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HomeMy WebLinkAboutReso 28-16 CCWA Official StatementOF THE CITY OF MO.O BAY,CALIFORNIA Be &. �. I ate 011211 hALLAAAR IL W E AS, the City of Morro Bay (the "Member") is a member of the Central Coast Water Authority (the "Authority"); and W)FIE AS, in September 2006, in order to provide funds to refinance the acquisition and construction of certain water system transmission facilities and improvements (the "Project"), the Authority issued its Central Coast Water Authority Refunding Revenue Bonds, Series 2006A; and E AS, the Authority has approved the issuance of its Central Coast Water Authority Refunding Revenue Bonds, Series 2016A (the "Bonds") in order to (i) refinance the Project by refunding all of the outstanding 2006 Bonds, (ii) fund a debt service reserve fund for the Bonds and (iii) pay the costs of issuance for the Bonds; and E AS, the Member wishes to approve of the use of certain information with respect to the Member contained in the Preliminary Official Statement relating to the Bonds (the "Preliminary Official Statement"); and 1. Appendix L of the Preliminary Official Statement, in the form on file with the Member (the "Member Information"), be and the same is hereby approved. The City Manager, or the designee thereof (each an "Authorized Officer"), is hereby authorized to sign a certificate pursuant to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") relating to the Member Information with respect to the Preliminary Official Statement. Each Authorized Officer is individually authorized and directed to approve, deliver and certify to the Member Information for the Official Statement for the Bonds (the "Official Statement") in substantially the form provided for the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by such Authorized Officer. Each Authorized Officer is authorized and directed to execute and deliver a certificate to the Authority pursuant to Rule 10b-5 promulgated under the Exchange Act, with respect to the Member Information with respect to the Official Statement. 2. Each Authorized Officer of the Member, acting singly, is hereby authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by this Resolution. Any and all acts and things previously done by any officer of the Member which are necessary or proper for carrying out the transactions contemplated by this Resolution are hereby ratified. 3. This Resolution shall take effect immediately. PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 12th day of April 2016, by the following vote: AYES: NOES: ABSENT ATTEST: Irons, Headding, Makowetski, Smukler None Johnson 4*N'sa DANA SWANSON, City Clerk 1] 1 V Stradling Yocca Carlson & Rauth Draft of 04/12/16 I\ N VELI U ►'x'11 I hi3�77►� I�1 [�7►[K�7i,C�17`►1'!I�Chl�lY 11'Z�7 �► C� :: �7. The information set forth below has been provided by the City of Morro Bay (the "City"). The Central Coast Water Authority (the "Authority") makes no representations or warranties as to the accuracy or completeness of any of the information set forth below. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Water Treatment and Local Facilities Agreement, dated March 1, 1992, between the San Luis Obispo County Flood Control and Water Conservation District (the "SLOCFCWD") and the City (the "Local Water Treatment Agreement"). Reference is hereby made to the portion of the Official Statement entitled "FACTORS AFFECTING PROJECT PARTICIPANTS AND WATER PURCHASERS GENERALLY" for a discussion of various factors, among others, which could adversely affect the City. The City was incorporated in 1964. The City is located in the west coastal portion of San Luis Obispo County and has a population of approximately 10,284. Within the territory of the City, the City is the sole provider of water service to customers. As of June 30, 2015, the City has 5,455 active domestic connections. In 2015, the City obtained approximately 88% of City water supplies from the SLOCFCWD (and which is treated by the Authority), approximately 12% from City wells which pump from the Morro Basin and are subsequently treated for nitrate removal using brackish water reverse osmosis at the City's desalination facility, and pumped no water from the Chorro Basin for delivery to customers. In addition, the City's desalination facility can also treat sea water as a back-up water source. The desalination plant has been on line since 1991, but is accessed only for seasonal peaking and replacement purposes. During calendar year 2015, the plant produced 138 acre-feet of water from the Morro Basin (including brackish water treated by reverse osmosis – see the caption "WATER SUPPLY—Desalination Facility"), The City encompasses an area of approximately 3,392 acres, of which approximately 3,290 acres are developed (about 60% as residential, 30% as commercial, 5% as industrial and 5% as agricultural). An average topography of 5-10% results in pressure zones from gravity fed water systems serving elevations from 375 feet to near sea level. The City expects that the undeveloped land within City boundaries will continue to be developed and that the estimated population of the City at buildout, projected to be in the year 2024, will be limited to 12,200, as set by Ordinance No. 266, dated November 30, 1984, The City is governed by afive-member City Council (the "Council"), the members of which are elected by the registered voters of the City to staggered four-year terms. The mayor serves atwo-year term. The current members of the Council, their occupations and the expiration dates of their terms are set forth below. L-1 Council Member Jamie L. Irons, Mayor Christine Johnson, Council Member Matt Makowetski, Council Member John Headding, Council Member Noah Smukler, Council Member