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Home My WebLink AboutAgenda Packet - Finance & Human Resources Committee - 12/10/2024FINANCE & HUMAN RESOURCES COMMITTEE DECEMBER 10, 2024 East Valley Water District was formed in 1954 and provides water and wastewater services to 108,000 residents within the cities of San Bernardino and Highland, and portions of San Bernardino County. EVWD operates under the direction of a 5member elected Board. COMMITTEE MEMBERS David E. Smith Governing Board Member Ronald L. Coats Governing Board Member Finance & Human Resources Committee Meeting December 10, 2024 1:30 PM 31111 Greenspot Road, Highland, CA 92346 www.eastvalley.org PLEASE NOTE: Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District’s office located at 31111 Greenspot Rd., Highland, during normal business hours. Also, such documents are available on the District’s website at eastvalley.org and are subject to staff’s ability to post the documents before the meeting. Pursuant to Government Code Section 54954.2(a), any request for a disabilityrelated modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District Clerk at (909) 8854900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approve the November 4, 2024 Finance & Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 2.Review Unfunded Accrued Liability Pension Management Policy 7.8 3.Review Authorization to Transfer Unclaimed Funds into the District's General Fund 4.Review the Draft Popular Annual Financial Report for Year Ended June 30, 2024 REPORTS 5.Finance Activities 6.Human Resource Activities ADJOURN FINANCE & HUMAN RESOURCES COMMITTEEDECEMBER 10, 2024East Valley Water District was formed in 1954 and provides water and wastewater services to108,000 residents within the cities of San Bernardino and Highland, and portions of SanBernardino County.EVWD operates under the direction of a 5member elected Board.COMMITTEE MEMBERS David E. Smith Governing Board Member Ronald L. Coats Governing Board Member Finance & Human Resources Committee Meeting December 10, 2024 1:30 PM 31111 Greenspot Road, Highland, CA 92346 www.eastvalley.org PLEASE NOTE: Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District’s office located at 31111 Greenspot Rd., Highland, during normal business hours. Also, such documents are available on the District’s website at eastvalley.org and are subject to staff’s ability to post the documents before the meeting. Pursuant to Government Code Section 54954.2(a), any request for a disabilityrelated modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District Clerk at (909) 8854900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approve the November 4, 2024 Finance & Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 2.Review Unfunded Accrued Liability Pension Management Policy 7.8 3.Review Authorization to Transfer Unclaimed Funds into the District's General Fund 4.Review the Draft Popular Annual Financial Report for Year Ended June 30, 2024 REPORTS 5.Finance Activities 6.Human Resource Activities ADJOURN FINANCE & HUMAN RESOURCES COMMITTEEDECEMBER 10, 2024East Valley Water District was formed in 1954 and provides water and wastewater services to108,000 residents within the cities of San Bernardino and Highland, and portions of SanBernardino County.EVWD operates under the direction of a 5member elected Board.COMMITTEE MEMBERSDavid E. SmithGoverning Board Member Ronald L. CoatsGoverning Board MemberFinance & Human Resources Committee MeetingDecember 10, 2024 1:30 PM31111 Greenspot Road, Highland, CA 92346www.eastvalley.orgPLEASE NOTE:Materials related to an item on this agenda submitted to the Board after distribution of theagenda packet are available for public inspection in the District’s office located at 31111Greenspot Rd., Highland, during normal business hours. Also, such documents are availableon the District’s website at eastvalley.org and are subject to staff’s ability to post thedocuments before the meeting.Pursuant to Government Code Section 54954.2(a), any request for a disabilityrelatedmodification or accommodation, including auxiliary aids or services, that is sought in orderto participate in the above agendized public meeting should be directed to the District Clerkat (909) 8854900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approve the November 4, 2024 Finance & Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 2.Review Unfunded Accrued Liability Pension Management Policy 7.8 3.Review Authorization to Transfer Unclaimed Funds into the District's General Fund 4.Review the Draft Popular Annual Financial Report for Year Ended June 30, 2024 REPORTS 5.Finance Activities 6.Human Resource Activities ADJOURN Agenda Item #1 December 10, 20241 Meeting Date: December 10, 2024 Agenda Item #1 Consent Item 1 2 6 5 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Approve the November 4, 2024 Finance & Human Resources Committee Meeting Minutes RECOMMENDATION That the Finance & Human Resources Committee approve the November 4, 2024 meeting minutes. DISTRICT PILLARS AND STRATEGIES II - Maintain a Commitment To Sustainability, Transparency, and Accountability B. Utilize Effective Communication Methods FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS November 4, 2024 Minutes Page 1 of 2 Minutes 11/4/24 cmk 5 1 8 Draft pending approval EAST VALLEY WATER DISTRICT November 4, 2024 FINANCE & HUMAN RESOURCES COMMITTEE MEETING MINUTES Ms. Koide called the meeting to order at 1:33 p.m. and Director Smith led the flag salute. PRESENT: Directors: Coats, Smith ABSENT: None STAFF: Brian Tompkins, Chief Financial Officer; Kerrie Bryan, Director of Administrative Services; Rudy Guerrero, Finance Supervisor; Mark Hokanson, Accountant; Christi Koide, Business Services Coordinator GUEST(s): Members of the public PUBLIC COMMENTS The Business Services Coordinator declared the public participation section of the meeting open at 1:34 p.m. There being no written or verbal comments, the public participation section was closed. APPROVAL OF CONSENT CALENDAR 1. Approve the February 27, 2024 Finance & Human Resources Committee Meeting Minutes 2. Approve the July 9, 2024 Finance & Human Resources Committee Meeting Minutes A motion was made by Director Coats, seconded by Director Smith, that the Committee approve the Consent Calendar as submitted. The motion carried by the following: Ayes: Coats, Smith Noes: None Absent: None INFORMATIONAL ITEMS Page 2 of 2 Minutes 11/4/24 cmk 5 1 8 REVIEW THE DRAFT ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR 2023-24 Mr. Manno with Rogers, Anderson, Malody & Scott, LLP (RAMS) gave a brief presentation of the Audit process and reviewed the Internal Controls Report, Audit Report, and the Statement of Auditing Standards 114 (SAS 114) with the Committee. He also stated that the District received an unmodified opinion from RAMS and that there were no findings. The Chief Financial Officer commended staff for adding over 200 fixed assets as a result of the completion of the Sterling Natural Resource Center project. Information only, no action required. REVIEW CAPACITY FEE STUDY Mr. Isaac with IB Consulting gave a presentation on the Capacity Fee Study that he completed in October. He reviewed the Incremental/Marginal Cost and Buy-In methods, to determine water and wastewater capacity fees for District customers. Mr. Isaac stated that capital-related reserves, debt obligations, and growth-related projects factored into developing the new water and wastewater capacity fees. Information only, no action required. REPORTS FINANCE ACTIVITIES The Chief Financial Officer gave updates on a new Pension Management Policy and the Popular Annual Financial Report for FY 2023-24. HUMAN RESOURCE ACTIVITIES The Director of Administrative Services gave recruitment and emergency preparedness updates. ADJOURN The meeting adjourned at 2:42 p.m. Ronald L. Coats David E. Smith Governing Board Member Governing Board Member Agenda Item #2 December 10, 20241 Meeting Date: December 10, 2024 Agenda Item #2 Informational Item 1 2 7 0 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Review Unfunded Accrued Liability Pension Management Policy 7.8 RECOMMENDATION