: 1% Decrease Current Discount Rate 1% Increase Net Pension Liability (2.25%) (3.25%) (4.25%) June 30, 2016 $ 21,203,622 $ 18,313,122 $ 15,972,636 42 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (61 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 stand-alone financial statements are not issued. As of the date of the latest actuarial valuation (711/15), there were 576 active employees, 72 retirees paying premiums, and 72 retirees whose premium is fully paid by OCSD. For the fiscal year ended June 30, 2016, premiums ranged between $181 and $3,749 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 for qualifying employees as stated above. Retirees opting to remain with the plan after employment pay 100% of the premium cost, except for those for whom OCSD pays for a period (see above). An actuarial evaluation was performed as of July 1, 2015, using the Entry Age Normal, Level Percent of Pay Cost Method. This method represents the present value of benefits accrued through the valuation date, assuming that each employee's liability is expensed from hire date until retirement date as a level percentage of pay. 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 2015-16, OCSD contributed $1,176,887 and retirees contributed$785,101 to cover current year expenses. Annual OPEB Cost and Net OPEB Obligation/(Asset): 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 GASB 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. The following OPEB cost and net OPEB obligation/(asset) was determined for the year ended June 30, 2016: June 30, 2016 Annual required contribution $ 559,620 Interest on net OPEB obligation (4,373) Adjustment to annual required contribution 6,540 Annual OPEB cost 561,787 Contributions made (1,176,887) Increase (decrease) in net OPEB obligation (615,100) Net OPEB obligation, beginning of year (116,600) Net OPEB obligation/(asset), end of year $ (731,700) 43 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 OCSD's annual OPEB cost contributed and the net OPEB obligafion/(asset) for the years ended June 30, 2014, 2015, and 2016 are shown in the following table. Annual OPEB Cost Fiscal Year Annual Actual Percentage of OPEB Net OPEB Ended OPES Cost Contributions Cost Contributed Obligation/(Asset) 6130114 $ 744,667 $ 1,123,961 150.9% $ 204,614 6/30/15 751,430 1,072,643 142.7% (116,600) 6/30/16 561,787 1,176,887 209.5% (731,700) Funded status and funding progress: The funded status of the plan as of July 1, 2015, based on the July 1, 2015 actuarial valuation (most current valuation available)was as follows: Actuarial accrued liability (AAL) $9,179,161 Actuarial value of assets Unfunded AAL(UAAL) 9,179,161 Funded ratio 0.0% Covered payroll $60,025,942 UAAL as a percentage of covered payroll 15.3% The preceding noted actuarial accrued liability was based on the June 30, 2016 actuarial valuation. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation. The actuarial valuation contained in the report involve estimates of the subject to continual revision as they reflect a long- term perspective. Assumption used in the report also include techniques designed to reduce short-term volatility in AAL and the actuarial value of assets. Current estimates of the funded status and trend information about the funding progress are presented in the Required Supplementary Information section following the notes to the basic financial statements. The net OPEB asset is reported in the noncurrent portion of assets on the Statement of Net Position. 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 July 1, 2015 actuarial valuation using the Entry Age Normal, Level Percent of Pay Cost Method. The actuarial assumptions include a 3.75% investment rate of return, an annual rate of inflation of 2.5%, and an annual healthcare cost trend rate of 8.0%. The UAAL is being amortized ratably over an open 30 years amortization period. 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. 44 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 (7) 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, 2016, after recognizing current year amortization of$657,709, the unamortized amount of the excess of purchase price over the assets' book value was$247,730. 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, for which contributions of $2,993,946 were recorded as contribution from other government during the fiscal year ended June 30, 2016. 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. Integration contributions of $10,109,089 to Revenue Area 14 were recognized and reported as contributions from other government during the fiscal year ended June 30, 2016. These contributions 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, $2,086,136 in annual solids capital handling charges were reported as operating revenue in Consolidated Revenue Area, and $8,393,851 in solids quarterly operating and maintenance charges were reported as operating revenue in Revenue Area No. 14 during the fiscal year ended June 30,2016. Any amounts credited to IRWD are not refunded in cash but are held as a credit to satisfy future contributions required of IRWD. Amounts owed from IRWD are invoiced on a quarterly or annual basis. As a result, a balance of $15,949,118 was reported in accounts receivable and due from other governmental agency as of June 30, 2016. Annual Cash Reserve Requirement The rash reserve contribution requirement from IRWD at June 30, 2016; in accordance with Amendment No. 2 to the Agreement between IRWD and OCSD Acquiring Ownership Interests, 45 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 Assigning Rights, and Establishing Obligations; is $10.7 million. This cash reserve requirement is recognized as a liability to IRWD. (8) Commitments. Due From Other Governmental Agency. and Contingencies Relocation of the Santa Ana Regional Interceptor: On June 29, 2010, OCSD 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 OCSD'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. During the fiscal year ended June 30, 2016, OCSD received loan repayments totaling $7,075,547, leaving an outstanding loan receivable balance of $24,005,387 which is included in the due from other governmental agency balance of$24,730,127 on the statement of net position. Local Sewer Facilities Transfer: On February 27, 2014, OCSD entered into an agreement to transfer 174 linear miles of local sewer facilities in the unincorporated area of Area 7 and in the City of Tustin, to East Orange County Water District(EOCWD). The transfer was contingent upon receiving Orange County Local Agency Formation Commission (OC LAFCO) approval of EOCWD's request to activate EOCWD's latent powers to provide wastewater services and to slightly adjust EOCWD's boundary, solely