Expiration of Term 12/16 12/16 12/18 12/18 12/16 ®ccupahon Property Management Community Volunteer High School Teacher Small Business Owner Small Business Owner The City is a general law city and operates under the council-manager form of government. lYlunicipal Services The City offers City residents a full range of municipal services including public safety, fire protection, water and sewer services, harbor, street maintenance, parks and recreation and mass transit. Mass transit services are provided by a contractor. General. Responsibilities for the City water system is divided among several departments: the Public Services Department which handles operations, maintenance, supply, capital improvements and water resources; the Finance Department which handles billing, costs projection and financing structures; and the Planning and Building Department which handles water allocation, water conservation and the retrofit program of the City. The City currently employs 5 full time equivalents in the water department. Additionally, the water department is supported by the engineering and administrative division with an indirect equivalent of 2 employees. Administrative and finance support equates to another .5 full time equivalents. Day to day management of the water department is delegated to Mr. Rob Livick, PE/PLS Director of Public Works. Mr. Livick has been employed with the City since May 4, 2007. The Miscellaneous Employees of the City (an employee bargaining unit) are represented by the Service Employees International Union. The City has not experienced any strike or other labor action. Pension Plan. The City contributes to the California Public Employees Retirement System (PERS), an agent multiple -employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost -of -living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State. Benefit provisions and all other requirements are established by state statute and city ordinance. The City has three tiers of retirement plans for its fire, police and miscellaneous plan part icipants. Employees in the first tier (Safety/Nlisc.) participate in the 3%/2.7% at 50/55 risk pool. The City has negotiated as second tier retirement plans with each of its bargaining units as follows: Employee Category Hire Date Risk Pool Fire After 3/19/.11. 3% @ 55 Police After 9/17/11 3%@55 Miscellaneous After 1/1/12 2% at 60 The City has implemented a third tier of PERS pension benefits (2.7% @ 57 for sworn safety members (fire, police and harbor patrol) and 2% @ 62 for miscellaneous members) for employees hired on and after January 1, 2013 ("New Members"), to comply with Assembly Bill 340s compulsory reduced formula for more information with respect to PERS, see Appendix Q attached to the Official Statement for more information with respect to Assembly Bill 340). Participants hired on or after January 1, 2013 who are New Members are entitled to benefits as third tier members, and are required to contribute the percentage of their L-2 annual covered salary under the City's PERS plans required by PERS, which will not exceed 50% of the normal cost rate, as determined by PERS. The current contribution rate for members in the 2.7% @ 57 risk pool and the 2.0% @ 62 risk pool are 11.5% and 6.25% of annual base salary, respectively, with the City paying the same, for a total contribution rate of 23% and 12.5%. Participants are required to contribute 8%/7% (9% for sworn safety employees) of their annual covered salary, for Tier 1 and Tier 2 employees. All employees pay their employee required contribution. The City collects and pays contributions required of City employees to Ca1PERS for credit their individual accounts. The City is required to contribute at actuarially determined rates. The rates for the three tiers of retirement plans are set forth in Note 7 to the supplementary information in the City's audited financial statements attached as Exhibit 1 to this Appendix L. The contribution requirements of plan members and the City are established and may be amended by PERS. For fiscal year 2015, the City's annual pension cost of $2,226,567 for PERS was determined as part of the June 30, 2012 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.5% investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary by duration of service, and (c) payroll growth of 3.0%. Both (a) and (b) included an inflation component of 2.75%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a 20 -year period (smoothed market value). Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20 -year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of 10% of unamortized gains and losses each year. If the plans accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. The three-year trend information for the Annual Pension Cost of the City for all plans is as follows: Fiscal Year Ending f NP 06/30/13 06/30/14 06/30/15 Annual Pension Cost (APC) $2,095,921 2,155,466 2,226,567 Percentage o.et ension APC Contributed Obligation The tables below display a short history of the Entry Age Normal Accrued Liability, the Actuarial Value of Assets, the Unfunded Liability (or Excess Assets), Funded Status (i.e., the ratio of the Actuarial Value of Assets to Entry Age Normal Accrued Liability), the estimated annual covered payroll and the Unfunded Actuarial Accrued Liability (UAAL) as a percentage of that covered payroll: L-3 Valuation Date Miscellaneous Plan: 06/30/11 06/30/12 06/30/13 Safety Fire Plan: 06/30/11 06/30/12 06/30/13 Safety Poliee Plan: 06/30/11 06/30/12 06/30/13 Entry Age 1®lormal Accrued Liability $ 33,930,975 35,829,301 37,216,608 Actuarial Value of Assets $ 25,212,168 25,331,199 28,075,051 Unfunded Liability/ (Excess Assets) $ 8,718,807 10,498,102 9,141,557 Funded Status 74.3 70.7 75.4 $ 