That the Finance & Human Resources Committee recommend that the Board of Directors approve the attached Unfunded Accrued Liability Pension Management Policy 7.8. BACKGROUND / ANALYSIS The District contracts with the California Public Employees Retirement System (CalPERS) to provide retirement benefits for all full-time employees. As part of the Contract with CalPERS, the District is obligated to pay any unfunded accrued liability (UAL) under each of the Pension Plans. The UAL is the shortfall between the amount that will be necessary to pay benefits already earned by current and former employees covered by CalPERS, and investments held in trust to pay those benefits. CalPERS’ rate of return on the investments held in trust have consistently underperformed expectations over the past 25 years. Missing the target rate of return of 6.5% causes the District’s UAL to vary each year. The District currently budgets a flat amount to bring down the UAL. However, the lower rate of return has reduced the District’s ability to bring down the UAL as desired. A new policy is desired to accommodate the varying CalPERS’ annual rate of return. To better manage the District’s pension plans, staff is recommending the development of a pension management policy (the Pension Management Policy) to, among other things, set forth the following goals and objectives: 1. Establish, attain, and maintain targeted pension plan funding levels; 2. Provide sufficient assets to permit the payment of all Pension Plan benefits; 3. Manage future contribution volatility to the extent reasonably possible; 4. Set forth all possible cost mitigation measures available to the District; 5. Strive to make Annual Discretionary Payments to accelerate UAL pay-down, reduce interest costs, and stabilize future payments; 6. Maintain the District’s sound financial position and creditworthiness; 7. Provide guidance in making annual budget decisions; 8. Create sustainable and fiscally sound future budgets; 9. Demonstrate prudent financial management practices; and Agenda Item #2 December 10, 20242 Meeting Date: December 10, 2024 Agenda Item #2 Informational Item 1 2 7 0 10. Ensure that pension funding decisions protect both current and future stakeholders. In a continued effort to help ensure that any future pension liabilities do not grow to unmanageable levels, staff have worked with California Municipal Advisors (CalMuni) to develop a proposed Pension Management Policy for Board consideration. If approved, the Pension Management Policy would require that any new increase or decrease in the liability resulting from the annual CalPERS actuarial valuation be explicitly identified each year during the budget cycle, and that the District consider making discretionary contributions with District resources (or other legally available resources), with the objectives of increasing each of the Pension Plans funded status, by reducing the unfunded actuarily accrued liability, and reducing ongoing pension costs. The Pension Management Policy will also provide guidance in making annual budget decisions, demonstrate prudent financial management practices, help create fiscally sustainable budgets for pension in future years, and help reassure bond rating agencies and investors that the District is being proactive in the management of its fiscal affairs. DISTRICT PILLARS AND STRATEGIES II - Maintain a Commitment To Sustainability, Transparency, and Accountability A. Practice Transparent and Accountable Fiscal Management FISCAL IMPACT There is no current fiscal impact associated withthis item. Instead, the impacts of this Policy will be considered in future budget development cycles. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS 1. Presentation-CalMuni 2. Unfunded Accrued Liability Management Policy 7.8 East Valley Water District 2024 Pension Liability Management Overview DECEMBER 2024 ANDREW FLYNN MANAGING DIRECTOR CALIFORNIA MUNICIPAL ADVISORS EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT Total Accrued Liability = $60.3M Market Value of Assets = $45.3M Shortfall = $15.0M (24.8% of what is needed) Accrues interest at 6.8% interest rate = $8.5M interest Total Unfunded Liability with interest = $23.5M Amortizes over time (currently 19 years) 2024 Estimated Pension Funding Status Total Accrued Liability = $61.1M Market Value of Assets = $44.6M Shortfall = $16.5M (27.0% of what is needed) Accrues interest at 6.8% interest rate = $9.8M interest Total Unfunded Liability with interest = $26.3M Amortizes over time (currently 21 years) 2 Pension Funding Status 2023 Pension Funding Status EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT Definitions: Total Accrued Liability = What You Need Market Value of Assets = What You Have Unfunded Actuarial Liability = What You Owe Two Pension Plans: Classic: Miscellaneous PEPRA: Miscellaneous 3 Pension Funding Status Description Miscellaneous PEPRA - Misc Combined 2023 Total Accrued Liability $57,941,625 $3,198,230 $61,139,855 2023 Market Value of Assets $41,831,350 $2,794,448 $44,625,798 2023 Unfunded Actuarial Liability (UAL) $16,110,275 $403,782 $16,514,057 2023 % Funded 72.2% 87.4% 73.0% 2024 New UAL Estimate -$1,479,938 -$73,551 -$1,553,489 2024 Total UAL Estimate $14,630,337 $330,231 $14,960,568 2024 % Funded Estimate 74.2% 90.5% 75.2% Source: CalPERS Actuarial Valuation as of June 30, 2023 EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT CalPERS Historical Average Rates of Return through 2023-24: Past: 5 years – 6.7% 10 years – 6.3% 15 years – 8.7% 20 years – 7.2% 25 years – 6.5% CalPERS manages pension investments District bears all investment risk Failure by CalPERS to achieve target investment returns does not relieve District from pension benefit guarantees to employees and retirees Lower returns => higher UAL and higher pension payments by District 4 Investment Risk and Returns EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT 5 Pension Funding History with Forecast Owe $7.6M more Funded Level 1.2% lower FORECAST Approximate Interest Paid $9.2M over past 11 years EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT UAL as a Percent of Total Payments 6 Pension Payments Annual Pension Payment Increase $1.6M in twelve years 47.7% 63.5% 2017 2024 EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT Historical Payments INCLUDES: •UAL Payments Only DOES NOT INCLUDE: •All Plans – Normal Cost 7 Where Things Currently Stand As of 2023 $16.5MPrincipal $9.8MInterest $26.3MTotal Due Funded Percent 73.0% EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT 8 Estimated 2024 Investment Impact INCLUDES: •UAL Payments Only •Estimated impact of 9.3% Return DOES NOT INCLUDE: •All Plans – Normal Cost Funded Percent 75.2%Historical Payments As of 2023 $15.0MPrincipal $8.5MInterest $23.5MTotal Due EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT The development of a robust Pension Liability Management Plan is one of the key building blocks to maintaining a healthy funding status for the District’s pension plans. Establishes long-term targets for plan funding levels and a roadmap for annual review and action. Provides direction and prioritization for the use of surplus funds for developing, maintaining, and utilizing District reserves. Develops a comprehensive waterfall framework for current and future staff to manage reserves for current and future liability management. 