for local sewer service, which was not within EOCWD's water service area. The agreement was amended on April 22, 2015 to extend the limeframes and term of the original agreement, to provide for a disbursement of $25 million of accumulated capital repair and replacement funds within five days following the date of transfer, to provide for a reconciliation of OCSD's records and transfer of any accumulated capital repair and replacement funds in excess of the $25 million within six months following the date of transfer, and to prohibit the diversion of wastewater flows away from OCSD. Due to delays in receiving approval from OC LAFCO, the agreement was amended a second time on December 24, 2015 to extend the time frames identified in the previous agreement, as amended. On May 11, 2016, the OC LAFCO Commission executed Resolution 14-01, which approved EOCWD's application for reorganization and amended its sphere of influence, thus providing for the transfer of the local sewers to EOCWD. As of June 30, 2016, no transactions have occurred. Pollution Remediation: An Underground Storage Tank (UST) at Plant No. 1 failed the pressure test to ensure its tank integrity. As a result of the test failure, OCSD voluntarily took this UST out of service and tested the immediate surrounding area and determined that both gasoline and diesel were present. During the fiscal year ended June 30, 2016, OCSD initialed and completed a project to develop a remediation plan for the contaminated soil. Alternatives were reviewed with the Orange County Health Care Agency, and based upon their feedback a recommended remediation plan was identified. This remediation plan calls for the excavation of 2,400 cubic feet of soil, removal and disposal of contaminated soil, and some limited groundwater treatment. This work is anticipated to begin in the spring of 2017 and be completed by June 30, 2017. As of June 30, 2016, actual costs of $99,904 were incurred. Total remaining costs are estimated not to exceed $6,257,000, including post-remediation monitoring costs for a five-year period and a normal project contingency of 30 percent for the remediation effort. This estimated remaining cost 46 ORANGE COUNTY SANITATION DISTRICT Notes to Basic Financial Statements For the Year Ended June 30, 2016 has been recorded as a current liability as of June 30, 2016, and the total cost of $6,356,904 is reported as an "Other Non-operating expense." Litigation: Certain claims involving disputed construction costs have arisen in the ordinary course of business. Additionally, OCSD 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 OCSD. (9) Restatement-Adoption of New Accounting Standard During the year ended June 30, 2016, OCSD implemented GASB Statement No. 73. The implementation of GASB Statement No. 73 required to recognize pension expense and report deferred outflows of resources and deferred inflows of resources and unfunded pension obligations related to pensions for its proportionate share of collective pension expenses and collective deferred outflows and inflows for resources. The net position was not restated for deferred inflows and defamed outflows because they were not determinable at the time of implementation of GASB 73. The retroactive effect of implementing this change in reporting pension costs resulted in a restatement of the beginning net position. The following is a summary of the effect of this adjustment: Beginning net position as previously reported at June 30, 2015 $1,761,844,454 Net pension liability (measurement date as of July 1, 2015) (6,840,809) Total adjustment (6,840,809) Net position as restated, July 1, 2015 $1,755,003,645 An amount of $510,427 represents Revenue Area 14's proportionate share of the restatement of the beginning net position and is included in the total restatement at June 30, 2016. The amount is calculated based on Revenue Area 14's average proportionate share of the total salaries and benefits costs over a 15 years period. (10) Subsequent Events As described in Note 8, OCSD entered into an agreement to transfer 174 linear miles of local sewer facilities in the unincorporated area of Area 7 and in the City of Tustin, to East Orange County Water District (EOCWD). On August 1, 2016, the local sewers transfer was officially completed. Although the book value of the transferred assets is believed to be insignificant as most of the assets have been fully depreciated; the agreement also provides that the cash reserves previously collected from rate payers and held for the repair and replacement of these local sewers be transferred to the EOCWD. The agreement provides for the transfer of the cash reserves in two installments; the first $25 million was transferred on August 5, 2016 and the remaining balance, estimated to be between $10 and $15 million, will be transferred within six months of the first disbursement following a reconciliation of OCSD's records. 47 (THIS PAGE LEFT INTENTIONALLY BLANK) 48 ORANGE COUNTY SANITATION DISTRICT REQUIRED SUPPLEMENTARY INFORMATION 49 ORANGE COUNTY SANITATION DISTRICT Proportionate Share of the Net Pension Liability Orange County Employees Retirement System (OCERS) Pension Plan Last 10 fiscal Years (1) June 30, 2014 June 30, 2015 June 30, 2016 District's proportion of the net pension liability 3.83% 1.13% 0.74% District's proportionate share of the net pension liability $202,747,516 $ 57,418,760 $ 42,439,759 District's covered-employee payroll (2)(3) $ 58,954,754 $ 68,641,163 $ 69,789,927 District's proportionate share of the net pension liability as a percentage of its covered-employee payroll 343.90% 97.92% 70.98% OCERS'fiduciary net position as a percentage of the total pension liability 63.14% 89.61% 92.74% (1) The amounts presented for each fiscal year were determined as of December 31. Data for fiscal years ended June 30, 2007 through 2013 is not available in a comparable format. (2) Covered payroll represents compensation earnable and pensionable compensation. Only compensation eamable and pensionable compensation that would possibly go into the determination of retirement benefits are included. (3) As directed by OCERS on the December 31, 2015 actuarial valuation report, Segal Consulting used the updated covered payroll provided by OCERS for fiscal year ended June 30, 2014 and June 30, 2015. 