4,336,062 4,317,006 4,311,248 $ 10,910,052 $ 7,836,768 $ 3,073,284 71.8% $ 802,425 11,195,934 7,5793725 3,616,209 67.7 858,770 11,588,613 8,3303978 3,257,635 71.9 997,968 $ 16,473,002 $ 12,112,793 $ 4,360,209 73.5% $ 1,654,086 17,0981550 11,860,148 5,2385402 69.4 1,725,424 175654,586 12,997,966 4,656,620 73.6 1,631,739 201.0% 243.2 212.0 383.0% 421.1 326.4 263.6% 303.6 285.4 The City also provides group health, vision, dental and life insurance for the City's active, regular employees. Qualifying part-time employees, working 1,560 or more hours per year, receive a health bank equal to the employee only medical coverage, pursuant to the Affordable Care Act of 2010. Further information with respect to the City's pension plan is set forth in Note 7 to the City's audited financial statements for the fiscal year ended June 30, 2015, attached as Exhibit 1 to this Appendix L. For more information with respect to PERS, see Appendix Q attached to the Official Statement. ®tdzer Post-Employynent Pene�ts. The City participates in the PERS Health Benefit Program, an agent multiple -employer defined benefit other post -employment benefits plan. The required employer contribution was $122 per person per month in fiscal year 2015. Participating retirees pay the differential monthly amount of the premium, which varies depending on the health benefits that they select. For active employees, this required contribution is a part of the monthly health bank offered to employees, who pay all additional amounts over the health banks, which currently are: employee only $715; employee plus one dependent $1,109, and employee plus two or more dependents $1,326. Governmental Accounting Stan dards Board Statement No. 45 ("GASB 45") requires governmental agencies that fund post -employment benefits on apay-as-you-go basis, such as the City, to account for and report the outstanding obligations and commitments related to such post -employment benefits in essentially the same manner as for pensions. In fiscal year 2013 the City contracted with an actuarial consultant to assess the City's liability for post -employment benefits. In such report, the actuarial consultant concluded that, as of August 1, 2012, the City's unfunded actuarial accrued liability for post -employment benefits based upon a 5% discount rate was $1,289,676. The City's annual required contribution (the actuarial value of benefits earned during fiscal year 2015 plus costs to amortize the unfunded actuarial accrued liability, or "ARC") was $149,704 representing approximately 2.48% of annual payroll, the City does not expect that any increased funding of post -employment benefits will have a material adverse effect on the ability of the City to make payments to the SLOCFCWD under the Local Water Treatment Agreement. Further information with respect to the City's post -employment benefits funding status is set fort h in Note 8 to the City's audited financial statements for Fiscal Year 2015 attached as Exhibit 1 to this Appendix L. L-4 Budget Process Prior to June 1 of each year, the City Manager of the City submits to the Council a proposed budget for the fiscal year commencing the following July 1. The Council conducts public workshops to obtain N omments from residents and ratepayers. Subsequent to the public workshops, the Council approves the budget, prior to July 1. The fiscal year 2016 budget was approved on June 9, 2015. The budget of the City is prepared on a cash basis and includes the enterprise funds of the City, as well as the City general fund. For budgeting purposes, the City generally sets user charges to cover operating expenses of the water, sewer and harbor funds. Tax and assessment collections are used to finance general administrative, community development, police, fire, street and recreation expenses. Insurance The City is a member of the California Joint Powers Insurance Authority (the "CJPIA") and is organized under a joint powers agreement pursuant to Government Code Section 6500 et. seq. The CJPIA is composed of 118 member agencies and was created to arrange and administer programs of insurance for the pooling of self-insured losses, to purchase excess insurance or reinsurance coverage, and to arrange for group purchased insurance for property and other lines of coverage for its members. General Liability. The City is self-insured for general liability claims through the CJPIA. Each member of the CJPIA pays an annual contribution to cover estimated losses for the coverage period. The overall coverage limit for each member, including all layers of coverage (including reinsurance and excess insurance), is $50,000,000 per occurrence. Costs of covered claims for subsidence losses have a sub -limit of $30,000,000 per occurrence. TYorkers' Compensation. The City is self-insured through the CJPIA for workers' compensation claims. Employer's liability losses are pooled among members of the CJPIA for up to $2,000,000 per occurrence. Coverage from $2,000,000 to $5,000,000 is covered through a reinsurance policy, and losses from $5,000,000 to $10,000,000 are pooled among the CJPIA members. All -Risk Property. The City purchases all-risk property insurance through the CJPIA program, which has a limit of $91,123,400 and a $5,000 deductible per occurrence. Non -emergency vehicle insurance has a $1,000 deductible. Earthquake and Flood. The City purchases earthquake and flood insurance on a port ion of its property through the CJPIA property protection program with a limit of $49,309,584, and a deductible of 5% per unit of value, with a minimum deductible of $100,000. Crime. The City also purchases crime insurance coverage in the amount of $1,000,000, with a $2,500 deductible. The fidelity coverage is provided through the CJPIA. During the last three