9 Pension Liability Management Plan SHORT-TERM CASH FLOW MANAGEMENT •Achieve budget predictability •Extend UAL payments over longer term LONG-TERM COST MANAGEMENT •Reduce overall interest cost for the District •Prepay or accelerate UAL payments EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT Pension UAL Mitigation Techniques PAY DOWN 1.UAL Prepayment •Annual prepayment •From reserves, one-time revenues and fund surpluses •Base Targeting/Allocation 2.Fresh Start / Informal Fresh Start 3.New Sources of Revenue REFINANCE 4.Savings from Debt Refundings 5.Capital Financing •From CIP Reserves •Pay-Go Programs 6.Pension Refinancing •Lease Financing/Enterprise/Other OTHER •Annual Funding •Percent of Normal Cost •From Reserves & Fund Surpluses 10 PAY DOWN REFINANCE STABILIZE – 115 Trust The range of options available to address unfunded liabilities range from incremental items that are reviewed and considered annually, to one-time items that can potentially provide robust impact. •Refinancing Savings •Sequestered savings •Options for future Bond Calls EAST VALLEY WATER DISTRICT – 2024 PENSION LIABILITY ASSESSMENT THANK YOU! 11 EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 1 of 12 Section 1. Purpose The purpose of this Unfunded Accrued Liability Management Policy (the “Policy”) is to strategically address the existing and any future unfunded accrued liability (the “UAL”) associated with the East Valley Water District’s (the “District”) California Public Employees’ Retirement System (CalPERS) pension plans (the “Pension Plans”). This Policy also addresses some of the principal elements and core parameters central to the policy objectives discussed in this Policy. In the development of this Policy, the District strives to reduce its UAL and the associated financing costs in the most cost-efficient and fiscally responsible manner possible. The District is committed to fiscal sustainability by employing long-term financial planning efforts, striving to maintain appropriate reserve levels, and employing prudent practices in governance, management, budget administration, and financial reporting. This Policy is intended to make all relevant information readily available to decision-makers and the public to improve the quality of decisions and transparency, identify policy goals, and to demonstrate a commitment to long-term financial planning. Development of this Policy signals to rating agencies and capital markets that the District is willing to set policies that improve its ability to meet its obligations in a timely manner. The Policy is intended to reflect a reasonable and conservative approach to managing UAL costs associated with the Pension Plans. This Policy recognizes that the Pension Plans are subject to market volatility, and that actual economic and demographic experience of the plans will differ from the actuarial assumptions. Accordingly, it is intended to allow for adaptive responses to changing circumstances, providing flexibility to address such volatility in a financially sound manner. As such, the District will be required to continually monitor its Pension Plans and the corresponding UAL. Section 2. Policy Goals and Objectives The overarching goals and objectives of this Policy are as follows: •Establish, attain, and maintain targeted pension plan funding levels •Provide sufficient assets to permit the payment of all benefits under the Pension Plans EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 2 of 12 •Seek to manage and control future contribution volatility to the extent reasonably possible •Strive to make Annual Discretionary Payments to accelerate UAL pay-down, reduce interest costs, and stabilize future payments •Maintain the District’s sound financial position and creditworthiness •Provide guidance in making annual budget decisions •Create sustainable and fiscally sound future budgets •Demonstrate prudent financial management practices •Ensure that pension funding decisions protect both current and future stakeholders •Create transparency as to how and why the Pensions Plans are funded Section 3. Background and Discussion A. In General. Each Pension Plan is a multiple-employer defined benefit pension plan administered by the CalPERS. All full-time and certain part-time District employees are eligible to participate in the CalPERS retirement and disability benefits, annual cost of living adjustments and death benefits offered to plan members and their beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute. The financial objective of a defined benefit pension plan is to fund the long-term cost of benefits provided to the plan participants. In order to assure its financial soundness and sustainability, the plan should accumulate adequate resources in a systematic and disciplined manner to ensure sufficient resources are available to meet employee benefit requirements. This Policy outlines the practices the District will utilize to address its actuarially determined contributions to fund the long-term cost of benefits to the Pension Plan participants and annuitants. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 3 of 12 B. Pension Costs and Liabilities. In order to fund its employees’ pension benefits, the District is required to make contributions (a portion of which may come from the employees) to CalPERS. CalPERS then invests these contributions to generate returns to help fund the pension benefits. The regular required contributions, known as the “Normal Cost,” are calculated as a percent of salaries and represent the annual cost of service accrual for the upcoming fiscal year for active employees. If, for any reason, the actual Pension Plan experience and investment performance fall short of the actuarial assumptions, the Pension Plan can become underfunded, (i.e. the Pension Plan’s Total Accrued Liability exceeds the Plan’s Market Value of Assets). This shortfall is known as the Unfunded Accrued Liability (the “UAL”) and usually has to be covered by the District through a series of UAL Payments, which are above and beyond the “Normal Cost” contributions. The UAL Payments are calculated in total dollar amounts, not as a percent of salaries. The UAL can be caused by multiple factors, including but not limited to, changes to CalPERS’ actuarial amortization policy, retroactive pension benefit enhancements, investment underperformance, actuarial assumption changes, demographic factors, and discount rate reductions. C. UAL is Debt. The UAL balance at any given point in time is a debt of the District owed to CalPERS which is amortized over a set period of time with interest accruing at the then current CalPERS discount rate (the “Discount Rate”). However, this debt can be prepaid at any time without penalties. Recognizing the UAL as debt helps the District identify proper steps to address it and minimize the associated financing costs. D. Ongoing CalPERS Practices. Every year CalPERS prepares updated actuarial valuation reports for each of the District’s Pension Plans wherein it calculates the District’s total pension liability as of the end of the prior fiscal year (each a “Valuation Report”). If the investment performance during that fiscal year was different from the Discount Rate, or if CalPERS made any changes to its actuarial assumptions, or if the actual demographic or compensation experience within the Pension Plans was different from the actuarial assumptions, new line items, or UAL amortization “bases,” may be added to the plan and result in a change to the UAL balance. Such UAL amortization bases may be positive (indicating funding shortfall for the Pension Plans) or negative (indicating funding surplus for the Pension Plans). Since CalPERS can add new UAL EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 4 of 12 amortization bases every year, the Pension Plans must be monitored annually and managed continually – there is no one-time solution. CalPERS has adopted the UAL amortization methods that were meant to help public agencies “ease into” paying for the UAL increases. New UAL amortization bases are implemented incrementally, with a five-year ramp-up period, and at times include additional small increases in each of the subsequent years. The ramp-up period, while reducing the cash flow impact in the near term, increases the overall UAL repayment costs for the District by delaying repayment. Since the UAL balances accrue interest at the rate that is equal to the then current Discount Rate, the delayed payments prior to the commencement of the amortization and the reduced payments during the ramp-up period that do not fully cover the interest costs result in negative amortization, causing further increases to the UAL balance. To help reduce the overall costs of the UAL repayment, this Policy encourages level annual payments (i.e., no ramp-up) whenever possible. Section 4. Policy A. Funding Level Objective. It is the District’s policy to strive to achieve and maintain a Pension “Funded Ratio” (being the ratio by which the Market Value of Assets—as set forth in the most recently published Valuation Report—compares to the Entry Age Normal Accrued Liability or “Total Accrued Liability”—as set forth in the most recently published Valuation Report) for each Pension Plan of 85% (the “Funding Level Objective”). Funding Level Objective = 85% Achieving and maintaining the 85% Funding Level Objective ensures that the ongoing contributions of the District and its employees are properly and adequately funding the retirement benefits of today’s workers. The reason for a Funding Level Objective of 85% rather than 100% is to allow some cushion for the possibility that good investment returns by CalPERS in a given year might push the funded level of a Pension Plan above 100% (commonly referred to as “superfunded status”). The District will strive to manage the 15% differential (i.e., the difference between 85% and 100%) through its own investment process by virtue of a “115 Trust Pension Fund” discussed herein. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 5 of 12 Guidance: To achieve the Funding Level Objective and ensure compliance with best management practices, this Policy provides the following guidance: 1. Pre-Pay the Entire Annual UAL Payment by July 31st of each year. On or before July 31st of each year, the District receives its annual CalPERS UAL invoice. The District has two payments options. The invoice can (1) be paid in equal monthly increments, or (2) be fully pre-paid at the beginning of the fiscal year by July 31st. By prepaying the entire invoice amount due by July 31st, the District can concurrently save approximately 3.5% compared to making the monthly payments. As such, every effort should be made to pre-pay the UAL payment upon receipt of the annual invoice. 2. Pre-Pay UAL from Reserves, One-Time Revenues and Fund Surpluses. Reserves normally do not earn returns that can offset the interest rate that CalPERS charges on the outstanding UAL balance. Supplemental contributions into the Pension Plans and/or the 115 Trust Pension Reserve Fund (see Section 4C below) from available reserves, one-time revenues and fund surpluses can generate substantial long-term net savings. Each supplemental contribution, referred to by CalPERS as an Additional Discretionary Payment (ADP), reduces the UAL balance, the Annual Required Contributions (ARC) for future years, and the total interest costs associated with the UAL. Therefore, during each budget cycle, the District staff shall review all available reserves, one-time revenues and fund surpluses to determine whether any such funds could be used to make an ADP to pay down the UAL, keeping in mind operational and capital budgetary constraints while maintaining adequate reserves and balancing the fiscal soundness of eliminating the high-interest UAL debt. Every effort should be made to make an ADP during years with added bases to avoid ramp-up periods and the associated costs. ADPs should not adversely affect the general operations and fiscal soundness of the District. 3. Capital Financing. When considering capital improvement projects, staff regularly reviews and plans for reserving cash to fund some or all of these capital improvement projects. When considering how to pay for current and future capital improvement projects, staff should review the current tax- exempt market to assess if it would be more cost effective to borrow at tax- EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 6 of 12 exempt rates to pay for the capital projects and redirect the reserved cash (and/or such other appropriate funds of the District) to make ADPs to CalPERS. If there are projected cost savings by using this method, and a capital financing strategy is to be implemented, the Board would need to approve of the ADPs being paid to CalPERS prior to the financing to ensure that the once reserved capital project funding is applied to UAL paydowns. 4. Utilize Savings Achieved from Refunding Outstanding Non-Pension Related Debt to Pre-Pay UAL. During each budget cycle, the District staff should review all outstanding long-term non- pension related debt of the District to determine whether a refunding of such debt might result in net present value (NPV) savings of greater than 3%, and if so, consider a structure and strategy that frontloads the savings from such debt refunding, which can then be used to pay down the UAL or make a contribution to the 115 Trust Pension Reserve Fund discussed herein. This strategy should only be used if the interest rates on the currently outstanding debt is sufficiently below the then-current Discount Rate to ensure that overall NPV savings of greater than 3% are achieved by the District. 5. Sources of Revenue. All fees, rates and charges should incorporate full allocation of pension costs for employees providing associated services. While some funds cannot contribute more than their fair share, they should not contribute less than their fair share. District staff shall review allocation of labor costs to proprietary and other funds to ensure full reimbursement of the pension cost burden. 6. Pension Obligation Financing. The District shall consider issuing taxable municipal debt obligations (Pension Obligations) to refinance the UAL, in part or in whole, if such bond obligations are expected to produce minimum cash flow savings of at least 8%. Pension Obligations shall not utilize swaps or derivatives of any kind and should be structured with reasonable and flexible call provisions (with a maximum of 10- year call provision). Pension Obligations shall be used only to prepay the UAL liabilities, and shall not be used to finance EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 7 of 12 Normal Cost payments. The issuance of Pension Obligations must be voted upon and approved by the Board. To the extent directed by the Board after due consideration, annual savings achieved by issuing the Pension Obligations should be used to either (i) directly prepay new UAL amortization bases as they arise, (ii) make deposits into the 115 Trust Pension Reserve Fund, (iii) offset operational costs, and/or (iv) fund any other legally permissible activities of the District. 7. Annual Review of the CalPERS Actuarial Valuation Reports and Associated Tasks. The District staff shall review or cause to be reviewed the annual CalPERS actuarial valuation reports once they are made public by CalPERS. The review should focus on identifying the annual changes to each of the Pension Plan’s UAL and quantifying the associated cost implications and the corresponding impact on the Funded Ratio. Staff should annually reach out to the District’s CalPERS actuary to request a calculation of flat payments (rather than ramp-up payments) for all outstanding and new UAL amortization bases. In making ADPs, the District staff shall determine or cause to be determined the optimal application of the ADPs to the outstanding UAL amortization bases to achieve the Funding Level Objective as well as desired budgetary outcomes. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 8 of 12 B. District Contributions 1. Annual Contribution Relative to Payroll. Recognizing the benefit of long-term returns and the need to proactively manage the high long-term costs associated with carrying UAL, the District will proactively contribute funds to the CalPERS Pension Plans and/or the 115 Trust Pension Reserve Fund based on a percentage of each Fiscal Year’s forecasted payroll. In each Fiscal Year where the Pension Plans total Market Value of Assets combined with the 115 Trust Pension Reserve Fund balance is less than [108]% of the Entry Age Normal Accrued Liability (which summation is hereafter referred to as the “115 Trust Pension Reserve Fund Ceiling”), during the District’s normal budget adoption process, beginning with the 2025-26 Fiscal Year budget, the District will contribute amounts to either the CalPERS Pension Plans if funded less than 85%, and if not, the Annual Contribution shall be made to the 115 Trust Pension Reserve Fund, in amounts that are between [1]% and [5]% of the forecasted payroll for that Fiscal Year (the “Annual Contribution”), as recommended by the General Manager or Chief Financial Officer and approved by the Board as part of the final Adopted Budget. 