50 ORANGE COUNTY SANITATION DISTRICT Schedule of District Contributions Orange County Employees Retirement System (OCERS) Pension Plan Last 10 fiscal Years (1) June 30, 2014 June 30, 2015 June 30, 2016 Contractually required contribution $ 18,920,212 $ 17,201,569 $ 12,222,849 Contributions in relation to the contractually required contribution $ (18,920,212) $ (17,201,569) $ (12,222,849) Contribution deficiency (excess) $ $ $ District's covered-employee payroll (2)(3) $ 58,954,754 $ 58,641,163 $ 59,789,927 Contributions as a percentage of covered-employee payroll 32.09% 29.33% 20.44% (1) The amounts presented for each fiscal year were determined as of December 31. Data for fiscal years ended June 30, 2007 through 2013 is not available in a comparable format. (2) Covered payroll represents compensation eamable and pensionable compensation. Only compensation earnable and pensionable compensation that would possibly go into the determination of retirement benefits are included. (3) As directed by OCERS on the December 31, 2015 actuarial valuation report, Segal Consulting used the updated covered payroll provided by OCERS for fiscal year ended June 30, 2014 and June 30, 2015. 51 ORANGE COUNTY SANITATION DISTRICT Net Pension Liability Additional Retiree Benefit Account(ARBA) Last 10 fiscal Years (1) June 30, 2015 June 30, 2016 District's net pension liability $ 16,680,614 $ 18,313,122 District's covered-employee payroll (2) $ 60,025,942 $ 60,695,474 District's net pension liability as a percentage of its covered-employee 27.79% 30.22% payroll (1) The amounts presented for each fiscal year were determined as of July 1. Data for fiscal years ended June 30, 2007 through 2014 is not available in a comparable format. (2) Covered payroll represents compensation eamable and pensionable compensation. Only compensation eamable and pensionable compensation that would possibly go into the determination of retirement benefits are included. 52 ORANGE COUNTY SANITATION DISTRICT Schedule of Funding Progress Other Postemployment Benefits (OPEB) Last Three Actuarial Valuations The schedule of funding progress presents multiyear trend information that shows whether the actuarial value of the plan asset is increasing or decreasing due time relative to the actuarial accrued liabilities for benefits. Actuarial Actuarial Actuarial UAAL as a Valuation Accrued Value of Unfunded Funded Covered Percentage of Date" Liability (AAL) Assets AAL (UAAL) Ratio Payroll Covered Payroll 7/1/2011 $ 10,706,789 - $10,706,789 0.0% $59,787,560 17.9% 7/1/2013 10,650,711 - 10,650,711 0.0% 59,832,408 17.8% 7/1/2015 9,179,161 - 9,179,161 0.0% 60,025,942 15.3% ' Based on most recent actuarial valuation available. 53 (THIS PAGE INTENTIONALLY LEFT BLANK) 54 ORANGE COUNTY SANITATION DISTRICT SUPPLEMENTARY INFORMATION 55 ORANGE COUNTY SANITATION DISTRICT Combining Area Schedule of Net Position June 30,2016 Revenue Consolidated Totals Area No.14 Revenue Area Eliminations 2016 Current assets: Cash and cash equivalents $ - $ 125,552,927 $ - $ 125,552,927 Investments - 394,422,940 - 394,422,940 Accounts receivable,net of allowance for uncellectibles$98,917 10,178,839 9,186,327 - 191 Accrued interest receivable - 1,492,193 - 1,492,193 Connection fees receivable - 2,982,914 - 2,982,914 Properly tax receivable - 1,060,830 - 1,060,830 Inventories - 6,853,403 - 6,853,403 Due from other revenue area - 14,864,096 (14,864,096) - Duefromothergovernmentalagency 5,770,279 - - 5,770,279 Prepaid expenses 1,464,651 1,464,651 Total current assets 15,949,118 557,880,281 (14,864.096) 558,965,303 Noncurrent assets: Restricted: Cash and cash equivalents - 10,394,727 - 10,394,727 Investments - 14,442,500 - 14,442,500 Accrued interest receivable - 218,957 - 218,957 Unrestricted: Non-depreciable capital assets 11,913,218 503,422,400 - 515,335,618 Depreciable capital assets,net of accumulated depreciation 59,455,604 1,994,649,657 - 2.054,105,261 Prepaid insurance on outstanding debt payable - 182,452 - 182,452 Due from other governmental agency - 24,730,127 - 24,730,127 Net OPEB asset 731,700 731,700 Other noncurrent assets,net 10,344 10,344 Total noncurrent assets 71,368,822 2,548,782,884 2,620,151,686 Total assets 87,317,940 3,106.663,145 (14,W.0%) 3.179,116,989 Deferred outflows of resources: Deferred losses on defeasances - 41,494,547 - 41,494,547 Deferred outflows related to pensions 1,507,404 47,759,752 49,267,156 Total deterred outflow of resources 1,507,404 89.254,299 90,761,703 Total assets and deferred outflows of resources 88,825,344 3,195,917,444 (14,864,096) 3,269,878,692 Current liabilities: Accounts payable - 9,523,100 - 9,523,100 Accrued expenses - 15.610,020 - 15,610,020 Due to other revenue area 14,864,096 - (14,864,096) - Retentions payable - 5,067,902 - 5,067,902 Interest payable - 18,107,550 - 18,107,550 Current portion of long-term obligations 54,010,437 54,010,437 Total current liabilities 14,864,096 102,319,009 (14,864,096) 102,319,009 Noncurrent iabilities: Noncurrent portion of long-tens obligations - 1,165,194,834 - 1,165,194,834 Net pension liability 1,887.417 58,865,465 60,752,882 Total noncurrent liabilities 1,887,417 1,224.060,299 1,225,947,716 Total liabilities 16,751,513 1,326.379,308 (14,864.096) 1.328,266,725 Deferred inflows of resources: Deferred inflows related to Pensions 705,009 22,334,501 23,039,510 Total liabilities and deferred inflows of resources 17,456,522 1,348,713,809 (14,864.096) 1.351,306,235 Net position: Net investment in capital assets: Collection system 17,816,698 510,923,329 - 528,740,027 Treatment and disposal-land 406,846 4,01 - 4,475,751 Treatment and disposal system 53,145,278 1,983,079,823 - 2,036,225,101 Capital assets related debt (1140,171,616) (1,140,171616) Subtotal 71,368,822 1,357,900,441 - 1.429,269,263 Unrestricted: 489,303,194 489,303,194 Total net position $ 71,368,822 $ 1,847,203,635 $ $ 1,918,572,457 56 ORANGE COUNTY SANITATION DISTRICT Combining Area Schedule of Revenues, Expenses,and Changes in Net Position For the Year Ended June 30, 2016 Revenue Consolidated Totals Area No. 14 Revenue Area 2016 Operating revenues: Service charges $ 11,408,052 $ 303,069,381 $ 314,477.433 Permit and inspection fees 13,703 937,099 950,802 Total operating revenues 11,421,755 304,006,480 315,428,235 Operating expenses other than depreciation and amortization: Salaries and benefits 2,053,300 73,523,032 75,576,332 Utilities 231,430 7,014,183 7,245,613 Supplies, repairs and maintenance 1,196,952 24,123,781 25,320,733 Contractual services 8,922,101 18,901,795 27,823,896 Feasibility studies 233,952 9,176,774 9,410,726 Other 436,025 7,687,603 8,123,628 Total operating expenses other than depreciation and amortization 13,073,760 140,427,168 153,500,928 Operating income(loss)before depreciation and amortization (1,652,005) 163,579,312 161,927,307 Depreciation and amortization 2,971,121 87,531,221 90,502,342 Operating income(loss) (4,623,126) 76,048,091 71,424,965 Non-operating revenues: Property taxes 2,439,960 81,967,169 84,407,129 Investment and interest income 3,397 9,179,410 9,182,807 Contributions from other government 13,103,035 - 13,103,035 Other 10,037 1,545,403 1,555,440 