years, sett led claims or judgments have not exceeded the City's pooled or purchased insured coverage. Further information with respect to the City's insurance policies is set fort h in Note 6 to the City's audited financial statements for the fiscal year ended June 30, 2015, attached as Exhibit 1 to this Appendix L. Outstanding Debt Other than the Local Water Treatment Agreement, the City has no other obligations payable from Contractor Water System Revenues. L-5 As of June 30, 2015, the City currently has other indebtedness outstanding, from sources other than the City Contractor Water System Revenues, consisting of the following: Original Annual Issue Principal Principal Deht Final Date Amount Outstanding Service Maturity Floating Slips Boating & Waterways0) 1992 $250005000 $6955566 $134,121 08/2021 �') Loans from State. Source: City. WATER SUPPLY Chesil In 2015 the City obtained approximately 88% of City water supplies from the SLOCFCWD (and which is treated by the Authority), approximately 12% from City wells which pump from the Morro Basin and are subsequently treated for nitrate removal using brackish water reverse osmosis at the City's desalination facility, and pumped no water from the Chorro Basin for delivery to customers. In addition, the City's desalination facility can also treat sea water as a back-up water source. The desalination facility has been on line since 1991, but is accessed only for seasonal peaking and replacement purposes. During calendar year 2015, the plant produced 138 acre-feet of water from the Morro Basin. C � 1 The City has contracted for 1,313 acre-feet along with 2,290 acre-feet of drought buffer from the SLOCFCWD (the "Project Allotment"). Pursuant to the terms of the Local Water Treatment Agreement, water purchased from the SLOCFCWD is treated by the Authority. The City share of Authority Bond debt service is estimated to be approximately 6.684%. Challenges to Department of Water Resources Water Supplies. DWR faces various challenges in continuing to supply imported water to its respective member agencies. The ability of the City to provide water service is dependent upon its receipt of treated water from SLOCFCWD, which in turn is dependent upon SLOCFCWD's receipt of imported water from the State Water Project. No assurance can be given that additional water supplies will be secured, or that the City will receive its Project Allotment. A description of the challenges DWR faces in continuing to supply imported water as well as a variety of other operating information with respect to DWR is included in detail under the caption "STATE WATER PROJECT WATER SUPPLY" in DWR'S Official Statement dated August 25, 2015, relating to its Central Valley Project Water System Revenue Bonds Series AU (Index Floating Rate Bonds) ("DWR's Water Supply Disclosure"). DWR's Water Supply Disclosure is the disclosure of DWR and, accordingly, the Authority and the City do not make any representations as to the accuracy or completeness of DWR's Water Supply Disclosure or as to the absence of material adverse changes in DWR's Water Supply Disclosure after the date hereof. DWR has entered into cert ain continuing disclosure agreements pursuant to which it is contractually obligated for the benefit of owners of certain outstanding obligations to file with certain information repositories annual reports, notices of certain material events as defined under Rule 15c2-12 of the Exchange Act ("Rule 15c2-12") and annual audited financial statements (the "Department of Water Resources Information"). This information is to be filed by DWR with the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. DWR disclosure documents and annual reports should be reviewed for information pertaining to water supply matters. DWR has not entered into any contractual commitment with the Authority, the City, the Trustee or the Owners of the Bonds to provide Department of Water Resources Information to the Authority, the City, the Trustee or the Owners of the Bonds. The Authority and the City have not incorporated L-6 by reference the information filed by DWR described above and neither the Authority, the City nor the Underwriters assume any responsibility for the accuracy of DWR Information. In calendar year 2015, the City pumped 165 acre-feet of groundwater from the Morro Basin (including brackish water treated by reverse osmosis – see the caption "—Desalination Facility") and 2.7 acre-feet of Y roundwater from the Chorro Basin for testing, non -potable purposes and feed water for the brackish water reverse osmosis treatment system at the desalinization facility. The City has appropriative water rights permits with the State for entitlements to 581 acre-feet of water in the Morro Basin and 1,142.5 in the Chorro Basin for a total of 1723.5 acre-feet per year. Although exact calculations have not been made, long term yield of the combined Morro and Chorro water basins was estimated to be between 4,000 and 5,500 acre-feet per year in a 1981 report by Brown & Caldwell engineers. The Department of Water Resources 1982 report concluded the long-term yield for both basins during extreme drought conditions to be 5,300 acre-feet per year. Both the Chorro and Morro Groundwater basins are contaminated with nitrate which exceed the maximum contaminant level for drinking water without treatment. Additionally the Chorro basin has a water rights permit condition that requires stream flow at the Chorro Creek road crossing to exceed 1.4 cfs in order to make any ground water extractions for the Chorro Creek groundwater source. The City estimated that the total amount of water pumped from the basins in calendar year 2015 (the last year for which such information is available) was 167.7 acre-feet. The major pumpers in the Morro