2. Other Contributions. If the Funded Ratio falls below 85%, all other discretionary contributions above and beyond the Annual Contributions (the “Other Contributions”) made by the District will be allocated to the CalPERS Pension Plans as an ADP. However, if the Funded Ratio surpasses 85% but remains below the 115 Trust Pension Reserve Fund Ceiling, then such Other Contribution will be directed to the 115 Trust Pension Reserve Fund. C. Establishment and Operation of a 115 Trust Pension Reserve Fund. 1. Establishment of a 115 Trust Pension Reserve Fund. The District has or will have established a 115 Trust Pension Reserve Fund which is managed by a third-party investment manager (the “Investment Manager”). The 115 Trust Pension Reserve Fund may receive funds deposited into it at the discretion of the Board, based on recommendations made by the General Manager or Chief Financial Officer during the annual budget process. Funds in the 115 Trust Pension Reserve Fund shall only be used for the District’s pension benefits costs EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 9 of 12 (i.e., UAL and Normal Costs) associated with the District’s Pension Plans in accordance with the goals and objectives set forth in this Policy. 2. Funding the 115 Trust Pension Reserve Fund. (a)Annual Contributions and Other Contributions. The District will endeavor to make Annual Contributions and Other Contributions in the amounts and manner specified in Section 4B above until such time that the 115 Trust Pension Reserve Fund reaches the 115 Trust Pension Reserve Fund Maximum (as outlined in section 4C3 below). (b)Sequestered Savings. Upon the issuance of each series of Pension Obligations, for each of the ensuing ten (10) consecutive years (or such other period of years as deemed appropriate by the Board at the time of any subsequent issuances of Pension Obligations) following such issuance, a fixed dollar amount equal to [50%] (or such other percentage as deemed appropriate by the Board at the time of any subsequent issuances of Pension Obligations) of the “Total Sequestered Savings” (as calculated in the manner set forth below) achieved by issuing Pension Obligations (the “Annual Sequestered Savings Savings”), shall be transferred from the operating fund and deposited into the 115 Trust Pension Reserve Fund until such time that the 115 Trust Pension Reserve Fund reaches the 115 Trust Pension Reserve Fund Maximum (as outlined in section 4C3 below), and thereafter all Sequestered Savings will be directed to a “Pension Obligation Prepayment Fund” which will be established and maintained by the District for the purpose of prepaying any outstanding Pension Obligations. Annual Sequestered Savings = SSP x( UALDS - DS ) Y SSP = Sequestered Savings Percentage UALDS = Scheduled UAL debt service being paid off by the Pension Obligations DS = Total principal amount of Debt Service on the Pension Obligations Y = Number of years to pay back Sequestered Savings EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 10 of 12 Example of Annual Sequestered Savings Calculation A $5M Pension Obligation was issued for the purpose of prepaying UAL. The total UAL debt service (UALDS) paid off with the Pension Obligation was $8,000,000 and the total debt service (DS) on the Pension Obligation is $7,000,000. The District elected to sequester 50% of the total savings over a 10-year period (Y), which in this example results in Annual Sequestered Savings of $50,000. Annual Sequestered Savings = 0.5x( 8,000,000 - 7,000,000 ) 10 = $50,000 3. Operation of the 115 Trust Pension Reserve Fund. All Annual Contributions and Other Contributions that have been directed to the 115 Trust Pension Reserve Fund, along with all applicable Sequestered Savings, shall be used solely for the purpose of making ADP’s (and Normal Cost payments during a Fiscal Hardship, as defined below) to CalPERS for the purpose of achieving and maintaining the Funding Level Objective. With the goal of achieving and maintaining the Funding Level Objective, each year during the budget cycle, District staff shall calculate, or cause to be calculated, the upcoming Fiscal Year’s estimated Funded Ratio by taking into account the most recent Valuation Report’s statement of Funded Ratio and adjusting for the estimated UAL amortization base that will be either added or subtracted due to the prior Fiscal Year’s investment result of either exceeding or falling short of the then current Discount Rate for that Fiscal Year (the “Estimated Funded Ratio”). If the Estimated Funded Ratio is estimated to be less than the Funding Level Objective, to the extent funds are available in the 115 Trust Pension Reserve Fund, the appropriate member of staff shall either make, or shall direct the Investment Manger to make, an ADP to CalPERS in the amount necessary to bring the Funded Ratio back up to the Funding Level Objective. Additionally, if sufficient funds are available in the 115 Trust Pension Reserve Fund, staff shall assess whether to fully amortize any new UAL amortization bases to reduce the long-term interest costs associated with the “ramping” procedures used by CalPERS. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 11 of 12 Except in the case of a Fiscal Hardship, as defined below, moneys in the 115 Trust Pension Reserve Fund shall not be used to pay Normal Costs until such time as the amount therein, when combined with the Market Value of Assets (as set forth in the most recently published Valuation Report) exceeds the 115 Trust Pension Reserve Fund Maximum. To the extent monies in the 115 Trust Pension Reserve Fund on June 30th exceed the 115 Trust Pension Reserve Fund Maximum (after consideration has been given to the amounts therein required to be paid to CalPERS for the ensuing Fiscal Year to maintain the Estimated Funded Ratio at or above the Funding Level Objective), any accrued surplus over [108]% may be used to offset the District’s Normal Cost payment made to CalPERS in such Fiscal Year, and any applicable Sequestered Savings will be directed to the Pension Obligation Prepayment Fund. 4. Fiscal Hardship. “Fiscal Hardship” means an economic hardship, or other unanticipated fiscal emergency, that has been declared by resolution of the Board. D. Transparency and Reporting. Funding of the Pension Plans should be transparent to all stakeholders, including plan participants, annuitants, the Board, and District residents. To achieve this Policy objective, copies of the annual actuarial valuation reports for each Pension Plan shall be made available to the Board, and shall be posted on the District’s website. The District’s audited financial statements shall also be posted on the District’s website because they include, among other things, information on the District’s current and future annual Pension Plan contributions as well as the funded status of each Pension Plan. E. Annual Budget to Contain Policy Directed Information. The District’s annual operating budget shall consider the items specified in this Policy for inclusion in each such annual budget. F. Review of Policy. Funding a defined benefit pension plan requires a long-term horizon planning approach. This Policy is intended to provide general objectives and guidelines, which will require periodic review to consider changes in the District’s financial position and Pension Plan funded status over time. As such, the District staff will review this Policy for implementation of new best practices and will provide such EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 12 of 12 proposed changes to the Board for adoption on an as needed basis, not to exceed 5 years. Agenda Item #3 December 10, 20241 Meeting Date: December 10, 2024 Agenda Item #3 Informational Item 1 2 7 3 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Review Authorization to Transfer Unclaimed Funds into the District's General Fund RECOMMENDATION That the Finance & Human Resources Committee recommend to the Board of Directors to authorize the Chief Financial