Total non-operating revenues 15,556,429 92,691,982 108,248,411 Non-operating expenses: Interest 122,831 27,474,100 27,596,931 Pollution remediation 168,554 6,188,350 6,356,904 Other 2,145 78,505 80,650 (Gain)loss on disposal of assets (3,389) 47,510 44,121 Total non-operating expenses 290,141 33,788,465 34,078,606 Income before capital contributions 10,643,162 134,951,608 145,594,770 Capital contributions: Capital facilities capacity charges 17,974,042 17,974,042 Change in net position 10,643,162 152,925,650 163,568,812 Total net position-beginning,as restated 60,725,660 1,694,277,985 1,755,003,645 Total net position-ending $ 71,368,822 $ 1,847,203,635 $ 1,918,572,457 57 ORANGE COUNTY SANITATION DISTRICT Combining Area Schedule of Cash Flows For the Year Ended June 30,2016 Revenue Consolidated Totals Area No.14 Revenue Area Eliminations 2016 Cash flows from operating activities: Receipts from customers and users $ 7,467,404 $ 284,428,020 $ - $ 291,895,424 Payments to employees (3,352,792) (115,364,198) - (118,716,990) Payments to suppliers (11,016.650) (72,854,954) (83,871,604) Net cash provided by(used in)operating activities (6,902,038) 96,208,868 89.306,830 Cash flows from noncapital financing activities: Proceeds from property taxes 2.439.960 82,027,897 - 84,467,857 Payments for pollution remediation and other obligation (160.212) (4,721,453) (4,881,665) Net cash provided by noncapital financing activities 2,279,748 77,306,444 79.586,192 Cash flows from capital and related financing activities: Capital facilities capacity charges - 15,609,869 - 15,609,869 Additions to capital assets (13,100.917) (112,637,166) 2,721,549 (123.016,534) Disposal of capital assets - (10,381,486) 10.381,486 Interest paid (122,831) (51,415.500) - (51,538,331) Principal payments on debt obligation - (29.405.000) - (29,405,000) Proceeds released to escrow account on defeased debts (162,780,000) - (162.780,000) Proceeds from debt issuances - 155,481,198 - 155.481,198 Debt issuance costs - (834,338) - (834,338) Contribution from other government 13,103,035 (13,103,035) Net cash used in capital and related financing activities (120713) (196,362,423) (196,483,136) Cash flows from investing activities: Proceeds tram the sale of investments 4,211,888 385,081,369 - 389.293,257 Purchases of investments - (313,097,922) - (313.097,922) SARI project payments - 6.350,808 - 6,350,808 Interest received 3,398 6,625.029 6,628,427 Net cash provided by investing activities 4,215,286 84,959,284 89.174,570 Net Increase(decrease)In cash and cash equivalents (527,717) 62,112,173 - 61,584,456 Cash and cash equivalents,beginning of year 527717 73,835,481 74,363,198 Cash and cash equivalents,end of year $ $ 135,947,654 $ $ 135,947,654 Reconciliation of operating income(loss)to net cash provided by(used in)operating activities: Operating income(loss) $ (4,623,126) $ 76,048,091 $ - $ 71,424,965 Adjustments to reconcile operating income(loss) to net cash provided by operating activities: Depreciation and amortization 2,971.121 87,531.221 - 90,502,342 Bad debt expense(net recoveries) - 66,073 - 66,073 (Incresseydecrease in operating assets: Accounts receivable (10,178,839) (4,714,364) - (14,893,203) Inventories - (109.855) - (109,855) Prepaid and other assets - (247,567) - (247,567) Increasegdecrease)in operating liabilities: Accounts payable - (14,513,135) - (14,513,135) Accrued expenses - 6.524,017 - 6,524,017 Due to other governmental agency 6,224,488 (14,864,096) - (8,639,608) Net pension liability (1,295,682) (31,351.389) - (32,647,071) Pension/OPEB/accrued leave payable - (10,454,905) - (10,454,905) Compensated absences - 186,736 - 186,736 Other payable - 87,581 - 87,581 Claims and judgments 2.020,460 2,020,460 Net cash provided by(used In)operating activities $ (Q902,038) $ 96,208,868 $ $ 89,306,830 Noncash activities: Unrealized gain on the fair value of investments $ - $ 2,533,731 $ - $ 2,533,731 Receivable from non operating activities - 2.771,980 - 2,771,980 Capital assets acquired through accounts payable - 4,577,212 - 4,577,212 58 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. 60-64 Revenue Capacity These schedules contain information to help the reader assess OCSD's most significant revenue source of sewer service fees. 65-67 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 68-71 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. 72-75 Demographic and Economic Factors These schedules offer demographic information to help the reader understand the environment within which OCSD's financial activities take place. 76-79 59 ORANGE COUNTY SANITATION DISTRICT Net Position by Component (Dollars in Thousands) Last Ten Fiscal Years $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 ONet investment in capitalAssets ■Restnctetl for DebttSe Sernce&Capital Acquisition OUnrestrictetl Restricted for Debt Service Net Investment In &Capital Fiscal Year Capital Assets Acquisition Unrestricted Total Net Position 2006-07 $ 886,463 $ 3,904 $ 299,370 $1,189,737 2007-08 B47,426 - 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 - 471,652 1,597,618 t'1 2012-13 1,180,298 - 520,427 1,700,725 2013-14 1,204,706 - 617,589 1,822,295 2014-15 1,327,394 - 434,460 1,761,844 (sl 2015-16 1,429,269 - 489,303 1,918,572 tat I'1 Beginning net position restated due to implementation of GASB 65. (2) Beginning net position restated due to implementation of GASB 68. (3) Beginning net position restated due to implementation of GASS 73. Source: Orange County Sanitation District's Financial Management Division. 60 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 $5o,00o $25,000 $o -$25,000 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 GOperating Revenue ■Non-Opeating Revenue SCapital Contributions Operating Revenue Non-Operating Revenue Permit R Total Fiscal Service Inspection Total Property Non- Capital Year Charges Fees Operating Taxes Interest Other Operating Contributions 2006-07 $ 167,790 $ 1,866 $ 169,656 $ 60,565 $ 22,244 $ 1,068 $ 83,877 $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) 2010-11 244,465 784 245,249 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 2013-14 300,611 848 301,459 74,944 6,498 12,595 94,037 14,093 2014-15 301,548 902 302,450 79,835 4,806 9,996 94,637 17,656 2015-16 314,477 951 315,428 84,407 9,183 14,658 108,248 17,974 Source: Orange County Sanitation District's Financial Management Division. 