and Morro water basins for calendar year 2015 were as follows: Water Testing and Maintenance – Chorro B WRO Feed –Morro TOTAL Total �4mount of Water dumped (acre feet) 2.7 165 167.7 Water supplies from City wells which pump from the Morro Basin and are subsequently treated for nitrate removal using brackish water reverse osmosis at the City's desalination facility, and approximately 0% from City wells which pump from the Chorro Basin. In addition, the City's desalination facility can also treat sea water as a back-up water source. The desalination facility has been on line since 1991, but is accessed only for seasonal peaking and replacement purposes. During calendar year 2015, the facility produced 138 acre-feet of treated water from the Morro BWRO feed. The capacity of the desalination facility is approximately 645 acre-feet per year. City Drought Response Actions and Impact As described in the. Official Statement under the caption "FACTORS AFFECTING PROJECT PARTICIPANTS AND WATER PURCHASERS .GENERALLY —California Drought," Governor Edmund G. Brown proclaimed a drought emergency on January 17, 2014 and subsequently issued an executive order mandating certain reductions in potable urban water usage (the "Executive Order"). Under the related State Water Resources Control Board ("S WCRB") regulations which resulted from the Executive Order, the City is required to achieve a 12% reduction as compared to the City's potable water usage in 2013. On November 13, 2015, the Governor issued Executive Order B-36-15, which calls for an extension of urban water use restrictions until October 31, 2016 should drought conditions persist through January 2016. On February 2, 2016, the reductions mandated by the Executive Order were extended through October 31, 2016. See L-7 "FACTORS AFFECTING PROJECT PARTICIPANTS AND WATER PURCHASERS GENERALLY — California Drought" in the Official Statement. See "CALIFORNIA DROUGHT" in the Official Statement. The City has a requirement to reduce its consumption by 12% over 2013 demands. The City has met SWRCB compliance requirements and conservation targets, and as of January 1, 2016 has achieved a 14.2% reduction in potable water usage as compared to the City's potable water usage in 2013. The City has implemented its severely restricted water supply conservation measures and has met or exceeded the conservation requirements. With this tier of water conservation, irrigation of public and private landscaping is only permitted on Tuesdays and Saturdays for odd numbered property addresses, and on Wednesdays and Sundays for even numbered property addresses. No potable water is permitted be used for cleaning or rinsing of docks, boats and other marine facilities; driveways, patios, parking lots, sidewalks and other hardscapes. Washing cars by use of a hose is prohibited. Use of a bucket to wash a car is permitted, subject to non - wasteful applications. Also all restaurants in the City will not be providing water unless requested. While reductions in water usage resulting from implementation of the Executive Order may adversely affect the City's projected operating results set forth under the caption "—Projected Operating Results and Local Water Treatment Agreement Coverage," the City does not currently believe that such reductions, if achieved, will have a material adverse effect on the ability of the City to make its Contract Payments under the Local Water Treatment Agreement. The City is obligated under the Local Water Treatment Agreement to set rates and charges sufficient to provide revenues from the Water System at least equal to 125% of the Contract Payments due in each Fiscal Year. The ability of the City to modify its current rate structure could, however, be limited by certain California Constitutional provisions, including but not limited to Proposition 218. See the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES" in the Official Statement. fl 11:1 ��.�/r Y �Z.`l'f.�IY �1►�'1 The City is the sole provider of water service to water users within City boundaries. The water system of the City includes a seawater desalination facility, three disinfection stations and over sixty miles of pipelines ranging in size from 6 inches to 14 inches in diameter. In connection with the distribution system, the City operates a total of seven major pumps. The City delivers over 400 million gallons of water annually. _ I3istoric Water Connections and Sales Revenues The following table shows the number of active water connections to the water system of the City for fiscal years 2011-2015, together with the amount of its annual water sales revenues. Historic Water Connections and Sales Revenues Fiscal Year %Increase %Increase Ending June 30 Connections (Decrease) Sales Revenues (Decrease) 2015 55455 (0.3)% $3,217,845 (5.1)% 2014 5,473 0.3 3,391,983 3.6 2013 5,455 1.0 352735369 (1.6) 2012 5,401 0.3 333255454 0.0 2011 53385 NA 3,3235916 NA Source: City. TL€istoric Water Deliveries and Sources of Water Delivered The City records the volume of water produced by the City water system. The following table presents a summary of historic water deliveries in acre-feet per year for fiscal years 2011-2015. L-8 historic Water Deliveries (In acre-feet per year) Fiscal Year Ending June 30 20150) 2014 2013 2012 2011 decrease/ Deliveries (Decrease) 1,094 (9.9)% 1,214 6.4 13141 (3.1) 1,177 (5.8) 1,250 (2.5) (1) Deliveries for fiscal year 2015 reflect the effects of mandatory conservation measures required by the Executive Order. See the caption "— City Drought Response Actions and Impact." Source: City. The following table shows water produced (in acre-feet) into the municipal supply from all sources for calendar years 2011-2015, based on the City's Annual Production Report for the SWRCB. historic