Officer to perform procedures prescribed in the Government Code and Code of Civil Procedure for the purpose of unencumbering stale- dated checks and keeping the related funds from escheating to the State. BACKGROUND / ANALYSIS The District’s checking account accumulates a long list of old, outstanding checks as a result of customer refunds relating to the closing of water accounts and paid vendors who failed to cash their check. All of the old checks make the reconciliation of the checking account unnecessarily cumbersome. Government Code sections 50050-50052 and Code of Civil Procedures section 1502(a)(2) describe procedures applied to unclaimed funds that are at least three years old. The procedure involves publishing a notice about the unclaimed funds once a week for two consecutive weeks in a paper of general circulation. Any claims that are submitted as a result of the notice will be investigated and approved or rejected by the CFO. Any funds remaining unclaimed 45 days after the first publication may be transferred to the District’s General Fund. Government Code section 50055 states that unclaimed funds of $15.00 or less that have been held by the District for more than one year do not need to be publicly noticed, but may be transferred into the District’s General Fund by simple action of the Board of Directors (Board). Staff recommends that the Board authorize the CFO to write off all stale-dated checks that are more than one year old and are less than $15.00 (attached Schedule A totaling $22.91). Staff is also requesting that the Board authorize staff to publish a notice regarding all stale-dated checks that are more than $15.00 and are more than three years old (attached Schedule B totaling $1,695.42) in the San Bernardino Sun newspaper for the purpose of satisfying the requirements of the Government Code. Agenda Item #3 December 10, 20242 Meeting Date: December 10, 2024 Agenda Item #3 Informational Item 1 2 7 3 DISTRICT PILLARS AND STRATEGIES II - Maintain a Commitment To Sustainability, Transparency, and Accountability A. Practice Transparent and Accountable Fiscal Management FISCAL IMPACT The fiscal impact associated with this agenda item is $1,718.33 and could be converted from liability to Unrestricted Net Assets by following Government Code procedures to write off the checks listed on Schedules A and B. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS 1. Schedule A 2. Schedule B SCHEDULE A UNCLAIMED CHECKS UNDER $15 & ONE YEAR OR OLDER PAYMENT DATE NUMBER VENDOR NAME AMOUNT 05/25/2023 261306 HUI LAN LOU $8.48 05/26/2023 261309 LAURA CASTELLANOS 6.58 08/31/2023 261811 California Department of Motor Vehicles 5.00 10/27/2023 262149 ELIAZER SERRANO MARTINEZ 2.85 TOTAL $22.91 Page 1 of 1 SCHEDULE B UNCLAIMED CHECKS $15 AND OVER & THREE YEARS OR OLDER PAYMENT DATE NUMBER VENDOR NAME AMOUNT 12/03/2020 257054 LINH LUU $200.00 12/10/2020 257119 RYAN MITCHELL 53.53 02/03/2021 257320 LETOA PEPE MITAINA 19.55 02/18/2021 257427 MELISSA ARREOLA 39.74 03/19/2021 257541 ERICA LEE 100.00 03/19/2021 257544 JON APPLEGATE 80.16 04/15/2021 257658 TAM VAN NGO 150.00 04/28/2021 257679 SEBASTIAN MEJIA CALEL 72.91 04/28/2021 257683 ERIC D ORDONEZ 54.38 04/30/2021 257697 ERNESTO MARTINEZ AND MARICRUZ SAUCEDO 123.71 05/26/2021 257785 MATTHEW R JONES 62.80 07/08/2021 258036 ROSIBEL CANIZALES 34.65 07/08/2021 258038 DAVID HARRIS 17.19 07/21/2021 258096 GEORGE VALENCIA 89.80 07/28/2021 258129 BERNICE WALTON 42.93 08/11/2021 258194 RONALD RABON 40.17 08/18/2021 258223 COURTNEY RANDALL 68.53 09/29/2021 258387 MARKOS TORRES 106.09 10/13/2021 258473 WLODZIMIER MENDEL 100.00 10/13/2021 258477 EDWARD GONZALES Jr.38.34 11/09/2021 258620 TODD DENNIS 100.00 11/09/2021 258618 FUEL BREAK INC.58.99 11/10/2021 258646 CANDIDA AGUILAR 41.95 TOTAL $1,695.42 Page 1 of 1 Agenda Item #4 December 10, 20241 Meeting Date: December 10, 2024 Agenda Item #4 Informational Item 1 2 7 2 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Review the Draft Popular Annual Financial Report for Year Ended June 30, 2024 RECOMMENDATION This agenda item is for informational purposes only, no action is required. BACKGROUND / ANALYSIS Fiscal transparency is a pillar of the District to uphold the trust of the customers and stakeholders. The year-end financial report for fiscal year 2023-24 was submitted to the Board of Directors at the November 13, 2024 meeting. The District voluntarily prepares a Popular Annual Financial Report (PAFR) each year to be a summarized, user-friendly version of the District’s Annual Comprehensive Financial Report (Annual Report). A PAFR translates complex financial data from the more detailed Annual Report into accessible language and visuals. The goal is to enhance transparency and foster better communication between the District and customers. Customers will receive a postcard in the mail with a QR code to view the PAFR on the District’s website. Hard copies will also be available at District Headquarters and the Sterling Natural Resource Center Customer Service lobbies. The Government Finance Officers Association (GFOA) produces guidelines for producing an effective PAFR, and if an agency’s PAFR substantially meets or exceeds those guidelines, the GFOA presents the agency with an Award for Outstanding Achievement in Popular Annual Financial Reporting. The District received the award for its June 2023 PAFR, for the seventh year in a row. District staff will submit the current year PAFR for award consideration before the end of December. DISTRICT PILLARS AND STRATEGIES II - Maintain a Commitment To Sustainability, Transparency, and Accountability A. Practice Transparent and Accountable Fiscal Management FISCAL IMPACT There is no fiscal impact associated with this agenda item. Agenda Item #4 December 10, 20242 Meeting Date: December 10, 2024 Agenda Item #4 Informational Item 1 2 7 2 Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS Draft PAFR 2024 POPULAR ANNUAL FINANCIAL REPORT Highland, California [FISCAL YEAR ENDED JUNE 30, 2024] Michael Moore, P.E. General Manager/CEO Brian Tompkins Chief Financial Officer Jeff Noelte Director of Engineering & Operations Justine Hendricksen District Clerk Kerrie Bryan Director of Administrative Services Manny Moreno Water Reclamation Manager Patrick Milroy Operations Manager William Ringland Public Affairs/Conservation Manager FY 2023-24 PAFR | 2 About the District 3 Organizational Structure 4 District-at-a-Glance 4 District Pillars (Strategic Plan) 5 Community Involvement 5 Capital Improvement Projects 6 Transmittal Letter Revenue and Expenses 7 Revenue by Sources 8 Breakdown of Expenses 9 Outstanding Long-Term Debt 10 Comparative Net Position 11 Financial Performance The Government Finance Officers Association of the United States and Canada (GFOA) has given an Award for Outstanding Achievement in Popular Annual Financial Reporting to East Valley Water District, for its Popular Annual Financial Report (PAFR) for the fiscal year ended June 30, 2023. In order to receive this award, a government agency unit must publish a Popular Annual Financial Report, whose contents conform to program standards of creativity, presentation, understandability, and reader appeal. We believe our current PAFR continues to conform to program requirements, and we are submitting it to GFOA to determine its eligibility for another Award. We also welcome and encourage feedback from District ratepayers to help make this publication more useful and/or informative. James Morales, Jr. Chairman of the Board Ronald L. Coats Vice Chairman of the Board Chris Carrillo Governing Board Member Phillip R. Goodrich Governing Board Member David E. Smith Governing Board Member 3 7 POPULAR ANNUAL FINANCIAL REPORTING AWARD Government Finance Officers Association Award for Outstanding Achievement in Popular Annual Financial Reporting Presented to East Valley Water District California For its Annual Financial Report For the Fiscal Year Ended June 30, 2023 Executive Director/CEO TABLE OF CONTENTS POPULAR ANNUAL FINANCIAL REPORT BOARD OF DIRECTORS DISTRICT MANAGEMENT The District was formed through a local election of mostly citrus grove farmers, to have water service provided by