61 ORANGE COUNTY SANITATION DISTRICT Expenses by Type (Dollars in Thousands) Last Ten Fiscal Years $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 201&14 2014-15 201516 ■Operating Expense ■Non-Opeating Expense Operating Expense Non-Operating Expense Fiscal Salaries& Maint& Depr& Total Interest Total Non- Year Benefits Utilities Other Amort Operating Expense Other Operating 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 13,842 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 2013-14 79,179 6,381 60,887 99,805 246,252 40,450 1,317 41,767 2014-15 79,657 7,246 62,323 94,186 243,412 34,112 3,168 37,280 2015-16 75,576 7,246 70,679 90,502 244,003 27,597 6,482 34,079 Source: Orange County Sanitation District's Financial Management Division. 62 ORANGE COUNTY SANITATION DISTRICT Change in Net Position (Dollars in Thousands) Last Ten Fiscal Years $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Ending Net Position by Fiscal Year Fiscal Total Total Changein Beginning Ending Year Revenues Expenses Net Position Net Position Net Position 2006-07 $303,740 $ 203,102 $100,638 $1,089,099 $ 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 01 1,597,618 2012-13 396,481 293,374 103,107 1,597,618 1,700,725 2013-14 409,589 288,019 121,570 1,700,725 1,822,295 2014-15 414,743 280,692 134,051 1,627,793 (sl 1,761,844 2015-16 441,650 278,082 163,568 1,755,004 (3) 1,918,572 (11 Beginning net position restated due to implementation of GASS 65. Ixl Beginning net position restated due to implementation of GASB 68. (3) Beginning net position restated due to implementation of GASB 73. Source: Orange County Sanitation DistricPs Financial Management Division. 63 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 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 2013-14 189 57 296 131 673 2014-15 177 57 194 129 557 2015-16 181 57 190 117 545 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 Districfs Financial Management Division. 64 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 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 2014-15 316.00 2015-16 322.00 2016-17 327.00 Annual Sewer Service Fees Single Family Residence 400 350 u 300 LL 250 Q� 200 K y 150 100 50 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Fiscal Year Source: Orange County Sanitation Districfs Financial Management Division. 65 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 Fiscal Single-Family Charge Service Charge Customer Charge Service Charge Year Dwellings Revenue Revenues Accounts Revenue Revenues 2006-07 $ 871,586 $ 144.5 92% 531 $ 13.4 8% 2007-08 880,208 160.2 93% 520 12.1 7% 2008-09 887,290 178.3 95% 515 9.9 5% 2009-10 880,213 194.5 95% 487 10.8 5% 2010-11 878,408 214.3 95% 479 10.1 5% 2011-12 874,008 233.4 96% 516 9.5 4% 2012-13 883,477 259.8 96% 527 10.8 4% 2013-14 873,308 269.0 95% 489 14.4 5% 2014-15 824,465 260.5 95% 467 14.2 5% 2015-16 863,317 278.0 96% 450 12.6 4% $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 Pi $100,000,000 $50,000,000 $0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 ■Residential/Commercial Users ■Industrial Users Source: Orange County Sanitation District's Financial Management Division. 66 ORANGE COUNTY SANITATION DISTRICT Principal Sewer Service Customers For the Prior Fiscal Year and Nine Years Ago Fiscal Year Ended 6130115 Fiscal Year Ended 6130107 Industrial Industrial Permittee %to Total Pennittee %to Total Service Service Charge Service Service Charge Customer Charges Rank Revenue Charges Rank Revenue House Foods America Corp. $ 1,055,843 1 0.359/6 $ 410,059 7 0.24% Kimberly-Clark Worldwide, Inc. 1,047,510 2 0.35% 1,114,920 1 0.66% Stremicks Heritage Foods, LLC 811,061 3 0.27% 974,474 3 0.58% MCP Foods, Inc. 738,346 4 0.24% 921,317 4 0.55% Pulmuone Wildwood, Inc. 571,057 5 0.19% Jazz Semiconductor 521,890 6 0.17% Amerlpec Inc. 517,583 7 0.17% 278,478 10 0.17% Nor-Cal Beverage Co. Inc(NCB) 461,589 8 0.15% Alta Dena Certified Dairy, LLC 457,496 9 0.15% Nor-Cal Beverage Co. Inc(Main) 387,579 10 0.13% Alstyle Apparel-A&G Inc. 1,049,362 2 0.63% Disneyland Resort 791,747 5 0.47% Disneyland Resort--DCA 567,485 6 0.34% Pepsi-Cola Bottling Group 374,306 8 0.22% Seven-Up Bottling Company 335,178 9 0.20% $ 6,5 99,954 2.17% $ 6,817,326 4.06% 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. 67 ORANGE COUNTY SANITATION DISTRICT Ratio of Annual Debt Service to Total Expenses (Dollars in Thousands) Last Ten Fiscal Years 70% 60% 50% 40% 30°% 20°% 10% 0% 2006-07 200708 2988-09 2909-10 2010-11 2011-12 2012-13 2013-14 2014-15 291516 Ratio of Debt Total Service to Total Fiscal Principal Total Debt Operating Operating Year (1) Interest Service(3) Expenses(2) Expenses 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 2013-14 39,590 53,163 92,753 146,447 63.34 2014-15 27,875 53,586 81,461 149,226 54.59 2015-16 29,405 50,301 79,706 153,501 51.93 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. 68 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 Distinct 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 2006-07 2007-08 200T09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-16 2016-16 Fiscal Year Ending June 30, M07 2008 20M 2010 oil 2012 2013 M14 2015 2016 Operating 8 Nonopereting Revenues: Service Charges,Net of Refunds-Regional $ 144.5 $ 160.2 $ 178.3 $ 194.5 $ 214.3 $ 233.4 $259.8 $ 269.0 $ 2WE $ 278.0 Service Charges,Net of Refunds-Local - - 5.6 5.6 5.7 5.7 5.8 5.7 5.5 5.7 Industrial Sewer service Charges 13.4 12.1 9.9 10.8 10.1 9.5 10.8 14.4 14.2 12.6 SAWPA Assessment 4.2 4.4 3.7 6.5 4.8 3.5 2.7 2.3 2.7 3.1 IRWDAssessment 6.2 8.2 10.3 10.3 21.4 18.0 27.2 22.1 28.6 29.1 Ad valorem Taxes 58.9 63.3 64.2 62.6 62.4 %.a 77.3 72.8 7).6 82.0 Interest Earnings 22.1 20.2 14.4 17.8 8.9 13.9 (3.6) 6.1 4.8 9.2 Other Revenues 4.2 2.5 3.8 8.5 3.0 2.6 3] 3.1 3.2 4A Total Revenues 253.5 270.9 290.2 316.6 330.6 352.6 383.7 395.5 397.1 423.7 Operating Expenses(1) 112.2 131.9 164.6 136.1 143.4 1M.3 149.8 146.4 149.2 153.5 Net Revenues $ 141.3 $ 139.0 $ 125.6 $ l7&5 $ 187.2 $ 180.3 $233.9 $ 249.1 $ 247.9 $ 270.2 Debt Service Requirements Principal Payments 13.5 11.0 21.3 24.0 25.9 14.4 24.0 39.6 27.9 29.4 Interest Payments 35.3 31.8 36.3 43.1 46.5 51.0 53.6 53.2 53.6 50.3 Total Debt Service Requirements $ 48.8 $ 42.8 $ 57.6 $ 67.1 $ 72.4 $ 65.4 $ 77,6 $ 92a $ 81.5 $ 79.7 Coverage Ratios 2.90 3.25 2.18 2.66 2.59 2.76 3.01 268 3.04 3.39 Ending Reserves(2) $ 293.0 $ 425.0 $ 401.0 $ 344.0 $ 420.0 $ 439.0 $465.0 $ 542.0 $ 428a $ 428.0 Notes 11)-Operating expenses exclude depreciation and amorUcatlon expenses. (2)-Excludes debt service reserves In accordance with the rathers reserve policy. Source:Orange County Sanitation Districts Financial Management Division. 