Sources ®f Water Delivered Calendar Chorro lilorro BWR®Feed Desalted Year Basinh> Basin Water Seawater SLOCFCWCD Total 2015(2) 2.7 0 138 0 950 15090.7 2014 2 59 41 0 1,140 1,242 2013 1 151 107 0 1,139 1,398 2012 1 109 70 0 1,130 1,310 2011 18 101 84 0 1,144 1,347 Amounts for 2012 — 2015 produced for maintenance an d testing purposes. �2> The total amount of water delivered from the Morro Creek Groundwater Basin for fiscal year 2015 includes only "Morro BWRO Feed Water" from the Morro Creek Groundwater Basin for the brackish reverse osmosis system, as nitrate levels exceeded acceptable limits to use the Morro Basin groundwater directly. Source: City. The City has experienced an increase in connections of 1.3% over the last five fiscal years. Water sales experienced declines in fiscal years 2011 through 2013, a slight increase in fiscal year 2014 and a significant decline in fiscal year 2015. Decreases in sales and deliveries are a result of climatic conditions, water conservation and the Executive Order. See the captions "—City Drought Response Actions and Impact" and "—Management Discussion of Fiscal Year 2011 through 2015 Historic Operating Results." L-9 The following table sets forth the ten largest customers of the water system of the City as of June 30, 2015, as determined by the amount of their respective annual payments. Customer Pacific Care Center Mission Linen City of Morro Bay Morro Bay High School – Irrigation Imperial Coast, LP Silver City Resort Department of Parks San Luis Coastal School District Morro Dunes Trailer Park Morro Elementary School TOTAL ��� In hundred cubic feet. Source: City, 2015. Water US"Se Annual Payment 13,958 $154,649 13,753 152,382 12,058 1335605 9,665 30,023 4,369 8407 3,858 475871 3,536 725170 2,429 26,914 2,350 36,130 1,927 19347 67,903 $757,898 The ten customers accounted for approximately 25% of total revenues in fiscal year ending June 30, General. The City is not subject by statute to the jurisdiction of, or regulation by, the California Public Utilities Commission. The City staff annually determines the adequacy of the water system rate structure after full consideration of expected operations, maintenance and capital costs. The City currently sets water charges to pay costs of groundwater pumping and current operating expenses for the water system. Capital improvements, debt service payments and payments due under the Local Water Treatment Agreement are funded from water charges and from connection fees. Water Service Charges. Water fees are collected on metered water delivered to each customer. Fees are based on an ever increasing curve to encourage conservation. The City charges a fixed monthly charge and a variable charge based on usage. Water rates had been reviewed by the City Council since 1996, and had not been adjusted. After several years of failing to meet the City's debt coverage ratio (although all payments were made on time), the City took action and conducted a water rate study with Bartle Wells. In May 2015, after a public hearing and protest proceeding conducted in accordance with Proposition 218 (see the Official Statement under the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES — Proposition 218"), the City approved increases for its fixed service charge and usage charges for the next four fiscal years. For the 2016 fiscal year rates range from the minimum billing of $3.00 per hundred cubic feet, for zero through three hundred cubic feet to a high of $12.00 for usage of 50 hundred cubic feet and above. The fixed monthly charge for water service for fiscal year 2016 is $23.00. The rate structure adopted by the Council in 2015 includes the ability to temporarily add a rate surcharge should the required conservation levels be increased to that of an emergency or the City needs to operate its desalinization facility in the long term. These surcharges must be approved by the Council, but do not require additional Proposition 218 proceedings. The purpose of these surcharges is to allow the water fund not to suffer in times of emergency. Collection Procedures. The -City is on a monthly billing cycle sending out bills for the prior service of each month. Payment is due by the last day of the month, and is considered delinquent if not paid by that date. If payment is not received, a delinquency message appears on the next water bill along with a 10% penalty. Currently, 2% of the accounts, which account for approximately 0.8% of Contractor Water System monthly revenues, are delinquent. The City reports, however, that upon receipt of such notice almost all of the City customers pay the delinquent amount within two weeks. All accounts not paid in full within 25 days of the billing date will be discontinued until full payment is made, including late penalties and a $48 reconnection fee. Connection Fees. The City charges connection fees for water improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. The current connection fee is based on the water meter size, due to its proportionality to peak demand, and is part of the City's master fee schedule. These fees have been studied by the City as part of a comprehensive sewer and water development impact fee study and are subject to change. Future Water System Improvements The City does not currently anticipate undertaking any major water system improvements, except for a replacement water storage tank at approximately $2 million. The City expects to pay for such improvements with financing backed by its current rate structure. Additionally, the City does expect to construct a major (approximately $25 -million) water supply project to diversify its water portfolio with up to 1,000,000 gallons per day of advanced treated wastewater from its proposed water reclamation facility. It is