a public agency. East Valley Water District is located in the foothills of the San Bernardino Mountains, 65 miles east of Los Angeles in the County of San Bernardino. ABOUT THE DISTRICT EAST VALLEY WATER DISTRICT | 3 We are pleased to present East Valley Water District’s (District) Popular Annual Financial Report (PAFR) for the fiscal year ending June 30, 2024 (FY 2023-24). This report summarizes financial information appearing in the 2024 Annual Report and was created to provide valuable information related to District finances and the Five-Year Capital Improvement Program, that support the quality and reliability of our community’s distribution system. The PAFR is unaudited; however, the financial data presented in the PAFR is developed based on the audited Annual Report, which is consistent with Generally Accepted Accounting Principles. This document can also be reviewed on the District’s website at eastvalley.org/PAFR. For more detailed information, the District’s 2024 Annual Report is available for interested individuals at the District Headquarters, 31111 Greenspot Road, Highland, California 92346. It can also be viewed on the District’s website, along with other key financial documents, at eastvalley.org/AnnualReport. The organizational chart, District-at-a-Glance, and financial data represent the District during the timeframe reflected in this document. Questions, comments, and feedback regarding this report are encouraged. Please do not hesitate to contact Brian Tompkins, Chief Financial Officer, at finance@eastvalley.org or (909) 381-6463. On behalf of the District, thank you for the opportunity to serve you. Respectfully submitted, Michael Moore, P.E. General Manager/CEO TO OUR RATEPAYERS & COMMUNITY TRANSMITTAL LETTER 210 210 santa a n a r i v e r sant a a n a r i v e r plun g e c r e e k plunge creek eld e r c r e e k cit y c r e e k city c r e e k sa n d c r e e k tw i n c r e e k tw i n c r e e k warm cr e e k cook creek mil l c r e e k N San Bernardino SNRC Highland DistrictHeadquarters Seven Oaks Dam [30.1 SQUARE MILE SERVICE AREA] 315Water LeaksRepaired 300Miles ofWater Main 14,125,000Average Gallons ofWater Produced Daily 12 Active Groundwater Wells 28,977,000Gallons of Water Storage 800 Feet of Water Main Replaced 3,500 Water Samples Collected 686Hydrants Repaired,Replaced, Inspected 518 Hydrants Flushed 5,100 Manholes 230Miles ofWastewaterMains 6,000,000Average Gallons ofWastewater Collected 140 Miles of Wastewater Main Cleaned 63 Miles of Wastewater Monitored by Video Presented to the right is an overview of East Valley Water District’s organizational structure. The District employed 73 full-time positions during FY 2023-24. ORGANIZATION STRUCTURE As a performance-based organization, the District takes an active role maintaining staffing levels to performance-based objectives. East Valley Water District provides water and wastewater services to residents within a 30.1 square mile area. This includes more than 108,000 people in the cities of Highland and San Bernardino, portions of the unincorporated County of San Bernardino, the San Manuel Band of Mission Indians, and Patton State Hospital. DISTRICT-AT-A-GLANCE FY 2023-24 PAFR | 4 Director of Engineering & Operations General Manager/CEO Director of Administrative Services Director of Strategic Services General Administration Information Technology Customer Service Finance & AccountingEngineering Operations Water Reclamation Human Resources & Risk Management Public Aairs Meter Services Water Maintenance Water Production Wastewater Collection Conservation Chief Financial Ocer Governing Board Legal Counsel Water Treatment Facilities Maintenance Water Quality Fleet Maintenance Ratepayers Person/Position Program FTE: Full Time Employees EO: Elected Ocials EO: 5 FTE: 2 FTE: 8 FTE: 5 FTE: 7 FTE: 3 FTE: 1 FTE: 3 FTE: 2 FTE: 7 FTE: 1 FTE: 2 FTE: 2 FTE: 2 FTE: 16 FTE: 4 FTE: 2 FTE: 1 EAST VALLEY WATER DISTRICT | 5 DISTRICT PILLARS & STRATEGIC PLAN The District has established five pillars to provide direction for operational and planning decisions. These pillars are an element of the Strategic Plan and guide initiatives to achieve the District’s Mission and Vision. To learn more about each pillar and view the District's Strategic Plan, visit eastvalley.org/StrategicInitiatives. COMMUNITY INVOLVEMENT: INSPIRING THE FUTURE A sustainable future begins today by inspiring the next generation to become water professionals and responsible stewards of our most vital resource. East Valley Water District proudly offers a dynamic educational program that inspires, informs, and equips students from kindergarten through high school to make a meaningful impact. EffectiveSolutions Sustainability, Transparency, and Accountability Organizational Resiliency Planning, Maintenance, and Preservation of District Resources Community Engagement, Advocacy, and Leadership Water and Wastewater Educational Pathway Program Career Days Local high school students participate in the District's hands-on internship program to learn about operations, recycled water, and the various career available in the field of water and wastewater. District staff participates in year-round presentations to educate students on the water cycle and ways they can conserve water at home. Plant 120 Rehabilitation To strengthen water supply redundancy and continue meeting the community's water needs, East Valley Water District rehabilitated a forebay tank to resume its operation after being offline for over a decade. The project included rebuilding a well and booster pumps, as well as rehabilitation of the plant’s control system. Date Completed: April 2024 Project Cost: $308,554 CAPITAL IMPROVEMENT PROJECTS ENHANCING AND INVESTING IN THE WATER INFRASTRUCTURE FY 2023-24 PAFR | 6 Water Main Replacement — Darren, Tiffani and Valaria Court Water main replacements enhance service, reduce calls for leaks, and extend the life of the system. District field crews replaced 900 feet of undersized pipeline in three different streets to increase flow capacity. Replacement projects are part of the District’s on-going reliability efforts. Date Completed: March 2024 Project Cost: $118,923 Sterling Natural Resource Center The District’s new wastewater treatment facility can produce up to 8 million gallons of recycled water per day to replenish the local Bunker Hill Groundwater Basin. The basin is the main source of water for the East Valley Water District community. Date Completed: March 2024 Project Cost: $181,038,124 EAST VALLEY WATER DISTRICT | 7 Providing safe drinking water to over 108,000 residents every day is the District’s top priority and also one of its most significant expenses. The graphs below represent the District’s combined revenue and expenses for FY 2023-24. For comparison purposes, FY 2021-22 and FY 2022-23 revenue and expenses have also been included. Please refer to the District’s 2024 Annual Report for a comprehensive breakdown of expenses. REVENUE EXPENSES HOW IS REVENUE MANAGED? East Valley Water District utilizes revenue to fund daily operations, scheduled capital improvements and replacements, and principal and interest for debt financed construction projects. Remaining revenue is added to reserves or invested back into capital improvement projects to help maintain and improve the system's reliability so that East Valley Water District may continue taking steps to support the District's Vision of providing world-class public service. Revenue also provides funding for conservation programming, which empowers customers to be efficient water users and encourages water savings indoors and out. REVENUES AND EXPENSES GrantsNon-Operating Capacity Charges Non-OperatingOperating $47.15Million$46.16Million FY 2021-22FY 2022-23 Operating $42.18Million FY 2021-22 $43.48Million FY 2022-23FY 2023-24 FY 2023-24 $45.36Million $49.80Million GrantsNon-Operating Capacity Charges Non-OperatingOperating $47.15Million$46.16Million FY 2021-22FY 2022-23 Operating $42.18Million FY 2021-22 $43.48Million FY 2022-23FY 2023-24 FY 2023-24 $45.36Million $49.80Million Meter charges are fixed monthly charges assessed to customers based on the size of the service connection to their property. Wastewater collection revenue consists of 1) fixed monthly charges for residential customers and 2) a combination of fixed and volumetric charges for commercial customers. Wastewater treatment revenue consists of 1) fixed monthly charges for residential customers and 2) a combination of fixed and volumetric charges for commercial customers. Other charges are assessed according to an adopted fee schedule, but are only charged to users who request, or require, use of District resources beyond the scope of delivering normal water and wastewater services. Water sales are based on the volume of water used by a customer during the monthly billing period. REVENUE HISTORY & FORECAST (IN MILLIONS) FY 2023-24 PAFR | 8 REVENUES BY SOURCES The District relies on user rates/fees to fund day-to-day operations. East Valley Water District receives 99 percent of its revenue from user rates and fees; the District receives no funding from property or sales taxes. Rates and fees are reviewed on three to five year cycles and are adjusted to meet the costs of providing services to customers. A summary of FY 2023-24 rate revenue is shown below. 