69 ORANGE COUNTY SANITATION DISTRICT Computation of Direct and Overlapping Debt June 30,2016 Total Debt District's Share 613012016 %Applicable ltl of Debt W30116 OVERLAPPING TAX AND ASSESSMENT DEBT Eased on all chmertv assessed valuation of$374 550 262 458) Metropolitan Water Dlddct of Southern Callfomia $ 92,865,000 15,265% $ 14,115,842 Coast Community College District 498,864,504 99.358 495,661,794 North Orange County Joint Community College District 271,561 97A59 264,663,560 Rancho Santiago Community College District 332.292,899 98S91&101 329,615,051 Brea-Olinda and Laguna Beach Unified School Districts 42,639,029 99,983&14,923 20,439,627 Garden Grove Unified School District 240,640,160 100.000 240,640,160 Las Alamitos Unified School District School Facilities Improvement Could No,1 100,90,124 91 97,20,856 Newport Mesa Unified School District 224,859,150 100.000 224,859,150 Placenw-Vorba Linda Unified School District 246]99,202 98,952 244,212,746 Rowland Unified Schad Deli 252,439,843 0.147 371,087 Saddleback Valley United School District 117,270,000 11.592 13,593,938 Santa Ana Unified Street District 274,001,882 100.000 274,001,882 Tustin Unified School District School Facilities Improvement District No.2002-1 48,068,292 99.956 48,047,142 Tustin Unified School DisMct School Facilities Improvement District No.2008-1 90,085,000 99.955 90,044,462 Tustin Unified School District School Facilities Improvement District No.2012-1 29,630,000 99.970 29,821,051 Anaheim Union High Schod District 14418031955 100.000 14418031955 Fullerton Joint Union High School District 88,W1,910 91,652 81.458,382 Huntington Beach Union High Schad Deal 198,629,998 99.037 196,717,191 School Districts 445,237,392 9].]71-100.000 444,701,163 Cilvof Anaheim 700,000 99.203 61 Irvine Ranch Water Distinct Improvement plunder 4891 Various 433,299,544 Ransomer Community Services Deal Special Tax Obligations 156000 100.000 156000 Bonita Canyon Community Families District No.98-1 33,335,000 100.000 33,335,000 Irvine Unified School District Community Facilities Districts 619,423,023 100.000 619,423,023 Tustin Unified School District Community Facilities Diduc s 238.53Q000 100.000 238,530,000 Coy of Tustin Community Facilities Districts 103,590,000 100.000 103,59Q000 Other Community Facilities Districts 367,8]],991 99.993-100.000 36],9]],01] Orange County Assessment Districts 68,430,000 100.000 68,430,000 City of lrece 1915 Ad Bonds 846.435,000 100.000 846,436,000 Other 1915 Act bonds 12,829,270 100.000 12,829.2 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $5,979,718,414 DIRECT AND OVERLAPPING GENERAL FUND DEBT Orange County General Fund Obligations $ 124,614,000 75.056% $ 93,530,284 Orange County Pension Obligation Bonds 353,417,058 75.056 265,261,308 Orange County Board of Education Certificates of Participation 14,840,000 75,056 11,138,310 Coast Community College Disinct Certificates of Participation 3,765,000 99.358 3,74g829 Brae-Ofinda Unified School District Certificates of Participation 20,035,000 99.983 20,031,594 Orange Unified School District Certificates of Participation and Benefit Obligations 110,802,063 97.912 10 ,488,516 Plecentia-Vorba Linda Unified School District Certificates of Participation 99,075,355 96.952 98,037,045 Saute Ana Unified School District Certificates of Participation 70,982,229 10(1 70,982,229 Other Unified Strool District Certificates of Participation 57,193,327 Various 50,732,736 Union High School District CMlficates of Padiclpatlon 9o,136,090 Various 81.800,458 School District CeMOcates of Participation 102,993,805 Various 102,564,395 City of Anaheim General Fund Obligations 662,117p65 99.203 656940,399 City of Costa Mesa General Fund Obligations 23,25(1 100.000 23,250,000 City of Garden Grove General Fund Obligations 24,010,000 100.000 24,010,000 City of Huntington Beach General Fund and Judgment Obligation Bonds 52,00 ,382 96.739 51,344,657 City of La Habra General Fund Obligations 22,60),000 100.000 22,a0Q000 City of Santa Ana General Fund Obligations 66,082,500 100.000 66,082,500 Other City General Fund Obligations 207,653,812 Various 191 Orange County Sanitation District 0 100.000 0 (2) Municipal Water District of Orange County Water Facilities Corporation 2,770,000 70,32 1947860 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $1,948.828,563 Less: City of Anaheim supported obligations 656,M,389 MWDOC Water Facilities Corporation(100%supported) 1.947.864 TOTAL NET OVERLAPPING GENERAL FUND DEBT $1,290,040,310 OVERLAPPING TAX INCREMENT DEBT: $1,121,2]8,44] 99801-100.000% $1,116,297,606 TOTAL DIRECT DEBT $0 GROSS OVERLAPPING&COMBINED TOTAL DEBT $9,044,844,583 (3) NET OVERLAPPING&COMBINED TOTAL DEBT $0 386 056,330 (1) The percentage of avedapping debt applicable to the district is estimated using taxable assessed propeM value. Applicable percemages were estimated by determining the pMlm of Me ovedapping d inner.assessed value that is within the boundaries 0 the sanitation distinct divided by Ire district's total taxable assessed value. (2) Excludes wastewater revenue cedificdes of participation. Pre0oudyclasitedcedi(Wd o(padcipadonhevebeenr lass?Wesdistnctrevenuesuppodedissues and are no forger Induced as dead debt in Me debt statement. (3) Excludes tax and revenue anticipation notes,awriewe revenue,mortgage revenue and non-bonded capital lease obligations.Qualified Zane Academy Banda are inclutletl based on principal due at memory. Taal Ovedapping Tax Gross Combined Net Combined Total Overapping Rados to: and Assessment Debt Total Debt Total Debt Tax Increment Debt Land and Improvement Assessed Valuation ($3]A204,61],889) 181% 243% 225% All Property Assessed Valuation ($3]4,55Q26$458) 241% 2.24% Redevelopmentlncremental Valuation ($49,887,609,411) 2.24% Source:California Municipal Statistics 70 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 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 2013-14 1,278,998,124 84,900 0.007% 2,521,803 507.18 2014-15 1,241,140,357 85,900 0.007% 2,548,745 486.96 2015-16 1,206,722,347 85,000 0.007% 2,578,681 467.96 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. 71 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) 2006-07 229 1,268.38 $ 165,266 $ 37,836 $ 169,656 $ 83,877 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 2013-14 198 1,936.64 246,252 41,767 301,459 94,037 2014-15 187 2,070.97 243,412 37,280 302,450 94,637 2015-16 183 2,110.43 244,003 34,079 315,428 108,248 Total expenses in FY 2015-16 increased $74.9 million, or 36.9 percent since FY 2006-07, primarily as a result of 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. Maintenance, chemicals, utilities, and other operating costs represent 31.4 percent of the increase, primarily due to the increase in the levels of treatment referred to above. Depreciation expense represents another 49.9 percent of the increase as a result of the previous expansion in capital facilities and the financing associated with the expansion. In FY 2015-16, personnel expenses decreased 5.1 percent over the prior year. This decrease is mainly due to a decrease in OCERS retirement contribution rate as a result of paying down the unfunded actuarial accrued liability over the previous two years.The full-time equivalent positions authorized have not changed in FY 2015-16. As depicted from the chart above, actual wastewater treatment Flows were 229 mgd in FY 2006-07. Due to unusual dry weather conditions during the last several years due to California's record-breaking drought, FY 2015-16 had flows of only 183 mgd, a decrease of 46 mgd or 20%since FY 2006-07. Source: Orange County Sanitation District. 