anticipated that the advance treatment and distribution facilities would begin construction sometime after 2021; when it is anticipated the first phase of the City's water reclamation facility will be complete. The requirement for the funding necessary to finance this capital project is projected to be beyond the scope of current five year water rate schedule and will be addressed in an update. Projected Water Connections and Sales Revenues The following table shows the increase in the number of active water connections to the water system projected by the City for fiscal years 2016-2020, together with the increase in the amount of its annual water sales revenues projected by the City. Projected Water Connections and Sales Revenues Fiscal Year Ending June 30 Connections % Increase Sales Revenues % Increase(I) 2016 51455 0.0% $4149600 31.8% 2017 5,465 0.2 5,019,000 11.6 2018 5,475 0.2 5,366,000 6.9 2019 5,485 0.2 5,712,000 6.4 2020 5,495 0.2 55741,000 0.5 Source: City. �l> Projected increases in water sales revenues reflects small increases in projected connections as well as rate increases approved in fiscal year 2015, effective July 1, 2015 through June 30, 2020. See the caption "— Water System Rates and Charges." The City currently estimates that water system deliveries, and the source of water to be delivered, for fiscal years 2016-2020 will be as shown in the following table. Projected Water Deliveries (In acre-feet per year) Fiscal Year % Increase/ Ending June 30 Deliveries (Decrease) 20160) 1,140 4.2% 2017 1,142 0.2 2018 11145 0.2 2019 1,147 0.2 2020 1,153 0.5 �i> Projected deliveries for fiscal year 2016 reflect projected effects of mandatory conservation measures required by the Executive Order. Seethe caption "—City Drought Response Actions and Impact." Projected amounts for fiscal year 2017 and thereafter reflect continued conservation and projected increase in connections. Source: City. Projected Sources of Water Delivered (In Acre -Feet per year) Fiscal Year Morro Ending Chorro Morro BWR® Feed June 30 Basin Basin Water 2015 0 0 0 2014 0 0 0 2013 0 0 0 2012 0 0 0 2011 0 0 0 Source: City. Desalted Seawater SL®CFCWCD Total 0 15140 1,140 0 1,142 1,142 0 1,145 1,145 0 1,147 1,147 0 1,153 15153 1Vlanagement Discussion of Projected Water Connections, Sales Revenues and Water Deliveries Based on water rate increases approved in fiscal year 2015, effective July 1, 2015 through June 30, 2020, the City expects revenues to be sufficient going forward to meet debt service coverage required by the Local Water Treatment Agreement. Financial Information Financial Statements. A copy of the most recent audited financial statements of the City prepared by The Pun Group, Santa Ana, California (the "Auditor") is attached as Exhibit 1 hereto (the "Financial Statements"). The Auditor's letter concludes that the Financial Statements present fairly-, in all material respects, the respective financial position of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. The Financial Statements are public documents and the City has not sought the approval of the Auditor to append the Financial Statements to this Official Statement. The Auditor has neither performed any post -audit review of the financial condition of the City nor reviewed or audited this Official Statement. The summary operating results contained under the caption "—Historic Operating Results and Local Water Treatment Agreement Coverage" are derived from these Financial Statements and the financial L-12 statements for prior fiscal years (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. The financial statements of the City have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board ("GASB") is the accepted standard setting body for governmental accounting financial reporting purposes. The City accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the City ("GAAP"). In certain cases GAAP requires or permits moneys collected in one fiscal year to be recognized as revenue in a subsequent fiscal year and requires or permits expenses paid or incurred in one fiscal year to be recognized in a subsequent fiscal year. See Note 1 to the City's audited financial statements for fiscal year 2015 set forth in Exhibit 1 hereto for a discussion of the accounting policies applicable to the City. Except as otherwise expressly noted herein, all financial information derived from the City's audited financial statement reflect the application of GAAP. The following table is a summary of operating results and Local Water Treatment Agreement coverage of the water system of the City for fiscal years 2011-2015. These results have been derived from the financial statements of the City but exclude certain non-cash items and include certain other adjustments. The table has not been audited by the Auditor. Fiscal Year Ending June30 - 2015 2014 2013 2012 2011 Revenues Water Service Charge $3,217,845 $ 3,391,983 $ 352735369 $ 3,325,454 $ 33323,916 Connection Fees 435451 285075 43,010 61920 165566 Penalties & Reconnections 755571 715517 61,155 645562 80,669 Miscellaneous 85,491 60,929 77,438 250,021 78,980 Total Revenues $3,332,358 $ 3,552,504 $ 3,4545972 $ 3,646,957 $ 35500,131 Operating Expenses Administration & General $1,461,504 $ 15765,579 $ 1,6245475 $ 1,412,610 $ 1,550,729 Maintenance(') 138,451 192,702 140,341 17064 185,916 Total Operating Expenses $15599,955 $ 1,9585281 $ 15764,816 $ 1,586,674 $ 11736,645 Net Revenues $1,732,403 $ 1,557,098 $ 1,690,156 $ 2,060,283 $ 1,783,486 Local Water Treatment $2,238,795 $ 2,158,842 $ 2,155,816 $ 2,186,578 $ 2,108,814 Agreement�2> Coverage Ratio�3� 0.77 0.72 0.78 0.94 0.84 Transfers from Reservel3>(603,744) $ (465,660) $ (126,295) $ (345,328) (l) Includes public works personnel service, supplies, and services and other. (2) Includes the contractual share of the City: (i) debt service on the Authority Bonds and all Authority operating and administrative costs (including Fixed and Variable 0&M for the Authority Project), and (ii) payments to SLOCFCWCD for payment to DWR under the State Water Supply Contract, as amended (including capital, operation, maintenance, power and replacement costs of the DWR Facilities) and all other costs. 