38% Water Sales 22% Meter Charges 14% WastewaterCollection 24% WastewaterTreatment 2%Other Charges 14.7 15.3 10.1 11.2 10 5 0 15 20 25 30 FY 21-22 Actual FY 22-23 Actual FY 23-24 Actual FY 24-25 Projected FY 25-26 Projected Water Operating Revenue Wastewater Operating Revenue Water Reclamation Operating Revenue 28.4 27.9 28.6 28.4 29.9 5.8 6.1 6.5 6.7 17.2 Source of Supply Pumping Water Treatment Customer Accounts Wastewater Treatment Depreciation Interest Expense Wastewater Collection Administrative and GeneralTransmission and Distribution 9 4 2 175 2 9 23 28 1 This graphic identifies how every dollar spent is allocated to cover expenses (in cents). EXPENSES • Source of Supply - Expenses related to the extraction of groundwater, and for procuring water from the Santa Ana River or State Water Project when supply is available. • Pumping - Expenses related to moving water throughout the District’s water distribution system. • Water Treatment - Expenses related to the treatment of water. • Transmission and Distribution - Expenses for transmitting water to treatment plants and storage reservoirs for distribution to commercial and residential customers. • Customer Accounts - Expenses related to the service of customer accounts including, postage, telephone, printing and publishing, and billing services. EXPLANATION OF EXPENSES EAST VALLEY WATER DISTRICT | 9 BREAKDOWN OF EXPENSES Expenses are the cost of providing water to meet customer demand and collecting and treating wastewater from customer residences or places of business. East Valley Water District strives to provide safe and reliable water delivery services. The District has put forth significant effort to overcome the challenges of maintaining a fiscally sustainable and operationally dependable organization. • Wastewater Treatment - Expenses related to the contracted service currently provided by the City of San Bernardino Municipal Water Department. • Wastewater Collection - Expenses for the operation and maintenance of the District’s system of wastewater collection pipelines. • Administrative and General - Expenses related to the administration of District operations. For example, employee compensation, benefits, conservation rebates, office supplies, banking services, materials and supplies, utilities, fuel, permits, insurance claims, legal services, and printing and publishing. • Depreciation - Expenses related to the use of capital assets over time. • Interest Expense - Expenses incurred for borrowing funds. Sterling Natural Resource Center Low Interest (1.8%) Loan - Funded the design and construction of the District’s water recycling facility that will capture and treat District wastewater flows. Recycled water will be recharged to the Weaver basin. 2020A Bonds - Issued to refund outstanding 2010 revenue bonds and save $380,000 annually in interest. The 2010 bonds were issued to finance pipeline and other infrastructure projects. 2020B Bonds - Issued to refund outstanding 2013 revenue bonds, which were issued to finance the construction of a new administration and operations headquarters. State Department of Water Resources Loans - Funded the improvement and expansion of the District’s surface water treatment plant. FY 2023-24 PAFR | 10 The District's long-term debt consists of bonds, loans and installment purchases. OUTSTANDING LONG-TERM DEBT Much like how a mortgage is financed to spread costs over 30 years, East Valley Water District has incurred debt to fund large capital projects. The District has adopted a Debt Management Policy to clearly state that long-term borrowing is only to be used for Capital Improvement Projects that cannot be funded from current revenues. Similar to an individual’s credit score, public agencies have a bond rating used by investors to determine risk. The District has a bond rating of AA- by both Fitch and Standard and Poor’s rating services. This is considered a high quality investment grade. An explanation of debt in millions is shown below. $175.5 million $14 million $12.8 million $5.2 million EXPLANATION OF ASSETS Current Assets - Cash and cash equivalents, customer utility receivables, inventory, prepaid expenses, and other liquid assets that can be readily converted to cash. Restricted Assets - Cash equivalents, grants and bonds restricted for a specific purpose and therefore not readily available to use. Other Assets - Special assessments receivable from certain property owners for system improvements that benefit only their properties. Capital Assets - Any land, building, equipment, vehicles, inventory, treatment plants, pipeline, and water distribution systems owned by the District. Deferred Outflow of Resources - Use of net assets attributed to future reporting periods, such as prepaid items and deferred charges. EXPLANATION OF LIABILITIES AND EQUITY (NET POSITION) Current Liabilities - Present financial obligations including, payments to vendors, payroll, and employee benefits. Non-Current Liabilities - Long-term financial obligations including payments for loans, bonds, and employee retirement benefits. Deferred Inflow of Resources - Receipt of net assets attributed to future reporting periods, such as deferred revenue and advance collections. Equity (Net Position) - Represents the difference of assets plus deferred outflows of resources over liabilities plus deferred inflows of resources. EAST VALLEY WATER DISTRICT | 11 TWO-YEAR COMPARATIVE NET POSITION (IN MILLIONS) As an infrastructure-based organization, the District directs significant resources in capital investments to maintain and improve its water and wastewater system. Comparative net position offers perspective of the District’s assets, liabilities, and equity. The information presented below applies to fiscal years ended June 30, 2024 and 2023. $45.4 $12.4 $319.7 $7.3 Current Assets Restricted Assets Other Assets Capital Assets Deferred Outﬂows Current Liabilities Non-Current Liabilities Net Position Deferred Inﬂows $26.4 $207.9 $147.8 $3.0 $41.3 $23 $322 $9.1 $19.9 $228.4 $145.2 $2.2 $0.3 $0.3 2024 Total Assets: $395.7 Million 2023 Total Assets: $385.1 Million 2023 Liabilities & Equity: $385.1 Million 2024 Liabilities & Equity: $395.7 Million 31111 Greenspot Road Highland, California 92346 District Board Meetings Second and Fourth Wednesday of Each Month at 5:30pm District Headquarters Board Room 31111 Greenspot Road Highland, CA 92346 Office Hours Monday – Thursday 8:00am – 5:00pm 2nd and 4th Tuesday 9:00am – 5:00pm Friday 7:30am – 4:30pm East Valley Water District was formed in 1954 and provides water and wastewater services to over 108,000 residents within the cities of Highland and San Bernardino, and portions of San Bernardino County. The District operates under the direction of a 5-member elected Board. District Headquarters 31111 Greenspot Road Highland, California 92346 Sterling Natural Resource Center 25318 5th Street San Bernardino, California 92410 Customer Service & After-Hours Emergency Service (909) 889-9501 eastvalley.org @eastvalleywater