72 ORANGE COUNTY SANITATION DISTRICT Authorized Full-time Equivalents by Function Last Ten Fiscal Years 300 250 200 150 100 50 -ail 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GGeneml Management(1) ■Human Resources (2) DMministmlive Services (2) ■Facilities auppon Services sTechnicel Services •Engineering •Operations and Maintenance Fiscal Year Ending June 30, 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 General Management(1) 25 26 26 13 13 13 12 12 14 15 Human Resources (2) 19 16 16 17 27 17 16 18 16 27 Administrative Services (2) 83 82 81 92 85 111 111 110 111 98 Facilities Support Services 51 57 68 71 70 84 81 78 76 63 Technical Services 119 109 107 105 102 - - - - - Engineering 98 93 98 96 112 128 125 123 123 127 Operations and Maintenance 249 247 241 245 230 281 281 283 284 294 Total FTE's 644 630 637 639 639 634 626 624 624 624 Notes (1)- Management Discretion positions used on a temporary basis have been excluded from FTE count. (2)- Beginning in 2016, Risk Management moved from Administrative Services to Human Resources Department. Source: Orange County Sanitation District's Financial Management Division. 73 ORANGE COUNTY SANITATION DISTRICT Biosolids Produced Last Ten Fiscal Years 300,000 250,000 200,000 150,000 100,000 A] 011ie] III] if 1111 so,000 2006-07 2007-08 2000-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 oWet Tonnage •Dry Tonnage Fiscal Year Wet Tonnaae Dry Tonnace 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 2013-14 279,362 50,764 2014-15 275,943 45,515 2015-16 283,052 50,439 Source:Orange County Sanitation District's Environmental Compliance Division. 74 ORANGE COUNTY SANITATION DISTRICT Capital Asset Statistics Last Ten Fiscal Years Miles of Trunk& Number Primary Secondary Fiscal Subtrunk of Pump Treatment Treatment Year Sewers Stations Capacity(1) Capacity(1) 2006-07 581 16 376 200 2007-08 568 17 376 200 2008-09 582 17 376 212 2009-10 579 17 376 212 2010-11 587 17 376 212 2011-12 572 17 376 332 2012-13 572 17 376 332 2013-14 580 17 376 332 2014-15 580 17 376 332 2015-16 570 17 376 332 Notes (1) -Capacity is presented as million gallons treated per day. Source: Orange County Sanitation District 75 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 (r) Fiscal Population Income Personal Family School Unemployment Year Estimates (in thousands) Income Income Enrollment Rate 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 3,056,000 164,971,000 (4) 53,983 85,300 502,195 7.9% 2012-13 3,082,000 165,858,000 (4) 53,815 84,100 501,801 6.1% 2013-14 3,114,000 173,306,000 (4) 55,654 84,900 500,487 5.2% 2014-15 3,148,000 181,496,000 (4) 57,654 85,900 497,116 4.3% 2015-16 3,183,000 190,978,000 (4),(s) 59,999 85,000 493,030 4.4% 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: 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. 76 ORANGE COUNTY SANITATION DISTRICT Estimated Population Served by the Orange County Sanitation District June 30, 2016 Population as of January 1,2016 Anaheim 358,136 Brea 43,710 Buena Park 83,347 Costa Mesa 114,603 Cypress 49,743 Fountain Valley 56,714 Fullerton 142,457 Garden Grove 177,303 Huntington Beach 195,212 Irvine 258,386 La Habra 62,064 La Palma 16,057 Los Alamitos 11,738 Newport Beach 84,270 Orange 141,420 Placentia 52,263 Santa Ana 342,930 Seal Beach 25,078 Stanton 39,751 Tustin 82,717 Villa Park 5,948 Westminster 94,073 Yorba Linda 67,637 Subtotal Cities I'I 2,505,557 Estimated Population Served in Unincorporated Areas(2) 73,124 2,578,681 Data Sources: (1)Demographic Research Unit, State of California Department of Finance (2)Center for Demographic Research, California State University, Fullerton. 77 ORANGE COUNTY SANITATION DISTRICT Principal Orange County Employers(1) For the Prior Fiscal Year and Nine Years Ago Fiscal Year Ended 6130/15 Fiscal Year Ended 6130107 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. 27,000 1 1.76% 20,000 1 1.30% University of Califomia, Irvine 22,385 2 1.46% 17,579 3 1.15% County of Orange 18,135 3 1.18% 18,301 2 1.19% St.Joseph Health System 12,227 4 0.80% 10,047 4 0.65% Kaiser Permanents 7,000 5 0.46% Boeing Co. 6,890 6 0.45% 9,961 5 0.65% Walmart 6,000 7 0.39% Memorial Care Health System 5,650 8 0.37% Bank of America Corp. 5,500 9 0.36% 5,000 10 0.33% Target Corp. 5,400 10 0.35% Yuml Brands Incorporated 7,200 6 0.47% AT&T Incorporated 6,000 7 0.39% California State University, Fullerton 5,634 8 0.37% Home Depot, Incorporated 5,450 9 0.36% Total 116,187 7.58% 105,172 6.86% 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 1,530,800 as of June 2015. (4)-Data Source:State of California, Employment Development Department. -Percentage is calculated by dividing employees by total employment of 1,535,200 as of June 2007. 78 ORANGE COUNTY SANITATION DISTRICT Operating Indicators June 30, 2016 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 Yorba Linda Water 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: 624 Operational Date: July 1, 1954 Authority: California Health & Safely Code Section 4700 at. seq. Services: Wastewater collection,treatment,and disposal Service Area: 479 square miles Population Served: 2.6 million Total Miles of Sewers (including force mains): 570 miles Number of Pumping Stations: 17 Wastewater System Treatment Capacities (Million Gallons per Day) Actual Flows Existing Primary Existing Secondary FY15-16 Treatment Capacity Treatment Capacity Plant 1 117 208 182 Plant 2 66 168 150 Total 1$3 376 332 Source: Orange County Sanitation District's Financial Management Division. 79 (THIS PAGE INTENTIONALLY LEFT BLANK) 80 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 Districts debt covenants beyond what is allowed to be reported in the Statistical Section. 