0) Debt service paid from water operating fund. See the captions "THE WATER SYSTEM — Historic Water Deliveries and Source of Water Delivered" above and "Management Discussion of Fiscal Year 2011 through 2015 Historic Operating Results" below for a discussion of remedial actions taken in 2015 to comply with the rate covenant under the Local Water Treatment Agreement, Source: City. Management Discussion of Fiscal Year 2011 through 2015 Historic Operating Results. In fiscal years 2011 through 2015, the City's debt service coverage (computed in accordance with the Local Water Treatment Agreement) was below 1.25. On March 27, 2014, the City of Morro Bay issued a Request for Proposals for Consulting Services, Water and Sewer Rate Study Services, and on May 23, 2014, Bartle Wells was selected to perform these studies. The City established the following proposed schedule to present, discuss and implement the new rates: 1. Public Works Advisory Board preliminary workshop, January 29, 2015 2. City Council Rate Study. Session, February 24, 2015 3. City Council meeting to further discuss and potentially adopt the rate schedule(s), March 24, 2015 4. City Council Prop 218 Public Hearing, May 26, 2015 5. New rates implementation date: July 1, 2015 L-14 In May 2015, as set by the schedule above, the City approved rate increases for its water service for fiscal years commencing July 1, 2015 through June 30, 2020 (see the caption "— Water System Rates and Charges"). Increases approved in fiscal year 2015 went into effect with July 2015 usage, which is billed on September 1. As set forth under the caption "— Projected Operating Results and Local Water Treatment Agreement Coverage," projected coverage for fiscal year 2016 is 1.26, and is projected to increase annually thereafter. The estimated projected operating results of the City for the City water system and Local Water Treatment Agreement coverage for fiscal years 2016-2020 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the estimate of projected financial results of the City based upon the judgment of the most probable occurrence of certain important future events. The assumptions set forth in the footnotes to the chart below are material in the development of the financial projections of the City, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. Revenues Water Service Charge, Connection Fees Penalties and Reconnections Miscellaneous('-) Total Revenues Fiscal Year Ending n. 30 - - 2016 2017 $4,496,000 $5,019,000 30,000 30,000 68,000 7000 $4,59400 $55123,000 g�1 $5,366,000 31,000 85,000 $5,482,000 2019 $5,712,000 31,000 88,000 $5,831,000 2020 $6,000,000 31,000 88,000 $6,119,000 Operating Expenses Administration & Genera1�31 $1,594,000 $1,641,000 $1,690,000 $1,741,000 $1,793,000 Maintenance(4) 141,000 164,000 187,000 211,000 296,000 Total Operating Expenses $1,735,000 $15805,000 $15877,000 $1,952,000 $2,0895000 Net Revenues $2,859,000 $3,318,000 $3,605,000 $3,879,000 $4,030,000 Local Water Treatment $2,262,000 $2,338,000 $2,418,000 $2,502,000 $2,577,000 Agreement�5� Coverage Ratio 1.26 1.42 1.49 1.55 1.56 Available for Capital $597,000 $9805000 $151875000 $1537700 $1,453,000 Improvements and Other Purposes (l) Assumes water rates, charges and water deliveries set forth under the caption "THE WATER SYSTEM — Water System Rates and Charges" and under the caption "THE WATER SYSTEM — Projected Water Connections and Sales Revenues" and under the caption "THE WATER SYSTEM — Projected Water Deliveries and Sources of Water Delivered." ('-) Projected to increase by approximately 1.2% per annum. (') Projected to increase by approximately 3% per annum. (4) Projected to increase by approximately 4% per annum. (1) Projections are inclusive of all estimated payments required under the Local Water Treatment Agreement, including but not limited to the contractual share of the City: (i) debt service on the Authority Bonds and all Authority operating and administrative costs (including Fixed and Variable O&M for the Authority Project), and (ii) payments to SLOCFCWCD for payment to DWR under the State water Supply Contract, as amended (including capital, operation, maintenance, power and replacement costs of the DWR Facilities) and all other costs. Source: City, The City has not entered into a continuing disclosure undertaking in connection with the issuance of the Bonds. The City is obligated under the Local Water Treatment Agreement to provide audited financial statements each fiscal year, which audited financial statements will assist the Authority in complying with the Continuing Disclosure Agreement the Authority executed in connection with the Bonds. See the caption "CONTINUING DISCLOSURE" in the Official Statement and Appendix P attached to the Official Statement for a description of the annual information and operating data required to be provided by the Authority. The City has not had any continuing disclosure obligations in the last five years. Over the past five years, the City provided the required audited financial reports to the Authority in a timely manner. In order to better comply with the obligations under the Local Water Treatment Agreement, the City adopted disclosure policies and procedures (the "Disclosure Policy") on April 12, 2016. A copy of such Disclosure Policy may be obtained from the City. 1: � . ,.; 1 1 1 1' �' •'' 1I I 1 L-17