81 ORANGE COUNTY SANITATION DISTRICT Cash and Investment Portfolio As of June 30,2016 Net Umealized Cost Market Value GaIN(Loss) Shares Par Base Base %of Total Base INVESTMENT PORTFOLIO: CASH&CASH EQUIVALENTS(U.S.DOLLAR): CASH EQUIVALENTS $ 68,128 $ 104,813 $ 28,784 0.01% $ (76,029) COMMERCIAL PAPER-DISCOUNT 17,520,000 17,468,517 17,468,517 4.03% - FEDERAL HOME LOAN BANK-1 YR OR LESS 21,497,000 21,483,725 21,483,725 5.95% - FEDERAL HOME LOAN MORTGAGES-1 YR OR LESS 2,500,000 2,498,340 2,498,340 3.19% - FNMA ISSUES-1 YR OR LESS 3,350,000 3,348,299 3,348,299 2.12% - SHORTTERMINVESTMENTFUNDS(US REGULATED) 4,148,544 4,148,544 4,148,544 0.85% - SUPRANATIONAL-1 YR OR LESS 8,000,000 7,994,944 7,994,944 0.85% - U.S.TREASURY BILLS-1 YR OR LESS 50,100,000 50,079,810 50,079,810 0.85%PENDING TRADES 17 17 0.00% SUBTOTAL-CASH&CASH EQUIVALENTS 107.183,672 107,127,009 107,050,980 22.56% (76,029) FIXED INCOME SECURITIES(U.S.DOLLAR): ABS-CARLOANS 14,403,804 14,392,765 14,423,393 2.89% 30,628 ABS-CREDIT CARDS 2,500,000 2,499,121 2,501,675 1.91% 2,554 ABS-EQUIPMENT 6,038,061 6,039,376 6,048,462 1.48% 9,086 ABS-HOME EQUITY 133,743 100,433 123,945 0.05% 23,512 ABS-SMALL BUSINESS ADMINISTRATION 91,130 91,130 98,476 0.01 7,346 ABS-STUDENT LOANS 39,606 39,444 39,579 0.01% 135 BANKING&FINANCE 47.370,000 48,331,527 46,565,079 11.69% (1,766,448) CAPITAL GOODS 6,000,000 6,022,240 6,163,710 0.21% 131,470 FHLMC MULTICLASS 2,012,372 2,203,581 2,304,333 0.02% 100,752 FHLMC POOLS 2,532 2,470 2,620 0.51% 150 FNMA POOLS 1,810,382 1,894,260 1,987,884 0.01 93,624 FNMA REMIC 456,018 452,916 459,233 0.54% 6,317 FOOD BEVERAGE&TOBACCO 1,500,000 1,507,165 1,502,475 0.15% (4,690) GNMA MULTI FAMILY POOLS 251,656 251,729 261,598 0.38% 9,869 GNMA REMIC 38,571 38,571 38,770 0.07% 199 HEALTHCARE 4,000,000 4,009,675 4,093,840 0.01% 81 INSURANCE 1,000,000 1,014,170 1,001,860 1.14% (12,310) OIL&GAS %W0,000 9,476,387 9,651,455 0.11% 175,068 SUPRANATIONAL ISSUES 20,000,000 20,036,795 20,052,875 1.51% 16,080 TAXABLE MUNICIPALS 4,240,000 4,307,634 4,761,833 0.23% 451 TECHNOLOGY 14,000,000 14,063,785 14,270,020 0.43% 206,235 U.S.TIPS 10,477,896 10,360,612 10,583,199 2.T1% 222,687 US AGENCIES 105,672,000 105,573,002 106,777,003 2.12% 1,204,001 US GOVERNMENTS 110,894,000 110,856,378 112,263,232 1."% 1,401 UTILITY-TELEPHONE 1,000,000 1,002,660 1,002,480 2.84% (180) WHOLE LOAN-CMO-COLLATERALIZED MTG OBLIG 450,940 450,938 451,039 0.12% 101 SUBTOTAL-FIXED INCOME SECURITIES 363,882,710 365,017,764 367,420,068 71.44% 2,402,304 TOTAL INVESTMENT PORTFOLIO $ 471,066,382 472,144,773 474,471,048 100.00% $ 2,326,275 DEMAND DEPOSITS AND CASH ON HAND (423,695) (423,695) MONIES HELD WITH FISCAL AGENTS 24,837,227 24,837,227 MONIES WITH THE LOCAL AGENCY INVESTMENT FUND 45,900,000 45,928,614 TOTAL CASH AND INVESTMENTS $ 542,458,305 $ 544,813,094 Source: BNY Mellon Trust and Orange County Sanitation Disaids Financial Management Division. 82 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 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% 2013-14 1.00% 0.00% 1.00% 1.65% 2014-15 1.00% 0.00% 1.00% 1.63% 2015-16 1.00% 0.00% 1.00% 1.62% 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. 83 ORANGE COUNTY SANITATION DISTRICT Assessed and Estimated Actual Value of Taxable Property (Dollars In Thousands) Last Ten Fiscal Years 1111110,011 as0,aoo 000 moo00o0 az5oo0o 000 EIOO,000000 a 15oUOUDD 110,00001, 2006-07 2007-06 2008-09 2009-10 20ID-11 2011-12 2012-13 2013-14 201445 2015-16 es0wr0a oo060r.0r0a Percent Changein Fiscal Assessed Year Secured Unsecured Total Value 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% 2013-14 323,064,994 6,220,505 329,285,499 4.09% 2014-15 343,102,030 7,378,643 350,480,673 6.44% 2015-16 365,267,850 6,936,768 372,204,618 6.20% 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 a few exceptions, property is only reassessed at the time that it is sold to a new owner. At 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 respell 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. 84 ORANGE COUNTY SANITATION DISTRICT Property Tax and User Fee Levies and Collections (Dollars in Thousands) Last Ten Fiscal Years $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- 2006-0T 2007-08 2006-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Drool Tm and uw,Fee Lr Root Taa and uw,Fe..1.0.n (1) Total Tax Current Tax Percent Total Tax %of Total Y of Pass. Fiscal and User and User Fee of Levy Delinquent and User Fee Collection O/S Delinquencies Through Year Fee Levy Collection Collected Collection Collection to Levy Delinquencies to Levy Payments 2006-07 $209,766 $ 209,206 99.73 $ 215 $ 209,421 99.84 $ 560 0.27 $ - 2001-08 228,622 228,635 100.01 329 228,964 100.15 (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 99.98 142 0.04 14,687 2013-14 356,607 356,108 99.86 76 356,184 99.88 499 0.14 7,274 2014-15 362,978 362,927 99.99 108 363,035 100.02 51 0.01 8,447 (2) 2015-16 371,502 370,170 99.64 637 370,807 99.81 1,332 0.36 9,199 (2) 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. There is no tax levy associated with these collections; thus, they have been excluded from the "% of Total Collection to Levy' calculation. (2) In fiscal year 201415, the County stopped billing user fees for wholly exempt agencies not subject to property taxes. In fiscal year 2014-15 and 2015-16,OCSD internally billed user fees of$5 million and$4.5 million, respectively,to wholly exempt agencies. These amounts have been excluded from the levy and collection amounts above,as only tax and user fees included on County property tax billings are shown in this schedule. Source:Orange County Auditor-Controller's Office. 85 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) 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 1,265,430 6,163 1,560,509 2,825,939 2012-13 432,902,274 2013 1,521,280 10,453 2,653,728 4,175,008 2013-14 447,749,156 2014 1,993,154 10,636 2,640,484 4,633,638 2014-15 476,303,290 2015 1,987,903 11,510 2,935,626 4,923,529 2015-16 504,650,360 2016 2,311,910 11,859 3,068,285 5,380,195 (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. 86 ORANGE COUNTY SANITATION DISTRICT Insurance in Force As of June 30, 2016 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 Everest and others 5% per structure, $25 million (certain structures only) min. $5,000,000 Boiler&Machinery Public Entity Property $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 $500,000 $40 million/occurrence General Liability (first$10 million layer); and annual aggregate Berkley National ($20 million layer excess$10 million) Great American ($10 million layer excess$30 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 $1,000,000 Unlimited statutory coverage Compensation Authority Program Each Accident each accident,each employee $4 million employers liability Pollution Liability CSAC Excess Insurance $75,000 $10,000,000 per loss Authority Program Watercraft Liability Atlantic Specialty $15,000 $10 million Hull&Machinery Atlantic Specialty $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 District's Risk Management Office. 87 (THIS PAGE INTENTIONALLY LEFT BLANK) 88 O f iXE V ORANGE COUNTY SANITATION DISTRICT FINANCIAL MANAGEMENT DIVISION 10844 Ellis Avenue Fountain Valley, California 92708-7018 714.962.2411 www.ocsewers.com 06/30/16